[Federal Register Volume 75, Number 211 (Tuesday, November 2, 2010)]
[Proposed Rules]
[Pages 67458-67509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26515]
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Part II
Federal Reserve System
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12 CFR Part 226
Truth in Lending; Proposed Rule
Federal Register / Vol. 75 , No. 211 / Tuesday, November 2, 2010 /
Proposed Rules
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1393]
RIN No. 7100-AD55
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for public comment.
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SUMMARY: On February 22, 2010 and June 29, 2010, the Board published in
the Federal Register final rules amending Regulation Z's provisions
that apply to open-end (not home-secured) credit plans, in each case in
order to implement provisions of the Credit Card Accountability
Responsibility and Disclosure Act of 2009. The Board believes that
clarification is needed regarding compliance with certain aspects of
the final rules. Accordingly, to facilitate compliance, the Board
proposes to amend specific portions of the regulations and official
staff commentary.
DATES: Comments must be received on or before January 3, 2011.
ADDRESSES: You may submit comments, identified by Docket No. R-1393 and
RIN No. 7100-AD55, 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 and RIN number in the subject line of the message.
Facsimile: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper form in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Stephen Shin, Attorney, or Amy
Henderson or Benjamin K. Olson, Counsels, Division of Consumer and
Community Affairs, Board of Governors of the Federal Reserve System, at
(202) 452-3667 or 452-2412; for users of Telecommunications Device for
the Deaf (TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The Credit Card Act
The Credit Card Accountability Responsibility and Disclosure Act of
2009 (Credit Card Act) was signed into law on May 22, 2009. Public Law
111-24, 123 Stat. 1734 (2009). The Credit Card Act primarily amended
the Truth in Lending Act (TILA) and established a number of new
substantive and disclosure requirements to establish fair and
transparent practices pertaining to open-end consumer credit plans.
The requirements of the Credit Card Act that pertain to credit
cards or other open-end credit for which the Board has rulemaking
authority became effective in three stages. First, provisions generally
requiring that consumers receive 45 days' advance notice of interest
rate increases and significant changes in terms (new TILA Section
127(i)) and provisions regarding the amount of time that consumers have
to make payments (revised TILA Section 163) became effective on August
20, 2009 (90 days after enactment of the Credit Card Act). A majority
of the requirements under the Credit Card Act for which the Board has
rulemaking authority, including, among other things, provisions
regarding interest rate increases (revised TILA Section 171), over-the-
limit transactions (new TILA Section 127(k)), and student cards (new
TILA Sections 127(c)(8), 127(p), and 140(f)) became effective on
February 22, 2010 (9 months after enactment). Finally, two provisions
of the Credit Card Act addressing the reasonableness and
proportionality of penalty fees and charges (new TILA Section 149) and
re-evaluation by creditors of rate increases (new TILA Section 148)
became effective on August 22, 2010 (15 months after enactment).
Implementation of Credit Card Act
The Board issued rules to implement the provisions of the Credit
Card Act in stages, consistent with the statutory timeline established
by Congress. On July 22, 2009, the Board published an interim final
rule to implement the provisions of the Credit Card Act that became
effective on August 20, 2009. See 74 FR 36077. On January 12, 2010, the
Board issued a final rule adopting in final form the requirements of
the July 2009 interim final rule and implementing the provisions of the
Credit Card Act that became effective on February 22, 2010. See 75 FR
7658 (February 2010 Final Rule). On June 15, 2010, the Board issued a
final rule implementing the provisions of the Credit Card Act that
became effective on August 22, 2010. See 75 FR 37526 (June 2010 Final
Rule).
Since publication of the February 2010 and June 2010 Final Rules,
the Board has become aware that clarification is needed to resolve
confusion regarding how institutions will comply with particular
aspects of those rules. Accordingly, in order to provide guidance and
facilitate compliance with the final rules, the Board proposes to amend
portions of the regulations and the accompanying staff commentary.
These proposed amendments are discussed in detail in Section III of
this supplementary information.
Although comment is requested on the proposed amendments, the Board
emphasizes that the purpose of this rulemaking is to clarify and
facilitate compliance with the consumer protections contained in the
February 2010 and June 2010 Final Rules, not to reconsider the need
for--or the extent of--the protections implemented in those rules.
Thus, commenters are encouraged to limit their submissions accordingly.
II. Statutory Authority
In the supplementary information for the February 2010 and June
2010 Final Rules, the Board set forth the sources of its statutory
authority under the Truth in Lending Act and the Credit Card Act. See
75 FR 7662 and 75 FR 37528. For purposes of these proposed rules, the
Board continues to rely on this legal authority.
III. Section-by-Section Analysis
Section 226.2 Definitions and Rules of Construction
2(a) Definitions
2(a)(15) Credit Card
2(a)(15)(ii) Credit Card Account Under an Open-End (Not Home-Secured)
Consumer Credit Plan
In the February 2010 Final Rule, the Board retained the pre-
existing definition of ``credit card'' as any card, plate, or other
single credit device that may be used from time to time to obtain
credit. See Sec. 226.2(a)(15)(i). However, the Board also defined a
new, somewhat narrower term in order to implement the
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provisions of the Credit Card Act that apply to ``credit card
account[s] under an open end consumer credit plan.'' Specifically, in a
new Sec. 226.2(a)(15)(ii), the Board defined the term ``credit card
account under an open-end (not home-secured) consumer credit plan'' as
meaning any open-end credit account accessed by a credit card except a
home-equity plan subject to the requirements of Sec. 226.5b accessed
by a credit card or an overdraft line of credit accessed by a debit
card.
The Board declined requests from industry commenters to exempt all
lines of credit accessed solely by an account number from the
definition in Sec. 226.2(a)(15)(ii), noting Congress' apparent intent
to apply the Credit Card Act broadly to products that meet the
definition of ``credit card.'' See 75 FR 7664-7665. However, the Board
understands that this determination has caused uncertainty about
whether all credit products accessed by an account number are subject
to TILA's credit card provisions.
In particular, some institutions offer general purpose open-end
lines of credit that are linked to a checking or other asset account
with the same institution. The consumer can use the line's account
number to request an extension of credit, which is then deposited into
the asset account. The Board understands that there has been some
confusion as to whether, in these circumstances, the account number is
a ``credit card'' for purposes of Sec. 226.2(a)(15)(i) and therefore a
``credit card account under an open-end (not home-secured) consumer
credit plan'' for purposes of Sec. 226.2(a)(15)(ii). Because most if
not all credit accounts can be accessed in some fashion by an account
number, the Board does not believe that Congress generally intended to
treat account numbers as credit cards for purposes of TILA. However,
the Board is concerned that, when an account number can be used to
access an open-end line of credit to purchase goods or services, it
would be inconsistent with the purposes of the Credit Card Act to
exempt the line of credit from the protections provided for credit card
accounts. For example, creditors may offer open-end credit accounts
designed for online purchases that function like a traditional credit
card account but can only be accessed using an account number. In these
circumstances, the Board believes that TILA's credit card protections
should apply.
Accordingly, the Board proposes to clarify the application of Sec.
226.2(a)(15)(i) and (a)(15)(ii) to account numbers by amending comment
2(a)(15)-2, which provides illustrative examples of credit devices that
are and are not credit cards. Specifically, the Board would add an
additional example clarifying that an account number that accesses a
credit account is not credit card, unless the account number can access
an open-end line of credit to purchase goods or services. The comment
would further clarify that, if, for example, a creditor provides a
consumer with an open-end line of credit that can be accessed by an
account number in order to transfer funds into another account (such as
an asset account), the account number is not a credit card for purposes
of Sec. 226.2(a)(15)(i). However, if the account number can also
access the line of credit in order to purchase goods or services (such
as an account number that can be used to purchase goods or services on
the Internet), the account number is a credit card for purposes of
Sec. 226.2(a)(15)(i). Furthermore, if the line of credit can also be
accessed by a card (such as a debit card or prepaid card), then that
card is a credit card for purposes of Sec. 226.2(a)(15)(i).
In addition, the Board proposes to adopt a new comment 2(a)(15)-4,
which would clarify the test used for determining whether an account is
a credit card account under an open-end (not home-secured) consumer
credit plan for purposes of Sec. 226.2(a)(15)(ii). The Board would
also amend the exception in Sec. 226.2(a)(15)(ii)(B) to clarify that--
like an overdraft line of credit accessed by a debit card--an overdraft
line of credit accessed by an account number (such as when a debit card
number or checking account number is used to make an online purchase
that overdraws the asset account) is excluded from the definition of
``credit card account under an open-end (not home-secured) consumer
credit plan.'' Finally, for clarity and consistency, the Board would
make non-substantive revisions to the exception for home-equity plans
in Sec. 226.2(a)(15)(ii)(A).
2(a)(15)(iii) Charge Card
The Board understands that there has been some confusion as to
whether a charge card is a ``credit card account under an open-end (not
home-secured) consumer credit plan,'' as defined in Sec.
226.2(a)(15)(ii). Section 226.2(a)(15)(iii) defines a ``charge card''
as a credit card on an account for which no periodic rate is used to
compute a finance charge. The Board has historically applied the same
requirements to credit and charge cards, unless otherwise stated. See
Sec. 226.2(a)(15); comment 2(a)(15)-3. Therefore, as discussed in the
February 2010 Final Rule, the Board adopted a similar approach when
implementing the provisions of the Credit Card Act. See 75 FR 7672-
7673. Nevertheless, for clarity and consistency, the Board proposes to
amend comment 2(a)(15)-3 to state that references to a credit card
account under an open-end (not home-secured) consumer credit plan in
Subpart B (Open-End Credit) and Subpart G (Special Rules Applicable to
Credit Card Accounts and Open-End Credit Offered to Students) include
charge cards unless otherwise stated.
The Board would also update the list of provisions in comment
2(a)(15)-3 that distinguish charge cards from credit cards. In
addition, the Board would remove the statement in the comment that,
when the term ``credit card'' is used in the listed provisions, it
refers to credit cards other than charge cards. While generally
accurate, this statement may be overbroad in certain circumstances. For
example, the exemption in Sec. 226.7(b)(12)(v)(A) and the safe harbor
in Sec. 226.52(b)(1)(ii)(C) are limited to charge card accounts that
require payment of outstanding balances in full at the end of each
billing cycle. Accordingly, the applicability of a particular provision
should be determined based on a review of that provision and the
relevant staff commentary.
Section 226.5 General Disclosure Requirements
5(b) Time of Disclosures
5(b)(2) Periodic Statements
Prior to the Credit Card Act, TILA Section 163 generally required
creditors to send periodic statements for open-end consumer credit
plans at least 14 days before the expiration of any period within which
any credit extended may be repaid without incurring a finance charge
(i.e., a ``grace period''). See 15 U.S.C. 1666b (2008). The Board's
Regulation Z, however, extended this 14-day requirement to apply even
if no grace period was provided. Specifically, prior to the 2009
amendments implementing the Credit Card Act, Sec. 226.5(b)(2)(ii)
required that creditors mail or deliver periodic statements at least 14
days before the date by which payment was due for purposes of avoiding
not only finance charges as a result of the loss of a grace period but
also any other charges (such as late payment fees). See also former
comment 5(b)(2)(ii)-1 (2008). Thus, before the Credit Card Act,
creditors were generally required to provide consumers with at least 14
days to make payments for all open-end consumer credit accounts.
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Effective August 20, 2009, the Credit Card Act amended TILA Section
163 to generally prohibit a creditor from treating a payment as late or
imposing additional finance charges with respect to open-end consumer
credit plans unless the creditor mailed or delivered the periodic
statement at least 21 days before the payment due date and the
expiration of any grace period. See Credit Card Act Sec. 106(b)(1).
The Board's July 2009 interim final rule made corresponding amendments
to Sec. 226.5(b)(2)(ii) and the accompanying official staff
commentary. See 74 FR 36077 (July 22, 2009). Because amended TILA 163
required that periodic statements be mailed at least 21 days before the
payment due date for all open-end consumer credit accounts even if no
grace period was provided, the amendments to Sec. 226.5(b)(2)(ii)
removed the pre-existing 14-day requirement as unnecessary.
However, in November 2009, the Credit CARD Technical Corrections
Act of 2009 (Technical Corrections Act) further amended TILA Section
163. Public Law 111-93, 123 Stat. 2998 (Nov. 6, 2009). The Technical
Corrections Act narrowed the requirement that statements be mailed or
delivered at least 21 days before the payment due date to apply only to
credit card accounts, rather than to all open-end consumer credit
plans. However, open-end consumer credit plans that provide a grace
period remain subject to the 21-day requirement in Section 163(b). In
its February 2010 Final Rule, the Board narrowed the application of
Sec. 226.5(b)(2)(ii) for consistency with the Technical Corrections
Act. However, in doing so, the Board inadvertently failed to reinsert
the 14-day requirement for open-end consumer credit plans without a
grace period.
The Board believes that it would be inconsistent with the purposes
of the Credit Card Act for consumers to receive less time to make
payments after its implementation than they did beforehand.
Accordingly, pursuant to its authority under Section 105(a) of TILA and
Section 2 of the Credit Card Act, the Board proposes to amend Sec.
226.5(b)(2)(ii) to reinsert the 14-day requirement for open-end
consumer credit plans that are not subject to the Credit Card Act's 21-
day requirements. Specifically, the Board would revise Sec.
226.5(b)(2)(ii) to require that, when an open-end account is not
accessed by a credit card and does not provide a grace period,
creditors must adopt reasonable procedures designed to ensure that
periodic statements are mailed or delivered at least 14 days prior to
the date on which the required minimum periodic payment must be made to
avoid being treated as late. In addition, creditors would be required
to adopt reasonable procedures designed to ensure that required minimum
periodic payments received within 14 days after mailing or delivery of
the periodic statement are not treated as late for any purpose. The
Board would also revise the commentary to Sec. 226.5(b)(2)(ii) for
consistency with these proposed revisions.
Finally, the proposed rule would delete comment 5(b)(2)(iii)-1,
which implemented the pre-Credit Card Act version of TILA Section 163
and was inadvertently retained in the February 2010 Final Rule.
Section 226.5a Credit and Charge Card Applications and Solicitations
5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
Limitations on Rate Decreases
Section 226.5a(b)(1) requires that the tabular disclosure provided
with credit and charge card applications and solicitations state each
periodic rate that may be used to compute the finance charge on an
outstanding balance for purchases, a cash advance, or a balance
transfer, expressed as an annual percentage rate. Section
226.5a(b)(1)(i) clarifies this disclosure requirement when a rate is a
variable rate. In part, Sec. 226.5a(b)(1)(i) provides that a card
issuer may not disclose any applicable limitations on rate increases or
decreases in the table.
Section 226.55 sets forth limitations on rate increases applicable
to credit card accounts under an open-end (not home-secured) consumer
credit plan. Section 226.55(b)(2) provides that a card issuer may
increase an annual percentage rate when (1) the rate varies according
to an index that is not under the card issuer's control and is
available to the general public, and (2) the rate increase is due to an
increase in that index. In the February 2010 Final Rule, the Board
adopted comment 55(b)(2)-2 that clarified that a card issuer exercises
control over the operation of an index if the variable rate based on
that index is subject to a fixed minimum rate or similar requirement
that does not permit the variable rate to decrease consistent with
reductions in the index.
The Board is proposing to amend Sec. 226.5a(b)(1)(i) for
conformity with comment 55(b)(2)-2. The Board is aware that, as a
practical matter, Sec. 226.55(b)(2) and comment 55(b)(2)-2 preclude
card issuers from imposing a variable rate that is subject to a fixed
minimum rate. Accordingly, the Board is proposing to delete as
unnecessary language in Sec. 226.5a(b)(1)(i) providing that a card
issuer may not disclose any applicable limitations on rate decreases in
the table. The Board notes that Sec. 226.6(b)(2)(i)(A) contains
analogous language regarding limitations on rate decreases. However,
Sec. 226.55(b)(2) applies only to credit card accounts under an open-
end (not home-secured) consumer credit plan while Sec. 226.6(b)
applies to all open-end (not home-secured) credit. Therefore, the Board
is not proposing to delete the reference to limitations on rate
decreases from Sec. 226.6(b)(2)(i)(A). But see the discussion in the
supplementary information to Sec. 226.9(c)(2)(v)(C) regarding the
notice requirements that apply to an open-end (not home-secured) plan
with a variable rate that is subject to a fixed minimum rate.
Loss of Employee Preferential Rates
If a rate may increase as a penalty for one or more events
specified in the account agreement, Sec. 226.5a(b)(1)(iv) requires
that the card issuer disclose the increased rate that may apply, a
brief description of the event or events that may result in the
increased rate, and a brief description of how long the increased rate
will remain in effect. This disclosure generally must appear in the
Sec. 226.5a table; however, Sec. 226.5a(b)(1)(iv)(B) provides that,
for introductory rates as defined in Sec. 226.16(g)(2)(ii), the card
issuer must briefly disclose directly beneath the table the
circumstances, if any, under which the introductory rate may be
revoked, and the type of rate that will apply after the introductory
rate is revoked. The Board adopted this format requirement for the
disclosure regarding loss of an introductory rate in part due to
concerns that including this information in the tabular disclosure
could lead to ``information overload.'' See 74 FR 5244, 5286.
The Board is aware that some issuers may offer preferential or
reduced rates at account opening that are not ``introductory rates'' as
defined in Sec. 226.16(g)(2)(ii). For example, an issuer may offer a
preferential rate to its employees. Eligibility for the preferential or
reduced rate is conditioned upon the consumer's continued employment
with the issuer. Accordingly, if the consumer's employment is
terminated, the contract provides that the rate will increase from the
reduced preferential rate to a higher rate, such as the standard rate
on the account.\1\
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\1\ The Board notes that 45 days' advance notice is required
pursuant to Sec. 226.9(g) prior to imposition of the higher rate.
See 74 FR 5346. In addition, the limitations set forth in Sec.
226.55 apply.
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The Board is proposing a new Sec. 226.5a(b)(1)(iv)(C), which would
require that disclosures regarding the loss of an employee preferential
rate be placed directly below the tabular disclosure. New Sec.
226.5a(b)(1)(iv)(C) would generally mirror Sec. 226.5a(b)(1)(iv)(B)
and would provide that if a card issuer discloses in the table a
preferential annual percentage rate for which only employees of the
creditor or employees of a third party are eligible, the card issuer
must briefly disclose directly beneath the table the circumstances
under which such preferential rate may be revoked, and the rate that
will apply after such preferential rate is revoked. The Board believes
that this placement requirement is appropriate in order to prevent
``information overload'' and to focus consumers' attention on the
disclosures that they find the most important.
The Board is proposing a new comment 5a(b)(1)-5.iv to provide
guidance regarding the disclosure below the table of the circumstances
under which an employee preferential rate may be revoked. Comment
5a(b)(1)-5.iv would generally mirror relevant portions of the guidance
set forth in comment 5a(b)(1)-5.iii regarding the revocation of
introductory rates. In addition, proposed comment 5a(b)(1)-5.iv would
clarify that the description of the circumstances in which an employee
preferential rate could be revoked should be brief. For example, if an
issuer may increase an employee preferential rate based upon
termination of the employee's employment relationship with the issuer
or a third party, the comment would clarify that an issuer may describe
this circumstance as ``if your employment with [issuer or third party]
ends.''
Proposed Sec. 226.5a(b)(1)(iv)(C) would apply only to loss of
employee preferential rates. The Board solicits comment on whether
there are other types of preferential or reduced rates that are not
introductory rates as defined in Sec. 226.16(g)(2)(ii) but for which
similar treatment under Sec. 226.5a would be appropriate.
For the reasons discussed above, the Board also is proposing a new
Sec. 226.6(b)(2)(i)(D)(3) that would mirror proposed Sec.
226.5a(b)(1)(iv)(C) and would require that brief disclosures regarding
the loss of an employee preferential rate be placed directly below the
tabular disclosure provided at account opening. The Board is also
proposing conforming amendments to the formatting requirements set
forth in Sec. Sec. 226.5a(a)(2)(iii) and 226.6(b)(1)(ii).
Disclosure of How Long a Penalty Rate Will Remain in Effect
If a rate may increase as a penalty for one or more events
specified in the account agreement, Sec. 226.5a(b)(1)(iv) requires
that the card issuer disclose the increased rate that may apply, a
brief description of the event or events that may result in the
increased rate, and a brief description of how long the increased rate
will remain in effect. The Board understands that, in light of several
provisions of the Credit Card Act, there may be confusion regarding how
issuers must disclose the period for which the penalty rate will remain
in effect. The Board understands that historically some issuers' card
agreements provided that penalty rates, once triggered, could remain in
effect indefinitely. However, the enactment of the Credit Card Act
established certain circumstances in which a card issuer must reduce
the rate even after penalty pricing has been triggered. In particular,
Sec. 226.55(b)(4) requires a card issuer to reduce a rate that was
raised based upon a delinquency of more than 60 days, if the consumer
makes the first six required minimum payments on time following the
effective date of the rate increase. In addition, Sec. 226.59 requires
a card issuer to periodically review accounts on which a rate increase
has been imposed and, where appropriate based on the review, reduce the
rate applicable to the account.
As a consequence of Sec. 226.55(b)(4) and 226.59, the Board
understands that it may be unclear how issuers should disclose the
duration for which a penalty rate will be in effect, for example if the
contract provides that the penalty rate may remain in effect
indefinitely, except to the extent otherwise required by Sec. Sec.
226.55(b)(4) and 226.59. Accordingly, the Board is proposing to amend
comment 5a(b)(1)-5.i to clarify that a card issuer may not disclose in
the table any limitations imposed by Sec. Sec. 226.55(b)(4) and 226.59
on the duration of increased rates. Proposed comment 5a(b)(1)-5.i would
set forth two examples. First, the proposed comment states that if a
card issuer reserves the right to apply the increased rate to any
balances indefinitely, to the extent permitted by Sec. Sec.
226.55(b)(4) and 226.59, the issuer should disclose that the penalty
rate may apply indefinitely. The second example would provide that if
the issuer generally provides that the increased rate will apply until
the consumer makes twelve timely consecutive required minimum periodic
payments, except to the extent that Sec. Sec. 226.54(b)(4) and 226.59
apply, the issuer should disclose that the penalty rate will apply
until the consumer makes twelve consecutive timely minimum payments.
The Board believes more complex disclosures explaining the
applicability of the rules in Sec. Sec. 226.55(b)(4) and 226.59 would
be confusing to consumers, and would be of limited assistance in
shopping for credit, given that those provisions apply to all issuers.
In addition, consumers to whose accounts the cure right under Sec.
226.55(b)(4) applies will be notified of that right when they receive a
notice under Sec. 226.9(c)(2) or 226.9(g) disclosing the associated
rate increase.
Other Proposed Amendments to Sec. 226.5a(b)(1)
The Board is proposing an amendment to comment 5a(b)(1)-5.ii to
correct a technical error. As discussed above, pursuant to Sec.
226.5a(b)(1)(iv)(B), information regarding the revocation of an
introductory rate is required to be disclosed directly beneath the
table. Comment 5a(b)(1)-5.ii, which discusses the disclosures regarding
the revocation of an introductory rate, contains an erroneous reference
to a disclosure in, rather than beneath, the table. Accordingly, the
Board is proposing a technical amendment to comment 5a(b)(1)-5.ii for
conformity with the placement requirements in Sec.
226.5a(b)(1)(iv)(B).
5a(b)(2) Fees for Issuance or Availability
Comment 5a(b)(2)-4 states that, if fees required to be disclosed
are waived or reduced for a limited time, the introductory fees or the
fact of fee waivers may be disclosed in the table in addition to the
required fees if the card issuer also discloses how long the reduced
fees or waivers will remain in effect. For the reasons discussed below,
the Board would revise this comment to clarify that the card issuer
must comply with the disclosure requirements in Sec. Sec.
226.9(c)(2)(v)(B) and 226.55(b)(1).
5a(b)(5) Grace Period
Section 226.5a(b)(5) requires that the tabular disclosure provided
with credit and charge card applications and solicitations state the
date by which or the period within which any credit extended for
purchases 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.
Comment 5a(b)(5)-1 states that an issuer that offers a grace period
on all purchases and conditions the grace
[[Page 67462]]
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
Sec. 226.5a(b)(5) 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 any interest on purchases
if you pay your entire balance by the due date each month.'' This model
language was developed through extensive consumer testing.
In the February 2010 Final Rule, the Board adopted comment
5a(b)(5)-4, which clarifies that Sec. 226.5a(b)(5) does not require a
card issuer to disclose the limitations on the imposition of finance
charges in Sec. 226.54. Implementing the Credit Card Act, Sec. 226.54
provides that, when a consumer pays some but not all of the balance
subject to a grace period prior to the expiration of the grace period,
the card issuer is prohibited from imposing finance charges on the
portion of the balance paid. In adopting comment 5a(b)(5)-4, the Board
was concerned that the inclusion of language attempting to describe the
limitations set forth in Sec. 226.54 could reduce the effectiveness of
the grace period disclosure. The Board also stated its belief that a
disclosure of the limitations set forth in Sec. 226.54 is not
necessary insofar as the model language set forth in comment 5a(b)(5)-1
accurately states that a consumer generally will not be charged any
interest on purchases if the entire balance is paid by the due date
each month. Thus, although Sec. 226.54 limits the imposition of
finance charges if the consumer pays less than the entire balance shown
on the periodic statement, the model language achieves its intended
purpose of explaining succinctly how a consumer can avoid all interest
charges on purchases.
Many issuers offer a grace period on all purchases under which no
interest will be charged on purchases shown on a periodic statement if
a consumer pays his or her outstanding balance shown on the periodic
statement in full by the due date in the previous and/or the current
billing cycle(s). Many of these issuers are using the model language
set forth in comment 5a(b)(5)-1, or substantially similar language, to
describe the grace period and the conditions on its availability.
Nonetheless, other issuers have chosen not to use the model language
set forth in comment 5a(b)(5)-1, even though the issuers would be
permitted to do so. Some of the issuers that have chosen not to use the
model language are disclosing the grace period in more technical
detail, including a discussion of the limitations on imposition of
finance charges under Sec. 226.54, and the impact of payment
allocation on whether interest will be charged on purchases due to the
loss of a grace period. Other issuers are including detailed language
to explain the conditions on the grace period, such as an explanation
that the consumer will not be charged any interest on new purchases, or
any portion of a new purchase, paid by the due date on the consumer's
current billing statement if the consumer paid his or her entire
balance on the previous billing statement in full by the due date on
that statement.
As discussed above, the Board believes the inclusion of language
attempting to describe the limitations set forth in Sec. 226.54 or the
impact of payment allocation on whether interest will be charged on
purchases due to the loss of a grace period could reduce the
effectiveness of the grace period disclosure. Thus, the Board proposes
to revise comment 5a(b)(5)-1 to clarify that issuers must not disclose
in the table required by Sec. 226.5a the limitations on the imposition
of finance charges as a result of a loss of a grace period in Sec.
226.54, or the impact of payment allocation on whether interest is
charged on purchases as a result of a loss of a grace period. However,
issuers would not be prohibited from disclosing this information
outside the table. Comment 5a(b)(5)-4, which states that card issuers
are not required to disclose the limitations set forth in Sec. 226.54,
would be deleted.
In addition, the Board proposes to revise comment 5a(b)(5)-1 to
clarify that, for purposes of the tabular disclosures required by Sec.
226.5a, certain issuers must use the disclosure language set forth in
proposed comment 5a(b)(5)-1. Specifically, proposed comment 5a(b)(5)-1
notes that some issuers may offer a grace period on all purchases under
which interest will not be charged on purchases if the consumer pays
the outstanding balance shown on a periodic statement in full by the
due date shown on that statement for one or more billing cycles. The
proposed comment clarifies that in these circumstances, Sec.
226.5a(b)(5) requires that the issuer disclose the grace period and the
conditions for its applicability using the following language, or
substantially similar language, as applicable: ``Your due date is [at
least] ---- days after the close of each billing cycle. We will not
charge you any interest on purchases if you pay your entire balance by
the due date each month.'' As discussed above, this disclosure language
was developed through extensive consumer testing, and the Board
believes this disclosure language achieves its intended purpose of
explaining succinctly how a consumer can avoid all interest charges on
purchases.
The Board recognizes that some issuers may structure their grace
periods differently than as described above, and the disclosure
language described above may not be accurate for those issuers.
Proposed comment 5a(b)(5)-1 notes that some issuers may offer a grace
period on all purchases under which interest may be charged on
purchases even if the consumer pays the outstanding balance shown on a
periodic statement in full by the due date shown on that statement each
billing cycle. For example, an issuer may charge interest on purchases
if the consumer uses the account for a cash advance, regardless of
whether the outstanding balance shown on the periodic statement is paid
in full by the due date shown on that statement. In these
circumstances, Sec. 226.5a(b)(5) requires the issuer to amend the
above disclosure language to describe accurately the conditions on the
applicability of the grace period. Nonetheless, under the proposal,
these issuers in disclosing the grace period and the conditions on its
availability in the Sec. 226.5a table still may not disclose the
limitations on the imposition of finance charges as a result of a loss
of a grace period in Sec. 226.54, or the impact of payment allocation
on whether interest is charged on purchases as a result of a loss of a
grace period.
5a(b)(6) Balance Computation Method
Section 226.5a(b)(6) requires that a card issuer disclose on or
with a credit card application or solicitation information about the
method it uses to determine the balance for purchases on which the
finance charge is computed. Comment 5a(b)(6)-1 provides guidance on how
to comply with this requirement to disclose balance computation
information for purchase balances. This comment also contains a cross-
reference to the commentary to Sec. 226.5a(g) for guidance on
particular balance computation methods. There currently is no
commentary to Sec. 226.5a(g), so this cross-reference would be deleted
as obsolete.
[[Page 67463]]
Section 226.6--Account-Opening Disclosures
6(b) Rules Affecting Open-End (Not Home-Secured) Plans
6(b)(2) Required Disclosures for Account-Opening Table for Open-End
(Not Home-Secured) Plans
6(b)(2)(i) Annual Percentage Rate
The Board proposes to replace the reference to ``card issuer'' in
Sec. 226.6(b)(2)(i)(B) with ``creditor'' in order to correct a
typographical error and to provide clarity and consistency with the
scope of Sec. 226.6(b).
In addition, for the reasons discussed in the supplementary
information to Sec. 226.5a(b)(1), the Board is proposing a new Sec.
226.6(b)(2)(i)(D)(3) that would require that certain information
regarding revocation of an employee preferential rate be disclosed
directly beneath the account-opening table.
6(b)(2)(v) Grace Period
Section 226.6(b)(2)(v) requires that the account-opening summary
table state the date by which or the period within which any credit 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.
Many creditors offer a grace period on purchases, but do not offer
a grace period on cash advances and balance transfers. Samples G-17(B)
and G-17(C) provide guidance on complying with Sec. 226.6(b)(2)(v)
when a creditor offer a grace period on purchases but no grace period
on balance transfers and cash advances. See comment 6(b)(2)(v)-3.
Specifically, Samples G-17(B) and G-17(C) contain the following model
language to meet the requirements in Sec. 226.6(b)(2)(v): ``Your due
date is [at least] -- days after the close of each billing cycle. We
will not charge you any interest on purchases if you pay your entire
balance by the due date each month. We will begin charging interest on
cash advances and balance transfers on the transaction date.'' This
model language was developed through extensive consumer testing.
Comment 6(b)(2)(v)-1 provides model language for creditors to use
when they provide a grace period on all types of transactions for the
account. Specifically, this comment states that an issuer 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 Sec. 226.6(b)(2)(v) 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 any interest on
your account if you pay your entire balance by the due date each
month.''
In addition, for the reasons discussed in the section-by-section
analysis to Sec. 226.5a(b)(5), in the February 2010 Final Rule, the
Board adopted comment 6(b)(2)(v)-4, which clarifies that Sec.
226.6(b)(2)(v) does not require a card issuer to disclose the
limitations on the imposition of finance charges in Sec. 226.54.
Implementing the Credit Card Act, Sec. 226.54 provides that, when a
consumer pays some but not all of the balance subject to a grace period
prior to the expiration of the grace period, the card issuer is
prohibited from imposing finance charges on the portion of the balance
paid. In adopting comment 6(b)(2)-4, the Board was concerned that the
inclusion of language attempting to describe the limitations set forth
in Sec. 226.54 could reduce the effectiveness of the grace period
disclosure.
As discussed above, many creditors offer a grace period on
purchases, but do not offer a grace period on cash advances and balance
transfers. Many of these creditors are using the model language set
forth in Samples G-17(B) and G-17(C), or substantially similar
language, to meet the requirements in Sec. 226.6(b)(2)(v).
Nonetheless, other creditors have chosen not to use this model
language, even though the creditors would be permitted to do so. Some
of the creditors that have chosen not to use the model language are
disclosing the grace period for purchases in more technical detail,
including a discussion of the limitations on imposition of finance
charges under Sec. 226.54, and the impact of payment allocation on
whether interest will be charged on purchases due to the loss of a
grace period. Other creditors are including detailed language to
explain the conditions on the grace period for purchases, such as an
explanation that the consumer will not be charged any interest on new
purchases, or any portion of a new purchase, paid by the due date on
the consumer's current billing statement if the consumer paid his or
her entire balance on the previous billing statement in full by the due
date on that statement.
Consistent with proposed changes to comment 5a(b)(5)-1 and for the
reasons discussed in the section-by-section analysis to Sec.
226.5a(b)(5), the Board proposes to revise comment 6(b)(2)(v)-1 to
clarify that creditors must not disclose in the table required by Sec.
226.6(b) the limitations on the imposition of finance charges as a
result of a loss of a grace period in Sec. 226.54, or the impact of
payment allocation on whether interest is charged on transactions as a
result of a loss of a grace period. The Board believes the inclusion of
language attempting to describe the limitations set forth in Sec.
226.54 and the impact of payment allocation on whether interest will be
charged on transactions due to the loss of a grace period could reduce
the effectiveness of the grace period disclosure required by Sec.
226.6(b)(2)(v). Comment 6(b)(2)(v)-4, which states that card issuers
are not required to disclose the limitations set forth in Sec. 226.54,
would be deleted.
In addition, consistent with proposed changes to comment 5a(b)(5)-1
and for the reasons discussed in the section-by-section analysis to
Sec. 226.5a(b)(5), the Board proposes to revise comment 6(b)(2)(v)-3
to clarify that Sec. 226.6(b)(2)(v) requires certain creditors that
provide a grace period on purchases but not on cash advances and
balance transfers to use the disclosure language this is currently set
forth in Samples G-17(B) and G-17(C). Specifically, proposed comment
6(b)(2)(v)-3 notes that some creditors do not offer a grace period on
cash advances and balance transfers, but offers a grace period for all
purchases under which interest will not be charged on purchases if the
consumer pays the outstanding balance shown on a periodic statement in
full by the due date shown on that statement for one or more billing
cycles. Proposed comment 6(b)(2)(v)-3 clarifies that in these
circumstances, Sec. 226.6(b)(2)(v) requires that the creditor disclose
the grace period for purchases and the conditions for its
applicability, and the lack of a grace period for cash advances and
balance transfers using the following language, or substantially
similar language, as applicable: ``Your due date is [at least] -- days
after the close of each billing cycle. We will not charge you any
interest on purchases if you pay your entire balance by the due date
each month. We will begin charging interest on cash advances and
balance transfers on the transaction date.'' This disclosure language,
which also is set forth in the ``Paying Interest'' row in Samples G-
17(B) and G-17(C), was developed through extensive consumer testing.
The Board believes this disclosure language achieves its intended
purpose of explaining succinctly how a consumer can avoid all interest
charges on purchases, while
[[Page 67464]]
explaining that no grace period is offered for cash advances and
balance transfers.
The Board recognizes that some creditors may offer a grace period
on purchases but structure their grace periods differently than as
described above, and the disclosure language described above may not be
accurate for those creditors. Proposed comment 6(b)(2)(v)-3 notes that
some creditors may offer a grace period on all purchases under which
interest may be charged on purchases even if the consumer pays the
outstanding balance shown on a periodic statement in full by the due
date shown on that statement each billing cycle. For example, a
creditor may charge interest on purchases if the consumer uses the
account for a cash advance, regardless of whether the outstanding
balance shown on the periodic statement is paid in full by the due date
shown on that statement. Proposed comment 6(b)(2)(v)-3 clarifies that
in these circumstances, Sec. 226.6(a)(2)(v) requires the creditor to
amend the above disclosure language to accurately describe the
conditions on the applicability of the grace period. Nonetheless, under
the proposal, these creditors in disclosing the grace period and the
conditions on its availability still may not disclose the limitations
on the imposition of finance charges as a result of a loss of a grace
period in 226.54, or the impact of payment allocation on whether
interest is charged on purchases as a result of a loss of a grace
period.
Similarly, some creditors may not offer a grace period on cash
advances and balance transfers, and will begin charging interest on
these transactions from a date other than the transaction date, such as
the posting date. Proposed comment 6(b)(2)(v)-3 clarifies that in these
circumstances, Sec. 226.6(a)(2)(v) requires the creditor to amend the
above disclosure language to be accurate.
Consistent with the proposed changes to comment 6(b)(2)(v)-3, the
Board also proposes changes to comment 6(b)(2)(v)-1 which discusses
circumstances where a creditor offers a grace period on all types of
transactions on the account, including purchases, cash advances, and
balances transfers. Specifically, proposed comment 6(b)(2)(v)-1 notes
that some creditors may offer a grace period on all types of
transactions under which interest will not be charged on transactions
if the consumer pays the outstanding balance shown on a periodic
statement in full by the due date shown on that statement for one or
more billing cycles. In these circumstances, Sec. 226.6(b)(2)(v)
requires that the creditor disclose the grace period and the conditions
for its applicability using the following language, or substantially
similar language, as applicable: ``Your due date is [at least] ----
days after the close of each billing cycle. We will not charge you any
interest on your account if you pay your entire balance by the due date
each month.'' Proposed comment 6(b)(2)(v)-1 also notes that other
creditors may offer a grace period on all types of transactions under
which interest may be charged on transactions even if the consumer pays
the outstanding balance shown on a periodic statement in full by the
due date shown on that statement each billing cycle. This proposed
comment clarifies that in these circumstances, Sec. 226.6(b)(2)(v)
requires the creditor to amend the above disclosure language to
describe accurately the conditions on the applicability of the grace
period.
6(b)(2)(vi) Balance Computation Method
Section 226.6(b)(2)(vi) requires that a creditor disclose
information about balance computation methods as part of the account-
opening disclosures. Specifically, Sec. 226.6(b)(2)(vi) provides that
a creditor must disclose 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 Sec.
226.6(b)(4)(i)(D) is provided with the account-opening disclosures. The
information required by Sec. 226.6(b)(2)(vi) must appear directly
beneath the account-opening summary table. See Sec. 226.6(b)(2)(ii).
The names of the balance computation methods listed in Sec.
226.5a(g) describe balance computation methods for purchases (e.g.,
``average daily balance (including new purchases)'' and ``average daily
balance (excluding new purchases)''). Nonetheless, unlike Sec.
226.5a(b)(6), creditors are required in Sec. 226.6(b)(2)(vi) to
disclose the balance computation method used for each feature on the
account. Samples G-17(B) and G-17(C) provide guidance on how to
disclose the balance computation method where the same method is used
for all features on the account. See comment 6(b)(2)(vi)-1. Samples G-
17(B) and G-17(C) disclose, as an example, the ``average daily balance
(including new purchases)'' as the method that is being used to
calculate the balance for all features on the account. Thus, for
simplicity, where the balance for each feature is computed using the
same balance computation method, a creditor may use the name of the
appropriate balance computation method listed in Sec. 226.5a(g) (e.g.,
``average daily balance (including new purchases)'') to satisfy the
requirement to disclose the name of the method for all features on the
account, even though the name only refers to purchases.
Questions have been asked, however, regarding whether a creditor
may revise the names of the balance computation methods listed in Sec.
226.5a(g) to be more accurate by referring more broadly to all new
transactions (rather than referring only to ``new purchases'') when the
same method is used to calculate the balances for all features on the
account. For example, creditors have asked whether they can revise the
name listed in Sec. 226.5a(g)(i) to disclose it as ``average daily
balance (including new transactions)'' when this method is used to
calculate the balances for all features of the account. Also, creditors
have asked whether they may revise the names listed in Sec. 226.5a(g)
to be applicable to features other than purchases. Creditors in some
cases may disclose the balance computation methods separately for each
feature, such as when a different balance computation method applies to
purchases than to cash advances.
To address these compliance issues and to provide additional
flexibility to creditors, the Board proposes to revise comment
6(b)(2)(vi)-1 to provide that in cases where the balance for each
feature is computed using the same balance computation method, a single
identification of the name of the balance computation method is
sufficient. In that case, the proposed comment makes explicitly clear
that a creditor may use an appropriate name listed in Sec. 226.5a(g)
(e.g., ``average daily balance (including new purchases)'') to satisfy
the requirement to disclose the name of the method for all features on
the account, even though the name only refers to purchases. For
example, if a creditor uses the average daily balance method including
new transactions as the balance computation method for all features, a
creditor may use the name ``average daily balance (including new
purchases)'' listed in Sec. 226.5a(g)(i) to satisfy the requirement to
disclose the name of the balance computation method for all features.
As an alternative, the proposed comment provides that a creditor may
revise the balance computation names listed in Sec. 226.5a(g) to refer
more broadly to all new credit transactions, such as using the language
``new transactions'' or ``current transactions'' (e.g., ``average daily
balance (including new transactions)''), rather than simply
[[Page 67465]]
referring to new purchases when the same method is used to calculate
the balances for all features of the account.
In addition, the Board proposes to add comment 6(b)(2)(vi)-2 to
address situations where a creditor is disclosing the name of the
balance computation methods separately for each feature. In that case,
in using the names listed in Sec. 226.5a(g) to satisfy the
requirements of Sec. 226.6(b)(2)(vi) for features other than
purchases, a creditor must revise the names listed in Sec. 226.5a(g)
to refer to the other features. For example, when disclosing the name
of the balance computation method applicable to cash advances, a
creditor must revise the name listed in Sec. 226.5a(g)(i) to disclose
it as ``average daily balance (including new cash advances)'' when the
balance for cash advances is figured by adding the outstanding balance
(including new cash advances and deducting payments and credits) for
each day in the billing cycle, and then dividing by the number of days
in the billing cycle. Similarly, a creditor must revise the name listed
in Sec. 226.5a(g)(ii) to disclose it as ``average daily balance
(excluding new cash advances)'' when the balance for cash advances is
figured by adding the outstanding balance (excluding new cash advances
and deducting payments and credits) for each day in the billing cycle,
and then dividing by the number of days in the billing cycle.
Section 226.7 Periodic Statement
7(b) Rules Affecting Open-End (Not Home-Secured) Plans
7(b)(5) Balance on Which Finance Charge Computed
Section 226.7(b)(5) provides that a creditor must disclose on the
periodic statement the amount of the balance to which a periodic rate
was applied and an explanation of how that balance was determined,
using the term Balance Subject to Interest Rate. 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.
Comment 7(b)(5)-7 provides guidance on the use of one balance
computation method explanation or name when multiple balances are
disclosed. Specifically, comment 7(b)(5)-7 notes that 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 or a single identification of the name of the balance
computation method is sufficient. In addition, 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(b)(5)-1. In these cases, one
explanation or a single identification of the name of the balance
computation method is also sufficient (assuming, of course, that all
portions of the balance were computed using the same method).
The comment does not specify, however, whether in this case a
creditor may use the balance computation method names listed in Sec.
226.5a(g) (e.g., ``average daily balance (including new purchases)'')
as the single identification of the name of the balance computation
method used for all features, even though the name only refers to
purchases. In addition, as discussed in the section-by-section analysis
to Sec. 226.6(b)(2)(vi), questions have been asked as to whether a
creditor may revise the names of the balance computation methods listed
in Sec. 226.5a(g) to refer more broadly to all new transactions
(rather than referring only to ``new purchases'') when the same method
is used to calculate the balances for all features on the account. For
example, creditors have asked whether they may revise the name listed
in Sec. 226.5a(g)(i) to disclose it as ``average daily balance
(including new transactions)'' when this method is used to calculate
the balances for all features of the account. Also, creditors have
asked whether they may revise the names listed in Sec. 226.5a(g) to be
applicable to features other than purchases. Creditors in some cases
may disclose the balance computation methods separately for each
feature, such as when a different balance computation method applies to
purchases than for cash advances.
To address these compliance issues and to provide additional
flexibility to creditors, consistent with proposed guidance in comment
6(b)(2)(vi), the Board proposes to revise comment 7(b)(5)-7 to provide
that in cases where each balance was computed using the same balance
computation method, a creditor may use an appropriate name listed in
Sec. 226.5a(g) (e.g., ``average daily balance (including new
purchases)'') as the single identification of the name of the balance
computation method applicable to all features, even though the name
only refers to purchases. For example, if a creditor uses the average
daily balance method including new transactions as the balance
computation method for all features, a creditor may use the name
``average daily balance (including new purchases)'' listed in Sec.
226.5a(g)(i) to satisfy the requirement to disclose the name of the
balance computation method for all features. As an alternative, the
proposed comment provides that a creditor may revise the balance
computation names listed in Sec. 226.5a(g) to refer more broadly to
all new credit transactions, such as using the language ``new
transactions'' or ``current transactions'' (e.g., ``average daily
balance (including new transactions)''), rather than simply referring
to new purchases when the same method is used to calculate the balances
for all features of the account.
Also consistent with proposed comment 6(b)(2)(vi)-2, the Board
proposes to add a new comment 7(b)(5)-8 to address situations where a
creditor is disclosing the name of the balance computation methods
separately for each feature. Proposed comment 7(b)(5)-8 provides that
in those cases, where a creditor is using the names listed in Sec.
226.5a(g) to satisfy the requirements of Sec. 226.7(b)(5) for features
other than purchases, a creditor must revise the names listed in Sec.
226.5a(g) to refer to the other features. For example, when disclosing
the name of the balance computation method applicable to cash advances,
a creditor must revise the name listed in Sec. 226.5a(g)(i) to
disclose it as ``average daily balance (including new cash advances)''
when the balance for cash advances is figured by adding the outstanding
balance (including new cash advances and deducting payments and
credits) for each day in the billing cycle, and then dividing by the
number of days in the billing cycle. Similarly, a creditor must revise
the name listed in Sec. 226.5a(g)(ii) to disclose it as ``average
daily balance (excluding new cash advances)'' when the balance for cash
advances is figured by adding the outstanding balance (excluding new
cash advances and deducting payments and credits) for each day in the
billing cycle, and then dividing by the number of days in the billing
cycle.
[[Page 67466]]
7(b)(6) Charges Imposed
Section 226.7(b)(6) generally requires the disclosure of the
amounts of any charges imposed on a plan, which consists of finance
charges attributable to periodic interest rates (disclosed as Interest
Charged), and charges imposed as part of a plan other than charges
attributable to periodic interest rates (disclosed as Fees). In
addition, calendar year to date totals for both interest and fees must
be disclosed. Comment 7(b)(6)-3 provides guidance for disclosing
calendar-year-to-date totals for fees. In order to avoid inconsistency,
the Board proposes to amend comment 7(b)(6)-3 to clarify that this
guidance applies to fees as well as interest charged.
7(b)(12) Repayment Disclosures
Section 226.7(b)(12) requires that for a credit card account under
an open-end (not home-secured) consumer credit plan, card issuers
generally must disclose the following repayment 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 length
of time it would take to repay the outstanding balance if the consumer
pays only the required minimum monthly payments and no further advances
are made; (3) the total cost to the consumer of paying the balance in
full if the consumer pays only the required minimum monthly payment and
no further advances are made; (4) the monthly payment amount that would
be required for the consumer to pay off the outstanding balance in 36
months, if not further advances are made; (5) the total cost to the
consumer of paying the balance in full if the consumer pays the balance
over 36 months; (6) the total savings of paying the balance in 36
months (rather than making only minimum payments); and (7) a toll-free
telephone number at which the consumer may receive information about
accessing consumer credit counseling. See Sec. 226.7(b)(12)(i).
To simplify the disclosures, Sec. 226.7(b)(12)(i) and (ii) provide
that card issuers must round the following disclosures to the nearest
whole dollar when disclosing them on the periodic statement: (1) The
minimum payment total cost estimate, (2) the estimated monthly payment
for repayment in 36 months, (3) the total cost estimate for repayment
in 36 months, and (4) the savings estimate for repayment in 36 months.
See Sec. 226.7(b)(12)(i)(C), (b)(12)(i)(F)(1)(i),
(b)(12)(i)(F)(1)(iii), (b)(12)(i)(F)(1)(iv) and (b)(12)(ii)(C). Some
card issuers have requested, however, that they be permitted to provide
these disclosures on the periodic statement rounded to the nearest cent
to be more accurate and to avoid potential consumer confusion that
rounding to the dollar might cause in certain circumstances. For
example, assume that a consumer's balance is $3,000 and the APR on the
account is 14.4%. The estimated monthly payment to repay the balance in
36 months would be $103.12 (rounded to the nearest cent). A card issuer
would be required to disclose on the periodic statement the estimated
monthly payment for repayment in 36 months as $103, and the total cost
estimate for repayment in 36 months as $3,712. (The total cost estimate
for repayment in 36 months is calculated by multiplying $103.12 times
36, and rounding that result to the nearest whole dollar.) Nonetheless,
if a consumer pays $103 each month for 36 months, the consumer will
have paid only $3,708 (not the $3,712 shown on the statement). Thus,
rounding the disclosures to whole dollars when providing them on the
periodic statement in some cases may make the disclosures appear to be
inconsistent with each other.
To provide additional flexibility to card issuers, the Board
proposes to revise Sec. 226.7(b)(12)(i) and (b)(12)(ii) to allow card
issuers, at their option, to provide the following disclosures on the
periodic statement either rounded to the nearest whole dollar or to the
nearest cent: (1) The minimum payment total cost estimate, (2) the
estimated monthly payment for repayment in 36 months, (3) the total
cost estimate for repayment in 36 months, and (4) the savings estimate
for repayment in 36 months. Nonetheless, proposed comment 7(b)(12)-1
would provide that an issuer's rounding for all of these disclosures
must be consistent. An issuer may round all of these disclosures to the
nearest whole dollar when providing them on periodic statements, or may
round all of these disclosures to the nearest cent. An issuer may not,
however, round some of the disclosures to the nearest whole dollar,
while rounding other disclosures to the nearest cent. Requiring an
issuer to be consistent in how it rounds these disclosures helps to
ensure that these disclosures remain consistent with each other.
7(b)(14) Deferred Interest or Similar Transactions
Section 226.7(b)(14) generally requires disclosure of the date by
which any outstanding balance subject to a deferred interest or similar
program must be paid in full in order to avoid finance charges on the
front of each periodic statement issued during the deferred interest
period. In order to avoid potential confusion, the Board proposes to
amend Sec. 226.7(b)(14) to clarify that the disclosure required by
Sec. 226.7(b)(14) may be on the front of any page of each periodic
statement issued during the deferred interest period that reflects the
deferred interest or similar transaction. The Board believes this
clarification will ensure that consumers continue to receive
conspicuous disclosure of the end of the deferred interest period and
also provides greater certainty and flexibility to creditors in order
to facilitate compliance. Accordingly, the Board also proposes to amend
the example in comment 7(b)-1.iv for consistency with the proposed
revision.
Section 226.9 Subsequent Disclosure Requirements
9(b) Disclosures for Supplemental Credit Access Devices and Additional
Features
9(b)(3) Checks That Access a Credit Card Account
Section 226.9(b)(3) sets forth requirements for disclosures that
must be provided with checks that access a credit card account. These
disclosures set forth certain key terms, such as the rates that will
apply to the checks, any transaction fees applicable to the checks, and
whether or not a grace period is given within which any credit extended
by use of the checks may be repaid without incurring interest charges.
The Board is proposing to clarify that if any rate disclosed pursuant
to Sec. 226.9(b)(3) is a variable rate, the card issuer must disclose
that the rate may vary and how the rate is determined. The Board
believes that it is appropriate that consumers be informed if the rates
that apply to checks that access a credit card account are variable
rates, to better assist consumers with making an informed decision
regarding use of the checks.
Proposed Sec. 226.9(b)(3)(iii) would generally mirror the
disclosure requirements for variable rates set forth in Sec. Sec.
226.5a(b)(1)(i) and 226.6(b)(2)(i)(A). Proposed Sec. 226.9(b)(3)(iii)
provides that if any annual percentage rate required to be disclosed
pursuant to Sec. 226.9(b)(3)(i) is a variable rate, the card issuer
must also disclose the fact that the rate may vary and how the rate is
determined. In describing how the applicable rate will be determined,
the card issuer must identify the type of index or formula
[[Page 67467]]
that is used in setting the rate. The value of the index and the amount
of the margin that are used to calculate the variable rate shall not be
disclosed in the table. In addition, a card issuer may not disclose any
applicable limitations on rate increases in the table. The Board
believes that the approach in Sec. Sec. 226.5a(b)(1)(i) and
226.6(b)(2)(i)(A), which was based in part on consumer testing
conducted on behalf of the Board, strikes the appropriate balance
between informing consumers of key information regarding the variable
rate or rates while avoiding overly detailed information that may be
confusing to consumers.
Section 226.9(b)(3)(i) requires that the disclosures given in
connection with checks that access a credit card account be in the form
of a table with headings, content, and form substantially similar to
Sample G-19. The Board has been asked whether the ``substantially
similar'' standard would permit a card issuer to provide a combined
table that discloses the terms applicable both to access checks and
other types of transactions. The Board is proposing a new comment
9(b)(3)(i)-2 to clarify that a card issuer may include in the tabular
disclosure provided pursuant to Sec. 226.9(b)(3) disclosures regarding
the terms offered on non-check transactions, provided that such
transactions are subject to the same terms that are required to be
disclosed pursuant to Sec. 226.9(b)(3)(i) for the checks that access a
credit card account. Proposed comment 9(b)(3)(i)-2 would further state,
however, that a card issuer may not include in the table information
regarding additional terms that are not required disclosures for access
checks pursuant to Sec. 226.9(b)(3).
The Board believes that if a card issuer offers a single set of
terms that apply both to checks that access a credit card account and
to other transactions, it is appropriate to permit the card issuer to
present one combined tabular disclosure. For example, a card issuer may
offer a single set of promotional terms that apply both to checks that
access a credit card account and to balance transfers made without use
of an access check. Under these circumstances, the Board believes that
it is unnecessary to require card issuers to provide two substantively
identical but separate sets of disclosures, one for check transactions
and one for other balance transfers. Accordingly, the Board believes
that proposed comment 9(b)(3)(i)-2 would ensure that consumers continue
to receive clear disclosures regarding checks that access a credit card
account, while at the same time minimizing the operational burden that
would be associated with providing two sets of disclosures of
substantively identical terms.
9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans
Comment 9(c)(2)-1 states that, except as provided in Sec.
226.9(g)(1), no notice of a change in terms need be given if the
specific change is set forth initially, such as rate increases under a
properly disclosed variable-rate plan in accordance with Sec.
226.9(c)(2)(v)(C). The Board would revise this comment to clarify that
the initial disclosure of the change must be provided consistent with
any applicable requirements. For example, no notice of a change in
terms is required when a promotional rate expires, provided that the
card issuer disclosed the terms associated with that promotional rate
consistent with Sec. 226.9(c)(2)(v)(B).
9(c)(2)(i) Changes Where Written Advance Notice Is Required
9(c)(2)(ii) Significant Changes in Account Terms
Section 226.9(c)(2) sets forth the change-in-terms notice
requirements for open-end consumer credit plans that are not home-
secured. Section 226.9(c)(2)(i) states that, when a significant change
in account terms as described in Sec. 226.9(c)(2)(ii) is made to a
term required to be disclosed under Sec. 226.6(b)(3), (b)(4), or
(b)(5), a creditor must generally provide a written notice at least 45
days prior to the effective date of the change. Section 226.9(c)(2)(i)
defines a ``significant change in account terms'' as a change to a term
required to be disclosed under Sec. 226.6(b)(1) and (b)(2), an
increase in the required minimum periodic payment, or the acquisition
of a security interest.
The Board is aware that some confusion has arisen regarding the
references to Sec. 226.6(b)(3), (b)(4), and (b)(5) contained in Sec.
226.9(c)(2). In particular, given that ``significant change in account
terms'' is defined in Sec. 226.9(c)(2)(ii) generally with respect to
terms required to be disclosed in the account-opening table under Sec.
226.6(b)(1) and (b)(2), several creditors have asked the Board to
clarify what advance notice requirements apply when a change is made to
a term required to be disclosed under Sec. 226.6(b)(3), (b)(4), or
(b)(5) that (1) may impact a term required to be disclosed in the
account-opening table pursuant to Sec. 226.6(b)(1) and (b)(2), but (2)
is not a term that itself is required or permitted to be included in
the account-opening table. For example, the Board has been asked
whether 45 days' advance notice is required prior to changing the
schedule on which the value of a variable annual percentage rate is
adjusted, if the formula for computing the value of the variable rate
otherwise remains the same (i.e., based on the same index and margin).
The Board notes that the variable annual percentage rate is a term
required to be disclosed pursuant to Sec. 226.6(b)(1) and (b)(2). In
contrast, the schedule on which the rate is computed is not required or
permitted to be disclosed in the tabular disclosure pursuant to Sec.
226.6(b)(1) and (b)(2). However, the schedule on which the rate is
computed is required to be disclosed at account opening outside of the
table pursuant to Sec. 226.6(b)(4).
The Board is proposing several amendments to Sec. 226.6(b)(1) and
(b)(2) to clarify the advance notice requirements for changes to terms
specified in Sec. 226.6(b)(3), (b)(4), or (b)(5) that are not also
terms required to be disclosed under Sec. 226.6(b)(1) and (b)(2).
First, the Board is proposing to delete as unnecessary the references
to Sec. 226.6(b)(3), (b)(4) and (b)(5), as well as a reference to
increases in the required minimum periodic payment, from Sec.
226.9(c)(2)(i). The Board believes that for clarity the term
``significant change in account terms'' should be defined exclusively
in Sec. 226.9(c)(2)(ii) and that deletion of the references to Sec.
226.6(b)(3), (b)(4) and (b)(5) and increases in the required minimum
periodic payment in Sec. 226.9(c)(2)(i) will alleviate confusion
regarding compliance with the change-in-terms notice requirements.
Second, the Board is proposing to amend the definition of
``significant change in account terms'' in Sec. 226.9(c)(2)(ii) to
clarify to which terms the 45-day advance notice requirements in Sec.
226.9(c)(2) apply. Section 226.9(c)(2)(ii) would be amended to define
``significant change in account terms'' as a change to a term required
to be disclosed under Sec. 226.6(b)(1) and (b)(2), an increase in the
required minimum periodic payment, a change to a term required to be
disclosed under Sec. 226.6(b)(4), or the acquisition of a security
interest.
The Board notes that proposed Sec. 226.9(c)(2)(ii) would not
specifically identify changes in terms required to be disclosed under
Sec. 226.6(b)(3) in the list of ``significant change[s] in account
terms.'' The Board believes that a reference to Sec. 226.6(b)(3) is
unnecessary, for several reasons. Section 226.6(b)(3) addresses
disclosure of charges imposed as part of an open-end (not home-secured)
plan. Certain charges imposed as part of a plan are specifically
[[Page 67468]]
required to be disclosed in the account-opening table under Sec.
226.6(b)(1) and (b)(2), while other charges imposed as part of the plan
are not required or permitted to be disclosed in the table. Therefore,
the 45-day advance notice requirement would continue to apply to
charges that are identified in Sec. 226.6(b)(3) that are also required
to be disclosed in the account-opening table under Sec. 226.6(b)(1)
and (b)(2). In addition, Sec. 226.9(c)(2)(iii) sets forth a special
rule for notice of changes to charges imposed as part of the plan that
are not required to be disclosed in the account-opening table. In
particular, for charges imposed as part of the plan under Sec.
226.6(b)(3) that are not required to be disclosed in the account-
opening table under Sec. 226.6(b)(1) and (b)(2), Sec.
226.9(c)(2)(iii) requires a creditor to either, at its option (1)
provide at least 45 days' written advance notice before the change
becomes effective, or (2) provide notice orally or in writing of the
amount of the charge to an affected consumer at a relevant time before
the consumer agrees to or becomes obligated to pay the charge. The
Board is proposing one wording change to Sec. 226.9(c)(2)(iii) and
comment 9(c)(2)(iii)-1; the Board proposes to replace the word ``may''
with ``must,'' in order to clarify that increases in, or the
introduction of new, charges imposed as part of the plan under Sec.
226.6(b)(3) must be disclosed in accordance with Sec.
226.9(c)(2)(iii).
Proposed Sec. 226.9(c)(2)(ii) would specifically categorize
changes in terms required to be disclosed under Sec. 226.6(b)(4) as
``significant change[s] in account terms.'' Section 226.6(b)(4)
requires disclosure of certain information regarding periodic rates
that may be used to calculate interest. The Board believes that changes
in the manner in which annual percentage rates are computed are
significant changes because they may impact the amount of interest
imposed on a consumer's account, which is one of the key costs
associated with open-end (not home-secured) credit. While certain
details regarding rates mandated by Sec. 226.6(b)(4) are not required
or permitted to be disclosed in the account-opening table, changes in
the manner in which an interest rate is computed may have a direct
impact on the annual percentage rate expressed as a yearly rate, which
is a required disclosure in the account-opening table under Sec.
226.6(b)(1) and (b)(2). For example, for variable rates Sec.
226.6(b)(4) requires disclosure of the frequency with which the rate
may increase and the circumstances under which the rate may increase,
both of which may impact the computation of the rate required to be
disclosed in the account-opening table. Thus, the Board believes that
45 days' advance notice of such changes is appropriate to ensure that
consumers can take actions to mitigate the potential impact of changes
in the way in which the annual percentage rate or rates applicable to
their accounts are computed.
Finally, unlike current Sec. 226.9(c)(2)(i), the definition of
``significant change[s] in account terms'' in proposed Sec.
226.9(c)(2)(ii) would not expressly reference the disclosures required
by Sec. 226.6(b)(5). Section 226.6(b)(5) requires that a creditor
disclose, to the extent applicable, certain information regarding
voluntary credit insurance, debt cancellation or debt suspension
coverage, security interests, and a statement regarding the consumer's
billing rights. The disclosures regarding voluntary credit insurance
and similar products and the statement of billing rights set forth in
Sec. 226.6(b)(5) are not terms of the account, but specific forms of
disclosures that must be given. Accordingly, given that these are not
terms of the account, the Board believes that there are no
corresponding changes in terms for which it is appropriate to require
advance notice.\2\ In contrast, in the February 2010 Final Rule, the
Board expressly included the acquisition of a security interest in the
definition of ``significant change in account terms'' for which 45
days' advance notice must generally be provided.
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\2\ The Board notes that charges for voluntary credit insurance,
debt cancellation or debt suspension coverage are ``charges imposed
as part of the plan'' under Sec. 226.6(b)(3)(ii)(F), and
accordingly changes in the cost of such coverage would be required
to be disclosed in accordance with Sec. 226.9(c)(2)(iii).
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9(c)(2)(iv) Disclosure Requirements
As discussed above, the Board is proposing to amend Sec.
226.9(c)(2)(ii) to expressly provide that changes to terms required to
be disclosed under Sec. 226.6(b)(4) are ``significant change[s] in
account terms.'' The Board is proposing several conforming changes to
Sec. 226.9(c)(2)(iv), which sets forth the disclosure requirements for
the 45-day advance notice of a significant change in account terms.
First, the Board is proposing to amend Sec. 226.9(c)(iv)(A)(1) to
provide that the notice must include a summary of changes made to terms
required to be disclosed under Sec. 226.6(b)(4). Second, the Board is
proposing to amend Sec. 226.9(c)(2)(iv)(D)(1) to clarify the
formatting requirements for the notice provided in advance of a change
to a term required to be disclosed under Sec. 226.6(b)(4). Section
226.9(c)(2)(iv)(D)(1) generally requires that the summary of changes
included with a change-in-terms notice be in a tabular format, with
headings and format substantially similar to any of the account-opening
tables found in G-17 to appendix G. However, terms required to be
disclosed under Sec. 226.6(b)(4), such as the margin for a variable
rate, are not permitted to be included in the account-opening table,
and accordingly would not be in a tabular format in the samples in G-17
to appendix G. Accordingly, the Board proposes to amend Sec.
226.9(c)(2)(iv)(D)(1) to expressly state that the summary of a term
required to be disclosed under Sec. 226.6(b)(4) that is not required
to be disclosed under Sec. 226.6(b)(1) and (b)(2) need not be in a
tabular format.
The Board also is proposing several changes related to disclosure
of the right to reject certain types of changes. When a creditor makes
a significant change in account terms on a credit card account under an
open-end (not home-secured) consumer credit plan, Sec.
226.9(c)(2)(iv)(B) generally requires the creditor to disclose certain
information regarding the consumer's right to reject that change under
Sec. 226.9(h). Section 226.9(c)(2)(iv)(B) also lists several types of
changes to which the right to reject does not apply, including a change
in the balance computation method necessary to comply with Sec.
226.54. The Board adopted this exemption in the February 2010 Final
Rule in order to facilitate compliance with the limitations on the
imposition of finance charges in Sec. 226.54, which implemented the
Credit Card Act's prohibition on the two-cycle balance computation
method. See 75 FR 7696, 7730.
Because Sec. 226.54 went into effect on February 22, 2010, the
Board proposes to remove the exemption in Sec. 226.9(c)(2)(iv)(B) for
changes necessary to comply with Sec. 226.54. In its place, the Board
is proposing to adopt an exemption stating that, when a fee has been
reduced consistent with the Servicemembers Civil Relief Act (SCRA), 50
U.S.C. app. 501 et seq., or a similar federal or state statute or
regulation, the right to reject does not apply to an increase in that
fee once the statute or regulation no longer applies, provided that the
amount of the increased fee does not exceed the amount of that fee
prior to the reduction.
As discussed in greater detail below with respect to Sec.
226.55(b)(6), the SCRA and some state statutes generally require
creditors to reduce interest rates and
[[Page 67469]]
fees for consumers who are engaged in military service. When the SCRA
or similar state statute ceases to apply, Sec. 226.9(c) generally
requires the creditor to provide 45 days' advance notice of any
increase in a rate or fee. The right to reject does not apply to rate
increases, but Sec. 226.55(b)(6) limits the ability of a card issuer
to increase the rate that applies to the existing balance on a credit
card account under an open-end (not home-secured) consumer credit plan
in these circumstances. Specifically, Sec. 226.55(b)(6) provides that,
if the SCRA requires a card issuer to reduce an interest rate on an
existing balance when a consumer enters military service, the rate
applied to that balance when the consumer leaves military service
cannot exceed the rate that applied prior to military service. In other
words, consumers cannot be worse off once the SCRA ceases to apply than
they were before the SCRA began to apply.
The Board understands that, in order to comply with the SCRA and
similar federal or state statute or regulation, many creditors reduce
or cease to impose annual fees, late payment fees, and other types of
fees while a consumer is in military service. Although the right to
reject generally applies to increases in fees required to be disclosed
under Sec. 226.6(b)(1) and (b)(2) (such as annual fees and late
payment fees), the Board believes that, when a consumer leaves military
service and the legal requirements of the SCRA or a similar federal or
state statute or regulation cease to apply, it is appropriate to permit
creditors to return fees to pre-existing levels. Accordingly, the Board
would exempt such increases from the right to reject. However, the
right to reject would continue to apply if a creditor sought to apply a
fee that exceeded the amount of the fee prior to the consumer entering
military service.
Comments 9(c)(2)(iv)-3 and -4 and comments 9(c)(2)(v)-3 and -4
clarify that, if a creditor is changing a rate applicable to a
consumer's account from a non-variable rate to a variable rate (or vice
versa), the creditor must provide a notice pursuant to Sec. 226.9(c)
even if the new rate is lower than the prior rate. The Board would
revise this guidance to clarify that notice is not required pursuant to
Sec. 226.9(c)(2) when a lower rate is applied in connection with a
promotional or other temporary rate program or a workout or temporary
hardship arrangement, provided that the terms of that program or
arrangement are disclosed consistent with Sec. 226.9(c)(2)(v)(B) or
(c)(2)(v)(D). In these circumstances, the Board believes that the 45-
day notice requirement would unnecessarily delay application of a lower
rate to a consumer's account in circumstances where Sec.
226.9(c)(2)(v)(B) or (c)(2)(v)(D) generally require that the consumer
be informed of the terms associated with the lower rate before it is
applied to the account. Furthermore, when a promotional or temporary
rate or workout or temporary hardship arrangement is applied to an
account, the substantive limitations in Sec. 226.55(b)(1) and (b)(5)
protect consumers from unanticipated increases in the rates that apply
to existing balances.
The Board would also clarify that notice pursuant to Sec.
226.9(c)(2) is not required when the creditor applies a lower rate in
order to comply with the SCRA or a similar federal or state statute or
regulation. Finally, in order to eliminate redundancy and ensure
consistent guidance, the Board would replace comments 9(c)(2)(v)-3 and
-4 with cross references to comments 9(c)(2)(iv)-3 and -4.
9(c)(2)(v) Notice Not Required
Temporary Rate Exception
Section 226.9(c)(2) generally requires that 45 days' advance notice
be provided of significant changes in account terms for open-end (not
home-secured) consumer credit plans. Several exceptions to this 45-day
advance notice requirement are set forth in Sec. 226.9(c)(2)(v).
Section 226.9(c)(2)(v)(B) sets forth an exception for increases in
annual percentage rates upon the expiration of a period of time,
provided that prior to the commencement of that period, the creditor
discloses to the consumer clearly and conspicuously in writing the
length of the period and the annual percentage rate that will apply
after that period. Section 226.9(c)(2)(v)(B)(2) requires that the
disclosure of the length of the period and the rate that will apply
after expiration of the period must be disclosed in close proximity and
equal prominence to the first listing of the disclosure of the rate
that applies during the specified period of time.
The Board is proposing to clarify the proximity and prominence
requirements for the disclosure of introductory rates that are
disclosed at account opening. The Board understands that there is
confusion regarding how to comply with the proximity and prominence
rules in Sec. 226.9(c)(2)(v)(B) when an introductory rate is being
disclosed in the account-opening table. The rules in Sec. 226.6(b)
contain prescriptive formatting and font size requirements for the
disclosures required to be provided in tabular form at account opening.
Section 226.6(b)(1) requires that the tabular disclosure have headings,
content, and format substantially similar to any of the applicable
tables in G-17 in appendix G. In addition, Sec. 226.6(b)(2)(i)
requires that annual percentage rates for purchases be disclosed in the
tabular disclosure provided at account opening in 16-point font.
Section 226.6(b)(1)(i) requires that annual percentage rates required
to be disclosed pursuant to Sec. 226.6(b)(2)(i), including
introductory rates required to be disclosed under Sec.
226.6(b)(2)(i)(F), be disclosed in bold text.
Sample G-17(C) contains a sample disclosure of an introductory rate
on purchases, where the introductory and standard annual percentage
rates are presented in bold 16-point font in accordance with Sec.
226.6(b)(1)(i) and (b)(2)(i). However, the disclosure of the
introductory period is displayed in 10-point font and is not presented
in bold text, consistent with Sec. 226.6(b). The Board understands
that there is confusion regarding whether the Sec. 226.6(b) tabular
disclosure would be deemed to comply with the formatting requirements
in Sec. 226.9(c)(2)(v)(B)(2), because the period is disclosed in a
smaller font than the font in which the relevant rates are disclosed,
and is not in bold text.
The Board believes that additional clarification is appropriate as
to the relationship between the formatting requirements of Sec. Sec.
226.9(c)(2)(v)(B)(2) and 226.6(b). The Board believes that if the
information described in Sec. 226.9(c)(2)(v)(B)(2) is included in the
account-opening table provided pursuant to, and in compliance with,
Sec. 226.6(b), it should be deemed to meet the equal prominence and
close proximity requirements of Sec. 226.9(c)(2)(v)(B). The format and
presentation of information in the account-opening table was informed
by the Board's consumer testing, and the Board believes that the
requirements of Sec. 226.6(b) are appropriate and sufficient to convey
key information regarding introductory rates to consumers. Accordingly,
the Board is proposing to adopt a new comment 9(c)(2)(v)-10 which
states that a disclosure of the information described in Sec.
226.9(c)(2)(v)(B)(1) provided in the account-opening table in
accordance with Sec. 226.6(b) complies with the requirements of Sec.
226.9(c)(2)(v)(B)(2), if the listing of the introductory rate in such
tabular disclosure also is the first listing as described in comment
9(c)(2)(v)-6. Existing comments
[[Page 67470]]
9(c)(2)(v)-10 through 9(c)(2)(v)-12 would be renumbered accordingly.
Comment 9(c)(2)(v)-5 sets forth guidance regarding the disclosure
requirements for temporary rates when the temporary rate reduction is
initially offered to the consumer by telephone. Comment 9(c)(2)(v)-5
states that the timing requirements of Sec. 226.9(c)(2)(v)(B) are
deemed to have been met, and written disclosures required by Sec.
226.9(c)(2)(v)(B) may be provided as soon as reasonably practicable
after the first transaction subject to a rate that will be in effect
for a specified period of time (a temporary rate) if: (1) The consumer
accepts the offer of the temporary rate by telephone; (2) the creditor
permits the consumer to reject the temporary rate offer and have the
rate or rates that previously applied to the consumer's balances
reinstated for 45 days after the creditor mails or delivers the written
disclosures required by Sec. 226.9(c)(2)(v)(B); and (3) the
disclosures required by Sec. 226.9(c)(2)(v)(B) and the consumer's
right to reject the temporary rate offer and have the rate or rates
that previously applied to the consumer's account reinstated are
disclosed to the consumer as part of the temporary rate offer.
As discussed in the supplementary information to the February 2010
Final Rule, the Board believes that this rule for telephone offers of
promotional rates ensures that consumers may take immediate advantage
of promotions that they believe to be beneficial, while protecting
consumers by allowing them to terminate the promotion with no adverse
consequences, upon receipt of written disclosures. Consistent with the
rationale discussed in the February 2010 Final Rule, the Board is
proposing to amend comment 9(c)(2)(v)-5.ii to provide that, in
connection with telephone offers of temporary rates or fees,\3\ the
creditor need not permit the consumer to reject the temporary rate or
temporary fee offer if the rate or rates or fee that will apply
following expiration of the temporary rate do not exceed the rate or
rates or fee that applied immediately prior to commencement of the
temporary rate. The Board believes that, since such an offer never
results in the increase in an interest rate or fee even on a
prospective basis, it is unnecessary to provide consumers with the
opportunity to reject such an offer. The Board is proposing a
conforming change to comment 9(c)(2)(v)-5.iii.
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\3\ As discussed below, the Board is proposing to apply the
exception in Sec. 226.9(c)(2)(v)(B) to temporary fee reductions;
accordingly, proposed comment 9(c)(2)(v)-5.ii would apply both to
temporary rate and temporary fee offers.
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Exception for Temporary Reductions in Fees
The Board also is proposing to amend Sec. 226.9(c)(2)(v)(B) to
provide an exception to the advance notice requirements for increases
in fees that occur after the expiration of a specified period of time.
The Board declined to adopt a specific exception for temporary or
promotional fee programs in the February 2010 Final Rule because the
Credit Card Act did not contain such an exception and because an
exception did not appear to be necessary. See 75 FR 7699. In the
supplementary information to the February 2010 Final Rule, the Board
noted that nothing in Regulation Z prohibits a creditor from providing
notice of a future increase in a fee at the same time it temporarily
reduces the fee; a creditor could provide information regarding the
temporary reduction in the same notice, provided that it is not
interspersed with the content required to be disclosed pursuant to
Sec. 226.9(c)(2)(iv). See 75 FR 7699.
Nevertheless, upon further review, for the reasons also discussed
in the supplementary information to Sec. 226.55(b)(1), the Board
believes that it may be appropriate to use its authority under TILA
Section 105(a) to specifically address the advance notice requirements
for temporary or promotional fees in order to encourage issuers to
disclose and structure such programs in a consistent manner that
enables consumers to understand the associated costs. Accordingly, the
Board proposes to amend Sec. 226.9(c)(2)(v)(B) to apply to increases
in fees upon the expiration of a specified period of time. Thus, Sec.
226.9(c)(2)(v)(B) would permit a card issuer to increase a fee after a
specified period of time without providing 45 days' advance notice, if
the card issuer provides the consumer in advance with a clear and
conspicuous written disclosure of the length of the period and the fee
or charge that will apply after expiration of the period. In addition,
the Board is proposing to amend comments 9(c)(2)(v)-5 through
9(c)(2)(v)-7 to expressly refer to temporary fee offers.
In addition, for clarity, and for consistency with the proposed
changes to Sec. 226.9(c)(2)(v)(B), the Board is proposing to amend
comment 9(c)(2)(v)-2, which addresses skip features offered in
connection with open-end (not home-secured) consumer credit plans.
Comment 9(c)(2)(v)-2 addresses the disclosures that must be given when
a credit program allows consumers to skip or reduce one or more
payments during the year or involves temporary reductions in finance
charges. The Board notes that comment 9(c)(2)(v)-2 was amended in the
February 2010 Final Rule for conformity with the exception in Sec.
226.9(c)(2)(v)(B) for temporary reductions in interest rates. In
particular, the Board added a new comment 9(c)(2)(v)-2.ii that
clarifies the notice requirements for temporary reductions in interest
rates. See 75 FR 7702. Because the Board is proposing to expand Sec.
226.9(c)(2)(v)(B) to cover promotional fee offers in addition to
promotional rate offers, the Board is proposing to amend comment
9(c)(2)(v)-2.ii to also cover temporary reductions in fees; comment
9(c)(2)(v)-2.i would accordingly apply only to programs that permit a
consumer to skip or reduce a payment.
Variable Rate Exception
The Board is proposing to correct a typographical error in Sec.
226.9(c)(2)(v)(C). Section 226.9(c)(2)(v)(C) contains an exception to
the 45-day advance notice requirements for increases in variable annual
percentage rates in accordance with a credit card agreement that
provides for a change in the rate according to operation of an index
that is not under the control of the creditor and is available to the
general public. In the proposal that led to the February 2010 Final
Rule, proposed Sec. 226.9(c)(2)(v)(C) referred to an increase ``in
accordance with a credit card or other account agreement.'' In the
February 2010 Final Rule, the phrase ``or other account'' was
inadvertently deleted, without explanation in the supplementary
information. The Board's intent was for the exception in Sec.
226.9(c)(2)(v)(C) to apply both to credit card accounts and to other
open-end (not home-secured) consumer credit plans. Accordingly, the
Board is proposing to insert the phrase ``or other account'' into Sec.
226.9(c)(2)(v)(C).
The exception to the advance notice requirements for an increase in
a variable annual percentage rate is conditioned on the rate varying
according to the operation of an index that is not under the control of
the creditor and is available to the general public. Comment
9(c)(2)(v)-11 contains a cross-reference to comment 55(b)(2)-2 for
guidance on when an index is deemed to be under the ``card issuer's''
control. The Board is aware that there has been some confusion
regarding the relationship between comment 55(b)(2)-2 and the exception
set forth in Sec. 226.9(c)(2)(v)(C). Comment 55(b)(2)-2
[[Page 67471]]
provides that an index is under a card issuer's control if, among other
things, the variable rate is subject to a fixed minimum rate or similar
requirement that does not permit the variable rate to decrease
consistent with reductions in the index. The substantive limitations on
rate increases in Sec. 226.55 and comment 55(b)(2)-2 apply only to
credit card accounts under an open-end (not home-secured) consumer
credit plan, while the advance notice requirements in Sec. 226.9(c)(2)
and the variable-rate exception in Sec. 226.9(c)(2)(v)(C) apply to all
open-end (not home-secured) consumer credit plans. Thus, the Board has
been asked whether the variable-rate exception to the advance notice
requirements set forth in Sec. 226.9(c)(2)(v)(C) applies to an open-
end (not home-secured) consumer credit plan, if the variable rate is
subject to a fixed minimum or ``floor.''
The Board proposes to clarify that a variable rate plan that is
subject to a fixed minimum or ``floor'' does not meet the conditions of
the exception to the advance notice requirements set forth in Sec.
226.9(c)(2)(v)(C). The Board believes that it is appropriate to adopt a
consistent interpretation of ``an index that is not under the control
of the creditor'' for all open-end (not home-secured) credit. The Board
is proposing to amend comment 9(c)(2)(v)-11 (renumbered as comment
9(c)(2)(v)-12) to refer to guidance on when an index is deemed to be
under ``a creditor's'' control, rather than ``the card issuer's''
control. The Board notes that the substantive provisions of Sec.
226.55 continue to apply only to credit card accounts under an open-end
(not home-secured) consumer credit plan; however, the proposed change
would clarify that 45 days' advance notice is required prior to a rate
increase on a variable-rate plan subject to a fixed minimum or floor,
for all open-end (not home-secured) plans.
Section 226.10 Payments
10(b) Specific Requirements for Payments
10(b)(4) Nonconforming Payments
Section 226.10 sets forth rules regarding the prompt crediting of
payments and the permissibility of assessing fees to make expedited
payments. Section 226.10(a) generally requires that payments be
credited to a consumer's account as of the date of receipt, except that
Sec. 226.10(b) permits creditors to specify reasonable requirements
for payments provided that those requirements enable most consumers to
make conforming payments. Section 226.10(b)(4) addresses the crediting
of payments that do not conform to the requirements specified by the
creditor; if a creditor specifies requirements for the consumer to
follow in making payments as permitted under Sec. 226.10 but accepts a
payment that does not conform to the requirements, such nonconforming
payments must be credited within five days of receipt.
The Board is aware that there is confusion regarding the
distinction between conforming payments, which must be credited as of
the date of receipt, and nonconforming payments, which must be credited
within five days of receipt. Currently, Sec. 226.10(b)(4) refers to
requirements specified ``on or with the periodic statement,'' which may
be read to suggest that payments received by any means not specified on
or with the periodic statement generally are nonconforming payments.
However, the rule in Sec. 226.10(b) that permits a creditor to specify
reasonable requirements for making payments is silent as to the manner
in which these requirements must be communicated to consumers in order
for such payments to be considered conforming payments. In addition,
comment 10(b)-2 expressly provides that if a creditor promotes
electronic payment via its Web site, any payments made via the Web site
are generally conforming payments for purposes of Sec. 226.10(b),
which indicates that conforming payments are not only those payments
made via methods specified on the periodic statement.
The Board believes that additional clarification is appropriate
regarding the distinction between conforming and nonconforming
payments, in order to facilitate compliance with the rule and to ensure
that payments are posted promptly in accordance with consumer
expectations and the intent of TILA Section 164. TILA Section 164, as
amended by the Credit Card Act, provides in part that payments received
from a consumer for an open-end consumer credit plan shall be posted
promptly to the account as specified in regulations of the Board. The
Board believes that, if a creditor promotes a specific method of making
payments, the intent of TILA Section 164 is best effectuated by a rule
that requires payments made by that method to be credited as of the
date of receipt.
Accordingly, the Board is proposing to amend comment 10(b)-2 to
provide that if a creditor promotes a specific payment method, any
payments made via that method (prior to any cut-off time specified by
the creditor to the extent permitted by Sec. 226.10(b)(2)), are
generally conforming payments for purposes of Sec. 226.10(b). To
provide further guidance, the Board also proposes to add two additional
examples to comment 10(b)-2. Proposed comment 10(b)(2)-ii states that
if a creditor promotes payment by telephone (for example, by including
the option to pay by telephone in a menu of options provided to
consumers at a toll-free number disclosed on its periodic statement),
payments made by telephone would generally be conforming payments for
purposes of Sec. 226.10(b). Similarly, proposed comment 10(b)(2)-iii
states that if a creditor promotes in-person payments, for example by
stating in an advertisement that payments may be made in person at its
branch locations, such in-person payments made at a branch or office of
the creditor generally would be conforming payments for purposes of
Sec. 226.10(b). The Board believes that if a creditor promotes that
payments may be made via a certain method, it would be inappropriate to
permit the creditor to delay crediting such payments for five days
after receipt. In contrast, proposed comment 10(b)-2 would not apply if
the creditor makes a general promotional statement regarding payments
that does not refer to a specific payment method, for example a
statement that the creditor offers ``many convenient payment options.''
For conformity, the Board also is proposing to amend Sec.
226.10(b)(4), which addresses the treatment of nonconforming payments,
to provide that if a creditor specifies, on or with the periodic
statement, requirements for the consumer to follow in making payments,
but accepts a payment that does not conform to the requirements via a
payment method that the creditor does not otherwise promote, the
creditor shall credit the payment within five days of receipt.
10(e) Limitations on Fees Related to Method of Payment
Section 226.10(e) generally prohibits imposing a separate fee for
allowing consumers to make a payment by any method, unless such payment
method involves expedited service by a customer service representative
of the card issuer. The Board understands that card issuers may use
third-party service providers to provide payment-related services on
behalf of the issuer, such as receiving or processing payments from
consumers. In some circumstances, the third-party service provider may
charge consumers a separate fee for making a payment--for example, when
a payment is made electronically through a Web site. The Board believes
that it would be inconsistent with the purposes of the
[[Page 67472]]
Credit Card Act for consumers to pay a separate fee for making a
payment through a third party who is receiving payment on behalf of the
issuer, unless the issuer itself would be permitted to charge the fee.
Accordingly, the Board proposes to adopt a new comment 10(e)-4 to
prohibit third party service providers or other third parties who
receive payments on behalf of a card issuer from charging a separate
fee for payment, except as otherwise permitted by paragraph (e).
10(f) Changes by Card Issuer
The Board proposes to replace a reference to ``consumer'' in
comment 226.10(f)-3.ii with ``card issuer'' in order to correct a
typographical error.
Section 226.12 Special Credit Card Provisions
12(c) Right of Cardholder To Assert Claims or Defenses Against Card
Issuer
Section 226.12(c)(1) provides that, when a cardholder asserts a
claim or defense against a card issuer, the cardholder may withhold
payment up to the amount of credit outstanding for the property or
services that gave rise to the dispute and any finance or other charges
imposed on that amount. Comment 12(c)-4 clarifies that the amount of
the claim or defense that the cardholder may assert shall not exceed
the amount of credit outstanding for the disputed transaction at the
time the cardholder first notifies the card issuer or the person
honoring the credit card of the existence of the claim or defense. It
further clarifies that, to determine the amount of credit outstanding,
payments and other credits shall be applied to: (i) Late charges in the
order of entry to the account; then to (ii) finance charges in the
order of entry to the account; and then to (iii) any other debits in
the order of entry to the account. It also clarifies that, if more than
one item is included in a single extension of credit, credits are to be
distributed pro rata according to prices and applicable taxes. Although
the February 2010 Final Rule moved this language from a footnote in
Sec. 226.12 to the commentary, the guidance itself remained unchanged.
The Board understands that there has been some confusion about the
interaction between the guidance on applying payments in comment 12(c)-
4 and the payment allocation requirements in Sec. 226.53. For credit
card accounts under an open-end (not home-secured) consumer credit
plan, Sec. 226.53 generally requires card issuers to apply payments
above the minimum first to the balance with the highest rate. Comment
53-3 clarifies that, when a consumer has asserted a claim or defense
against a card issuer pursuant to Sec. 226.12(c), the card issuer must
apply any payment above the minimum in a manner that avoids or
minimizes any reduction in the amount subject to that claim or defense.
Illustrative examples are provided.
In order to remove any inconsistency and to facilitate compliance,
the Board would revise comment 12(c)-4 to clarify that, with respect to
credit card accounts under an open-end (not home-secured) consumer
credit plan, card issuers must comply with Sec. 226.53 and the
guidance in comment 53-3. However, with respect to other types of
credit card accounts (such as credit cards that access home-equity
plans), the Board would retain the long-standing guidance in comment
12(c)-4.
Section 226.13 Billing Error Resolution
13(c) Time for Resolution; General Procedures
Section 226.13(c)(2) generally requires a creditor to complete the
billing error investigation procedures within two billing cycles (but
no later than 90 days) after receiving a billing error notice. To
ensure that creditors promptly complete their investigations under
TILA, the Board adopted a new comment 13(c)(2)-2 in the February 2010
Final Rule to clarify that a creditor must conclusively determine
whether an error occurred within two complete billing cycles (but in no
event later than 90 days) after receiving a billing error notice. Once
this period has expired, the comment further clarified that the
creditor may not reverse any amounts previously credited for an
asserted billing error, even if the creditor subsequently obtains
evidence indicating that the billing error did not occur as asserted.
Since adoption of the comment, the Board has received questions
regarding whether Sec. 226.13(c)(2) would prohibit creditors from
reversing amounts previously credited by the creditor after conclusion
of the two billing cycle time frame if the consumer subsequently
receives a credit in the amount of the error from the merchant or
person that had honored the credit card. Such an occurrence might
arise, for example, because the error investigation time frames under
card network rules provide merchants additional time beyond the time
frame under Sec. 226.13 to respond to a consumer error claim. As a
result, a merchant may not issue a credit to the consumer's account
until after the creditor has already resolved the consumer's error
claim in the consumer's favor in order to comply with the time frame
established under Regulation Z. In those cases, the consumer could
receive more than one credit for the same billing error, one from the
creditor and another from the merchant or other person honoring the
credit card.
The purpose of the billing error resolution time frame is to enable
consumers to have their error claims investigated and resolved
promptly. That is, TILA Section 161, as implemented by Sec. 226.13, is
intended to bring finality to the billing error resolution process, and
to avoid the potential of undue surprise for consumers caused by the
reversal of previously credited funds when a creditor fails to complete
its investigation in a timely manner. In contrast, the potential for
consumer harm would not arise when a consumer has already been made
whole for the error by the person honoring the credit card. In such a
case, the Board believes that the creditor should be permitted to
reverse amounts previously credited by the creditor to correct the
error in order to avoid giving the consumer a windfall for that
transaction.
Accordingly, the Board proposes to revise comment 13(c)(2)-2 to
clarify that the requirement to complete an error investigation within
two billing cycles does not prevent a creditor from reversing amounts
it has previously credited to a consumer's account in circumstances
where a consumer's account has been credited more than once for the
same billing error. The proposed comment further clarifies that the
reversal of the credit by the creditor is appropriate so long as the
total amount of the remaining credits is equal to or more than the
amount of the error and the consumer does not incur any fees or other
charges as a result of the timing of the creditor's reversal. Thus, to
ensure compliance with the requirements of Sec. 226.13, a creditor
should delay the reversal of the amounts the creditor has previously
credited to the consumer's account until after the subsequent merchant
credit has posted to the consumer's account. An illustrative example is
set forth in the proposed comment.
Section 226.14 Determination of Annual Percentage Rate
14(a) General Rule
The Board understands that clarification may be appropriate
regarding the effect of a leap year on determining the annual
percentage rate for disclosures required for open-end (not home-
secured) credit accounts. The Board proposes to add a new comment
14(a)-6 to clarify that a creditor may
[[Page 67473]]
disregard any variance in the annual percentage rate which occurs
solely by reason of the addition of February 29 in a leap year. For
example, a creditor may use 365 days as the number of periods in a leap
year when computing an annual percentage rate. In addition, if an
annual percentage rate is computed using 366 days as the number of
periods in a leap year, a variance in rate which occurs solely because
of the addition of February 29 in the annual percentage rate
computation would not trigger disclosure and other requirements under
Sec. Sec. 226.9 and 226.55. The Board believes that the proposed
comment promotes accuracy in the disclosure of annual percentage rates
and minimizes potential consumer confusion and operational burden for
creditors.
Section 226.16 Advertising
16(g) Promotional Rates and Fees
Section 226.16(g) currently sets forth the requirements for
advertisements of promotional or introductory rates on open-end (not
home-secured) plans. In general, Sec. 226.16(g) requires that certain
advertisements of promotional or introductory rates state the
promotional period, post-promotional rate, and, in some cases, the term
``introductory'' or ``intro,'' in order to promote consumer
understanding of the terms of such a promotional or introductory rate
offer. As discussed elsewhere in this supplementary information, the
Board is proposing changes to Sec. Sec. 226.9(c)(2) and 226.55 to
implement additional disclosure requirements and limitations for offers
of temporary reduced or promotional fees. The Board is proposing
conforming changes to Sec. 226.16(g) to require that certain
advertisements of promotional fees also state the promotional period,
post-promotional fee, and, in some cases, the term ``introductory'' or
``intro,'' in order to promote consumer understanding of the terms of
such promotional or introductory fee offers. The Board is proposing
these changes using its authority under TILA Section 105(a) to
effectuate the purposes of TILA. The Board believes requiring that
creditors clearly disclose the conditions of a promotional fee offer
will promote the informed use of credit by consumers.
The disclosure requirements under Sec. 226.16(g) generally would
apply to ``promotional fee[s],'' as defined in new Sec.
226.16(g)(2)(iv). In particular, Sec. 226.16(g)(2)(iv) would define
``promotional fee'' as a fee required to be disclosed under Sec.
226.6(b)(1) and (b)(2) on an open-end (not home-secured) plan for a
specified period of time that is lower than the fee that will be in
effect at the end of that period. Accordingly, the new advertising
requirements for promotional fee offers would apply only when the
promotional fee being offered is a fee required to be disclosed in the
account-opening table provided pursuant to Sec. 226.6(b). The Board
believes, based in part on its consumer testing, that Sec. 226.6(b)(1)
and (b)(2) require disclosure of the fees that are the most important
to consumers. Accordingly, the Board believes that these key fees are
those for which a creditor is the most likely to advertise a promotion.
In addition, the application of the Sec. 226.16(g) disclosure
requirements to fees required to be disclosed pursuant to Sec.
226.6(b)(1) and (b)(2) is consistent with the approach that the Board
has taken in Sec. 226.9(c)(2)(ii) when defining ``significant changes
in account terms.'' The Board also proposes several additional
amendments to Sec. 226.16(g) and the associated commentary in order to
conform the advertising disclosures for promotional fees to the
advertising disclosures for promotional rate offers in Sec. 226.16(g).
Section 226.30 Limitation on Rates
The Board proposes to make a technical correction to comment 30-
8.i.C to correct a typographical error.
Section 226.51 Ability To Pay
Section 226.51 implements the provisions of the Credit Card Act
that require card issuers to assess a consumer's ability to pay before
opening a new credit card account or increasing the credit limit on an
existing account. Section 226.51(a) implements TILA Section 150, which
provides that ``[a] card issuer may not open any credit card account
for any consumer under an open end consumer credit plan, or increase
any credit limit applicable to such account, unless the card issuer
considers the ability of the consumer to make the required payments
under the terms of such account.'' Section 226.51(b) implements TILA
Section 127(c)(8), which prohibits a card issuer from opening a credit
card account for a consumer who is under the age of 21 unless the
consumer has submitted a written application that meets certain
requirements. Specifically, the application must require either: (1)
``Submission by the consumer of financial information, including
through an application, indicating an independent means of repaying any
obligation arising from the proposed extension of credit in connection
with the account''; or (2) the signature of a cosigner who has such
means, is 21 or older, and assumes joint liability for the account.\4\
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\4\ Section 226.51(b) also implements TILA Section 127(p), which
requires that, when a cosigner has assumed joint liability for a
credit card account issued to an underage consumer, the account's
credit limit may not be increased unless the cosigner approves in
writing, and assumes joint liability for, the increase.
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The Board generally intended Sec. 226.51 to establish consistent
standards for evaluating a consumer's ability to pay. Specifically,
Sec. 226.51 requires that card issuers establish and maintain
reasonable written policies and procedures to consider the income or
assets and the current obligations of all consumers, regardless of age.
See Sec. 226.51(a)(1)(ii), (b)(1)(i), and (b)(2)(ii)(B). For all
consumers, a card issuer must consider either the ratio of debt
obligations to income, the ratio of debt obligations to assets, or the
income the consumer will have after paying debt obligations. See id.
Furthermore, regardless of a consumer's age, it would be unreasonable
for a card issuer not to review any information about a consumer's
income, assets, or current obligations, or to issue a credit card to a
consumer who does not have any income or assets. See id.
Some card issuers request on application forms that applicants
simply provide their ``income,'' while other issuers request that
applicants provide their ``household income.'' The Board understands
that there has been some confusion as to whether information provided
by a consumer in response to a request for household income can be used
by a card issuer to satisfy the requirements of Sec. 226.51. In
particular, the Board understands that there has been some uncertainty
as to whether Sec. 226.51 established different standards for underage
consumers and other consumers with respect to the consideration of
household income or assets. There appear to be three sources of this
confusion.
First, the Board understands that some of the uncertainty regarding
household income results from the fact that, in the February 2010 Final
Rule, the Board expressly concluded that the income of an underage
consumer's spouse could not be used to satisfy the requirements of
Sec. 226.51(b) but did not state a similar conclusion with respect to
the general rule in Sec. 226.51(a). See 75 FR 7723. However, the issue
of spousal or other household income was not addressed in the context
of Sec. 226.51(a) because it was not raised during the comment period.
Accordingly, the Board is addressing the issue in this rulemaking.
[[Page 67474]]
Second, the Board understands that there has been some confusion as
to whether Regulation B (12 CFR Part 202) requires a card issuer to
consider spousal or other household income when considering a
consumer's ability to pay under Sec. 226.51. In response to concerns
raised by commenters, the Board stated in the February 2010 Final Rule
that, when a card issuer is evaluating an underage consumer's ability
to pay under Sec. 226.51(b), Regulation B does not compel the issuer
to consider the income of the consumer's spouse. See 75 FR 7723. The
Board also stated that card issuers would not violate Regulation B by
virtue of complying with the requirements in Sec. 226.51(b). Id.
However, the Board understands that these statements may have left some
uncertainty because they did not expressly address the general ability
to pay requirement in Sec. 226.51(a), which applies to all consumers
regardless of age. Accordingly, the Board clarifies that Regulation B
does not compel a card issuer to consider spousal or other household
income when considering an applicant's ability to pay under either
Sec. 226.51(a) or (b), unless, for example, the spouse or household
member is a joint applicant or accountholder or state law grants the
applicant an ownership interest in the income of his or her spouse.
Furthermore, the Board clarifies that card issuers would not violate
Regulation B by virtue of complying with the requirements in Sec.
226.51(a) or (b). Thus, to the extent that a card issuer is not
permitted to consider spousal or other household income when evaluating
a consumer's ability to pay under Sec. 226.51, the card issuer's
failure to consider such income when performing that evaluation does
not violate Regulation B.
Third, the Board understands that the use of the word
``independent'' in Sec. 226.51(b) but not in Sec. 226.51(a) has been
interpreted by some as prohibiting consideration of household income
with respect to underage consumers but permitting it for other
consumers. This difference in wording reflects the language in the
statutory provisions implemented by Sec. 226.51(a) and (b).
Specifically, Sec. 226.51(a)(1) follows TILA Section 150 in requiring
a card issuer to consider the ability of the consumer to make the
required payments, whereas Sec. 226.51(b)(1)(i) tracks TILA Section
127(c)(8)(B)(ii) by requiring a card issuer to obtain financial
information indicating that an underage consumer without a cosigner has
an independent ability to make those payments.
Congress' use of ``independent'' in TILA Section 127(c)(8)(B)(ii)
but not in TILA Section 150 could be interpreted as establishing a less
stringent standard for consideration of household income if the
consumer is 21 or older. However, TILA Section 150 requires card
issuers to consider ``the ability of the consumer to make the required
payments,'' which indicates that Congress intended card issuers to base
this evaluation only on the ability of the consumer (or consumers)
applying for the account. Indeed, to the extent that TILA Section 150
was intended to ensure that credit cards are not issued to consumers
who lack the ability to pay, it could be inconsistent with that purpose
to permit a card issuer to open a credit card account for a consumer
without income or assets based on the income or assets of a spouse or
other household member (unless the consumer has an ownership interest
in the household income or assets). Accordingly, using its authority
under TILA Section 105(a) and Section 2 of the Credit Card Act, the
Board proposes to amend Sec. 226.51 to require that, regardless of the
consumer's age, a card issuer must consider the consumer's independent
ability to make the required payments. In addition to providing a
single, consistent standard for evaluating a consumer's ability to pay,
the Board believes that this proposed revision is consistent with the
intent of TILA Section 150.
Consistent with the proposed amendments to Sec. 226.51, the Board
would revise comment 51(a)(1)-4 to clarify that, as a general matter,
consideration of information regarding the consumer's household income
or assets does not by itself satisfy the requirement in Sec.
226.51(a)(1) to consider the consumer's independent ability to pay. The
comment would further clarify that, if, for example, a card issuer
requests on its application form that applicants provide their
household income, the card issuer may not rely solely on that income
information to satisfy the requirements of Sec. 226.51(a). Instead,
the card issuer would need to obtain additional information about the
applicants' independent income (such as by contacting the applicants).
However, the comment would also clarify that, if a card issuer requests
on its application form that applicants provide their income (without
referring to household income), the card issuer may rely on the
information provided to satisfy the requirements of Sec. 226.51(a).
For organizational purposes, comment 51(a)(1)-4 would be divided into
subparagraphs, and this guidance would be set forth in subparagraph
51(a)(1)-4.iii.
The Board would also add additional guidance regarding spousal
income in new subparagraph 52(a)(1)-4.i, which addresses the types of
income or assets that may be considered when performing the Sec.
226.51(a) analysis. The Board would clarify that, when an applicant's
spouse is not a joint applicant or joint accountholder, a card issuer
may consider the spouse's income or assets to the extent that a federal
or state statute or regulation grants the applicant an ownership
interest in that income or those assets. For example, assume that a
consumer is applying for a credit card account, but the consumer's
spouse is not a joint applicant. If the consumer and the spouse reside
in a community property state where state law grants the consumer joint
ownership of income or assets acquired by the spouse during the
marriage, the income or assets are considered the consumer's income or
assets for purposes of the Sec. 226.51(a) analysis.
The Board acknowledges that the proposed amendments to Sec. 226.51
and its commentary could prevent a consumer without income or assets
from opening a credit card account despite the fact that the consumer
has access to (but not an ownership interest in) the income or assets
of a spouse or other household member. However, the Board has
previously concluded that it would be inconsistent with the intent of
the Credit Card Act for a card issuer to issue a credit card to a
consumer who does not have any income or assets. See Sec.
226.51(a)(1)(ii). Furthermore, a consumer without independent income or
assets could still open a credit card account by applying jointly with
a spouse or household member who has sufficient income or assets. See
comment 51(a)(1)-6. Nevertheless, the Board solicits comment on whether
it would be appropriate to provide greater flexibility in these
circumstances.
The Board also notes that, as discussed in the February 2010 Final
Rule, neither the Credit Card Act nor Sec. 226.51 requires
verification of information provided by a consumer regarding income or
assets. See 75 FR 7721. Thus, while a card issuer that, for example,
prompts applicants to provide household income on an application form
could not rely on that information by itself to satisfy the
requirements of Sec. 226.51(a), a card issuer that requests on the
application form that applicants provide their own income is not
required to verify that the income provided by the applicant does not
include household income.
Finally, consistent with the proposed amendments to Sec. Sec.
226.9, 226.16, and 226.55 regarding fees that increase after a
specified period of time, the Board
[[Page 67475]]
would amend comment 51(a)(2)-3 to clarify that, when estimating the
required minimum periodic payments for purposes of the safe harbor in
Sec. 226.51(a)(2)(ii), the issuer must use the fee that will apply
after the specified period. This approach is consistent with the
guidance regarding promotional rates in comment 51(a)(2)-2.
Section 226.52 Limitations on Fees
52(a) Limitations Prior to Account Opening and During First Year After
Account Opening
Section 226.52(a)(1) generally limits the total amount of fees that
a consumer may be required to pay with respect to a credit card account
under an open-end (not home-secured) consumer credit plan to 25 percent
of the account's credit limit at account opening.\5\ This limitation
applies ``during the first year after the account is opened.'' However,
the Board understands that some card issuers are requiring consumers to
pay application, processing, or similar fees prior to account opening
that, when combined with other fees charged after account opening,
exceed the 25 percent threshold in Sec. 226.52(a)(1). As discussed
below, to the extent that Sec. 226.52(a)(1) permits this practice, the
Board is concerned that the regulation is inconsistent with the
purposes of TILA (as amended by the Credit Card Act). Accordingly,
pursuant to its authority under TILA Section 105(a) and Section 2 of
the Credit Card Act, the Board proposes to amend Sec. 226.52(a)(1) to
apply to fees the consumer is required to pay prior to account opening.
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\5\ Late payment fees, over-the-limit fees, and returned payment
fees are exempt from this requirement, as are fees that the consumer
is not required to pay with respect to the account. See Sec.
226.52(a)(2).
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The Credit Card Act amended TILA Section 127 by creating a new
paragraph (n). See Credit Card Act Sec. 105. Section 127(n)(1)
provides that, ``[i]f the terms of a credit card account under an open
end consumer credit plan require the payment of any fees (other than
any late fee, over-the-limit fee, or fee for a payment returned for
insufficient funds) by the consumer in the first year during which the
account is opened in an aggregate amount in excess of 25 percent of the
total amount of credit authorized under the account when the account is
opened, no payment of any fees (other than any late fee, over-the-limit
fee, or fee for a payment returned for insufficient funds) may be made
from the credit made available under the terms of the account.'' 15
U.S.C. 1637(n)(1). Section 127(n)(2) further provides that Section
127(n) may not ``be construed as authorizing any imposition or payment
of advance fees otherwise prohibited by any provision of law.'' 15
U.S.C. 1637(n)(2).
As discussed in the February 2010 Final Rule, the Board believes
that Section 127(n) was intended to prevent card issuers from requiring
consumers to pay excessive fees in order to obtain a credit card
account. See 75 FR 7724-7726. Many subprime credit card issuers require
payment of substantial one-time fees when an account is opened (such as
application fees, program fees, and annual fees). By linking the
maximum amount of permissible fees to the amount of credit extended,
Section 127(n)(1) and Sec. 226.52(a)(1) establish a direct
relationship between the costs and benefits associated with opening a
credit card account. If, for example, a card issuer provides a consumer
with a $500 credit limit when the account is opened, the issuer is
prohibited from requiring the consumer to pay more than $125 in non-
exempt fees at account opening. Furthermore, in order to ensure that
the statutory relationship between fees and the account's credit limit
is maintained for a reasonable period of time, Section 127(n)(1) and
Sec. 226.52(a)(1) apply for one year after an account is opened. Thus,
a card issuer that charges non-exempt fees that equal 25 percent of the
credit limit at account opening cannot require the consumer to pay any
transaction fees, monthly maintenance fees, or other non-exempt fees
for one year after account opening.
52(a)(1) General Rule
The Board understands that, because Sec. 226.52(a)(1) states that
its limitations apply ``during the first year after the account is
opened,'' there has been some uncertainty as to whether those
limitations apply to fees that a consumer is required to pay prior to
account opening. As noted above, some card issuers are currently
requiring consumers to pay application or processing fees prior to
account opening that, when combined with other fees charged to the
account after account opening, exceed 25 percent of the account's
initial credit limit. While this practice is consistent with the
current language of Sec. 226.52(a)(1), the Board believes that it is
inconsistent with intent of Section 127(n)(1) insofar as it disturbs
the statutory relationship between the costs and benefits of opening a
credit card account. Accordingly, in order to effectuate the purpose of
Section 127(n)(1), the Board proposes to use its authority under TILA
Section 105(a) and Section 2 of the Credit Card Act to amend Sec.
226.52(a)(1) to apply to fees the consumer is required to pay before
account opening and during the first year after account opening.\6\
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\6\ Although TILA Section 127(n)(2) refers to the ``imposition
or payment of advance fees,'' the Board does not interpret this
reference as excluding ``advance fees'' from the application of
Section 127(n)(1). On the contrary, Section 127(n)(2) specifically
states that Section 127(n) cannot ``be construed as authorizing any
imposition or payment of advance fees otherwise prohibited by any
provision of law,'' which the Board understands to mean that a fee
that falls under the 25 percent threshold may nevertheless be
subject to other legal restrictions. For example, comment 52(a)(3)-1
cites 16 CFR Sec. 310.4(a)(4), which prohibits any telemarketer or
seller from ``[r]equesting or receiving payment of any fee or
consideration in advance of obtaining a loan or other extension of
credit when the seller or telemarketer has guaranteed or represented
a high likelihood of success in obtaining or arranging a loan or
other extension of credit for a person.''
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The Board is also aware of some confusion regarding when the one-
year period in Sec. 226.52(a)(1) begins and ends. For this reason, the
Board proposes to further amend Sec. 226.52(a)(1) to provide that, for
purposes of that paragraph, an account is considered open no earlier
than the date on which the account may first be used by the consumer to
engage in transactions. This approach is generally consistent with
Sec. 226.5(b)(1)(i), which provides that the account-opening
disclosures required by Sec. 226.6 must be provided before the first
transaction is made under the plan. Although Sec. 226.5(b)(1)(iv) and
(b)(1)(v) permit creditors to collect membership fees and application
fees excludable from the finance charge under Sec. 226.4(c)(1) before
providing account-opening disclosures in certain circumstances, the
Board is concerned that, because the ability to engage in transactions
is a primary benefit of a credit card account, it would be inconsistent
with the purpose of Section 127(n)(1) if the one-year period expired
less than one year after the consumer could first use the account for
transactions. However, because card issuers may have different
processes for opening credit card accounts, the Board solicits comment
on any operational difficulties posed by this amendment.
The Board also understands that the references in Sec.
226.52(a)(1) and comment 52(a)(1)-1 to the charging of fees to a credit
card account have raised concerns as to whether Sec. 226.52(a)(1)
permits card issuers to require consumers to pay an unlimited amount of
fees with respect to a credit card account so long as none of those
fees are actually charged to the account. Although this language was
based on the language of the Credit Card Act, the Board does not
believe that Congress intended this result. Indeed, as discussed in the
February 2010 Final
[[Page 67476]]
Rule, the Board believes that Congress intended the 25 percent
limitation to apply not only to fees charged to a credit card account
but also to fees collected from other sources with respect to the
account (such as fees that are charged to a consumer's deposit
account). See 75 FR 7724-7726. Accordingly, in order to resolve any
ambiguity, the Board would use its authority under TILA Section 105(a)
and Section 2 of the Credit Card Act to simplify Sec. 226.52(a)(1) by
removing this language. The Board would also make conforming amendments
to comment 52(a)(1)-1.
The Board also proposes to amend the commentary to Sec.
226.52(a)(1) for consistency with the proposed revisions discussed
above and to make certain non-substantive clarifications and
corrections.
52(a)(2) Fees Not Subject to Limitations
In addition, the Board understands that there has been some
uncertainty as to whether minimum interest charges are subject to Sec.
226.52(a)(1). The Board has previously stated elsewhere in Regulation Z
that such charges should be treated as fees. See comment 7(b)(6)-4.
Accordingly, for consistency, the Board proposes to amend comment
52(a)(2)-1 to clarify that, while Sec. 226.52(a)(1) does not apply to
charges attributable to periodic interest rates, it applies to charges
imposed as a substitute for interest when the interest charge would not
otherwise exceed a minimum threshold. In addition, the Board would
clarify that Sec. 226.52(a)(1) applies to other fixed finance charges.
52(a)(3) Rule of Construction
The Board proposes to correct a typographical error in Sec.
226.52(a)(3) by replacing the words ``This paragraph (a)'' with
``Paragraph (a) of this section.''
52(b) Limitations on Penalty Fees
Section 226.52(b)(1) prohibits card issuers from imposing fees for
violating the terms or other requirements of an open-end (not home-
secured) consumer credit plan unless the dollar amount of the fee
either represents a reasonable proportion of the total costs incurred
by the issuer as a result of the type of violation or complies with the
applicable safe harbor amount. Furthermore, under Sec. 226.52(b)(2),
the dollar amount of the fee cannot exceed the dollar amount associated
with the violation and a card issuer cannot impose more than one fee
based on a single event or transaction. In order to facilitate
compliance, the Board proposes to amend Sec. 226.52(b) and the
accompanying commentary to provide additional guidance and illustrative
examples.
52(b)(1)(ii) Safe Harbors
The safe harbors in Sec. 226.52(b)(1)(ii)(A)-(B) provide that a
card issuer may impose a fee of $25 for an initial violation and a fee
of $35 for any additional violation of the same type during the next
six billing cycles. As discussed in the June 2010 Final Rule, the Board
believes that permitting card issuers to impose a higher fee for
repeated violations during a relatively brief period generally reflects
the increased costs incurred by issuers as a result of repeated
violations, deters future violations, and addresses consumer conduct
that is more indicative of loss. See 75 FR 37531-37534, 37540-37543.
The safe harbors in Sec. 226.52(b)(1)(ii) address circumstances in
which a violation is repeated in one of the six billing cycles
following the billing cycle during which the initial violation
occurred. However, the safe harbors do not expressly address
circumstances in which a repeated violation occurs in the same billing
cycle as the initial violation. The Board would correct this oversight
by amending Sec. 226.52(b)(1)(ii)(B) to state that a card issuer may
impose a $35 fee for a subsequent violation of the same type that
occurs during the same billing cycle or during the next six billing
cycles. The Board would also make additional, non-substantive
clarifying amendments to Sec. 226.52(b)(1)(ii).\7\
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\7\ In particular, the Board would move the language in Sec.
226.52(b)(1)(ii)(A) and (B) regarding adjustments to the safe harbor
amounts based on changes in the Consumer Price Index to a new Sec.
226.52(b)(1)(ii)(D).
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There are relatively few circumstances in which a card issuer may
impose multiple fees for multiple violations of the same type during a
billing cycle. Section 226.56(j)(1) prohibits card issuers from
imposing more than one over-the-limit fee per billing cycle.
Furthermore, Sec. 226.52(b)(2)(ii) prohibits the imposition of more
than one penalty fee based on a single event or transaction, which
prevents card issuers from imposing more than one late payment fee
during a billing cycle. In addition, as discussed in comment
52(b)(2)(i)-1, a card issuer may not impose multiple returned payment
fees by submitting the same check for payment multiple times. However,
if, for example, a consumer makes two separate payments that are
returned during the same billing cycle, the Board believes that it is
consistent with the purpose of the safe harbors in Sec.
226.52(b)(1)(ii)(A)-(B) to permit the card issuer to impose a $35 fee
for the second returned payment. Accordingly, the Board would revise
Sec. 226.52(b)(1)(ii)(B) to clarify that this is permitted. The Board
would also amend comment 52(b)(1)(ii)-1 for consistency with the
proposed revisions to Sec. 226.52(b)(1)(ii)(A)-(B) and provide an
illustrative example in comment 52(b)(2)(ii)-1.
In addition, the Board would revise comment 52(b)(1)(ii)-1.ii to
provide additional guidance regarding the relationship between the safe
harbors in Sec. 226.52(b)(1)(ii), the prohibition on imposing multiple
fees based on a single event or transaction in Sec. 226.52(b)(2)(ii),
and the limitations on fees for exceeding the credit limit in Sec.
226.56(j)(1). Consistent with the Credit Card Act, Sec. 226.56(j)(1)
permits card issuers to impose multiple over-the-limit fees based on a
single over-the-limit transaction when the consumer does not make
payments sufficient to bring the balance under the credit limit by the
next payment due date (although no more than three fees may be imposed
with respect to any single transaction). See Credit Card Act Sec.
102(a); TILA Section 127(k); see also 75 FR 7751-7752. Because it
appears that Congress intended to permit multiple over-the-limit fees
based on a single over-the-limit transaction in these circumstances,
the Board does not believe that it would be appropriate to interpret
Sec. 226.52(b) as prohibiting such fees. Accordingly, the Board would
provide additional guidance in comment 52(b)(1)(ii)-1.ii clarifying
that, to the extent permitted by Sec. 226.56(j)(1), Sec.
226.52(b)(2)(ii) does not prohibit a card issuer from imposing fees for
exceeding the credit limit in consecutive billing cycles based on the
same over-the-limit transaction. The Board would further clarify that,
in these circumstances, the second and third over-the-limit fees
permitted by Sec. 226.56(j)(1) may be $35, consistent with the safe
harbor for repeated violations in Sec. 226.52(b)(1)(ii)(B). A cross-
reference would be inserted to comment 52(b)(2)(ii)-1, where similar
guidance and an illustrative example would also be provided.
52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation
Section 226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing
a fee based on account inactivity (including the consumer's failure to
use the account for a particular number or dollar amount of
transactions or a particular type of transaction). As an illustrative
example, comment 52(b)(2)(i)-5 states that Sec. 226.52(b)(2)(i)(B)(2)
prohibits a card issuer from imposing a $50 fee when a
[[Page 67477]]
consumer fails to use the account for $2,000 in purchases over the
course of a year. Furthermore, the comment clarifies that Sec.
226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a $50
annual fee on all accounts but waiving the fee if the consumer uses the
account for $2,000 in purchases over the course of a year.
The Board understands that comment 52(b)(2)(i)-5 has created some
confusion as to whether card issuers are prohibited from considering
account activity as a factor when, for example, responding to an
individual consumer's request that an annual fee be waived. This was
not the Board's intent. Instead, the example in comment 52(b)(2)(i)-5
was intended to clarify that card issuers are prohibited from achieving
indirectly through a systematic waiver of annual fees a result that is
directly prohibited by Sec. 226.52(b)(2)(i)(B)(2): Establishing a
program under which only consumers who do not use an account for at
least $2,000 in purchases over the course of a year are charged an
additional $50. Accordingly, the Board proposes to amend comment
52(b)(2)(i)-5 to clarify that, if a card issuer does not promote the
waiver or rebate of the annual fee for purposes of Sec. 226.55(e),
Sec. 226.52(b)(2)(i)(B)(2) does not prohibit the issuer from
considering account activity when waiving or rebating annual fees on
individual accounts (such as in response to a consumer's request). The
promotion of waivers and rebates is discussed in detail below with
respect to proposed Sec. 226.55(e).
52(b)(2)(ii) Multiple Fees Based On a Single Event or Transaction
The Board proposes to amend comment 52(b)(2)(ii)-1 to provide
additional examples further illustrating the application of Sec.
226.52(b)(2)(ii). Among other things, these examples clarify that--if
the required minimum periodic payment is not made during a billing
cycle and a late payment fee is imposed--the card issuer may include
the unpaid amount in the required minimum periodic payment due during
the next billing cycle and impose a second late payment fee under Sec.
226.52(b)(2)(ii) if the consumer fails to make the second minimum
payment. However, the examples also clarify that--if a consumer makes a
required minimum periodic payment by the applicable due date--the card
issuer may not impose a late payment fee based on the consumer's
failure to also pay past due amounts that the card issuer chose not to
include in that required minimum periodic payment.
The Board understands that, for loss mitigation and other purposes,
some card issuers do not include past due amounts in the required
minimum periodic payment. The Board acknowledges that this practice is
beneficial to consumers to the extent that it prevents some delinquent
consumers from becoming even more delinquent. For example, if a card
issuer does not include past due amounts in the required minimum
periodic payment, a consumer could remain one payment past due
indefinitely without ever becoming more than 60 days delinquent and
thereby avoid the application of a penalty rate to existing balances
pursuant to Sec. 226.55(b)(4). However, a consumer who makes the
required minimum periodic payment reflected on the periodic statement
by the due date should not be charged a late payment fee. It is
inconsistent with the purpose of Sec. 226.52(b)(2)(ii) for a consumer
to be charged more than one late payment fee based on the failure to
make a single required minimum periodic payment.
The Board proposal also amends comment 52(b)(2)(ii)-1 to provide an
example of the application of Sec. 226.52(b)(2)(ii) in circumstances
where an over-the-limit fee and a returned payment fee could be based
on a single event or transaction such that Sec. 226.52(b)(2)(ii) would
only permit the card issuer to impose a single fee. In addition, the
Board would provide an example illustrating that Sec. 226.52(b)(2)(ii)
would permit multiple returned payment fees to be imposed during a
single billing cycle if each fee was based on a separate returned
payment.
Section 226.53 Allocation of Payments
53(b) Special Rules
Section 226.53(a) implements TILA Section 164(b)(1), which requires
that card issuers generally allocate amounts paid by the consumer in
excess of the required minimum periodic payment first to the balance
with the highest annual percentage rate and then to other balances in
descending order based on the applicable rate. However, TILA Section
164(b)(2) and Sec. 226.53(b)(1) set forth a special rule for accounts
with balances subject to a deferred interest or similar program. In
these circumstances, a card issuer is required to allocate excess
payments first to the balance subject to the program during the two
billing cycles immediately preceding expiration of the program. In
addition, in the February 2010 Final Rule, the Board used its authority
under TILA Section 105(a) and Section 2 of the Credit Card Act to adopt
Sec. 226.53(b)(2), which permits card issuers to allocate excess
payments among the balances in the manner requested by the consumer
when a balance on the account is subject to a deferred interest or
similar program. See 75 FR 7728-7729.
The Board understands that there is some concern regarding the
appropriate allocation of payments when an account has multiple
balances, one of which is secured. For example, some private label
credit cards permit consumers to purchase equipment that is subject to
a security interest (such as a motorcycle, snowmachine, or riding
lawnmower) as well as related items that are not (such as helmets and
other accessories). If the rate that applies to an unsecured balance is
higher than the rate that applies to the secured balance, Sec.
226.53(a) currently requires the card issuer to apply excess payments
first to the unsecured balance. While this allocation method is
generally beneficial to consumers insofar as it minimizes interest
charges, it could also make it difficult for a consumer to pay off the
secured balance in order to obtain a release of the security interest.
For example, if a consumer wishes to sell, trade in, or otherwise
dispose of the property in which the card issuer has a security
interest, Sec. 226.53(a) requires the consumer to pay off not only the
secured balance but also any other balances to which a higher rate
applies.
The Board believes that, in this narrow set of circumstances, it
may be beneficial to consumers to provide greater flexibility regarding
the allocation of excess payments. Accordingly, pursuant to its
authority under TILA Section 105(a) and Section 2 of the Credit Card
Act, the Board proposes to redesignate the special rules for accounts
with deferred interest or similar balances as Sec. 226.53(b)(1)(i) and
(b)(1)(ii) and to adopt a new special rule for accounts with secured
balances in Sec. 226.53(b)(2). Specifically, the revised Sec.
226.53(b)(2) would provide that, when a balance on a credit card
account under an open-end (not home-secured) consumer credit plan is
secured, the card issuer may at its option allocate any amount paid by
the consumer in excess of the required minimum periodic payment to that
balance if requested by the consumer.
The Board would also revise the commentary to Sec. 226.53
consistent with the proposed revisions to Sec. 226.53(b). In
particular, the Board would clarify that the guidance in comment 53(b)-
3 on what constitutes a consumer request when an account has a deferred
interest or similar balance also applies when an account has a secured
balance.
[[Page 67478]]
Section 226.55 Limitations on Increasing Annual Percentage Rates, Fees,
and Charges
55(a) General Rule
Section 226.55 implements the restrictions on increases in annual
percentage rates and certain fees and charges in TILA Sections 171 and
172. Section 226.55(a) prohibits card issuers from increasing an annual
percentage rate or any fee or charge required to be disclosed under
Sec. 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) unless specifically
permitted by one of the exceptions in Sec. 226.55(b). The Board
understands that there has been some confusion as to whether an
increase in a rate, fee, or charge is subject to this prohibition when
the consumer was previously notified of the circumstances giving rise
to the increase. Accordingly, in order to remove any ambiguity, the
Board proposes to amend comment 55(a)-1 to clarify that--except as
specifically provided in Sec. 226.55(b)--the prohibition in Sec.
226.55(a) applies even if the circumstances under which an increase
will occur are disclosed in advance.
55(b) Exceptions
Section 226.55(b) contains exceptions to the general rule in Sec.
226.55(a). As a general matter, these exceptions are not mutually
exclusive, and a card issuer may increase a rate, fee, or charge
pursuant to one exception even if that increase would not be permitted
under a different exception. Comment 55(b)-1 provides illustrative
examples of the interaction between the different exceptions in Sec.
226.55(b).
The Board proposes to amend comment 55(b)-1 to provide additional
guidance regarding the interaction between the exception in Sec.
226.55(b)(4) for accounts that become more than 60 days delinquent, the
exception in Sec. 226.55(b)(5) for accounts subject to a workout or
temporary hardship arrangement, and the exception in Sec. 226.55(b)(6)
for accounts subject to the SCRA or a similar federal or state statute
or regulation. Section 226.55(b)(4)(ii) implements the ``cure''
provision in TILA Section 171(b)(4)(B), which allows a consumer whose
rate has been increased as a result of a delinquency of more than 60
days to ``terminate'' the increase (in other words, reduce the rate to
the pre-existing value) by making the next six required minimum
payments by the due date. For example, if the rate on a $1,000 balance
was increased from 12% to 30% on January 31 based on a delinquency of
more than 60 days, Sec. 226.55(b)(4)(ii) requires the card issuer to
reduce the rate on any remaining portion of the $1,000 balance to 12%
if the consumer makes the required minimum periodic payments for
February, March, April, May, June, and July by the relevant due date.
However, the Board understands that, in certain circumstances, a
consumer may be placed on a workout or temporary hardship arrangement
or enter military service after a rate has been increased based on a
delinquency of more than 60 days but before the consumer has made the
six timely payments necessary to obtain a reduction under Sec.
226.55(b)(4)(ii). Section 226.55(b)(5) implements TILA Section
171(b)(3), which provides that a card issuer may increase the rate on
an existing balance when a workout or temporary hardship arrangement is
completed or fails, so long as the increased rate does not exceed the
rate that applied prior to the arrangement. For example, if a card
issuer reduced a consumer's rate on a $1,000 balance from 30% to 15% as
part of a workout or temporary hardship arrangement, Sec. 226.55(b)(5)
would permit the card issuer to increase the rate on any remaining
portion of the $2,000 balance to 30% upon completion or failure of the
arrangement.
Similarly, when the rate that applies to a balance is reduced
pursuant to the SCRA because the consumer enters military service,
Sec. 226.55(b)(6) permits the card issuer to reinstate the pre-
existing rate for that balance once the consumer leaves military
service. For example, if a card issuer reduced a consumer's rate on a
$1,000 balance from 30% to 6% pursuant to the SCRA, Sec. 226.55(b)(6)
would permit the card issuer to increase the rate on any remaining
portion of the $1,000 balance to 30% once the consumer leaves military
service and the SCRA no longer applies.
Accordingly, when a consumer obtains a Sec. 226.55(b)(4)(ii)
reduction during a workout or temporary hardship arrangement or while
in military service, it is unclear whether Sec. 226.55(b)(5) or (b)(6)
would permit the card issuer to negate that reduction by returning
existing balances to the rate that applied prior to commencement of the
arrangement or military service. Because Sec. 226.55(b)(4)(ii)
implements a specific statutory requirement that a rate increase based
on a delinquency of more than 60 days be terminated if the consumer
makes the next six required minimum payments on time, the Board
believes it would be inconsistent with the intent of that requirement
to interpret the exceptions in Sec. 226.55(b)(5) and (b)(6) as
overriding the reduction in rate. Thus, the Board would revise comment
55(b)-1 to clarify that, if Sec. 226.55(b)(4)(ii) requires a card
issuer to decrease the rate, fee, or charge that applies to a balance
while the account is subject to a workout or temporary hardship
arrangement or subject to the SCRA or a similar federal or state
statute or regulation, the card issuer may not impose a higher rate,
fee, or charge on that balance pursuant to Sec. 226.55(b)(5) or
(b)(6). The Board would also provide the following illustrative
example: Assume that, on January 1, the annual percentage rate that
applies to a $1,000 balance is increased from 12% to 30% pursuant to
Sec. 226.55(b)(4). On February 1, the rate on that balance is
decreased from 30% to 15% consistent with Sec. 226.55(b)(5) as a part
of a workout or temporary hardship arrangement. On July 1, Sec.
226.55(b)(4)(ii) requires the card issuer to reduce the rate that
applies to any remaining portion of the $1,000 balance from 15% to 12%.
If the consumer subsequently completes or fails to comply with the
terms of the workout or temporary hardship arrangement, the card issuer
may not increase the 12% rate on any remaining portion of the $1,000
balance pursuant to Sec. 226.55(b)(5).
55(b)(1) Temporary Rate, Fee, or Charge Exception
Section 226.55(b)(1) implements TILA Section 171(b)(1), which
permits a card issuer to increase a temporary or promotional rate upon
expiration of a period of at least six months, provided that the card
issuer discloses in advance the length of the period and the rate that
will apply after expiration. However, neither Sec. 226.55(b)(1) nor
TILA Section 171(b)(1) addresses circumstances in which an annual fee
or other fee or charge subject to Sec. 226.55 increases after a
specified period of time. As discussed above, the Board declined to
adopt a specific exception for temporary or promotional fee programs in
the February 2010 Final Rule because the Credit Card Act did not
contain such an exception and because an exception did not appear to be
necessary. See 75 FR 7734 n. 48; see also id. 7699, 7706-7707. Indeed,
the Board noted that nothing in the February 2010 Final Rule prohibited
a creditor from providing notice of an increase in a fee at the same
time it temporarily reduces the fee; a creditor could provide
information regarding the temporary reduction in the same notice,
provided that it is not interspersed with the content required to be
disclosed pursuant to Sec. 226.9(c)(2)(iv). See 75 FR 7699; see also
comment 5a(b)(2)-4.
Nevertheless, as discussed above with respect to Sec.
226.9(c)(2)(v)(B), the Board
[[Page 67479]]
believes that, upon further review, it may be appropriate to use its
authority under TILA Section 105(a) and Section 2 of the Credit Card
Act to specifically address temporary or promotional programs for fees
or charges subject to Sec. 226.55 in order to encourage issuers to
disclose and structure such programs in a consistent manner that
enables consumers to understand the associated costs. Accordingly, the
Board proposes to amend Sec. 226.55(b)(1) to apply to temporary or
promotional programs for fees and charges required to be disclosed
under Sec. 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii). Thus, for
example, Sec. 226.55(b)(1) would permit a card issuer to increase an
annual fee after a specified period of time if the card issuer provides
the consumer in advance with a clear and conspicuous written disclosure
of the length of the period and the fee or charge that will apply after
expiration of the period.
In addition, the Board would amend comments 55(b)(1)-2 and -4 for
consistency with the proposed revisions to Sec. 226.55(b)(1), to
provide additional illustrative examples, and to make other non-
substantive clarifications. The Board would also add a new comment
55(b)(1)-5 to clarify that, although the limitations in Sec.
226.55(b)(1)(ii) on applying an increased rate to certain types of
transactions would also apply to increased fees or charges subject to
Sec. 226.55, card issuers generally are not prohibited from increasing
a fee or charge that applies to the account as whole (to the extent
consistent with the notice requirements in Sec. 226.9 and Sec.
226.55(b)(3)). Finally, the Board would add an additional example to
comment 55(b)-3 to clarify the application of Sec. 226.55 when the
specified time periods for temporary rates overlap.
55(b)(3) Advance Notice Exception
Section 226.55(b)(3) provides that a card issuer may generally
increase the rate, fee, or charge that will apply to new transactions
after complying with the notice requirements in Sec. 226.9. However,
Sec. 226.55(b)(3)(iii) further provides that a card issuer cannot use
this exception to increase a rate, fee, or charge during the first year
after account opening.
The Board understands that there has been some confusion regarding
the circumstances under which an increased fee or charge applies to an
existing balance (as opposed to the account as a whole) and therefore
does not qualify for the exception in Sec. 226.55(b)(3). In
particular, there has been uncertainty as to whether an increased fee
or charge can be applied to a closed account or an account on which
transaction privileges have been suspended. Because an account cannot
be used for new transactions in these circumstances, an increased fee
or charge subject to Sec. 226.55 could only be applied to the
account's existing balance. In addition, Sec. Sec.
226.52(b)(2)(i)(B)(3) and 226.55(d)(1) generally prohibit a card issuer
from applying a new or increased fee or charge to a closed account.
Accordingly, to provide greater clarity, the Board would amend Sec.
226.55(b)(3)(iii) to state that Sec. 226.55(b)(3) does not permit a
card issuer to increase a rate, fee, or charge subject to Sec. 226.55
while an account is closed or while the card issuer does not permit the
consumer to use the account for new transactions.
Finally, consistent with the proposed amendments to Sec.
226.52(a)(1), the Board would clarify that, for purposes of Sec.
226.55(b)(3)(iii), an account is considered open no earlier than the
date on which the account may first be used by the consumer to engage
in transactions.
55(b)(6) Servicemembers Civil Relief Act Exception
Section 226.55(b)(6) provides that, when a card issuer is required
by the SCRA to reduce the annual percentage rate for an account to 6%
when the consumer enters military service, the card issuer may increase
the rate once the SCRA no longer applies, subject to certain
limitations. However, Sec. 226.55(b)(6) does not address circumstances
in which the SCRA's broad definition of ``interest'' requires the card
issuer to reduce not only the annual percentage rate but also fees or
charges while the consumer is in military service. See 50 U.S.C. app.
527(d)(1) (defining ``interest'' as including ``service charges,
renewal charges, fees, or any other charges (except bona fide
insurance) with respect to an obligation or liability''). Accordingly,
the Board would amend Sec. 226.55(b)(6) and the relevant commentary to
clarify that, to the extent the SCRA also requires the card issuer to
reduce a fee or charge required to be disclosed under Sec.
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii), the card issuer is
generally permitted to increase that fee or charge once the SCRA no
longer applies.
The Board also understands that many states have enacted statutes
that--like the SCRA--require creditors to reduce rates, fees, and
charges while a consumer is in military service. See, e.g., La. Rev.
Stat. Ann. Sec. 29:312; N.Y. Mil. Law art. 13 Sec. 323-a; R.I. Gen.
Laws Sec. 30-7-10; Utah Code Ann. Sec. 39-7-111. Accordingly, in
order to clarify that Sec. 226.55 does not prevent a card issuer from
increasing a rate, fee, or charge to the pre-existing amount once a
state law requirement no longer applies, the Board would amend the
exception in Sec. 226.55(b)(6) to apply to decreases imposed pursuant
to the SCRA or ``a similar federal or state statute or regulation.''
Corresponding amendments would be made to the relevant commentary.
Finally, the Board understands that, while the SCRA and some
similar state statutes only require creditors to reduce the rates,
fees, and charges that apply to obligations incurred before the
consumer enters military service, some card issuers voluntarily apply
the reduced rate, fee, or charge to transactions that occur after the
consumer has entered military service. Accordingly, the Board would
adopt a new comment 55(b)(6)-2 clarifying that, if a card issuer
decreases all rates, fees, and charges to amounts that are consistent
with the SCRA or a similar federal or state statute or regulation
(including rates, fees, and charges that apply to new transactions),
the card issuer may increase those rates, fees, and charges consistent
with Sec. 226.55(b)(6). The Board would also revise the example in
current comment 55(b)(6)-2 to illustrate the application of this
guidance and redesignate that example as comment 55(b)(6)-3.
55(c) Treatment of Protected Balances
Section 226.55(c) addresses the treatment of ``protected
balances,'' which are the existing balances to which a card issuer may
not apply an increased rate, fee, or charge under Sec. 226.55. Comment
55(c)(1)-3 provides guidance regarding the application of increased
fees or charges to protected balances. In particular, this comment
clarifies that, while a card issuer is prohibited from applying an
increased fee or charge that is subject to Sec. 226.55 to a protected
balance, a card issuer is not prohibited from increasing a fee or
charge that applies to the account as a whole or to balances other than
the protected balance. The Board would revise this comment to clarify
that a card issuer's ability to increase a fee or charge is also
subject to the limitations in Sec. 226.55(b)(3)(iii) on increasing
fees during the first year after account opening, while an account is
closed, or while transaction privileges are suspended.
The Board would also add a new comment 55(c)(1)-4 clarifying that
nothing in Sec. 226.55 prohibits a card issuer from changing the
balance computation method that applies to new transactions as well as
protected
[[Page 67480]]
balances. However, the Board notes that, before changing the balance
computation method, a card issuer must comply with the notice
requirements in Sec. 226.9(c)(2).
55(e) Promotional Waivers or Rebates of Interest, Fees, and Other
Charges
Some card issuers offer promotional programs under which interest
charges or fees will be waived or rebated so long as the consumer pays
on time and otherwise complies with the account terms. For example, a
card issuer might offer a promotion under which interest accrues on
purchases at an annual percentage rate of 15% but will be waived for
six months if the consumer pays on time each billing cycle. While this
type of promotional program may be intended to encourage timely
payment, a consumer who relies on the promotion when making
transactions and then, for example, inadvertently pays one day late
will experience a significant and potentially unexpected increase in
the cost of those transactions. In contrast, if a consumer relies on a
promotional rate when making transactions, TILA Section 171(b)(1) and
Sec. 226.55(b)(1) do not permit the card issuer to increase the cost
of those transactions by revoking the promotional rate unless the
account becomes more than 60 days past due. Thus, the Board is
concerned that the revocation of promotional waiver or rebate programs
based on so-called ``hair trigger'' violations of the account terms may
be inconsistent with the purposes of the Credit Card Act.
In order to address these concerns, the Board is proposing to use
its authority under TILA Section 105(a) and Section 2 of the Credit
Card Act to add a new Sec. 226.55(e), which would clarify that, if a
card issuer promotes the waiver or rebate of interest, fees, or other
charges subject to Sec. 226.55, any cessation of the waiver or rebate
constitutes an increase in a rate, fee, or charge for purposes of Sec.
226.55. Thus, for example, if a card issuer promotes an interest waiver
program, the card issuer must comply with Sec. 226.55(b)(1) by
disclosing the length of the promotion and the rate that will apply
after the promotion expires. Furthermore, the card issuer would be
prohibited from effectively increasing the interest charges for
existing balances by ceasing or terminating the waiver during the
promotional period, unless the account becomes more than 60 days
delinquent consistent with Sec. 226.55(b)(4).
The Board notes that Sec. 226.55(e) is intended to address
promotional programs involving waivers or rebates of interest, fees,
and charges. The Board does not intend to restrict a card issuer's
ability to waive or rebate interest, fees, or other charges in order to
resolve disputes, address compliance concerns, or retain customers.
Accordingly, comment 55(e)-1 would clarify that nothing in Sec. 226.55
prohibits a card issuer from waiving or rebating finance charges due to
a periodic interest rate or a fee or charge required to be disclosed
under Sec. 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii). This comment
would also provide examples of promotional waiver or rebate programs
that would comply with Sec. 226.55.
Comment 55(e)-2 would clarify the circumstances under which a card
issuer would be considered to promote a waiver or rebate program for
purposes of Sec. 226.55(e). As a general matter, this comment would
follow the existing guidance regarding advertisements in Sec.
226.2(a)(2) and the accompanying commentary. Thus, a card issuer would
promote a waiver or rebate program for purposes of Sec. 226.55(e) if,
for example, it disclosed the waiver or rebate in a newspaper,
magazine, leaflet, promotional flyer, catalog, sign, or point-of-sale
display. Similarly, a card issuer would promote a waiver or rebate
program for purposes of Sec. 226.55(e) if disclosed the waiver or
rebate on radio or television or through electronic advertisements
(such as on the Internet). See comment 2(a)(2)-1.i. In contrast, a card
issuer generally would not promote a program for purposes of Sec.
226.55(e) if it disclosed the waiver or rebate in a communication that
is not an advertisement for purposes of Sec. 226.2(a)(2), such as in
educational materials that do not solicit business. See comment
2(a)(2)-1.ii.
However, the Board would deviate from the guidance in comment
2(a)(2)-1 in one important respect. Comments 2(a)(2)-1.ii.A and F
provide, respectively, as examples of communications that are not
advertisements ``direct personal contacts'' and ``[c]ommunications
about an existing credit account (for example, a promotion encouraging
additional or different uses of an existing credit card account).''
While these exclusions are appropriate for purposes of Sec.
226.2(a)(2), it would be inconsistent with the purpose of Sec.
226.55(e) to exclude from coverage waiver or rebate programs that are
promoted directly to existing account holders. Accordingly, comment
55(e)-2 would clarify that programs disclosed to existing account
holders are subject to Sec. 226.55(e), unless the disclosure is either
provided in relation to an inquiry or dispute about a specific charge
or occurs after the card issuer has waived or rebated the interest,
fees, or other charges. Thus, the comment would clarify that a card
issuer is not promoting a waiver or rebate for purposes of Sec.
226.55(e) if, for example, a consumer calls the issuer to dispute a fee
that appears on his or her periodic statement and the issuer offers to
waive the fee in order to resolve the dispute. Similarly, a card issuer
would not be promoting a waiver or rebate if, for example, it waives
interest charges that were erroneously imposed and then discloses that
waiver on a periodic statement or in a letter. This guidance is
consistent with the Board's desire to avoid restricting card issuers'
ability to waive or rebate interest, fees, or other charges in order to
resolve disputes, address compliance concerns, or retain customers.
Similarly, the comment would also provide a number of additional
examples of circumstances in which a waiver or rebate is not promoted
for purposes of Sec. 226.55(e), including when a card issuer
communicates with a consumer about a waiver or rebate in relation to an
inquiry or dispute about a specific charge, when a card issuer waives
or rebates interest, fees, or other charges in order to comply with a
legal requirement (such as the fee limitations in Sec. 226.52(a)),
when a card issuer discloses a grace period, and when a card issuer
provides an undisclosed period after the payment due date during which
interest, fees, or other charges are waived or rebated even if a
payment has not been received. The Board solicits comment on other
examples of circumstances in which a card issuer may waive or rebate
interest, fees, or charges subject to Sec. 226.55 without promoting
the waiver or rebate.
The Board understands that many card issuers promote rewards
programs under which consumers can earn points, cash back, or similar
benefits based on purchases, interest charges, or other factors. The
Board further understands that some card issuers condition these
benefits on the consumer making timely payments and otherwise complying
with the account terms. Because TILA Sections 171 and 172 do not
address these types of benefits, the loss of rewards generally does not
raise the same concerns as the loss of a waiver or rebate of interest,
fees, or other charges subject to Sec. 226.55. Accordingly, comment
55(e)-2 would clarify that a card issuer is not promoting a waiver or
rebate for purposes of Sec. 226.55(e) if it provides benefits (such as
rewards points or cash back based on purchases or finance charges) that
can be applied to the account as credits, provided that the benefits
are not promoted as reducing
[[Page 67481]]
interest, fees, or other charges subject to Sec. 226.55.
Finally, comment 55(e)-3 would provide guidance regarding the
relationship between Sec. 226.55(e) and a grace period. Specifically,
this comment would clarify that Sec. 226.55(e) does not apply to the
waiver of finance charges due to a periodic rate consistent with a
grace period, as defined in Sec. 226.5(b)(2)(ii)(3).
Section 226.58 Internet Posting of Credit Card Agreements
58(b) Definitions
58(b)(4) Card Issuer
The Board proposes to add new Sec. 226.58(b)(4) which would define
the term card issuer solely for purposes of Sec. 226.58. New Sec.
226.58(b)(4) would provide that, for purposes of Sec. 226.58, card
issuer or issuer means the entity to which a consumer is legally
obligated, or would be legally obligated, under the terms of a credit
card agreement.
The Board also proposes to add new comment 58(b)(4)-1, which would
provide the following example of how the definition of card issuer
would apply. Bank X and Bank Y work together to issue credit cards. A
consumer that obtains a credit card issued pursuant to this arrangement
between Bank X and Bank Y is subject to an agreement that states ``This
is an agreement between you, the consumer, and Bank X that governs the
terms of your Bank Y Credit Card.'' The card issuer in this example is
Bank X, because the agreement creates a legally enforceable obligation
between the consumer and Bank X. Bank X is the issuer even if the
consumer applied for the card through a link on Bank Y's Web site and
the cards prominently feature the Bank Y logo on the front of the card.
The Board understands that, in some cases, more than one
institution is involved in the administration of a credit card program.
For example, a smaller bank may partner with a larger bank to market
credit cards to the smaller bank's customers. The Board also
understands that the terms of these arrangements can vary, for example
with respect to which institution uses its name and brand in marketing
materials, develops and implements underwriting criteria, sets interest
rates and other terms, approves applications, provides monthly
statements and other disclosures to consumers, collects payments, and
absorbs the risk of default or fraud.
Section 226.2(a)(7) of Regulation Z defines a card issuer as a
person that issues a credit card or that person's agent with respect to
the card. Under this definition, more than one card issuer may be
associated with a single credit card account. This definition may be a
source of confusion with respect to Sec. 226.58. For example, the
Sec. 226.58(c)(5) de minimis exception provides that an issuer is not
required to submit agreements to the Board under Sec. 226.58(c)(1) if
the issuer has fewer than 10,000 open credit card accounts as of the
last business day of the calendar quarter. If two institutions are
involved in issuing a credit card, one institution may have fewer than
10,000 open accounts while the other has more than 10,000 open
accounts. It may be difficult to determine whether the de minimis
exception applies in such cases. In addition, Sec. 226.58(d) requires
an issuer to post and maintain on its publicly available Web site the
credit card agreements the issuer is required to submit to the Board.
Where two institutions are involved in issuing a credit card, it may be
unclear which institution should post and maintain the agreements on
its Web site. Similarly, Sec. 226.58(e)(2) provides that an issuer
that does not maintain an interactive Web site is permitted to allow
individual cardholders to request copies of their agreements solely by
calling a readily available telephone line, rather than both by using
the issuer's Web site and by calling a readily available telephone
line. If two institutions are involved in issuing a credit card, one
institution may maintain a Web site from which cardholders can access
specific information about their accounts while the other does not. In
such cases, it may be difficult to determine whether the Sec.
226.58(e)(2) special rule applies.
The Board therefore believes that it would be beneficial to clarify
which institution is the card issuer for purposes of Sec. 226.58. The
Board is proposing to define card issuer with respect to a particular
agreement as the entity to which a consumer is legally obligated, or
would be legally obligated, under the terms of that agreement. The
Board is proposing this approach for several reasons.
First, the proposed definition creates a bright-line rule that
would enable institutions involved in issuing credit cards to determine
their obligations under Sec. 226.58. Second, the proposed definition
is consistent with the actual legal relationship into which a consumer
enters under a credit card agreement.
Third, the Board understands that the institution to which the
consumer is legally obligated under the agreement in most cases will be
in a better position to provide accurate, up-to-date agreements both to
the Board and to consumers. The Board understands that, in many cases,
the institution that is a party to the agreement also is the
institution that prepares the agreement, sends the agreement to
consumers at account opening, and updates and revises the agreement.
That institution likely would be in the best position to determine
which agreements currently are offered to the public and to identify
the agreement to which a particular cardholder is subject. The Board
also understands that, in many cases, the institution that is a party
to the agreement also is the institution that maintains a Web site on
which cardholders can obtain information about their accounts (if such
a Web site is maintained). Many consumers would look to such a Web site
when attempting to obtain a copy of their credit card agreements.
Fourth, the Board understands that an institution that partners
with multiple other institutions to issue credit cards in many cases
will use the same agreement for all of the credit cards issued in
connection with those arrangements. Therefore, while the number of
credit cards issued with a given partner institution may be small, the
total number of consumers subject to the corresponding agreement may be
quite large. The Board believes that it would be beneficial to have
such agreements submitted to the Board for posting on the Board's Web
site.
The Board is aware that consumers in some cases may be unsure about
which institution issues their credit card. For example, a consumer may
apply for a credit card through a link on the Web site of a bank with
which the consumer has a pre-existing relationship, and the face of the
credit card may prominently display that bank's logo. In some such
cases, the consumer may assume that the card is issued by that bank,
even though Web site disclaimers, the credit card agreement, the back
of the credit card, and other materials explain that the card is issued
by another institution. The Board believes, however, that institutions
can take steps to alleviate this confusion, for example by disclosing
the identity of the other institution and providing contact information
for the other institution or a link to the other institution's Web
site. The Board also believes that consumers would benefit from having
a clearer understanding of to what institution they are legally
obligated under a credit card agreement.
The proposed definition would apply solely with respect to Sec.
226.58 and would not change the definition of card issuer for purposes
of other provisions
[[Page 67482]]
of Regulation Z. The proposed definition therefore should not affect
other Regulation Z compliance obligations.
The Board solicits comment on the proposed definition of card
issuer, on what additional guidance with respect to the definition
would be helpful, and on whether there are alternative, preferable
approaches to defining card issuer for purposes of Sec. 226.58.
As a result of the Board's proposal to add new Sec. 226.58(b)(4)
defining the term card issuer, the Board proposes to renumber
Sec. Sec. 226.58(b)(4), (b)(5), (b)(6), and (b)(7) as Sec. Sec.
226.58(b)(5), (b)(6), (b)(7), and (b)(8), respectively. The Board also
proposes to make conforming changes to references to these subsections
included in other subsections of Sec. 226.58 and the official staff
commentary.
58(b)(6) Pricing Information
The Board proposes to amend the definition of pricing information
included in Sec. 226.58(b) to omit the information listed in Sec.
226.6(b)(4) from the definition. The Board continues to believe that
consumers should receive the more robust disclosure regarding rates
required by Sec. 226.6(b)(4) in the account-opening disclosures
governed by Sec. 226.6(b). However, under Sec. 226.58 it appears that
at least some of the additional disclosures required by Sec.
226.6(b)(4) may be a source of confusion to both consumers and issuers.
For example, Sec. 226.6(b)(4) requires card issuers to disclose the
periodic rate as well as the corresponding APR. Account-opening
disclosures reflect the terms of a specific consumer's account at the
time that account is opened. The APR is disclosed as a value, and the
corresponding periodic rate therefore is relatively straightforward to
state and understand. However, agreements submitted to the Board under
Sec. 226.58 reflect a range of pricing terms that may be offered in
connection with a set of terms and conditions and are updated only
quarterly. Section 226.58(c)(8)(ii)(C) therefore requires issuers to
identify the index or formula and the margin used to set a variable
rate, rather than the value of the rate or the value of the index. In
this context, it is difficult to state the corresponding periodic rate
in a way that is accurate and understandable. With respect to other
information required to be disclosed under Sec. 226.6(b)(4), such as
the circumstances and frequency under which a variable rate may
increase and any limitation on the amount a variable rate may change,
it is not clear whether this information is useful to consumers when
reviewing agreements under Sec. 226.58.
The Board solicits comment on whether the definition of pricing
information should continue to include some or all of the additional
disclosure regarding rates specified in Sec. 226.6(b)(4), or whether
the Board should omit this disclosure from the definition as proposed.
58(c) Submission of Agreements to Board
58(c)(1) Quarterly Submissions
Quarterly Submission Deadlines. The Board proposes to amend Sec.
226.58(c)(1) to state that quarterly submissions must be sent to the
Board no later than the first business day on or after January 31,
April 30, July 31, and October 31 of each year. These quarterly
submission deadlines were inadvertently omitted from the February 2010
Final Rule.
Submission of Amended Agreements. The Board proposes to revise
Sec. 226.58(c)(1)(iii) to clarify that issuers are required to submit
amended agreements to the Board only if the issuer offered the amended
agreement to the public as of the last business day of the preceding
calendar quarter. Amended agreements that the issuer no longer offered
to the public as of the last business day of the preceding calendar
quarter are not required to be submitted to the Board.
The Board also proposes to revise Sec. 226.58(c)(3) regarding
amended agreements, as discussed below.
Notice of Withdrawal of Agreements. The Board proposes to amend
Sec. 226.58(c)(1)(iv) to include cross references to Sec. Sec.
226.58(c)(6) and (c)(7), in addition to Sec. Sec. 226.58(c)(4) and
(c)(5). These cross references were unintentionally omitted from the
February 2010 Final Rule.
58(c)(2) Timing of First Two Submissions
The Board proposes to delete the Sec. 226.58(c)(2) special rules
for the initial and second submissions to the Board and to reserve
Sec. 226.58(c)(2). Section 226.58(c)(2) provided special rules for the
timing and contents of submissions required to be sent to the Board by
February 22, 2010, and August 2, 2010. These special rules were
necessary to reconcile the statutorily-mandated February 22, 2010,
initial submission deadline with the ongoing reporting schedule based
on calendar quarters set forth in the February 2010 Final Rule. Because
the February 22, 2010, and August 2, 2010, deadlines have passed, Sec.
226.58(c)(2) has no prospective relevance. The Board therefore proposes
to delete the special rules related to those deadlines and reserve this
section.
58(c)(3) Amended Agreements
The Board proposes to amend Sec. 226.58(c)(3) to clarify that
issuers are required to submit amended agreements to the Board only if
the issuer offered the amended agreement to the public as of the last
business day of the preceding calendar quarter. Amended agreements that
the issuer no longer offered to the public as of the last business day
of the calendar quarter should not be submitted to the Board.
The Board also proposes to revise comment 58(c)(3)-2 to reflect
this clarification and to add new comment 58(c)(3)-3, which would
provide the following example of the application of revised Sec.
226.58(c)(3): On December 31 a card issuer offers two agreements,
Agreement A and Agreement B. The issuer submits these agreements to the
Board by January 31 as required by Sec. 226.58. On February 15, the
issuer amends both Agreement A and Agreement B. On February 28, the
issuer stops offering Agreement A to the public. On March 15, the
issuer amends Agreement B a second time. As a result, on March 31, the
last business day of the calendar quarter, the issuer offers to the
public one agreement--Agreement B as amended on March 15. By the April
30 quarterly submission deadline, the issuer must: (1) Notify the Board
that it is withdrawing Agreement A because Agreement A is no longer
offered to the public; and (2) submit to the Board Agreement B as
amended on March 15. The issuer should not submit to the Board either
Agreement A as amended on February 15 or the earlier version of
Agreement B (as amended on February 15), as neither was offered to the
public on March 31, the last business day of the calendar quarter.
The Board also proposes to renumber existing comment 58(c)(3)-3,
regarding change-in-terms notices, as 58(c)(3)-4.
58(c)(8) Form and Content of Agreements Submitted to the Board
The Board proposes to revise Sec. 226.58(c)(8)(i)(C)(1) to clarify
that billing rights notices are not deemed to be part of the agreement
for purposes of Sec. 226.58 and therefore are not required to be
included in agreements submitted to the Board. The Board understands
that the appropriate treatment of billing rights notices under this
provision has been a source of confusion for card issuers and others.
The Board therefore proposes to specifically indicate in Sec.
226.58(c)(8)(i)(C)(1) that billing rights notices are disclosures
required by state or federal law that, like affiliate
[[Page 67483]]
marketing notices, privacy policies, and E-Sign Act disclosures, are
not considered to be part of the agreement for purposes of Sec.
226.58.
It is important to note that Sec. 226.58(c)(8)(i)(C)(1) is not
intended to provide an exhaustive list of the state and federal law
disclosures that are not deemed to be part of an agreement under Sec.
226.58. As indicated by the use of the phrase ``such as,'' the listed
disclosures are merely examples of ``disclosures required by state or
federal law.'' The Board does not believe it is feasible to include in
Sec. 226.58(c)(8)(i)(C)(1) a comprehensive list of all such
disclosures, as such a list would be extensive and would change as
state and federal laws and regulations are amended. However, because
billing rights notices appear to be a specific source of confusion, the
Board is proposing to address their treatment by amending Sec.
226.58(c)(8)(i)(C)(1).
58(e) Agreements for All Open Accounts
58(e)(2) Special Rule for Issuers Without Interactive Web Sites
The Board proposes to revise comment 58(e)-3 to clarify the
application of the special rule provided in Sec. 226.58(e)(2) to
issuers that provide online access to individual account information
through third-party interactive Web sites. Section 226.58(e)(2)
provides that an issuer that does not maintain an interactive Web site
(i.e., a Web site from which a cardholder can access specific
information about his or her individual account) may provide
cardholders with the ability to request a copy of their agreements by
calling a readily available telephone line, the number for which is:
(1) Displayed on the issuer's Web site and clearly identified as to
purpose; or (2) included on each periodic statement sent to the
cardholder and clearly identified as to purpose.
The Board understands that some issuers provide cardholders with
access to specific information about their individual accounts, such as
balance information or copies of statements, through a third-party
interactive Web site. As revised, comment 58(e)-3 would clarify that
such an issuer is considered to maintain an interactive Web site for
purposes of the Sec. 226.58(e)(2) special rule. Such a Web site is
deemed to be maintained by the issuer for purposes of Sec.
226.58(e)(2) even where, for example, an unaffiliated entity designs
the Web site and owns and maintains the information technology
infrastructure that supports the Web site, cardholders with credit
cards from multiple issuers can access individual account information
through the same Web site, and the Web site is not labeled, branded, or
otherwise held out to the public as belonging to the issuer. An issuer
that provides cardholders with access to specific information about
their individual accounts through such a Web site is not permitted to
use the procedures described in the Sec. 226.58(e)(2) special rule.
Instead, such an issuer must comply with Sec. 226.58(e)(1).
The special rule in Sec. 226.58(e)(2) provides cardholders with a
convenient means to request copies of their credit card agreements
without requiring issuers that do not have interactive Web sites to
build such Web sites for the sole purpose of facilitating cardholder
requests for agreements. Building an interactive Web site and complying
with privacy and data security requirements would represent a
significant compliance burden, especially for smaller issuers. In
adopting the Sec. 226.58(e)(2) final rule, the Board noted its belief
that the added convenience to cardholders of being able to request a
copy of their agreement through a Web site, rather than by alternative
means, does not outweigh the burden on issuers that do not otherwise
maintain interactive Web sites of creating such Web sites solely to
facilitate cardholder requests for agreements. This rationale does not
apply, however, to an issuer that already provides cardholders with
access to individual account information through a Web site, whether
through the issuer's own Web site or through an arrangement with a
third party.
Section 226.59 Reevaluation of Rate Increases
59(a) General Rule
Section 226.59 implements TILA Section 148, which was added by the
Credit Card Act. TILA Section 148, as implemented in Sec. 226.59(a),
generally requires card issuers that increase an annual percentage rate
applicable to a credit card account under an open-end (not home-
secured) consumer credit plan, based on the credit risk of the
consumer, market conditions, or other factors, to evaluate factors
described in the rule no less frequently than once every six months
and, as appropriate based upon that review, reduce the annual
percentage rate applicable to the consumer's account. Consistent with
TILA Section 148, Sec. 226.59 generally applies to rate increases made
on or after January 1, 2009.
Since publication of the June 2010 Final Rule, several issuers have
requested additional clarification regarding what constitutes a rate
increase for purposes of Sec. 226.59. In particular, the Board
understands that there is a need for additional guidance regarding the
circumstances in which a change in the type of rate--for example, from
a non-variable rate to a variable rate--is considered to be a rate
increase triggering review obligations under Sec. 226.59. The Board
notes that in several other contexts, Regulation Z treats a change in a
type of rate as equivalent to a rate increase. For example, comments
9(c)(2)(iv)-3 and 9(c)(2)(iv)-4 clarify that 45 days' advance notice is
generally required under Sec. 226.9(c)(2) when the annual percentage
rate on an open-end (not home-secured) consumer credit plan is changed
from a variable to a non-variable rate or from a non-variable to a
variable rate. In addition, comment 55(b)(2)-4 treats changing a non-
variable rate to a variable rate as equivalent to a rate increase for
purposes of Sec. 226.55.
The Board is proposing to adopt new comment 59(a)(1)-3 to clarify
the applicability of the rate reevaluation requirements when a card
issuer changes the type of rate applicable to a credit card account
under an open-end (not home-secured) consumer credit plan. Existing
comments 59(a)(1)-3 and 59(a)(1)-4 would be renumbered accordingly.
Comment 59(a)(1)-3.i would provide that a change from a variable rate
to a non-variable rate or from a non-variable rate to a variable rate
generally is not a rate increase for purposes of Sec. 226.59, if the
rate in effect immediately prior to the change in the type of rate is
equal to or greater than to the rate in effect immediately after the
change. The proposed comment states that, for example, a change from a
variable rate of 15.99% to a non-variable rate of 15.99% is not a rate
increase for purposes of Sec. 226.59 at the time of the change.
Proposed comment 59(a)(1)-3.i also cross-references Sec. 226.55 for
limitations on the permissibility of changing from a non-variable rate
to a variable rate.
Proposed comment 59(a)(1)-3.ii would set forth special guidance
regarding a change from a non-variable to a variable rate. Proposed
comment 59(a)(1)-3.ii states that a change from a non-variable to a
variable rate constitutes a rate increase for purposes of Sec. 226.59
if the variable rate exceeds the non-variable rate that would have
applied if the change in type of rate had not occurred. The proposed
comment illustrates the applicability of Sec. 226.59 to a change from
a non-variable to a variable rate with the following example: Assume a
new credit card account under an open-end (not home-
[[Page 67484]]
secured) consumer credit plan is opened on January 1 of year 1 and that
a non-variable annual percentage rate of 12% applies to all
transactions on the account. On January 1 of year 2, upon 45 days'
advance notice pursuant to Sec. 226.9(c)(2), the rate on all new
transactions is changed to a variable rate that is currently 12% and is
determined by adding a margin of 10 percentage points to a publicly-
available index not under the card issuer's control. The change from
the 12% non-variable rate to the 12% variable rate is not a rate
increase for purposes of Sec. 226.59(a). On April 1 of year 2, the
value of the variable rate increases to 12.5%. The increase in the
variable rate from 12% to 12.5% is a rate increase for purposes of
Sec. 226.59, and the card issuer must begin periodically conducting
reviews of the account pursuant to Sec. 226.59.
Similarly, proposed comment 59(a)(1)-3.iii states that a change
from a variable to a non-variable rate constitutes a rate increase for
purposes of Sec. 226.59 if the non-variable rate exceeds the variable
rate that would have applied if the change in the type of rate had not
occurred. The proposed comment sets forth the following illustrative
example: assume a new credit card account under an open-end (not home-
secured) consumer credit plan is opened on January 1 of year 1 and that
a variable annual percentage rate that is currently 15% and is
determined by adding a margin of 10 percentage points to a publicly-
available index not under the card issuer's control applies to all
transactions on the account. On January 1 of year 2, upon 45 days'
advance notice pursuant to Sec. 226.9(c)(2), the rate on all existing
balances and new transactions is changed to a non-variable rate that is
currently 15%. The change from the 15% variable rate to the 15% non-
variable rate on January 1 of year 2 is not a rate increase for
purposes of Sec. 226.59(a). On April 1 of year 2, the value of the
variable rate that would have applied to the account decreases to
12.5%. Accordingly, on April 1 of year 2, the non-variable rate of 15%
exceeds the 12.5% variable rate that would have applied but for the
change in type of rate. At this time, the change to the non-variable
rate of 15% constitutes a rate increase for purposes of Sec. 226.59,
and the card issuer must begin periodically conducting reviews of the
account pursuant to Sec. 226.59.
The Board believes that this clarification regarding changes in
types of rates is appropriate to effectuate the purposes of TILA
Section 148. As discussed in the supplementary information to its final
rule published on January 29, 2009, the Board recognizes that a change
from one type of rate to another (e.g., variable or non-variable) may,
over time, result in the new rate being higher than the rate that would
have applied but for the change, even if at the time of the change the
prior rate exceeded the new rate. See 74 FR 5345. For this reason, as
discussed above, comments 9(c)(2)(iv)-3 and 9(c)(2)(iv)-4 clarify that
45 days' advance notice is generally required under Sec. 226.9(c)(2)
when the annual percentage rate on an open-end (not home-secured)
consumer credit plan is changed from a variable to a non-variable rate
or from a non-variable to a variable rate. The Board believes that
consistent treatment is generally appropriate under Sec. 226.59,
because a change in type of rate may, over time, result in a rate
increase on a consumer's account; however, the Board proposes to apply
the review requirement under Sec. 226.59 only if and when the new rate
exceeds the rate that would have applied if the change in type of rate
had not occurred. For example, a consumer who has an existing account
with a non-variable rate has an expectation that the rate generally
will not change. However, if the issuer changes the non-variable rate
to a variable rate, an increase in the index value may result in the
rate applicable to the consumer's account increasing, and exceeding the
non-variable rate that previously applied. Accordingly, the Board
believes that in such circumstances a rate increase has occurred and
must be reviewed under Sec. 226.59.
The Board solicits comment on whether there are other types of
changes to rates for which clarification of the applicability of Sec.
226.59 would be appropriate.
59(d) Factors
Section 226.59(d) sets forth guidance regarding the factors that an
issuer must consider when conducting reviews of a rate increase
pursuant to Sec. 226.59. Section 226.59(d)(1) sets forth the general
rule and states that, except as provided in Sec. 226.59(d)(2) (which
is discussed below), a card issuer must review either: (1) The factors
on which the increase in an annual percentage rate was originally
based; or (2) the factors that the card issuer currently considers when
determining the annual percentage rates applicable to similar new
credit card accounts. Section 226.59(d)(2) sets forth a special rule
for certain rate increases imposed between January 1, 2009 and February
21, 2010. Section 226.59(d)(2) provides that, when conducting the first
two reviews required under Sec. 226.59(a) for rate increases imposed
between January 1, 2009 and February 21, 2010, an issuer must consider
the factors that it currently considers when determining the annual
percentage rates applicable to similar new credit card accounts, unless
the rate increase was based solely upon factors specific to the
consumer, such as a decline in the consumer's credit risk, the
consumer's delinquency or default, or a violation of the terms of the
account.
As discussed in the supplementary information to the June 2010
Final Rule, Sec. 226.59(d)(2) was adopted to address the Board's
concerns regarding portfolio-wide rate increases made following the
enactment of the Credit Card Act but prior to the effective date of
many of the substantive protections contained in the statute. Some rate
increases that occurred prior to February 22, 2010 resulted from
adjustments in issuers' pricing practices to take into account the
limitations that the Credit Card Act imposed on rate increases on
existing balances. The Board was concerned that permitting card issuers
to review the factors on which the rate increase was based may not
result in a meaningful review in these circumstances, because the legal
restrictions imposed by the Credit Card Act have continuing
application. In other words, if a card issuer were to consider the
factors on which the rate increase was based--i.e., the enactment of
the Credit Card Act's legal restrictions regarding rate increases--it
might determine that a rate decrease is not required.
Accordingly, the Board adopted Sec. 226.59(d)(2) to require card
issuers to consider, for a brief transition period, the factors that
they use when setting the rates applicable to similar new accounts for
rate increases imposed prior to February 22, 2010, if the rate increase
was not based on consumer-specific factors. For the reasons discussed
in the supplementary information to the June 2010 Final Rule, the
requirement to consider the factors that an issuer evaluates when
setting the rates applicable to similar new accounts applies only
during the first two review periods following the effective date of
Sec. 226.59 and only for rate increases imposed between January 1,
2009 and February 21, 2010.
For rate increases based solely on consumer behavior or other
consumer-specific factors, Sec. 226.59(d) does not distinguish between
rate increases imposed prior to or after February 22, 2010.
Accordingly, for such rate increases an issuer may consider either the
factors on which the increase in an annual percentage rate was
originally
[[Page 67485]]
based or the factors that the card issuer currently considers when
determining the annual percentage rates applicable to similar new
credit card accounts. Consumer-specific factors, such as a consumer's
credit score or payment history on the account, can and do change over
time. Accordingly, the Board noted in the supplementary information to
the June 2010 Final Rule that it believes consideration of the
consumer-specific factors that an issuer considered when imposing the
rate increase would result in a meaningful review and, where
appropriate, rate decreases, for rate increases imposed between January
1, 2009 and February 21, 2010.
The Board understands that some confusion has arisen regarding
compliance with the special rule set forth in Sec. 226.59(d)(2) in the
case where two rate increases occurred between January 1, 2009 and
February 21, 2010, one of which was based on conditions that are not
specific to the consumer and one of which was based on consumer-
specific behavior. The Board understands that there is particular
concern regarding the application of the rule if the issuer made a
market-based rate increase and subsequently increased the rate to a
penalty rate, due to a late payment or other consumer behavior that
violates the terms of the account. The Board is proposing a new comment
59(d)-6 to clarify the application of the rule in these circumstances.
Proposed comment 59(d)-6 notes that Sec. 226.59(d)(2) applies if an
issuer increased the rate applicable to a credit card account under an
open-end (not home-secured) consumer credit plan between January 1,
2009 and February 21, 2010, and the increase was not based solely upon
factors specific to the consumer. The proposed comment further notes
that in some cases, a credit card account may have been subject to
multiple rate increases during the period from January 1, 2009 to
February 21, 2010. Some such rate increases may have been based solely
upon factors specific to the consumer, while others may have been based
on factors not specific to the consumer, such as the issuer's cost of
funds or market conditions. The comment would clarify that in such
circumstances, when conducting the first two reviews required under
Sec. 226.59, the card issuer may separately review: (A) Rate increases
imposed based on factors not specific to the consumer, using the
factors described in Sec. 226.59(d)(1)(ii) (as required by Sec.
226.59(d)(2)); and (B) rate increases imposed based on consumer-
specific factors, using the factors described in Sec. 226.59(d)(1)(i).
If the review of factors described in Sec. 226.59(d)(1)(i) indicates
that it is appropriate to continue to apply a penalty rate to the
account as a result of the consumer's payment history or other behavior
on the account, proposed comment 59(d)-6 clarifies that Sec. 226.59
permits the card issuer to continue to impose the penalty rate, even if
the review of the factors described in Sec. 226.59(d)(1)(ii) would
otherwise require a rate decrease.
Proposed comment 59(d)-6.ii would set forth the following example:
Assume a credit card account was subject to a rate of 15% on all
transactions as of January 1, 2009. On May 1, 2009, the issuer
increased the rate on existing balances and new transactions to 18%,
based upon market conditions or other factors not specific to the
consumer or the consumer's account. Subsequently, on September 1, 2009,
based on a payment that was received five days after the due date, the
issuer increased the applicable rate on existing balances and new
transactions from 18% to a penalty rate of 25%. When conducting the
first review required under Sec. 226.59, the card issuer reviews the
rate increase from 15% to 18% using the factors described in Sec.
226.59(d)(1)(ii) (as required by Sec. 226.59(d)(2)), and separately
but concurrently reviews the rate increase from 18% to 25% using the
factors described in paragraph Sec. 226.59(d)(1)(i). The review of the
rate increase from 15% to 18% based upon the factors described in Sec.
226.59(d)(1)(ii) indicates that a similarly situated new consumer would
receive a rate of 17%. The review of the rate increase from 18% to 25%
based upon the factors described in Sec. 226.59(d)(1)(i) indicates
that it is appropriate to continue to apply the 25% penalty rate based
upon the consumer's late payment. Section 226.59 permits the rate on
the account to remain at 25%.
The Board notes that the intent of the special rule in Sec.
226.59(d)(2) was not to require card issuers to reduce penalty rates,
if the consumer's credit risk or behavior on the account justifies the
maintenance of a penalty rate in order to account for the additional
risk of nonpayment posed by the consumer. The Board believes that the
clarification in proposed comment 59(d)-6 is appropriate in order to
ensure that Sec. 226.59(d)(2) does not lead to unintended consequences
in cases where a market-based rate increase and a rate increase due to
the imposition of a penalty rate both occurred between January 1, 2009
and February 21, 2010.
59(f) Termination of Obligation To Review Factors
Section 226.59(f) generally provides that the obligation to conduct
periodic reevaluations of a rate increase ceases to apply if the issuer
reduces the annual percentage rate applicable to the account to a rate
equal to or lower than the rate that was in effect immediately prior to
the increase. The Board understands that some confusion has arisen
regarding the relationship between the general rule in Sec. 226.59(a)
and the termination provision in Sec. 226.59(f). For example, a card
issuer may periodically review a consumer's account on which the rate
has been increased, consistent with Sec. 226.59(d)(1)(ii), by
evaluating the factors that it currently considers when determining the
annual percentage rates applicable to similar new credit card accounts.
In the course of conducting such a review, the card issuer may
determine that it would offer a lower rate on a new account than the
rate that applied, prior to the rate increase, to the existing account
being reviewed. In these circumstances, issuers have asked the Board
for guidance regarding the amount of the rate reduction required under
Sec. 226.59.
The Board proposes to clarify that in these circumstances, Sec.
226.59 requires that the rate on the existing account be reduced to the
rate that was in effect prior to the rate increase, not to the lower
rate that would be offered to a comparable new consumer. The Board
notes that the review requirements of TILA Section 148 are triggered
only if an annual percentage rate applicable to a credit card account
is increased. The Board believes that if Congress had intended for all
annual percentage rates on all credit card accounts to be reviewed
indefinitely, regardless of whether the account is subject to a rate
increase, it would have so provided in the Credit Card Act.
Accordingly, the Board believes that it would be inappropriate to
require card issuers to reduce a rate on a credit card account to a
rate that is lower than the rate that applied to the account prior to
the increase.
To clarify the relationship between Sec. 226.59(a) and (f), the
Board is proposing to adopt a new comment 59(f)-2, which would set
forth the following illustrative example: Assume that on January 1,
2011, a consumer opens a new credit card account under an open-end (not
home-secured) consumer credit plan. The annual percentage rate
applicable to purchases is 15%. Upon providing 45 days' advance notice
and to the extent
[[Page 67486]]
permitted under Sec. 226.55, the card issuer increases the rate
applicable to new purchases to 18%, effective on September 1, 2012. The
card issuer conducts reviews of the increased rate in accordance with
Sec. 226.59 on January 1, 2013 and July 1, 2013, based on the factors
described in Sec. 226.59(d)(1)(ii). Based on the January 1, 2013
review, the rate applicable to purchases remains at 18%. In the review
conducted on July 1, 2013, the card issuer determines that, based on
the relevant factors, the rate it would offer on a comparable new
account would be 14%. Consistent with Sec. 226.59(f), Sec. 226.59(a)
requires that the card issuer reduce the rate on the existing account
to the 15% rate that was in effect prior to the September 1, 2012 rate
increase.
Appendix M1--Repayment Disclosures
As discussed in the section-by-section analysis to Sec.
226.7(b)(12), Appendix M1 contains guidance for how to calculate the
repayment disclosures required to be disclosed under Sec.
226.7(b)(12). Specifically, Sec. 226.7(b)(12)(i) generally requires
card issuers to disclose the following repayment 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 length
of time it would take to repay the outstanding balance if the consumer
pays only the required minimum monthly payments and no further advances
are made; (3) the total cost to the consumer of paying the balance in
full if the consumer pays only the required minimum monthly payments
and no further advances are made; (4) the minimum payment amount that
would be required for the consumer to pay off the outstanding balance
in 36 months, if no further advances are made; (5) the total cost to
the consumer of paying the balance in full if the consumer pays the
balance over 36 months; (6) the total savings of paying the balance in
36 months (rather than making only minimum payments); and (7) a toll-
free telephone number at which the consumer may receive information
about accessing consumer credit counseling.
Section 226.7(b)(12)(i) and (ii) provides that card issuers must
round the following disclosures to the nearest whole dollar when
disclosing them on the periodic statement: (1) The minimum payment
total cost estimate, (2) the estimated minimum payment for repayment in
36 months, (3) the total cost estimate for repayment in 36 months, and
(4) the savings estimate for repayment in 36 months. See
226.7(b)(12)(i)(C), (b)(12)(i)(F)(1)(i), (b)(12)(i)(F)(1)(iii),
(b)(12)(i)(F)(1)(iv) and (b)(12)(ii)(C). For the reasons discussed in
the section-by-section analysis to Sec. 226.7(b)(12), the Board
proposes to revise Sec. 226.7(b)(12)(i) and (ii) to allow card issuers
to round these disclosures to either the nearest whole dollar or to the
nearest cent when disclosing them on the periodic statement. Currently,
paragraph (f) of Appendix M1 references rounding disclosures to the
nearest whole dollar when calculating the total saving estimate for
repayment in 36 months. Specifically, paragraph (f) of Appendix M1
states that when calculating the savings estimate for repayment in 36
months, a card issuer must subtract the total cost estimate for
repayment in 36 months calculated under paragraph (e) of Appendix M1
(rounded to the nearest whole dollar as set forth in Sec.
226.7(b)(12)(i)(F)(1)(iii)) from the minimum payment total cost
estimate calculated under paragraph (c) of Appendix M1 (rounded to the
nearest whole dollar as set forth in Sec. 226.7(b)(12)(i)(C)).
Consistent with the proposed changes to Sec. 226.7(b)(12),
paragraph (f) of Appendix M1 would be revised to indicate that a card
issuer, at its option, may round the disclosures either to the nearest
whole dollar or to the nearest cent in calculating the savings estimate
for repayment in 36 months. If a card issuer chooses under Sec.
226.7(b)(12) to round the disclosures to the nearest whole dollar, the
card issuer must calculate the savings estimate for repayment in 36
months by subtracting the total cost estimate for repayment in 36
months calculated under paragraph (e) of Appendix M1 (rounded to the
nearest whole dollar) from the minimum payment total cost estimate
calculated under paragraph (c) of Appendix M1 (rounded to the nearest
whole dollar). If a card issuer chooses, however, to round the
disclosures to the nearest cent, the card issuer must calculate the
savings estimate for repayment in 36 months by subtracting the total
cost estimate for repayment in 36 months calculated under paragraph (e)
of Appendix M1 (rounded to the nearest cent) from the minimum payment
total cost estimate calculated under paragraph (c) of Appendix M1
(rounded to the nearest cent). This ensures that the savings estimate
for repayment in 36 months is calculated consistent with how the other
disclosures will be shown on the periodic statement.
IV. Regulatory Analysis
This proposed rule would clarify aspects of the Board's February
and June 2010 Final Rules implementing the Credit Card Act. Section VI
of the supplementary information to the February 2010 Final Rule and
section VII of the supplementary information to the June 2010 Final
Rule set forth the Board's analyses and determinations under the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.) with respect to those
rules. See 75 FR 7789-7791, 75 FR 37565-37567. In addition, section VII
of the supplementary information to the February 2010 Final Rule and
section VIII of the supplementary information to the June 2010 Final
Rule set forth the Board's analyses and determinations under the
Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3506; 5 CFR Part 1320
Appendix A.1) with respect to those rules. See 75 FR 7791, 75 FR 37567-
37568. Because the proposed amendments are clarifications and would
not, if adopted, alter the substance of these analyses and
determinations, the Board continues to rely on those analyses and
determinations for purposes of this rulemaking.\8\
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\8\ The Board notes that the proposed amendments to Sec.
226.9(c)(2)(v)(B) would permit a card issuer to provide the consumer
in advance with certain written disclosures of a fee increase upon
expiration of a specified period of time, without providing 45 days'
advance notice pursuant to Sec. 226.9(c)(2). The Board anticipates
that the proposed rule would impose no additional burden on card
issuers because the proposed clarification would provide an
alternative means of complying with disclosures that are otherwise
required by Sec. 226.9(c)(2).
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The Board has a continuing interest in the public's opinion of the
collection of information. 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.
List of Subjects in 12 CFR Part 226
Advertising, Consumer protection, Federal Reserve System, Reporting
and recordkeeping requirements, Truth in Lending.
Text of Final Revisions
For the reasons set forth in the preamble, the Board proposes to
amend Regulation Z, 12 CFR part 226, as set forth below:
[[Page 67487]]
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, 1637(c)(5), and
1639(l); Pub. L. 111-24 Sec. 2, 123 Stat. 1734.
Subpart A--General
* * * * *
Subpart B--Open-End Credit
2. Section 226.2(a)(15)(ii) is revised to read as follows:
Sec. 226.2 Definitions and rules of construction.
(a) * * *
(15) * * *
(ii) Credit card account under an open-end (not home-secured)
consumer credit plan means any open-end credit account [rtrif]that
is[ltrif] accessed by a credit card, except:
(A) A [lsqbb]credit card that accesses a[rsqbb] home-equity plan
subject to the requirements of Sec. 226.5b [rtrif]that is accessed by
a credit card[ltrif]; or
(B) An overdraft line of credit [rtrif]that is[ltrif] accessed by a
debit card [rtrif]or an account number[ltrif].
* * * * *
3. Section 226.5 is amended by revising the heading to paragraph
(b)(2)(ii)(A) and by revising paragraph (b)(2)(ii)(B) to read as
follows:
Sec. 226.5 General disclosure requirements.
* * * * *
(b) * * *
(2) * * *
(ii) Timing requirements.
(A) [rtrif]Credit card accounts under an open-end (not home-
secured) consumer credit plan.[ltrif] [lsqbb]Payment due date.[rsqbb] *
* *
(B) [rtrif]Open-end consumer credit plans.[ltrif] [lsqbb]Grace
period expiration date.[rsqbb] For [rtrif]accounts under an[ltrif]
open-end consumer credit plan[lsqbb]s[rsqbb], a creditor must adopt
reasonable procedures designed to ensure that:
(1) [rtrif]If a grace period applies to the account:
(i)[ltrif] Periodic statements are mailed or delivered at least 21
days prior to the date on which [rtrif]the[ltrif] [lsqbb]any[rsqbb]
grace period expires; and
[rtrif](ii)[ltrif] [lsqbb](2)[rsqbb] The creditor does not impose
finance charges as a result of the loss of [rtrif]the[ltrif]
[lsqbb]a[rsqbb] grace period if a payment that satisfies the terms of
the grace period is received by the creditor within 21 days after
mailing or delivery of the periodic statement.
[rtrif](2) If a grace period does not apply to the account:
(i) Periodic statements are mailed or delivered at least 14 days
prior to the date on which the required minimum periodic payment must
be received in order to avoid being treated as late for any purpose;
and
(ii) The creditor does not treat as late for any purpose a required
minimum periodic payment received by the creditor within 14 days after
mailing or delivery of the periodic statement.[ltrif]
(3) For purposes of paragraph (b)(2)(ii)(B) of this section,
``grace period'' means a period within which any credit extended may be
repaid without incurring a finance charge due to a periodic interest
rate.\10\
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\10\ [Reserved]
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* * * * *
4. Section 226.5a is amended by revising paragraphs (a)(2)(iii),
(b)(1)(i), and (b)(1)(iv) to read as follows:
Sec. 226.5a Credit and charge card applications and solicitations.
(a) * * *
(2) * * *
(iii) Disclosures required by paragraphs (b)(1)(iv)(B)[rtrif],
(b)(1)(iv)(C)[ltrif] and (b)(6) of this section must be placed directly
beneath the table.
* * * * *
(b) * * *
(1) * * *
(i) Variable rate information. If a rate disclosed under paragraph
(b)(1) of this section is a variable rate, the card issuer shall also
disclose the fact that the rate may vary and how the rate is
determined. In describing how the applicable rate will be determined,
the card issuer must identify the type of index or formula that is used
in setting the rate. The value of the index and the amount of the
margin that are used to calculate the variable rate shall not be
disclosed in the table. A disclosure of any applicable limitations on
rate increases [lsqbb]or decreases[rsqbb] shall not be included in the
table.
* * * * *
(iv) Penalty rates. (A) In general. Except as provided in paragraph
(b)(1)(iv)(B) [rtrif]and (b)(1)(iv)(C)[ltrif] of this section, if a
rate may increase as a penalty for one or more events specified in the
account agreement, such as a late payment or an extension of credit
that exceeds the credit limit, the card issuer must disclose pursuant
to paragraph (b)(1) of this section the increased rate that may apply,
a brief description of the event or events that may result in the
increased rate, and a brief description of how long the increased rate
will remain in effect.
(B) Introductory rates. If the issuer discloses an introductory
rate, as that term is defined in Sec. 226.16(g)(2)(ii), in the table
or in any written or electronic promotional materials accompanying
applications or solicitations subject to paragraph (c) or (e) of this
section, the issuer must briefly disclose directly beneath the table
the circumstances, if any, under which the introductory rate may be
revoked, and the type of rate that will apply after the introductory
rate is revoked.
[rtrif](C) Employee preferential rates. If a card issuer discloses
in the table a preferential annual percentage rate for which only
employees of the creditor or employees of a third party are eligible,
the card issuer must briefly disclose directly beneath the table the
circumstances under which such preferential rate may be revoked, and
the rate that will apply after such preferential rate is
revoked.[ltrif]
* * * * *
5. Section 226.6 is amended by revising paragraphs (b)(1)(ii),
(b)(2)(i)(B), and (b)(2)(i)(D) to read as follows:
Sec. 226.6 Account-opening disclosures.
* * * * *
(b) * * *
(1) * * *
(ii) Location. Only the information required or permitted by
paragraphs (b)(2)(i) through (b)(2)(v) (except for (b)(2)(i)(D)(2)) and
(b)(2)(vii) through (b)(2)(xiv) of this section shall be in the table.
Disclosures required by paragraphs (b)(2)(i)(D)(2),
[rtrif](b)(2)(i)(D)(3), [ltrif](b)(2)(vi) and (b)(2)(xv) of this
section shall be placed directly below the table. Disclosures required
by paragraphs (b)(3) through (b)(5) of this section that are not
otherwise required to be in 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.
* * * * *
(2) * * *
(i) * * *
(B) Discounted initial rates. If the initial rate is an
introductory rate, as that term is defined in Sec. 226.16(g)(2)(ii),
the creditor must disclose the rate that would otherwise apply to the
account pursuant to paragraph (b)(2)(i) of this section. Where the rate
is not tied to an index or formula, the creditor must disclose the rate
that will apply after the introductory rate expires. In a variable-rate
account, the [lsqbb]card issuer[rsqbb][rtrif]creditor[ltrif] must
disclose a rate based on the applicable index or formula in accordance
with the
[[Page 67488]]
accuracy requirements of paragraph (b)(4)(ii)(G) of this section.
Except as provided in paragraph (b)(2)(i)(F) of this section, the
creditor is not required to, but may disclose in the table the
introductory rate along with the rate that would otherwise apply to the
account if the creditor also discloses the time period during which the
introductory rate will remain in effect, and uses the term
``introductory'' or ``intro'' in immediate proximity to the
introductory rate.
* * * * *
(D) Penalty rates. (1) In general. Except as provided in paragraph
(b)(2)(i)(D)(2) [rtrif]and (b)(2)(i)(D)(3)[ltrif] of this section, if a
rate may increase as a penalty for one or more events specified in the
account agreement, such as a late payment or an extension of credit
that exceeds the credit limit, the creditor must disclose pursuant to
paragraph (b)(2)(i) of this section the increased rate that may apply,
a brief description of the event or events that may result in the
increased rate, and a brief description of how long the increased rate
will remain in effect. If more than one penalty rate may apply, the
creditor at its option may disclose the highest rate that could apply,
instead of disclosing the specific rates or the range of rates that
could apply.
(2) Introductory rates. If the creditor discloses in the table an
introductory rate, as that term is defined in Sec. 226.16(g)(2)(ii),
creditors must briefly disclose directly beneath the table the
circumstances under which the introductory rate may be revoked, and the
rate that will apply after the introductory rate is revoked.
[rtrif](3) Employee preferential rates. If a creditor discloses in
the table a preferential annual percentage rate for which only
employees of the creditor or employees of a third party are eligible,
the creditor must briefly disclose directly beneath the table the
circumstances under which such preferential rate may be revoked, and
the rate that will apply after such preferential rate is
revoked.[ltrif]
* * * * *
6. Section 226.7 is amended by revising paragraphs (b)(12) and
(b)(14) to read as follows:
Sec. 226.7 Periodic statement.
* * * * *
(b) * * *
(12) Repayment disclosures--(i) In general. Except as provided in
paragraphs (b)(12)(ii) and (b)(12)(v) of this section, for a credit
card account under an open-end (not home-secured) consumer credit plan,
a card issuer must provide the following disclosures on each periodic
statement:
(A) The following statement with a bold heading: ``Minimum Payment
Warning: If you make only the minimum payment each period, you will pay
more in interest and it will take you longer to pay off your balance'';
(B) The minimum payment repayment estimate, as described in
Appendix M1 to this part. If the minimum payment repayment estimate is
less than 2 years, the card issuer must disclose the estimate in
months. Otherwise, the estimate must be disclosed in years and rounded
to the nearest whole year;
(C) The minimum payment total cost estimate, as described in
Appendix M1 to this part. The minimum payment total cost estimate must
be rounded [rtrif]either[ltrif] to the nearest whole dollar [rtrif]or
to the nearest cent, at the card issuer's option[ltrif];
(D) A statement that the minimum payment repayment estimate and the
minimum payment total cost estimate are based on the current
outstanding balance shown on the periodic statement. A statement that
the minimum payment repayment estimate and the minimum payment total
cost estimate are based on the assumption that only minimum payments
are made and no other amounts are added to the balance;
(E) A toll-free telephone number where the consumer may obtain from
the card issuer information about credit counseling services consistent
with paragraph (b)(12)(iv) of this section; and
(F)(1) Except as provided in paragraph (b)(12)(i)(F)(2) of this
section, the following disclosures:
(i) The estimated monthly payment for repayment in 36 months, as
described in Appendix M1 to this part. The estimated monthly payment
for repayment in 36 months must be rounded [rtrif]either[ltrif] to the
nearest whole dollar [rtrif]or to the nearest cent, at the card
issuer's option[ltrif];
(ii) A statement that the card issuer estimates that the consumer
will repay the outstanding balance shown on the periodic statement in 3
years if the consumer pays the estimated monthly payment each month for
3 years;
(iii) The total cost estimate for repayment in 36 months, as
described in Appendix M1 to this part. The total cost estimate for
repayment in 36 months must be rounded [rtrif]either[ltrif] to the
nearest whole dollar [rtrif]or to the nearest cent, at the card
issuer's option[ltrif]; and
(iv) The savings estimate for repayment in 36 months, as described
in Appendix M1 to this part. The savings estimate for repayment in 36
months must be rounded [rtrif]either[ltrif] to the nearest whole dollar
[rtrif]or to the nearest cent, at the card issuer's option[ltrif].
(2) The requirements of paragraph (b)(12)(i)(F)(1) of this section
do not apply to a periodic statement in any of the following
circumstances:
(i) The minimum payment repayment estimate that is disclosed on the
periodic statement pursuant to paragraph (b)(12)(i)(B) of this section
after rounding is three years or less;
(ii) The estimated monthly payment for repayment in 36 months, as
described in Appendix M1 to this part, [rtrif]after rounding as set
forth in paragraph (b)(12)(f)(1)(i) of this section[ltrif]
[lsqbb]rounded to the nearest whole dollar[rsqbb] that is calculated
for a particular billing cycle is less than the minimum payment
required for the plan for that billing cycle; and
(iii) A billing cycle where an account has both a balance in a
revolving feature where the required minimum payments for this feature
will not amortize that balance in a fixed amount of time specified in
the account agreement and a balance in a fixed repayment feature where
the required minimum payment for this fixed repayment feature will
amortize that balance in a fixed amount of time specified in the
account agreement which is less than 36 months.
(ii) Negative or no amortization. If negative or no amortization
occurs when calculating the minimum payment repayment estimate as
described in Appendix M1 of this part, a card issuer must provide the
following disclosures on the periodic statement instead of the
disclosures set forth in paragraph (b)(12)(i) of this section:
(A) The following statement: ``Minimum Payment Warning: Even if you
make no more charges using this card, if you make only the minimum
payment each month we estimate you will never pay off the balance shown
on this statement because your payment will be less than the interest
charged each month'';
(B) The following statement: ``If you make more than the minimum
payment each period, you will pay less in interest and pay off your
balance sooner'';
(C) The estimated monthly payment for repayment in 36 months, as
described in Appendix M1 to this part. The estimated monthly payment
for repayment in 36 months must be rounded [rtrif]either[ltrif] to the
nearest whole dollar [rtrif]or to the nearest cent, at the issuer's
option[ltrif];
(D) A statement that the card issuer estimates that the consumer
will repay the outstanding balance shown on the periodic statement in 3
years if the consumer pays the estimated monthly payment each month for
3 years; and
[[Page 67489]]
(E) A toll-free telephone number where the consumer may obtain from
the card issuer information about credit counseling services consistent
with paragraph (b)(12)(iv) of this section.
* * * * *
(14) Deferred interest or similar transactions. For accounts with
an outstanding balance subject to a deferred interest or similar
program, the date by which that outstanding balance must be paid in
full in order to avoid the obligation to pay finance charges on such
balance must be disclosed on the front of [rtrif]any page of[ltrif]
each periodic statement issued during the deferred interest period
beginning with the first periodic statement issued during the deferred
interest period that reflects the deferred interest or similar
transaction. The disclosure provided pursuant to this paragraph must be
substantially similar to Sample G-18(H) in Appendix G to this part.
7. Section 226.9 is amended by adding paragraph (b)(3)(iii) and by
revising paragraphs (c)(2)(i)(A), (c)(2)(ii), (iii), (c)(2)(iv) (A)(1),
(c)(2)(iv)(B), (c)(2)(iv)(D), (c)(2)(v)(B), and (c)(2)(v)(C) to read as
follows:
Sec. 226.9 Subsequent disclosure requirements.
* * * * *
(b) * * *
(3) * * *
[rtrif](iii) Variable rates. If any annual percentage rate required
to be disclosed pursuant to paragraph (b)(3)(i) of this section is a
variable rate, the card issuer shall also disclose the fact that the
rate may vary and how the rate is determined. In describing how the
applicable rate will be determined, the card issuer must identify the
type of index or formula that is used in setting the rate. The value of
the index and the amount of the margin that are used to calculate the
variable rate shall not be disclosed in the table. A disclosure of any
applicable limitations on rate increases shall not be included in the
table.[ltrif]
(c) * * *
(2) * * * (i) * * *
(A) General. For plans other than home-equity plans subject to the
requirements of Sec. 226.5b, except as provided in paragraphs
(c)(2)(i)(B), (c)(2)(iii) and (c)(2)(v) of this section, when a
significant change in account terms as described in paragraph
(c)(2)(ii) of this section is made [lsqbb]to a term required to be
disclosed under Sec. 226.6(b)(3), (b)(4) or (b)(5) or the required
minimum periodic payment is increased[rsqbb], a creditor must provide a
written notice of the change at least 45 days prior to the effective
date of the change to each consumer who may be affected. The 45-day
timing requirement does not apply if the consumer has agreed to a
particular change; the notice shall be given, however, before the
effective date of the change. Increases in the rate applicable to a
consumer's account due to delinquency, default or as a penalty
described in paragraph (g) of this section that are not due to a change
in the contractual terms of the consumer's account must be disclosed
pursuant to paragraph (g) of this section instead of paragraph (c)(2)
of this section.
* * * * *
(ii) Significant changes in account terms. For purposes of this
section, a ``significant change in account terms'' means a change to a
term required to be disclosed under Sec. 226.6(b)(1) and (b)(2), an
increase in the required minimum periodic payment, [rtrif]a change to a
term required to be disclosed under Sec. 226.6(b)(4),[ltrif] or the
acquisition of a security interest.
(iii) Charges not covered by Sec. 226.6(b)(1) and (b)(2). Except
as provided in paragraph (c)(2)(vi) 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(b)(3) that is not a
significant change in account terms as described in paragraph
(c)(2)(ii) of this section, a creditor
[lsqbb]may[rsqbb][rtrif]must[ltrif] either, at its option:
(A) Comply with the requirements of paragraph (c)(2)(i) of this
section; or
(B) Provide notice of the amount of the charge before the consumer
agrees to or becomes obligated to pay the charge, at a time and in a
manner that a consumer would be likely to notice the disclosure of the
charge. The notice may be provided orally or in writing.
(iv) * * *
(A) * * *
(1) A summary of the changes made to terms required by Sec.
226.6(b)(1) and (b)(2) [rtrif]or Sec. 226.6(b)(4)[ltrif], a
description of any increase in the required minimum periodic payment,
and a description of any security interest being acquired by the
creditor;
* * * * *
(B) Right to reject for credit card accounts under an open-end (not
home-secured) consumer credit plan. In addition to the disclosures in
paragraph (c)(2)(iv)(A) of this section, if a card issuer makes a
significant change in account terms on a credit card account under an
open-end (not home-secured) consumer credit plan, the creditor must
generally provide the following information on the notice provided
pursuant to paragraph (c)(2)(i) of this section. This information is
not required to be provided in the case of an increase in the required
minimum periodic payment, an increase in a fee as a result of a
reevaluation of a determination made under Sec. 226.52(b)(1)(i) or an
adjustment to the safe harbors in Sec. 226.52(b)(1)(ii) to reflect
changes in the Consumer Price Index, a change in an annual percentage
rate applicable to a consumer's account, [rtrif]an increase in a fee
previously reduced consistent with 50 U.S.C. app. 527 or a similar
federal or state statute or regulation if the amount of the increased
fee does not exceed the amount of that fee prior to the
reduction[ltrif] [lsqbb]a change in the balance computation method
applicable to consumer's account necessary to comply with Sec.
226.54[rsqbb], or when the change results from the creditor not
receiving the consumer's required minimum periodic payment within 60
days after the due date for that payment:
* * * * *
(D) Format requirements--(1) Tabular format. The summary of changes
described in paragraph (c)(2)(iv)(A)(1) of this section must be in a
tabular format (except for a summary of any increase in the required
minimum periodic payment [rtrif], a summary of a term required to be
disclosed under Sec. 226.6(b)(4) that is not required to be disclosed
under Sec. 226.6(b)(1) and (b)(2), or a description of any security
interest being acquired by the creditor[ltrif]), with headings and
format substantially similar to any of the account-opening tables found
in G-17 in appendix G to this part. The table must disclose the changed
term and information relevant to the change, if that relevant
information is required by Sec. 226.6(b)(1) and (b)(2). The new terms
shall be described in the same level of detail as required when
disclosing the terms under Sec. 226.6(b)(2).
* * * * *
(v) * * *
(B) When the change is an increase in an annual percentage rate
[rtrif]or fee[ltrif] upon the expiration of a specified period of time,
provided that:
(1) Prior to commencement of that period, the creditor disclosed in
writing to the consumer, in a clear and conspicuous manner, the length
of the period and the annual percentage rate [rtrif]or fee[ltrif] that
would apply after expiration of the period;
(2) The disclosure of the length of the period and the annual
percentage rate [rtrif]or fee[ltrif] that would apply after expiration
of the period are set forth in close proximity and in equal prominence
to the first listing of the disclosure of the rate [rtrif]or fee[ltrif]
that
[[Page 67490]]
applies during the specified period of time; and
(3) The annual percentage rate [rtrif]or fee[ltrif] that applies
after that period does not exceed the rate [rtrif]or fee[ltrif]
disclosed pursuant to paragraph (c)(2)(v)(B)(1) of this paragraph or,
if the rate disclosed pursuant to paragraph (c)(2)(v)(B)(1) of this
section was a variable rate, the rate following any such increase is a
variable rate determined by the same formula (index and margin) that
was used to calculate the variable rate disclosed pursuant to paragraph
(c)(2)(v)(B)(1);
(C) When the change is an increase in a variable annual percentage
rate in accordance with a credit card [rtrif]or other account[ltrif]
agreement that provides for changes in the rate according to operation
of an index that is not under the control of the creditor and is
available to the general public; or
* * * * *
8. Section 226.10(b)(4) is revised to read as follows:
Sec. 226.10 Payments.
* * * * *
(b) * * *
(4) Nonconforming payments. If a creditor specifies, on or with the
periodic statement, requirements for the consumer to follow in making
payments as permitted under this Sec. 226.10, but accepts a payment
that does not conform to the requirements [rtrif]via a payment method
that the creditor does not otherwise promote[ltrif], the creditor shall
credit the payment within five days of receipt.
* * * * *
9. Section 226.16(g) is revised to read as follows:
Sec. 226.16 Advertising.
* * * * *
(g) Promotional rates [rtrif]and fees[ltrif]. (1) Scope. The
requirements of this paragraph apply to any advertisement of an open-
end (not home-secured) plan, including promotional materials
accompanying applications or solicitations subject to Sec. 226.5a(c)
or accompanying applications or solicitations subject to Sec.
226.5a(e).
(2) Definitions. (i) Promotional rate means any annual percentage
rate applicable to one or more balances or transactions on an open-end
(not home-secured) plan for a specified period of time that is lower
than the annual percentage rate that will be in effect at the end of
that period on such balances or transactions.
(ii) Introductory rate means a promotional rate offered in
connection with the opening of an account.
(iii) Promotional period means the maximum time period for which
[lsqbb]the[rsqbb] [rtrif]a [ltrif] promotional rate [rtrif] or
promotional fee[ltrif] may be applicable.
[rtrif](iv) Promotional fee means a fee required to be disclosed
under Sec. 226.6(b)(1) and (b)(2) applicable to an open-end (not home-
secured) plan for a specified period of time that is lower than the fee
that will be in effect at the end of that period.
(v) Introductory fee means a promotional fee offered in connection
with the opening of an account.[ltrif]
(3) Stating the term ``introductory''. If any annual percentage
rate [rtrif]or fee[ltrif] that may be applied to the account is an
introductory rate [rtrif]or introductory fee[ltrif], the term
introductory or intro must be in immediate proximity to each listing of
the introductory rate [rtrif]or introductory fee[ltrif] in a written or
electronic advertisement.
(4) Stating the promotional period and post-promotional rate
[rtrif]or fee[ltrif]. If any annual percentage rate that may be applied
to the account is a promotional rate under paragraph (g)(2)(i) of this
section [rtrif]or any fee that may be applied to the account is a
promotional fee under paragraph (g)(2)(iv) of this section[ltrif], the
information in paragraphs (g)(4)(i) and[rtrif], as applicable,[ltrif]
(g)(4)(ii) [rtrif]or (g)(4)(iii)[ltrif] of this section must be stated
in a clear and conspicuous manner in the advertisement. If the rate
[rtrif]or fee[ltrif] is stated in a written or electronic
advertisement, the information in paragraphs (g)(4)(i) and [rtrif], as
applicable,[ltrif] (g)(4)(ii) [rtrif]or (g)(4)(iii)[ltrif] of this
section must also be stated in a prominent location closely proximate
to the first listing of the promotional rate [rtrif]or promotional
fee[ltrif].
(i) When the promotional rate [rtrif]or promotional fee[ltrif] will
end; [lsqbb]and[rsqbb]
(ii) The annual percentage rate that will apply after the end of
the promotional period. If such rate is variable, the annual percentage
rate must comply with the accuracy standards in Sec. Sec.
226.5a(c)(2), 226.5a(d)(3), 226.5a(e)(4), or 226.16(b)(1)(ii), as
applicable. If such rate cannot be determined at the time disclosures
are given because the rate depends at least in part on a later
determination of the consumer's creditworthiness, the advertisement
must disclose the specific rates or the range of rates that might
apply[lsqbb].[rsqbb][rtrif]; and
(iii) The fee that will apply after the end of the promotional
period.[ltrif]
(5) Envelope excluded. The requirements in paragraph (g)(4) of this
section do not apply to an envelope or other enclosure in which an
application or solicitation is mailed, or to a banner advertisement or
pop-up advertisement, linked to an application or solicitation provided
electronically.
* * * * *
10. Section 226.51 is amended by revising paragraphs (a)(1), and
(b)(1)(ii)(B) to read as follows:
Sec. 226.51 Ability to pay.
(a) * * *
(1)(i) Consideration of ability to pay. A card issuer must not open
a credit card account for a consumer under an open-end (not home-
secured) consumer credit plan, or increase any credit limit applicable
to such account, unless the card issuer considers the [rtrif]the
consumer's independent[ltrif] ability [lsqbb]of the consumer[rsqbb] to
make the required minimum periodic payments under the terms of the
account based on the consumer's income or assets and current
obligations.
(ii) Reasonable policies and procedures. Card issuers must
establish and maintain reasonable written policies and procedures to
consider a consumer's [rtrif]independent[ltrif] income or assets and
current obligations. Reasonable policies and procedures to consider a
consumer's [rtrif]independent[ltrif] ability to make the required
payments include a consideration of at least one of the following: The
ratio of debt obligations to income; the ratio of debt obligations to
assets; or the income the consumer will have after paying debt
obligations. It would be unreasonable for a card issuer to not review
any information about a consumer's income, assets, or current
obligations, or to issue a credit card to a consumer who does not have
any [rtrif]independent[ltrif] income or assets.
* * * * *
(b) * * *
(1) * * *
(ii) * * *
(B) Financial information indicating such cosigner, guarantor, or
joint applicant has the [rtrif]independent[ltrif] ability to make the
required minimum periodic payments on such debts, consistent with
paragraph (a) of this section.
* * * * *
11. Section 226.52 is amended by revising the heading to paragraph
(a) and by revising paragraphs (a)(1), (a)(3), and (b)(1)(ii) to read
as follows:
Sec. 226.52 Limitations on fees.
(a) Limitations [rtrif]prior to account opening and[ltrif] during
first year after account opening. (1) General rule. [rtrif]Except as
provided in paragraph (a)(2) of this section, the total amount of fees
a consumer is required to pay with respect to a credit card account
under
[[Page 67491]]
an open-end (not home-secured) consumer credit plan prior to account
opening or during the first year after account opening must not exceed
25 percent of the credit limit in effect when the account is
opened.[ltrif] [lsqbb]Except as provided in paragraph (a)(2) of this
section, if a card issuer charges any fees to a credit card account
under an open-end (not home-secured) consumer credit plan during the
first year after the account is opened, the total amount of fees the
consumer is required to pay with respect to the account during that
year must not exceed 25 percent of the credit limit in effect when the
account is opened.[rsqbb] [rtrif]For purposes of this paragraph, an
account is considered open no earlier than the date on which the
account may first be used by the consumer to engage in
transactions.[ltrif]
* * * * *
(3) Rule of construction. [lsqbb]This paragraph
(a)[rsqbb][rtrif]Paragraph (a) of this section[ltrif] does not
authorize the imposition or payment of fees or charges otherwise
prohibited by law.
* * * * *
(b) * * *
(1) * * *
(ii) Safe harbors. A card issuer may impose a fee for violating the
terms or other requirements of an account if the dollar amount of the
fee does not exceed [rtrif], as applicable[ltrif]:
(A) [rtrif]$25.00;[ltrif] [lsqbb]For the first violation of a
particular type, $25.00, adjusted annually by the Board to reflect
changes in the Consumer Price Index;[rsqbb]
(B) [rtrif]$35.00 if the card issuer previously imposed a fee
pursuant to paragraph (b)(1)(ii)(A) of this section for a violation of
the same type that occurred during the same billing cycle or one of the
next six billing cycles;[ltrif] [lsqbb]For an additional violation of
the same type during the next six billing cycles, $35.00, adjusted
annually by the Board to reflect changes in the Consumer Price
Index;[rsqbb] or
(C) [rtrif]Three percent of the delinquent balance on a charge card
account that requires payment of outstanding balances in full at the
end of each billing cycle if the card issuer has not received the
required payment for two or more consecutive billing cycles.[ltrif]
[lsqbb]When a card issuer has not received the required payment for two
or more consecutive billing cycles for a charge card account that
requires payment of outstanding balances in full at the end of each
billing cycle, three percent of the delinquent balance.[rsqbb]
[rtrif](D) The amounts in paragraphs (b)(1)(ii)(A) and
(b)(1)(ii)(B) of this section will be adjusted annually by the Board to
reflect changes in the Consumer Price Index.[ltrif]
* * * * *
12. Section 226.53(b) is revised to read as follows:
Sec. 226.53 Allocation of payments.
* * * * *
(b) Special rule[rtrif]s[ltrif] [lsqbb]for accounts with balances
subject to deferred interest or similar programs[rsqbb]. [rtrif](1)
Accounts with balances subject to deferred interest or similar
program.[ltrif] When a balance on a credit card account under an open-
end (not home-secured) consumer credit plan is subject to a deferred
interest or similar program that provides that a consumer will not be
obligated to pay interest that accrues on the balance if the balance is
paid in full prior to the expiration of a specified period of time:
[rtrif](i)[ltrif] [lsqbb](1)[rsqbb] Last two billing cycles. The
card issuer must allocate any amount paid by the consumer in excess of
the required minimum periodic payment consistent with paragraph (a) of
this section, except that, during the two billing cycles immediately
preceding expiration of the specified period, the excess amount must be
allocated first to the balance subject to the deferred interest or
similar program and any remaining portion allocated to any other
balances consistent with paragraph (a) of this section; or
[rtrif](ii)[ltrif] [lsqbb](2)[rsqbb] Consumer request. The card
issuer may at its option allocate any amount paid by the consumer in
excess of the required minimum periodic payment among the balances on
the account in the manner requested by the consumer.
[rtrif](2) Accounts with secured balances. When a balance on a
credit card account under an open-end (not home-secured) consumer
credit plan is secured, the card issuer may at its option allocate any
amount paid by the consumer in excess of the required minimum periodic
payment to that balance if requested by the consumer.[ltrif]
13. Section 226.55 is amended by revising paragraphs (b)(1),
(b)(3)(iii), and (b)(6), and by adding paragraph (e) to read as
follows:
Sec. 226.55 Limitations on increasing annual percentage rates, fees,
and charges.
* * * * *
(b) * * *
(1) Temporary rate [rtrif], fee, or charge[ltrif] exception. A card
issuer may increase an annual percentage rate [rtrif]or a fee or charge
required to be disclosed under Sec. 226.6(b)(2)(ii), (b)(2)(iii), or
(b)(2)(xii)[ltrif] upon the expiration of a specified period of six
months or longer, provided that:
(i) Prior to the commencement of that period, the card issuer
disclosed in writing to the consumer, in a clear and conspicuous
manner, the length of the period and the annual percentage rate
[rtrif], fee, or charge[ltrif] that would apply after expiration of the
period; and
(ii) Upon expiration of the specified period:
(A) The card issuer must not apply an annual percentage rate
[rtrif], fee, or charge[ltrif] to transactions that occurred prior to
the period that exceeds the annual percentage rate [rtrif], fee, or
charge[ltrif] that applied to those transactions prior to the period;
(B) If the disclosures required by paragraph (b)(1)(i) of this
section are provided pursuant to Sec. 226.9(c), the card issuer must
not apply an annual percentage rate [rtrif], fee, or charge[ltrif] to
transactions that occurred within 14 days after provision of the notice
that exceeds the annual percentage rate [rtrif], fee, or charge[ltrif]
that applied to that category of transactions prior to provision of the
notice; and
(C) The card issuer must not apply an annual percentage rate
[rtrif], fee, or charge[ltrif] to transactions that occurred during the
period that exceeds the increased annual percentage rate [rtrif], fee,
or charge[ltrif] disclosed pursuant to paragraph (b)(1)(i) of this
section.
* * * * *
(3) * * *
(iii) This exception does not permit a card issuer to increase an
annual percentage rate or a fee or charge required to be disclosed
under Sec. 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the
first year after the account is opened [rtrif], while the account is
closed, or while the card issuer does not permit the consumer to use
the account for new transactions. For purposes of this paragraph, an
account is considered open no earlier than the date on which the
account may first be used by the consumer to engage in
transactions[ltrif].
* * * * *
(6) Servicemembers Civil Relief Act exception. If an annual
percentage rate [rtrif]or a fee or charge required to be disclosed
under Sec. 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii)[ltrif] has
been decreased pursuant to 50 U.S.C. app. 527 [rtrif]or a similar
federal or state statute or regulation[ltrif], a card issuer may
increase that annual percentage rate[rtrif], fee, or charge[ltrif] once
50 U.S.C. app. 527 [rtrif]or the similar statute or regulation[ltrif]
no longer applies, provided that the card issuer must not apply to any
transactions that occurred prior to the decrease an annual percentage
rate[rtrif], fee, or charge[ltrif] that exceeds the annual percentage
rate[rtrif], fee, or charge[ltrif] that
[[Page 67492]]
applied to those transactions prior to the decrease.
* * * * *
[rtrif](e) Promotional waivers or rebates of interest, fees, and
other charges. If a card issuer promotes the waiver or rebate of
finance charges due to a periodic interest rate or fees or charges
required to be disclosed under Sec. 226.6(b)(2)(ii), (b)(2)(iii), or
(b)(2)(xii) and applies the waiver or rebate to a credit card account
under an open-end (not home-secured) consumer credit plan, any
cessation of the waiver or rebate constitutes an increase in an annual
percentage rate, fee, or charge for purposes of this section.[ltrif]
14. Section 226.58 is amended by:
A. Redesignating paragraphs (b)(4) through (b)(7) as (b)(5) through
(b)(8) respectively;
B. Adding a new paragraph (b)(4);
C. Revising paragraphs (b)(1), (b)(2), newly redesignated paragraph
(b)(7); and
D. Revising paragraphs (c)(1), (c)(2), (c)(3), and (c)(8)(i)(C)(1)
to read as follows:
Sec. 226.58 Internet posting of credit card agreements.
* * * * *
(b) Definitions--(1) Agreement. For purposes of this section,
``agreement'' or ``credit card agreement'' means the written document
or documents evidencing the terms of the legal obligation, or the
prospective legal obligation, between a card issuer and a consumer for
a credit card account under an open-end (not home-secured) consumer
credit plan. ``Agreement'' or ``credit card agreement'' also includes
the pricing information, as defined in [lsqbb]Sec.
226.58(b)(6)[rsqbb][rtrif]Sec. 226.58(b)(7)[ltrif].
(2) Amends. For purposes of this section, an issuer ``amends'' an
agreement if it makes a substantive change (an ``amendment'') to the
agreement. A change is substantive if it alters the rights or
obligations of the card issuer or the consumer under the agreement. Any
change in the pricing information, as defined in [lsqbb]Sec.
226.58(b)(6)[rsqbb][rtrif]Sec. 226.58(b)(7)[ltrif], is deemed to be
substantive.
* * * * *
[rtrif](4) Card issuer. For purposes of this section, ``card
issuer'' or ``issuer'' means the entity to which a consumer is legally
obligated, or would be legally obligated, under the terms of a credit
card agreement.[ltrif]
[lsqbb](4)[rsqbb][rtrif](5)[ltrif] * * *
[lsqbb](5)[rsqbb][rtrif](6)[ltrif] * * *
[lsqbb](6)[rsqbb][rtrif](7)[ltrif] Pricing information. For
purposes of this section, ``pricing information'' means the information
listed in Sec. 226.6(b)(2)(i) through (b)(2)(xii) [and (b)(4)].
Pricing information does not include temporary or promotional rates and
terms or rates and terms that apply only to protected balances.
[lsqbb](7)[rsqbb][rtrif](8)[ltrif] * * *
(c) * * *
(1) Quarterly submissions. A card issuer must make quarterly
submissions to the Board, in the form and manner specified by the
Board[rtrif]. Quarterly submissions must be sent to the Board no later
than the first business day on or after January 31, April 30, July 31,
and October 31 of each year. Each submission must
contain:[ltrif][lsqbb], that contain:[rsqbb]
(i) Identifying information about the card issuer and the
agreements submitted, including the issuer's name, address, and
identifying number (such as an RSSD ID number or tax identification
number);
(ii) The credit card agreements that the card issuer offered to the
public as of the last business day of the preceding calendar quarter
that the card issuer has not previously submitted to the Board;
(iii) Any credit card agreement previously submitted to the Board
that was amended during the preceding calendar quarter [rtrif]and that
the card issuer offered to the public as of the last business day of
the preceding calendar quarter[ltrif], as described in Sec.
226.58(c)(3); and
(iv) Notification regarding any credit card agreement previously
submitted to the Board that the issuer is withdrawing, as described in
[rtrif]Sec. 226.58(c)(4), (c)(5), (c)(6), and
(c)(7)[ltrif][lsqbb]Sec. 226.58(c)(4) and (c)(5)[rsqbb].
(2) [rtrif]Reserved.[ltrif][lsqbb]Timing of first two submissions.
The first submission following the effective date of this section must
be sent to the Board no later than February 22, 2010, and must contain
the credit card agreements that the card issuer offered to the public
as of December 31, 2009. The next submission must be sent to the Board
no later than August 2, 2010, and must contain:
(i) Any credit card agreement that the card issuer offered to the
public as of June 30, 2010, that the card issuer has not previously
submitted to the Board;
(ii) Any credit card agreement previously submitted to the Board
that was amended after December 31, 2009, and on or before June 30,
2010, as described in Sec. 226.58(c)(3); and
(iii) Notification regarding any credit card agreement previously
submitted to the Board that the issuer is withdrawing as of June 30,
2010, as described in Sec. 226.58(c)(4) and (c)(5).[rsqbb]
(3) Amended agreements. If a credit card agreement has been
submitted to the Board, the agreement has not been amended and the card
issuer continues to offer the agreement to the public, no additional
submission regarding that agreement is required. If a credit card
agreement that previously has been submitted to the Board is amended
[rtrif]and the card issuer offered the amended agreement to the public
as of the last business day of the calendar quarter in which the change
became effective[ltrif], the card issuer must submit the entire amended
agreement to the Board, in the form and manner specified by the Board,
by the first quarterly submission deadline after the last day of the
calendar quarter in which the change became effective.
* * * * *
(8) * * *
(i) * * *
(C) * * *
(1) disclosures required by state or federal law, such as affiliate
marketing notices, privacy policies, [rtrif]billing rights
notices,[ltrif] or disclosures under the E-Sign Act;
* * * * *
15. Appendix M1 to part 226 is amended by revising paragraph (f) to
read as follows:
Appendix M1 to Part 226--Repayment Disclosures
* *
(f) Calculating the savings estimate for repayment in 36 months.
[rtrif]When calculating the savings estimate for repayment in 36
months, if a card issuer chooses under Sec. 226.7(b)(12)(i) to
round the disclosures to the nearest whole dollar when disclosing
them on the periodic statement, the card issuer must calculate the
savings estimate for repayment in 36 months by subtracting the total
cost estimate for repayment in 36 months calculated under paragraph
(e) of this appendix (rounded to the nearest whole dollar) from the
minimum payment total cost estimate calculated under paragraph (c)
of this appendix (rounded to the nearest whole dollar). If a card
issuer chooses under Sec. 227.7(b)(12)(i), however, to round the
disclosures to the nearest cent when disclosing them on the periodic
statement, the card issuer must calculate the savings estimate for
repayment in 36 months by subtracting the total cost estimate for
repayment in 36 months calculated under paragraph (e) of this
appendix (rounded to the nearest cent) from the minimum payment
total cost estimate calculated under paragraph (c) of this appendix
(rounded to the nearest cent).[ltrif] [lsqbb]When calculating the
saving estimate for repayment in 36 months, a card issuer must
subtract the total cost estimate for repayment in 36 months
calculated under paragraph (e) of this appendix (rounded to the
nearest whole dollar as set forth in Sec.
226.7(b)(12)(i)(F)(1)(iii)) from the minimum payment total cost
estimate calculated under paragraph (c) of this appendix (rounded to
[[Page 67493]]
the nearest whole dollar as set forth in Sec.
226.7(b)(12)(i)(C)).[rsqbb] The savings estimate for repayment in 36
months shall be considered accurate if it is based on the total cost
estimate for repayment in 36 months that is calculated in accordance
with paragraph (e) of this appendix and the minimum payment total
cost estimate calculated under paragraph (c) of this appendix.
* * * * *
16. In Supplement I to Part 226:
A. Under Section 226.2--Definitions and Rules of Construction,
subheading 2(a)(15) Credit card, paragraphs 2. and 3. are revised and
paragraph 4. is added.
B. Under Section 226.5--General Disclosure Requirements, subheading
5(b)(2) Periodic statements:
i. Under Paragraph 5(b)(2)(ii), paragraphs 1. through 4. are
revised; and
ii. The heading Paragraph 5(b)(2)(iii) and paragraph 1. under that
heading are deleted.
C. Under Section 226.5a--Credit and Charge Card Applications and
Solicitations, subheading 5a(b) Required disclosures:
i. Under 5a(b)(1) Annual percentage rate, paragraph 5. is revised;
ii. Under 5a(b)(2) Fees for issuance or availability, paragraph 4.
is revised; and
iii. Under 5a(b)(5) Grace period, paragraph 1. is revised and
paragraph 4. is deleted; and
iv. Under 5a(b)(6) Balance computation method, paragraph 1. is
revised.
D. Under Section 226.6--Account-Opening Disclosures:
i. Under 6(b)(2)(v) Grace period, paragraphs 1. and 3. are revised
and paragraph 4. is deleted; and
ii. Under 6(b)(2)(vi) Balance computation method, paragraph 1. is
revised and paragraph 2. is added.
E. Under Section 226.7--Periodic Statement, under 7(b) Rules
affecting open-end (not home-secured) plans:
i. Paragraph 1. is revised;
ii. Under 7(b)(5) Balance on which finance charge computed,
paragraphs 7. and 8. are revised;
iii. Under 7(b)(6) Charges imposed, paragraph 3. is revised; and
iv. Under 7(b)(12) Repayment disclosures, paragraph 1. is added.
F. Under Section 226.9--Subsequent Disclosure Requirements:
i. Under 9(b) Disclosures for supplemental credit access devices
and additional features, under 9(b)(3) Checks that access a credit card
account, under 9(b)(3)(i) Disclosures, paragraph 2. is added;
ii. Under 9(c) Change in terms, under 9(c)(2) Rules affecting open-
end (not home-secured) plans:
1. Paragraph 1. is revised;
2. Under 9(c)(2)(iii) Charges not covered by Sec. 226.6(b)(1) and
(b)(2), paragraph 1. is revised;
3. Under 9(c)(2)(iv) Disclosure requirements, paragraphs 3. and 4.
are revised; and
4. Under 9(c)(2)(v) Notice not required, paragraphs 2., 3., 4., 5.,
6., 7., 10., 11., and 12. are revised and paragraph 13. is added.
G. Under Section 226.10--Payments:
i. Under 10(b) Specific requirements for payments, paragraph 2. is
revised;
ii Under 10(e) Limitations on fees related to method of payment,
paragraph 4. is added; and
iii. Under 10(f) Changes by card issuer, paragraph 3. is revised.
H. Under Section 226.12--Special Credit Card Provisions, under
12(c) Right of cardholder to assert claims or defenses against card
issuer, paragraph 4. is revised.
I. Under Section 226.13--Billing Error Resolution, under 13(c) Time
for resolution; general procedures, under Paragraph 13(c)(2), paragraph
2. is revised.
J. Under Section 226.14--Determination of Annual Percentage Rate,
under 14(a) General rule, paragraph 6. is added.
K. Under Section 226.16--Advertising:
i. Paragraphs 1. and 2. are revised; and
ii. Under 16(g) Promotional rates, paragraphs 2., 3., and 4. are
revised.
L. Under Section 226.30--Limitation on Rates, paragraph 8. is
revised.
M. Under Section 226.51--Ability to Pay:
i. Under 51(a) General rule, paragraphs 1., 2. and 4. are revised;
and
ii. Under 51(a)(2) Minimum periodic payments, paragraph 3. is
revised.
N. Under Section 226.52--Limitations on Fees:
i. Under 52(a) Limitations during first year after account opening:
1. The heading 52(a) Limitations during first year after account
opening is revised to read 52(a) Limitations prior to account opening
and during first year after account opening;
2. Under 52(a)(1) General rule, paragraphs 1., 2., and 3. are
revised; and
3 Under 52(a)(2) Fees not subject to limitations, paragraph 1. is
revised;
ii. Under 52(b) Limitations on penalty fees:
1. Under 52(b)(1)(ii) Safe harbors, paragraph 1. is revised; and
2. Under 52(b)(2) Prohibited fees:
A. Under 52(b)(2)(i) Fees that exceed dollar amount associated with
violation, paragraph 5. is revised; and
B. Under 52(b)(2)(ii) Multiple fees based on single event or
transaction, paragraph 1. is revised.
O. Under Section 226.53-- Allocation of Payments:
i. Paragraphs 4. and 5. are revised; and
ii. Under 53(b) Special rule for accounts with balances subject to
deferred interest or similar programs:
1. The heading is revised to read 53(b) Special rules; and
2. Paragraphs 1., 2., and 3. are revised.
P. Under Section 226.55--Limitations on Increasing Annual
Percentage Rates, Fees, and Charges:
i. Under 55(a) General rule, paragraph 1. is revised;
ii. Under 55(b) Exceptions, paragraphs 1. and 3. are revised;
iii. Under 55(b)(1) Temporary rate exception:
1. The heading is revised to read 55(b)(1) Temporary rate, fee, or
charge exception; and
2. Paragraphs 2. and 4. are revised and paragraph 5. is added;
iv. Under 55(b)(6) Servicemembers Civil Relief Act exception,
paragraphs 1. and 2. are revised and paragraph 3. is added;
v. Under 55(c) Treatment of protected balances, under 55(c)(1)
Definition of protected balance, paragraph 3. is revised and paragraph
4. is added; and
vi. The heading 55(e) Promotional waivers or rebates of interest,
fees, and other charges is added and paragraphs 1., 2., and 3. are
added under that heading.
Q. Under Section 226.58--Internet Posting of Credit Card
Agreements:
i. Under 58(b) Definitions:
1. Under 58(b)(1) Agreement, paragraph 1. is revised;
2 Under 58(b)(2) Amends, paragraph 1. is revised;
3. The heading 58(b)(4) Card issuer is added and paragraph 1. is
added under that heading;
4. The heading 58(b)(4) Offers is revised to read 58(b)(5) Offers;
5. The heading 58(b)(5) Open account is revised to read 58(b)(6)
Open account; and
6. The heading 58(b)(7) Private label credit card account and
private label credit card plan is revised to read 58(b)(8) Private
label credit card account and private label credit card plan and under
that heading paragraphs 2. and 4. are revised;
ii. Under 58(c) Submission of agreements to Board, under 58(c)(3)
Amended agreements, paragraph 2. is revised, paragraph 3. is renumbered
as paragraph 4., and a new paragraph 3. is added; and
iii. Under 58(e) Agreements for all open accounts, paragraph 3. is
revised.
[[Page 67494]]
R. Under Section 226.59--Reevaluation of Rate Increases:
i. Under 59(a) General rule, under 59(a)(1) Evaluation of increased
rate, paragraphs 3., 4., and 5. are renumbered and a new paragraph 3.
is added;
ii. Under 59(d) Factors, paragraph 6. is added; and
iii. Under 59(f) Termination of obligation to review factors,
paragraph 2. is added.
Supplement I to Part 226--Official Staff Interpretations
* * * * *
Subpart A--General
* * * * *
Section 226.2--Definitions and Rules of Construction
* * * * *
2(a)(15) Credit card.
* * * * *
2. Examples.
* * * * *
ii. In contrast, credit card does not include, for example:
* * * * *
[rtrif]C. An account number that accesses a credit account,
unless the account number can access an open-end line of credit to
purchase goods or services. For example, if a creditor provides a
consumer with an open-end line of credit that can be accessed by an
account number in order to transfer funds into another account (such
as an asset account with the same creditor), the account number is
not a credit card for purposes of Sec. 226.2(a)(15)(i). However, if
the account number can also access the line of credit to purchase
goods or services (such as an account number that can be used to
purchase goods or services on the Internet), the account number is a
credit card for purposes of Sec. 226.2(a)(15)(i). Furthermore, if
the line of credit can also be accessed by a card (such as a debit
card or prepaid card), that card is a credit card for purposes of
Sec. 226.2(a)(15)(i).[ltrif]
3. Charge card. Generally, charge cards are cards used in
connection with an account on which outstanding balances cannot be
carried from one billing cycle to another and are payable when a
periodic statement is received. Under the regulation, a reference to
credit cards generally includes charge cards. [rtrif]In particular,
references to credit card accounts under an open-end (not home-
secured) consumer credit plan in Subparts B and G generally include
charge cards.[ltrif] The term charge card is, however, distinguished
from credit card [rtrif]or credit card account under an open-end
(not home-secured) consumer credit plan[ltrif] in Sec. Sec. 226.5a,
[rtrif]226.6(b)(2)(xiv),[ltrif] 226.7(b)(11), 226.7(b)(12),
226.9(e), 226.9(f)[rtrif],[ltrif] [lsqbb]and[rsqbb] 226.28(d),
[rtrif]226.52(b)(1)(ii)(C),[ltrif] and appendices G-10 through G-13.
[lsqbb]When the term credit card is used in those provisions, it
refers to credit cards other than charge cards.[rsqbb]
[rtrif]4. Credit card account under an open-end (not home-
secured) consumer credit plan. An open-end consumer credit account
is a credit card account under an open-end (not home-secured)
consumer credit plan for purposes of Sec. 226.2(a)(15)(ii) if:
i. The account is accessed by a credit card, as defined in Sec.
226.2(a)(15)(i); and
ii. The account is not excluded under Sec. 226.2(a)(15)(ii)(A)
or (a)(15)(ii)(B).[ltrif]
* * * * *
Subpart B--Open-End Credit
Section 226.5--General Disclosure Requirements
* * * * *
5(b) Time of disclosures.
* * * * *
5(b)(2) Periodic statements.
* * * * *
Paragraph 5(b)(2)(ii).
1. Mailing or delivery of periodic statements. A creditor is not
required to determine the specific date on which a periodic
statement is mailed or delivered to an individual consumer for
purposes of Sec. 226.5(b)(2)(ii). A creditor complies with Sec.
226.5(b)(2)(ii) if it has adopted reasonable procedures designed to
ensure that periodic statements are mailed or delivered to consumers
no later than a certain number of days after the closing date of the
billing cycle and adds that number of days to the 21-day [rtrif]or
14-day[ltrif] period required by Sec. 226.5(b)(2)(ii) when
determining[rtrif], as applicable,[ltrif] the payment due date
[rtrif] for purposes of Sec. 226.5(b)(2)(ii)(A),[ltrif]
[lsqbb]and[rsqbb] the date on which any grace period expires for
purposes of [rtrif]Sec. 226.5(b)(2)(ii)(B)(1), or the date after
which the payment will be treated as late for purposes of Sec.
226.5(b)(2)(ii)(B)(2).[ltrif] [lsqbb]Sec. 226.5(b)(2)(ii)(A)(1) and
(b)(2)(ii)(B)(1).[rsqbb] For example[rtrif]:[ltrif] [lsqbb],[rsqbb]
[rtrif]A. If[ltrif] [lsqbb]if[rsqbb] a creditor has adopted
reasonable procedures designed to ensure that periodic statements
[rtrif]for a credit card account under an open-end (not home-
secured) consumer credit plan or an account under an open-end
consumer credit plan that provides a grace period[ltrif] are mailed
or delivered to consumers no later than three days after the closing
date of the billing cycle, the payment due date [rtrif]for purposes
of Sec. 226.5(b)(2)(ii)(A)[ltrif] and the date on which any grace
period expires [rtrif]for purposes of Sec.
226.5(b)(2)(ii)(B)(1)[ltrif] must be no less than 24 days after the
closing date of the billing cycle. Similarly, in these
circumstances, the limitations in Sec.
226.5(b)(2)(ii)(A)[lsqbb](2)[rsqbb] and
(b)(2)(ii)(B)[rtrif](1)[ltrif][lsqbb](2)[rsqbb] on treating a
payment as late and imposing finance charges apply for 24 days after
the closing date of the billing cycle.
[rtrif]B. If a creditor has adopted reasonable procedures
designed to ensure that periodic statements for an account under an
open-end consumer credit plan that does not provide a grace period
are mailed or delivered to consumers no later than five days after
the closing date of the billing cycle, the date on which a payment
must be received in order to avoid being treated as late for
purposes of Sec. 226.5(b)(2)(ii)(B)(2) must be no less than 19 days
after the closing date of the billing cycle. Similarly, in these
circumstances, the limitation in Sec. 226.5(b)(2)(ii)(B)(2) on
treating a payment as late for any purpose applies for 19 days after
the closing date of the billing cycle.[ltrif]
2. Treating a payment as late for any purpose. Treating a
payment as late for any purpose includes increasing the annual
percentage rate as a penalty, reporting the consumer as delinquent
to a credit reporting agency, assessing a late fee or any other fee,
initiating collection activities, or terminating benefits (such as
rewards on purchases) based on the consumer's failure to make a
payment within a specified amount of time or by a specified date.
The prohibition[rtrif]s[ltrif] in Sec. 226.5(b)(2)(ii)(A)(2)
[rtrif]and (b)(2)(B)(2)(ii)[ltrif] on treating a payment as late for
any purpose [rtrif]apply [ltrif] [lsqbb]applies[rsqbb] only during
the 21-day [rtrif]or 14-day[ltrif] period [rtrif](as
applicable)[ltrif] following mailing or delivery of the periodic
statement stating the due date for that payment and only if the
required minimum periodic payment is received within that period.
For example:
i. Assume that[rtrif], for a credit card account under an open-
end (not home-secured) consumer credit plan,[ltrif] a periodic
statement mailed on April 4 states that a required minimum periodic
payment of $50 is due on April 25. If the card issuer does not
receive any payment on or before April 25, Sec.
226.5(b)(2)(ii)(A)(2) does not prohibit the card issuer from
treating the required minimum periodic payment as late.
* * * * *
[rtrif]iv. Assume that, for an account under an open-end
consumer credit plan that does not provide a grace period, a
periodic statement mailed on September 10 states that a required
minimum periodic payment of $100 is due on September 24. If the
creditor does not receive any payment on or before September 24,
Sec. 226.5(b)(2)(ii)(B)(2)(ii) does not prohibit the creditor from
treating the required minimum periodic payment as late.[ltrif]
3. Grace periods.
* * * * *
ii. Applicability of Sec. 226.5(b)(2)(ii)(B)[rtrif](1)[ltrif].
Section 226.5(b)(2)(ii)(B)[rtrif](1)[ltrif] applies if an account is
eligible for a grace period when the periodic statement is mailed or
delivered. Section 226.5(b)(2)(ii)(B)[rtrif](1)[ltrif] does not
require the creditor to provide a grace period or prohibit the
creditor from placing limitations and conditions on a grace period
to the extent consistent with Sec. 226.5(b)(2)(ii)(B) and Sec.
226.54. See comment 54(a)(1)-1. Furthermore, the prohibition in
Sec. 226.5(b)(2)(ii)(B)[rtrif](1)(ii)[ltrif] [lsqbb](2)[rsqbb]
applies only during the 21-day period following mailing or delivery
of the periodic statement and applies only when the creditor
receives a payment within that 21-day period that satisfies the
terms of the grace period.
iii. Example.
Assume that the billing cycles for an account begin on the
first day of the month and end on the last day of the month and that
the payment due date for the account is the twenty-fifth of the
month. Assume also that, under the terms of the account, the balance
at the end of a billing cycle must be paid in full by the following
payment due date in order for the account to remain eligible for the
grace period. At the end of the April
[[Page 67495]]
billing cycle, the balance on the account is $500. The grace period
applies to the $500 balance because the balance for the March
billing cycle was paid in full on April 25. Accordingly, Sec.
226.5(b)(2)(ii)(B)(1)[rtrif](i)[ltrif] requires the creditor to have
reasonable procedures designed to ensure that the periodic statement
reflecting the $500 balance is mailed or delivered on or before May
4. Furthermore, Sec. 226.5(b)(2)(ii)(B) [rtrif](1)(ii)[ltrif]
[lsqbb](2)[rsqbb] requires the creditor to have reasonable
procedures designed to ensure that the creditor does not impose
finance charges as a result of the loss of the grace period if a
$500 payment is received on or before May 25. However, if the
creditor receives a payment of $300 on April 25, Sec.
226.5(b)(2)(ii)(B) [rtrif](1)(ii)[ltrif] [lsqbb](2)[rsqbb] would not
prohibit the creditor from imposing finance charges as a result of
the loss of the grace period (to the extent permitted by Sec.
226.54).
4. Application of Sec. 226.5(b)(2)(ii) to charge card and
charged-off accounts.
i. Charge card accounts. For purposes of Sec.
226.5(b)(2)(ii)(A)(1), the payment due date [rtrif]for a credit card
account under an open-end (not home-secured) consumer credit
plan[ltrif] is the date the card issuer is required to disclose on
the periodic statement pursuant to Sec. 226.7(b)(11)(i)(A). Because
Sec. 226.7(b)(11)(ii) provides that Sec. 226.7(b)(11)(i) does not
apply to periodic statements provided solely for charge card
accounts, Sec. 226.5(b)(2)(ii)(A)(1) also does not apply to the
mailing or delivery of periodic statements provided solely for such
accounts. However, in these circumstances, Sec.
226.5(b)(2)(ii)(A)(2) requires the card issuer to have reasonable
procedures designed to ensure that a payment is not treated as late
for any purpose during the 21-day period following mailing or
delivery of the statement. Section
226.5(b)(2)(ii)(B)[rtrif](1)[ltrif] does not apply to charge card
accounts because, for purposes of Sec. 226.5(b)(2)(ii)(B), a grace
period is a period within which any credit extended may be repaid
without incurring a finance charge due to a periodic interest rate
and, consistent with Sec. 226.2(a)(15)(iii), charge card accounts
do not impose a finance charge based on a periodic rate.
[rtrif]Similarly, Sec. 226.5(b)(2)(ii)(B)(2) does not apply to
charge card accounts.[ltrif]
ii. Charged-off accounts. For purposes of Sec.
226.5(b)(2)(ii)(A)(1), the payment due date [rtrif]for a credit card
account under an open-end (not home-secured) consumer credit
plan[ltrif] is the date the card issuer is required to disclose on
the periodic statement pursuant to Sec. 226.7(b)(11)(i)(A). Because
Sec. 226.7(b)(11)(ii) provides that Sec. 226.7(b)(11)(i) does not
apply to periodic statements provided for charged-off accounts where
full payment of the entire account balance is due immediately, Sec.
226.5(b)(2)(ii)(A)(1) also does not apply to the mailing or delivery
of periodic statements provided solely for such accounts.
Furthermore, although Sec. 226.5(b)(2)(ii)(A)(2) requires the card
issuer to have reasonable procedures designed to ensure that a
payment is not treated as late for any purpose during the 21-day
period following mailing or delivery of the statement, Sec.
226.5(b)(2)(ii)(A)(2) does not prohibit a card issuer from
continuing to treat prior payments as late during that period. See
comment 5(b)(2)(ii)-2. [rtrif]Similarly, although Sec.
226.5(b)(2)(ii)(B)(2) applies to open-end consumer credit accounts
in these circumstances, Sec. 226.5(b)(2)(ii)(B)(2)(ii) does not
prohibit a creditor from continuing treating prior payments as late
during the 14-day period following mailing or delivery of a periodic
statement.[ltrif] Section 226.5(b)(2)(ii)(B)[rtrif](1)[ltrif] does
not apply to charged-off accounts where full payment of the entire
account balance is due immediately because such accounts do not
provide a grace period.
* * * * *
[lsqbb]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.[rsqbb]
* * * * *
Section 226.5a--Credit and Charge Card Applications and
Solicitations
* * * * *
5a(b) Required disclosures.
* * * * *
5a(b)(1) Annual percentage rate.
* * * * *
5. Increased penalty rates. i. In general. For rates that are
not introductory rates [rtrif]or employee preferential rates[ltrif],
if a rate may increase as a penalty for one or more events specified
in the account agreement, such as a late payment or an extension of
credit that exceeds the credit limit, the card issuer must disclose
the increased rate that would apply, a brief description of the
event or events that may result in the increased rate, and a brief
description of how long the increased rate will remain in effect.
The description of the specific event or events that may result in
an increased rate should be brief. For example, if an issuer may
increase a rate to the penalty rate because the consumer does not
make the minimum payment by 5 p.m., Eastern Time, on its payment due
date, the issuer should describe this circumstance in the table as
``make a late payment.'' Similarly, if an issuer may increase a rate
that applies to a particular balance because the account is more
than 60 days late, the issuer should describe this circumstance in
the table as ``make a late payment.'' An issuer may not distinguish
between the events that may result in an increased rate for existing
balances and the events that may result in an increased rate for new
transactions. (See Samples G-10(B) and G-10(C) (in the row labeled
``Penalty APR and When it Applies'') for additional guidance on the
level of detail in which the specific event or events should be
described.) The description of how long the increased rate will
remain in effect also should be brief. If a card issuer reserves the
right to apply the increased rate [rtrif]to any balances[ltrif]
indefinitely, [rtrif]to the extent permitted by Sec. Sec.
226.55(b)(4) and 226.59, the issuer should disclose that the penalty
rate may apply indefinitely[ltrif] [lsqbb]that fact should be
stated[rsqbb]. [rtrif]The card issuer may not disclose in the table
any limitations imposed by Sec. Sec. 226.55(b)(4) and 226.59 on the
duration of increased rates. For example, if the issuer generally
provides that the increased rate will apply until the consumer makes
twelve timely consecutive required minimum periodic payments, except
to the extent that Sec. Sec. 226.54(b)(4) and 226.59 apply, the
issuer should disclose that the penalty rate will apply until the
consumer makes twelve consecutive timely minimum payments.[ltrif]
(See Samples G-10(B) and G-10(C) (in the row labeled ``Penalty APR
and When it Applies'') for additional guidance on the level of
detail which the issuer should use to describe how long the
increased rate will remain in effect.) A card issuer will be deemed
to meet the standard to clearly and conspicuously disclose the
information required by Sec. 226.5a(b)(1)(iv)(A) if the issuer uses
the format shown in Samples G-10(B) and G-10(C) (in the row labeled
``Penalty APR and When it Applies'') to disclose this information.
ii. Introductory rates--general. An issuer is required to
disclose directly beneath the table the circumstances under which an
introductory rate, as that term is defined in Sec.
226.16(g)(2)(ii), may be revoked, and the rate that will apply after
the revocation. This information about revocation of an introductory
rate and the rate that will apply after revocation must be provided
even if the rate that will apply after the introductory rate is
revoked is the rate that would have applied at the end of the
promotional period. In a variable-rate account, the rate that would
have applied at the end of the promotional period is a rate based on
the applicable index or formula in accordance with the accuracy
requirements set forth in Sec. 226.5a(c)(2) or (e)(4). In
describing the rate that will apply after revocation of the
introductory rate, if the rate that will apply after revocation of
the introductory rate is already disclosed in the table, the issuer
is not required to repeat the rate, but may refer to that rate in a
clear and conspicuous manner. For example, if the rate that will
apply after revocation of an introductory rate is the standard rate
that applies to that type of transaction (such as a purchase or
balance transfer transaction), and the standard rates are labeled in
the table as ``standard APRs,'' the issuer may refer to the
``standard APR'' when describing the rate that will apply after
revocation of an introductory rate. (See Sample G-10(C) in the
disclosure labeled ``Loss of Introductory APR'' directly beneath the
table.) The description of the circumstances in which an
introductory rate could be revoked should be brief. For example, if
an issuer may increase an introductory rate because the account is
more than 60 days late, the issuer should describe this circumstance
[rtrif]directly beneath[ltrif][lsqbb]in[rsqbb] the table as ``make a
late payment.'' In addition, if the circumstances in which an
introductory rate could be revoked are already listed elsewhere in
the table, the issuer is not required to repeat the circumstances
again, but may refer to those circumstances in a clear and
conspicuous manner. For example, if the circumstances in which an
introductory rate could be revoked are the same as the event or
events that may trigger a ``penalty rate'' as described in Sec.
226.5a(b)(1)(iv)(A), the issuer may refer to the actions listed in
the Penalty APR row, in
[[Page 67496]]
describing the circumstances in which the introductory rate could be
revoked. (See Sample G-10(C) in the disclosure labeled ``Loss of
Introductory APR'' directly beneath the table for additional
guidance on the level of detail in which to describe the
circumstances in which an introductory rate could be revoked.) A
card issuer will be deemed to meet the standard to clearly and
conspicuously disclose the information required by Sec.
226.5a(b)(1)(iv)(B) if the issuer uses the format shown in Sample G-
10(C) to disclose this information.
iii. Introductory rates--limitations on revocation. Issuers that
are disclosing an introductory rate are prohibited by Sec. 226.55
from increasing or revoking the introductory rate before it expires
unless the consumer fails to make a required minimum periodic
payment within 60 days after the due date for the payment. In making
the required disclosure pursuant to Sec. 226.5a(b)(1)(iv)(B),
issuers should describe this circumstance directly beneath the table
as ``make a late payment.''
[rtrif]iv. Employee preferential rates. An issuer is required to
disclose directly beneath the table the circumstances under which an
employee preferential rate may be revoked, and the rate that will
apply after the revocation. In describing the rate that will apply
after revocation of the employee preferential rate, if the rate that
will apply after revocation of the employee preferential rate is
already disclosed in the table, the issuer is not required to repeat
the rate, but may refer to that rate in a clear and conspicuous
manner. For example, if the rate that will apply after revocation of
an employee preferential rate is the standard rate that applies to
that type of transaction (such as a purchase or balance transfer
transaction), and the standard rates are labeled in the table as
``standard APRs,'' the issuer may refer to the ``standard APR'' when
describing the rate that will apply after revocation of an employee
preferential rate. The description of the circumstances in which an
employee preferential rate could be revoked should be brief. For
example, if an issuer may increase an employee preferential rate
based upon termination of the employee's employment relationship
with the issuer or a third party, issuers may describe this
circumstance as ``if your employment with [issuer or third party]
ends.''[ltrif]
* * * * *
5a(b)(2) Fees for issuance or availability.
* * * * *
4. Waived or reduced fees. If fees required to be disclosed are
waived or reduced for a limited time, the introductory fees or the
fact of fee waivers may be [rtrif]disclosed[ltrif]
[lsqbb]provided[rsqbb] in the table in addition to the required fees
if the card issuer also discloses how long the reduced fees or
waivers will remain in effect [rtrif]in accordance with the
requirements of Sec. Sec. 226.9(c)(2)(v)(B) and
226.55(b)(1)[ltrif].
* * * * *
5a(b)(5) Grace period.
1. How grace period disclosure is made. The card issuer must
state any conditions on the applicability of the grace period.
[rtrif]An issuer, however, may not disclose under Sec. 226.5a(b)(5)
the limitations on the imposition of finance charges as a result of
a loss of a grace period in Sec. 226.54, or the impact of payment
allocation on whether interest is charged on purchases as a result
of a loss of a grace period. Some issuers may offer a grace period
on all purchases under which interest will not be charged on
purchases if the consumer pays the outstanding balance shown on a
periodic statement in full by the due date shown on that statement
for one or more billing cycles. In these circumstances, Sec.
226.5a(b)(5) requires that the issuer disclose the grace period and
the conditions for its applicability using the following language,
or substantially similar language, as applicable: ``Your due date is
[at least] ---- days after the close of each billing cycle. We will
not charge you any interest on purchases if you pay your entire
balance by the due date each month.''[ltrif] [lsqbb]An issuer that
offers a grace period on all purchases 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 any interest on purchases if
you pay your entire balance by the due date each month.''[rsqbb]
[rtrif]However, other issuers may offer a grace period on all
purchases under which interest may be charged on purchases even if
the consumer pays the outstanding balance shown on a periodic
statement in full by the due date shown on that statement each
billing cycle. For example, an issuer may charge interest on
purchases if the consumer uses the account for a cash advance,
regardless of whether the outstanding balance shown on the periodic
statement is paid in full by the due date shown on that statement.
In these circumstances, Sec. 226.5a(b)(5) requires the issuer to
amend the above disclosure language to describe accurately the
conditions on the applicability of the grace period.[ltrif]
* * * * *
[lsqbb]4. Limitations on the imposition of finance charges in
Sec. 226.54. Section 226.5a(b)(5) does not require a card issuer to
disclose the limitations on the imposition of finance charges in
Sec. 226.54.[rsqbb]
* * * * *
5a(b)(6) Balance computation method.
1. Form of disclosure. In cases where the card issuer uses a
balance computation method that is identified by name in the
regulation, the card issuer must disclose below the table only the
name of the method. In cases where the card issuer 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 methods in
Sec. 226.5a(g). The explanation need not be as detailed as that
required for the disclosures under Sec. 226.6(b)(4)(i)(D).
[lsqbb](See the commentary to Sec. 226.5a(g) for guidance on
particular methods.)[rsqbb]
* * * * *
Section 226.6--Account-Opening Disclosures
* * * * *
6(b)(2)(v) Grace period.
1. Grace period. Creditors must state any conditions on the
applicability of the grace period. [rtrif]A creditor, however, may
not disclose under Sec. 226.6(b)(2)(v) the limitations on the
imposition of finance charges as a result of a loss of a grace
period in Sec. 226.54, or the impact of payment allocation on
whether interest is charged on transactions as a result of a loss of
a grace period. Some creditors may offer a grace period on all types
of transactions under which interest will not be charged on
transactions if the consumer pays the outstanding balance shown on a
periodic statement in full by the due date shown on that statement
for one or more billing cycles. In these circumstances, Sec.
226.6(b)(2)(v) requires that the creditor disclose the grace period
and the conditions for its applicability using the following
language, or substantially similar language, as applicable: ``Your
due date is [at least] -- days after the close of each billing
cycle. We will not charge you any interest on your account if you
pay your entire balance by the due date each month.''[ltrif] [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 any
interest on your account if you pay your entire balance by the due
date each month.''][rtrif] However, other creditors may offer a
grace period on all types of transactions under which interest may
be charged on transactions even if the consumer pays the outstanding
balance shown on a periodic statement in full by the due date shown
on that statement each billing cycle. In these circumstances, Sec.
226.6(b)(2)(v) requires the creditor to amend the above disclosure
language to describe accurately the conditions on the applicability
of the grace period.[ltrif]
* * * * *
3. Grace period on some features. [lsqbb]See Samples G-17(B) and
G-17(C) for guidance on complying with Sec. 226.6(b)(2)(v) when a
creditor offers a grace period for purchases but no grace period on
balance transfers and cash advances.[rsqbb] [rtrif]Some creditors do
not offer a grace period on cash advances and balance transfers, but
offers a grace period for all purchases under which interest will
not be charged on purchases if the consumer pays the outstanding
balance shown on a periodic statement in full by the due date shown
on that statement for one or more billing cycles. In these
circumstances, Sec. 226.6(b)(2)(v) requires that the creditor
disclose the grace period for purchases and the conditions for its
applicability, and the lack of a grace period for cash advances and
[[Page 67497]]
balance transfers using the following language, or substantially
similar language, as applicable: ``Your due date is [at least] --
days after the close of each billing cycle. We will not charge you
any interest on purchases if you pay your entire balance by the due
date each month. We will begin charging interest on cash advances
and balance transfers on the transaction date.'' However, other
creditors may offer a grace period on all purchases under which
interest may be charged on purchases even if the consumer pays the
outstanding balance shown on a periodic statement in full by the due
date shown on that statement each billing cycle. For example, a
creditor may charge interest on purchases if the consumer uses the
account for a cash advance, regardless of whether the outstanding
balance shown on the periodic statement is paid in full by the due
date shown on that statement. In these circumstances, Sec.
226.6(a)(2)(v) requires the creditor to amend the above disclosure
language to accurately describe the conditions on the applicability
of the grace period. Also, some creditors may not offer a grace
period on cash advances and balance transfers, and will begin
charging interest on these transactions from a date other than the
transaction date, such as the posting date. In these circumstances,
Sec. 226.6(a)(2)(v) requires the creditor to amend the above
disclosure language to be accurate. [ltrif]
[lsqbb]4. Limitations on the imposition of finance charges in
Sec. 226.54. Section 226.6(b)(2)(v) does not require a card issuer
to disclose the limitations on the imposition of finance charges in
Sec. 226.54.[rsqbb]
6(b)(2)(vi) Balance computation method.
[lsqbb]1. Content.[rsqbb][rtrif]1. Use of same balance
computation method for all features. In cases where the balance for
each feature is computed using the same balance computation method,
a single identification of the name of the balance computation
method is sufficient. In this case, a creditor may use an
appropriate name listed in Sec. 226.5a(g) (e.g., ``average daily
balance (including new purchases)'') to satisfy the requirement to
disclose the name of the method for all features on the account,
even though the name only refers to purchases. For example, if a
creditor uses the average daily balance method including new
transactions for all features, a creditor may use the name ``average
daily balance (including new purchases)'' listed in Sec.
226.5a(g)(i) to satisfy the requirement to disclose the name of the
balance computation method for all features. As an alternative, in
this situation, a creditor may revise the balance computation names
listed in Sec. 226.5a(g) to refer more broadly to all new credit
transactions, such as using the language ``new transactions'' or
``current transactions'' (e.g., ``average daily balance (including
new transactions)''), rather than simply referring to new purchases
when the same method is used to calculate the balances for all
features of the account.[ltrif] See Samples G-17(B) and G-17(C) for
guidance on how to disclose the balance computation method where the
same method is used for all features on the account.
[rtrif]2. Use of balance computation names in Sec. 226.5a(g)
for balances other than purchases. The names of the balance
computation methods listed in Sec. 226.5a(g) describe balance
computation methods for purchases. When a creditor is disclosing the
name of the balance computation methods separately for each feature,
in using the names listed in Sec. 226.5a(g) to satisfy the
requirements of Sec. 226.6(b)(2)(vi) for features other than
purchases, a creditor must revise the names listed in Sec.
226.5a(g) to refer to the other features. For example, when
disclosing the name of the balance computation method applicable to
cash advances, a creditor must revise the name listed in Sec.
226.5a(g)(i) to disclose it as ``average daily balance (including
new cash advances)'' when the balance for cash advances is figured
by adding the outstanding balance (including new cash advances and
deducting payments and credits) for each day in the billing cycle,
and then dividing by the number of days in the billing cycle.
Similarly, a creditor must revise the name listed in Sec.
226.5a(g)(ii) to disclose it as ``average daily balance (excluding
new cash advances)'' when the balance for cash advances is figured
by adding the outstanding balance (excluding new cash advances and
deducting payments and credits) for each day in the billing cycle,
and then dividing by the number of days in the billing cycle. See
comment 6(b)(2)(vi)-1 for guidance on the use of one balance
computation name when the same balance computation method is used
for all features on the account.[ltrif]
* * * * *
Section 226.7--Periodic Statement
* * * * *
7(b) Rules affecting open-end (not home-secured) plans.
1. Deferred interest or similar transactions. * * *
* * * * *
iv. Due date to avoid obligation for finance charges under a
deferred interest or similar program. Section 226.7(b)(14) requires
disclosure on periodic statements of the date by which any
outstanding balance subject to a deferred interest or similar
program must be paid in full in order to avoid the obligation for
finance charges on such balance. This disclosure must appear on the
front of [rtrif]any page of[ltrif] each periodic statement issued
during the deferred interest period beginning with the first
periodic statement issued during the deferred interest period that
reflects the deferred interest or similar transaction.
* * * * *
7(b)(5) Balance on which finance charge computed.
* * * * *
7. 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 or a single identification of the name 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(b)(5)-1. In these cases, one
explanation or a single identification of the name of the balance
computation method is also sufficient (assuming, of course, that all
portions of the balance were computed using the same method).
[rtrif]In these cases, a creditor may use an appropriate name listed
in Sec. 226.5a(g) (e.g., ``average daily balance (including new
purchases)'') as the single identification of the name of the
balance computation method applicable to all features, even though
the name only refers to purchases. For example, if a creditor uses
the average daily balance method including new transactions for all
features, a creditor may use the name ``average daily balance
(including new purchases)'' listed in Sec. 226.5a(g)(i) to satisfy
the requirement to disclose the name of the balance computation
method for all features. As an alternative, in this situation, a
creditor may revise the balance computation names listed in Sec.
226.5a(g) to refer more broadly to all new credit transactions, such
as using the language ``new transactions'' or ``current
transactions'' (e.g., ``average daily balance (including new
transactions)''), rather than simply referring to new purchases,
when the same method is used to calculate the balances for all
features of the account.
8. Use of balance computation names in Sec. 226.5a(g) for
balances other than purchases. The names of the balance computation
methods listed in Sec. 226.5a(g) describe balance computation
methods for purchases. When a creditor is disclosing the name of the
balance computation methods separately for each feature, in using
the names listed in Sec. 226.5a(g) to satisfy the requirements of
Sec. 226.7(b)(5) for features other than purchases, a creditor must
revise the names listed in Sec. 226.5a(g) to refer to the other
features. For example, when disclosing the name of the balance
computation method applicable to cash advances, a creditor must
revise the name listed in Sec. 226.5a(g)(i) to disclose it as
``average daily balance (including new cash advances)'' when the
balance for cash advances is figured by adding the outstanding
balance (including new cash advances and deducting payments and
credits) for each day in the billing cycle, and then dividing by the
number of days in the billing cycle. Similarly, a creditor must
revise the name listed in Sec. 226.5a(g)(ii) to disclose it as
``average daily balance (excluding new cash advances)'' when the
balance for cash advances is figured by adding the outstanding
balance (excluding new cash advances and deducting payments and
credits) for each day in the billing cycle, and then dividing by the
number of days in the billing cycle. See comment 7(b)(5)-7 for
guidance on the use of one balance computation method explanation or
name when multiple balances are disclosed.[ltrif]
* * * * *
[[Page 67498]]
7(b)(6) Charges imposed.
* * * * *
3. Total fees [rtrif]and interest charged[ltrif] 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 [lsqbb]a[rsqbb] calendar-year-to-date
total[rtrif]s[ltrif] at the end of the calendar year by aggregating
[rtrif]finance charges attributable to periodic interest rates
and[ltrif] 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[rtrif]s[ltrif]
for [rtrif]interest charged and[ltrif] 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[rtrif]s[ltrif] for [rtrif]interest charged
and[ltrif] fees imposed January 1, 2011, through December 31, 2011.
B. A creditor may disclose a calendar-year-to-date
total[rtrif]s[ltrif] at the end of the calendar year by aggregating
[rtrif]finance charges attributable to periodic interest rates
and[ltrif] 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[rtrif]s[ltrif]
for [rtrif]interest charged and[ltrif] fees imposed from December
10, 2010, through December 9, 2011.
* * * * *
7(b)(12) Repayment disclosures.
[rtrif]1. Rounding. In disclosing on the periodic statement the
minimum payment total cost estimate, the estimated monthly payment
for repayment in 36 months, the total cost estimate for repayment in
36 months, and the savings estimate for repayment in 36 months under
Sec. 226.7(b)(12)(i) or (b)(12)(ii) as applicable, a card issuer,
at its option, must either round these disclosures to the nearest
whole dollar or to the nearest cent. Nonetheless, an issuer's
rounding for all of these disclosures must be consistent. An issuer
may round all of these disclosures to the nearest whole dollar when
disclosing them on the periodic statement, or may round all of these
disclosures to the nearest cent. An issuer may not, however, round
some of the disclosures to the nearest whole dollar, while rounding
other disclosures to the nearest cent.[ltrif]
* * * * *
Section 226.9--Subsequent Disclosure Requirements
* * * * *
9(b) Disclosures for supplemental credit access devices and
additional features.
* * * * *
9(b)(3) Checks that access a credit card account.
9(b)(3)(i) Disclosures.
* * * * *
[rtrif]2. Combined disclosures for checks and other transactions
subject to the same terms. A card issuer may include in the tabular
disclosure provided pursuant to Sec. 226.9(b)(3) disclosures
regarding the terms offered on non-check transactions, provided that
such transactions are subject to the same terms that are required to
be disclosed pursuant to Sec. 226.9(b)(3)(i) for the checks that
access a credit card account. However, a card issuer may not include
in the table information regarding additional terms that are not
required disclosures for checks that access a credit card account
pursuant to Sec. 226.9(b)(3).[ltrif]
* * * * *
9(c) Change in terms.
* * * * *
9(c)(2) Rules affecting open-end (not home-secured) plans.
1. Changes initially disclosed. Except as provided in Sec.
226.9(g)(1), no notice of a change in terms need be given if the
specific change is set forth initially [rtrif]consistent with any
applicable requirements[ltrif], such as [rtrif]rate or fee increases
upon expiration of a specific period of time that were disclosed in
accordance with Sec. 226.9(c)(2)(v)(B) or[ltrif] rate increases
under a properly disclosed variable-rate plan in accordance with
Sec. 226.9(c)(2)(v)(C). In contrast, notice must be given if the
contract allows the creditor to increase the rate at its discretion.
* * * * *
9(c)(2)(iii) Charges not covered by Sec. 226.6(b)(1) and
(b)(2).
1. Applicability. Generally, if a creditor increases any
component of a charge, or introduces a new charge, that is imposed
as part of the plan under Sec. 226.6(b)(3) but is not required to
be disclosed as part of the account-opening summary table under
Sec. 226.6(b)(1) and (b)(2), the creditor
[lsqbb]may[rsqbb][rtrif]must[ltrif] either, at its option (i)
provide at least 45 days' written advance notice before the change
becomes effective to comply with the requirements of Sec.
226.9(c)(2)(i), or (ii) provide notice orally or in writing, or
electronically if the consumer requests the service electronically,
of the amount of the charge to an affected consumer before the
consumer agrees to or becomes obligated to pay the charge, at a time
and in a manner that a consumer would be likely to notice the
disclosure. (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(b)(3) but is not
required to be disclosed in the account-opening summary table under
Sec. 226.6(b)(1) and (b)(2). If a creditor changes the amount of
that expedited delivery fee, the creditor may provide written
advance notice of the change to affected consumers at least 45 days
before the change becomes effective. Alternatively, the creditor may
provide oral or written notice, or electronic notice if the consumer
requests the service electronically, of the amount of the charge to
an affected consumer before the consumer agrees to or becomes
obligated to pay the charge, at a time and in a manner that the
consumer would be likely to notice the disclosure. (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)(2)(iv) Disclosure requirements.
* * * * *
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
[rtrif]generally[ltrif] must provide a notice as otherwise required
under Sec. 226.9(c) even if the variable rate at the time of the
change is higher than the non-variable rate. [rtrif]However, a
creditor is not required to provide a notice under Sec. 226.9(c) if
the creditor provides the disclosures required by Sec.
226.9(c)(2)(v)(B) or (c)(2)(v)(D) in connection with changing a
variable rate to a lower non-variable rate. Similarly, a creditor is
not required to provide a notice under Sec. 226.9(c) when changing
a variable rate to a lower non-variable rate in order to comply with
50 U.S.C. app. 527 or a similar federal or state statute or
regulation.[ltrif]
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
[rtrif]generally[ltrif] must provide a notice as otherwise required
under Sec. 226.9(c) even if the non-variable rate is higher than
the variable rate at the time of the change. [rtrif]However, a
creditor is not required to provide a notice under Sec. 226.9(c) if
the creditor provides the disclosures required by Sec.
226.9(c)(2)(v)(B) or (c)(2)(v)(D) in connection with changing a non-
variable rate to a lower variable rate. Similarly, a creditor is not
required to provide a notice under Sec. 226.9(c) when changing a
non-variable rate to a lower variable rate in order to comply with
50 U.S.C. app. 527 or a similar federal or state statute or
regulation.[ltrif]
* * * * *
9(c)(2)(v) Notice not required.
* * * * *
2. Skip features. i. [lsqbb]General[rsqbb][rtrif]Skipped or
reduced payments[ltrif]. If a credit program allows consumers to
skip or reduce one or more payments during the year[lsqbb], or
involves temporary reductions in finance charges other than
reductions in an interest rate (except if Sec. 226.9(c)(2)(v)(B) or
(c)(2)(v)(D) applies)[rsqbb], no notice of the change in terms is
required either prior to the reduction [rtrif]in payments[ltrif] or
upon resumption of the higher [finance charges or] payments if these
features are explained on the account-opening disclosure statement
(including an explanation of the terms upon resumption). For
example, a merchant may allow consumers to skip the December payment
to encourage holiday shopping, or a teacher's credit union may not
require payments during summer vacation. Otherwise, the creditor
must give notice prior to resuming the original
[rtrif]payment[ltrif] schedule [lsqbb]or finance charge[rsqbb], 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
[[Page 67499]]
[lsqbb]reduction or[rsqbb] skip feature may also be used to notify
the consumer of the resumption of the original [rtrif]payment[ltrif]
schedule [lsqbb]or finance charge[rsqbb], either by stating
explicitly when the higher payment [or charges]
resume[rtrif]s[ltrif] or by indicating the duration of the skip
option. Language such as ``You may skip your October payment'' may
serve as the change-in-terms notice.
ii. Temporary reductions in interest rates [rtrif]or
fees[ltrif]. If a credit program involves temporary reductions in an
interest rate [rtrif]or fee[ltrif], no notice of the change in terms
is required either prior to the reduction or upon resumption of the
original rate [rtrif]or fee[ltrif] if these features are disclosed
in advance in accordance with the requirements of Sec.
226.9(c)(2)(v)(B). Otherwise, the creditor must give notice prior to
resuming the original rate [rtrif]or fee[ltrif], even though no
notice is required prior to the reduction. The notice provided prior
to resuming the original rate [rtrif]or fee[ltrif] must comply with
the timing requirements of Sec. 226.9(c)(2)(i) and the content and
format requirements of Sec. 226.9(c)(2)(iv)(A), (B) (if
applicable), (C) (if applicable), and (D). See comment 55(b)-3 for
guidance regarding the application of Sec. 226.55 in these
circumstances.
3. Changing from a variable rate to a non-variable rate.
[rtrif]See comment 9(c)(2)(iv)-3.[ltrif] [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) even if the variable rate at the time
of the change is higher than the non-variable rate. (See comment
9(c)(2)(iv)(A)-3.)]
4. Changing from a non-variable rate to a variable rate.
[rtrif]See comment 9(c)(2)(iv)-4.[ltrif] [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) even if the non-variable rate is
higher than the variable rate at the time of the change. (See
comment 9(c)(2)(iv)(A)-4.)]
5. Temporary rate [rtrif]or fee[ltrif] reductions offered by
telephone. The timing requirements of Sec. 226.9(c)(2)(v)(B) are
deemed to have been met, and written disclosures required by Sec.
226.9(c)(2)(v)(B) may be provided as soon as reasonably practicable
after the first transaction subject to a rate that will be in effect
for a specified period of time (a temporary rate) [rtrif]or the
imposition of a fee that will be in effect for a specified period of
time (a temporary fee)[ltrif] if:
i. The consumer accepts the offer of the temporary rate
[rtrif]or temporary fee[ltrif] by telephone;
ii. The creditor permits the consumer to reject the temporary
rate [rtrif]or temporary fee[ltrif] offer and have the rate or rates
[rtrif]or fee[ltrif] that previously applied to the consumer's
balances reinstated for 45 days after the creditor mails or delivers
the written disclosures required by Sec. 226.9(c)(2)(v)(B)[rtrif],
except that the creditor need not permit the consumer to reject a
temporary rate or temporary fee offer if the rate or rates or fee
that will apply following expiration of the temporary rate do not
exceed the rate or rates or fee that applied immediately prior to
commencement of the temporary rate or temporary fee[ltrif]; and
iii. The disclosures required by Sec. 226.9(c)(2)(v)(B) and the
consumer's right to reject the temporary rate [rtrif]or temporary
fee[ltrif] offer and have the rate or rates [rtrif]or fee[ltrif]
that previously applied to the consumer's account reinstated[rtrif],
if applicable,[ltrif] are disclosed to the consumer as part of the
temporary rate [rtrif]or temporary fee[ltrif] offer.
6. First listing. The disclosures required by Sec.
226.9(c)(2)(v)(B)(1) are only required to be provided in close
proximity and in equal prominence to the first listing of the
temporary rate [rtrif]or fee[ltrif] in the disclosure provided to
the consumer. For purposes of Sec. 226.9(c)(2)(v)(B), the first
statement of the temporary rate [rtrif]or fee[ltrif] is the most
prominent listing on the front side of the first page of the
disclosure. If the temporary rate [rtrif]or fee[ltrif] does not
appear on the front side of the first page of the disclosure, then
the first listing of the temporary rate [rtrif]or fee[ltrif] is the
most prominent listing of the temporary rate on the subsequent pages
of the disclosure. For advertising requirements for promotional
rates, see Sec. 226.16(g).
7. Close proximity--point of sale. Creditors providing the
disclosures required by Sec. 226.9(c)(2)(v)(B) of this section in
person in connection with financing the purchase of goods or
services may, at the creditor's option, disclose the annual
percentage rate [rtrif]or fee[ltrif] that would apply after
expiration of the period on a separate page or document from the
temporary rate [rtrif]or fee[ltrif] and the length of the period,
provided that the disclosure of the annual percentage rate [rtrif]or
fee[ltrif] that would apply after the expiration of the period is
equally prominent to, and is provided at the same time as, the
disclosure of the temporary rate [rtrif]or fee[ltrif] and length of
the period.
* * * * *
[rtrif]10. Relationship between Sec. Sec. 226.9(c)(2)(v)(B) and
226.6(b). A disclosure of the information described in Sec.
226.9(c)(2)(v)(B)(1) provided in the account-opening table in
accordance with Sec. 226.6(b) complies with the requirements of
Sec. 226.9(c)(2)(v)(B)(2), if the listing of the introductory rate
in such tabular disclosure also is the first listing as described in
comment 9(c)(2)(v)-6.[ltrif]
[lsqbb]10[rsqbb][rtrif]11[ltrif]. Disclosure of the terms of a
workout or temporary hardship arrangement. In order for the
exception in Sec. 226.9(c)(2)(v)(D) to apply, the disclosure
provided to the consumer pursuant to Sec. 226.9(c)(2)(v)(D)(2) must
set forth:
i. The annual percentage rate that will apply to balances
subject to the workout or temporary hardship arrangement;
ii. The annual percentage rate that will apply to such balances
if the consumer completes or fails to comply with the terms of, the
workout or temporary hardship arrangement;
iii. Any reduced fee or charge of a type required to be
disclosed under Sec. 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii)
that will apply to balances subject to the workout or temporary
hardship arrangement, as well as the fee or charge that will apply
if the consumer completes or fails to comply with the terms of the
workout or temporary hardship arrangement;
iv. Any reduced minimum periodic payment that will apply to
balances subject to the workout or temporary hardship arrangement,
as well as the minimum periodic payment that will apply if the
consumer completes or fails to comply with the terms of the workout
or temporary hardship arrangement; and
v. If applicable, that the consumer must make timely minimum
payments in order to remain eligible for the workout or temporary
hardship arrangement.
[lsqbb]11[rsqbb][rtrif]12[ltrif]. Index not under creditor's
control. See comment 55(b)(2)-2 for guidance on when an index is
deemed to be under [the card issuer's] [rtrif]a creditor's[ltrif]
control.
[lsqbb]12[rsqbb][rtrif]13[ltrif]. Temporary rates--relationship
to Sec. 226.59. i. General. Section 226.59 requires a card issuer
to review rate increases imposed due to the revocation of a
temporary rate. In some circumstances, Sec. 226.59 may require an
issuer to reinstate a reduced temporary rate based on that review.
If, based on a review required by Sec. 226.59, a creditor
reinstates a temporary rate that had been revoked, the card issuer
is not required to provide an additional notice to the consumer when
the reinstated temporary rate expires, if the card issuer provided
the disclosures required by Sec. 226.9(c)(2)(v)(B) prior to the
original commencement of the temporary rate. See Sec. 226.55 and
the associated commentary for guidance on the permissibility and
applicability of rate increases.
ii. Example. A consumer opens a new credit card account under an
open-end (not home-secured) consumer credit plan on January 1, 2011.
The annual percentage rate applicable to purchases is 18%. The card
issuer offers the consumer a 15% rate on purchases made between
January 1, 2012 and January 1, 2014. Prior to January 1, 2012, the
card issuer discloses, in accordance with Sec. 226.9(c)(2)(v)(B),
that the rate on purchases made during that period will increase to
the standard 18% rate on January 1, 2014. In March 2012, the
consumer makes a payment that is ten days late. The card issuer,
upon providing 45 days' advance notice of the change under Sec.
226.9(g), increases the rate on new purchases to 18% effective as of
June 1, 2012. On December 1, 2012, the issuer performs a review of
the consumer's account in accordance with Sec. 226.59. Based on
that review, the card issuer is required to reduce the rate to the
original 15% temporary rate as of January 15, 2013. On January 1,
2014, the card issuer may increase the rate on purchases to 18%, as
previously disclosed prior to January 1, 2012, without providing an
additional notice to the consumer.
* * * * *
Section 226.10--Payments
* * * * *
10(b) Specific requirements for payments.
* * * * *
2. Payment [rtrif]methods promoted by creditor[ltrif][lsqbb] via
creditor's Web site[rsqbb]. [rtrif]If a creditor promotes a specific
payment method, any payments made via that method (prior to any cut-
off time specified by the creditor, to the extent permitted by Sec.
226.10(b)(2)) are generally conforming
[[Page 67500]]
payments for purposes of Sec. 226.10(b). For example:[ltrif]
[rtrif]i.[ltrif] If a creditor promotes electronic payment via
its Web site (such as by disclosing on the Web site itself that
payments may be made via the Web site), any payments made via the
creditor's Web site prior to the creditor's specified cut-off time,
if any, would generally be conforming payments for purposes of Sec.
226.10(b).
[rtrif]ii. If a creditor promotes payment by telephone (for
example, by including the option to pay by telephone in a menu of
options provided to consumers at a toll-free number disclosed on its
periodic statement), payments made by telephone would generally be
conforming payments for purposes of Sec. 226.10(b).
iii. If a creditor promotes in-person payments, for example by
stating in an advertisement that payments may be made in person at
its branch locations, such in-person payments made at a branch or
office of the creditor generally would be conforming payments for
purposes of Sec. 226.10(b).[ltrif]
* * * * *
10(e) Limitations on fees related to method of payment.
* * * * *
[rtrif]4. Third parties. For purposes of Sec. 226.10(e), the
term ``creditor'' includes third-party service providers or other
third parties who collect, receive, or process payments on behalf of
the creditor.[ltrif]
* * * * *
10(f) Changes by card issuer.
* * * * *
3. Safe harbor.
* * * * *
(ii) Retail location. For a material change in the address of a
retail location or procedures for handling cardholder payments at a
retail location, a card issuer may impose a late fee or finance
charge on a consumer's account for a late payment during the 60-day
period following the date on which the change took effect. However,
if a [lsqbb]consumer[rsqbb][rtrif]card issuer[ltrif] is notified by
a consumer no later than 60 days after the card issuer transmitted
the first periodic statement that reflects the late fee or finance
charge for a late payment that the late payment was caused by such
change, the card issuer must waive or remove any late fee or finance
charge, or credit an amount equal to any late fee or finance charge,
imposed on the account during the 60-day period following the date
on which the change took effect.
* * * * *
Section 226.12--Special Credit Card Provisions
* * * * *
12(c) Right of cardholder to assert claims or defenses against
card issuer.
* * * * *
4. Method of calculating the amount of credit outstanding. The
amount of the claim or defense that the cardholder may assert shall
not exceed the amount of credit outstanding for the disputed
transaction at the time the cardholder first notifies the card
issuer or the person honoring the credit card of the existence of
the claim or defense. [rtrif]However, when a consumer has asserted a
claim or defense against a creditor pursuant to Sec. 226.12(c), the
creditor must apply any payment or other credit in a manner that
avoids or minimizes any reduction in the amount subject to that
claim or defense. Accordingly, to determine the amount of credit
outstanding for purposes of this section, payments and other credits
must be applied first to amounts other than the disputed
transaction. For examples of how to comply with Sec. Sec. 226.12
and 226.53 for credit card accounts under an open-end (not home-
secured) consumer credit plan, see comment 53-3. For other types of
credit card accounts[ltrif] [lsqbb]To determine the amount of credit
outstanding for purposes of this section[rsqbb], payments and other
credits [rtrif]may[ltrif] [lsqbb]shall[rsqbb] be applied to: (i)
Late charges in the order of entry to the account; then to (ii)
finance charges in the order of entry to the account; and then to
(iii) any [lsqbb]other[rsqbb] debits [rtrif]other than the
transaction subject to the claim or defense[ltrif] in the order of
entry to the account. In these circumstances, if[ltrif]
[lsqbb]If[rsqbb] more than one item is included in a single
extension of credit, credits are to be distributed pro rata
according to prices and applicable taxes.
* * * * *
Section 226.13--Billing Error Resolution
* * * * *
13(c) Time for resolution; general procedures.
* * * * *
Paragraph 13(c)(2).
* * * * *
2. Finality of error resolution procedure. A creditor must
comply with the error resolution procedures and complete its
investigation to determine whether an error occurred within two
complete billing cycles as set forth in Sec. 226.13(c)(2). Thus,
for example, [rtrif]Sec. 226.13(c)(2) prohibits a[ltrif]
[lsqbb]the[rsqbb] creditor [lsqbb]would be prohibited[rsqbb] from
reversing amounts previously credited for an alleged billing error
even if the creditor obtains evidence after the error resolution
time period has passed indicating that the billing error did not
occur as asserted by the consumer. Similarly, if a creditor fails to
mail or deliver a written explanation setting forth the reason why
the billing error did not occur as asserted, or otherwise fails to
comply with the error resolution procedures set forth in Sec.
226.13(f), the creditor generally must credit the disputed amount
and related finance or other charges, as applicable, to the
consumer's account. [rtrif]However, if a consumer receives more than
one credit to correct the same billing error, this section does not
prevent a creditor from reversing amounts it has previously credited
to correct that error, provided that the total amount of the
remaining credits is equal to or more than the amount of the error
and that the consumer does not incur any fees or other charges as a
result of the timing of the creditor's reversal. For example, assume
that a consumer asserts a billing error with respect to a $100
transaction and that the creditor posts a $100 credit to the
consumer's account to correct that error during the time period set
forth in Sec. 226.13(c)(2). However, following that time period, a
merchant or other person honoring the credit card issues a $100
credit to the consumer to correct the same error. In these
circumstances, Sec. 226.13(c)(2) does not prohibit the creditor
from reversing its $100 credit once the $100 credit from the
merchant or other person has posted to the consumer's
account.[ltrif]
* * * * *
Section 226.14--Determination of Annual Percentage Rate
14(a) General rule.
* * * * *
[rtrif]6. Effect of leap year. Any variance in the annual
percentage rate that occurs solely by reason of the addition of
February 29 in a leap year, may be disregarded, and such a rate may
be disclosed without regard to such variance.[ltrif]
* * * * *
Section 226.16--Advertising
1. Clear and conspicuous standard--general. Section 226.16 is
subject to the general ``clear and conspicuous'' standard for
subpart B (see Sec. 226.5(a)(1)) but prescribes no specific rules
for the format of the necessary disclosures, other than the format
requirements related to the disclosure of a promotional rate or
payment under Sec. 226.16(d)(6), a promotional rate [rtrif]or
promotional fee[ltrif] under Sec. 226.16(g), or a deferred interest
or similar offer under Sec. 226.16(h). Other than the disclosure of
certain terms described in Sec. Sec. 226.16(d)(6), (g), or (h), the
credit terms need not be printed in a certain type size nor need
they appear in any particular place in the advertisement.
* * * * *
2. Clear and conspicuous standard--promotional rates[rtrif],
fees,[ltrif] or payments; deferred interest or similar offers.
* * * * *
ii. For purposes of Sec. 226.16(g)(4) as it applies to written
or electronic advertisements only, a clear and conspicuous
disclosure means the required information in Sec. 226.16(g)(4)(i)
and[rtrif], as applicable,[ltrif] (g)(4)(ii) [rtrif]and
(g)(4)(iii)[ltrif] must be equally prominent to the promotional rate
[rtrif]or promotional fee[ltrif] to which it applies. If the
information in Sec. 226.16(g)(4)(i) and[rtrif], as
applicable,[ltrif] (g)(4)(ii) [rtrif]and (g)(4)(iii)[ltrif] is the
same type size as the promotional rate [rtrif]or promotional
fee[ltrif] to which it applies, the disclosures would be deemed to
be equally prominent. For purposes of Sec. 226.16(h)(3) as it
applies to written or electronic advertisements only, a clear and
conspicuous disclosure means the required information in Sec.
226.16(h)(3) must be equally prominent to each statement of ``no
interest,'' ``no payments,'' ``deferred interest,'' ``same as
cash,'' or similar term regarding interest or payments during the
deferred interest period. If the information required to be
disclosed under Sec. 226.16(h)(3) is the same type size as the
statement of ``no interest,'' ``no payments,'' ``deferred
interest,'' ``same as cash,'' or similar term regarding interest or
payments during
[[Page 67501]]
the deferred interest period, the disclosure would be deemed to be
equally prominent.
* * * * *
16(g) Promotional rates.
* * * * *
2. Immediate proximity. For written or electronic
advertisements, including the term ``introductory'' or ``intro'' in
the same phrase as the listing of the introductory rate [rtrif]or
introductory fee[ltrif] is deemed to be in immediate proximity of
the listing.
3. Prominent location closely proximate. For written or
electronic advertisements, information required to be disclosed in
Sec. 226.16(g)(4)(i) and[rtrif], as applicable,[ltrif] (g)(4)(ii)
[rtrif]and (g)(4)(iii)[ltrif] that is in the same paragraph as the
first listing of the promotional rate [rtrif]or promotional
fee[ltrif] is deemed to be in a prominent location closely proximate
to the listing. Information disclosed in a footnote will not be
considered in a prominent location closely proximate to the listing.
4. First listing. For purposes of Sec. 226.16(g)(4) as it
applies to written or electronic advertisements, the first listing
of the promotional rate [rtrif]or promotional fee[ltrif] is the most
prominent listing of the rate [rtrif]or fee[ltrif] on the front side
of the first page of the principal promotional document. The
principal promotional document is the document designed to be seen
first by the consumer in a mailing, such as a cover letter or
solicitation letter. If the promotional rate [rtrif]or promotional
fee[ltrif] does not appear on the front side of the first page of
the principal promotional document, then the first listing of the
promotional rate [rtrif]or promotional fee[ltrif] is the most
prominent listing of the rate [rtrif]or fee[ltrif] on the subsequent
pages of the principal promotional document. If the promotional rate
[rtrif]or promotional fee[ltrif] is not listed on the principal
promotional document or there is no principal promotional document,
the first listing is the most prominent listing of the rate
[rtrif]or fee[ltrif] on the front side of the first page of each
document listing the promotional rate [rtrif]or promotional
fee[ltrif]. If the promotional rate [rtrif]or promotional fee[ltrif]
does not appear on the front side of the first page of a document,
then the first listing of the promotional rate [rtrif]or promotional
fee[ltrif] is the most prominent listing of the rate [rtrif]or
fee[ltrif] on the subsequent pages of the document. If the listing
of the promotional rate [rtrif]or promotional fee[ltrif] with the
largest type size on the front side of the first page (or subsequent
pages if the promotional rate [rtrif]or promotional fee[ltrif] is
not listed on the front side of the first page) of the principal
promotional document (or each document listing the promotional rate
[rtrif]or promotional fee[ltrif] if the promotional rate [rtrif]or
promotional fee[ltrif] is not listed on the principal promotional
document or there is no principal promotional document) is used as
the most prominent listing, it will be deemed to be the first
listing. Consistent with comment 16(c)-1, a catalog or multiple-page
advertisement is considered one document for purposes of Sec.
226.16(g)(4).
* * * * *
Section 226.30--Limitation on Rates
* * * * *
8. Manner of stating the maximum interest rate. The maximum
interest rate must be stated in the credit contract either as a
specific amount or in any other manner that would allow the consumer
to easily ascertain, at the time of entering into the obligation,
what the rate ceiling will be over the term of the obligation.
i. For example, the following statements would be sufficiently
specific:
* * * * *
C. The interest rate will not exceed X%, or X percentage points
[lsqbb]about[rsqbb][rtrif]above[ltrif] [a rate to be determined at
some future point in time], whichever is less.
* * * * *
Subpart G--Special Rules Applicable to Credit Card Accounts and Open-
End Credit Offered to College Students
* * * * *
Section 226.51--Ability To Pay
51(a) General rule.
51(a)(1) Consideration of ability to pay.
1. Consideration of additional factors. Section 226.51(a)
requires a card issuer to consider a consumer's
[rtrif]independent[ltrif] ability to make the required minimum
periodic payments under the terms of an account based on the
consumer's [rtrif]independent[ltrif] income or assets and current
obligations. The card issuer may also consider consumer reports,
credit scores, and other factors, consistent with Regulation B (12
CFR part 202).
2. Ability to pay as of application or consideration of
increase. A card issuer complies with Sec. 226.51(a) if it bases
its determination regarding a consumer's [rtrif]independent[ltrif]
ability to make the required minimum periodic payments on the facts
and circumstances known to the card issuer at the time the consumer
applies to open the credit card account or when the card issuer
considers increasing the credit line on an existing account.
* * * * *
4. [rtrif]Information regarding income,[ltrif]
[lsqbb]Income,[rsqbb] assets, and employment.
[rtrif]i. Types of information. [rtrif]For purposes of Sec.
226.51(a), a card issuer may consider any current or reasonably
expected income or assets of the consumer or consumers who are
applying for a new account or, when the card issuer is considering
whether to increase the credit limit on an existing account, the
consumer or consumers who are accountholders.[ltrif] [lsqbb]Any
current or reasonably expected assets or income may be considered by
the card issuer.[rsqbb] For example, a card issuer may use
information about current or expected salary, wages, bonus pay, tips
and commissions. Employment may be full-time, part-time, seasonal,
irregular, military, or self-employment. Other sources of income
could include interest or dividends, retirement benefits, public
assistance, alimony, child support, or separate maintenance
payments. A card issuer may also take into account assets such as
savings accounts or investments [lsqbb]that the consumer can or will
be able to use[rsqbb]. [rtrif]In addition, when a consumer's spouse
is not a joint applicant or joint accountholder, a card issuer may
consider the spouse's income or assets to the extent that a federal
or state statute or regulation grants the consumer an ownership
interest in the spouse's income or asserts.[ltrif]
[rtrif]ii. Sources of information.[ltrif] A card issuer may
consider the consumer's income or assets based on information
provided by the consumer, in connection with this credit card
account or any other financial relationship the card issuer or its
affiliates has with the consumer, subject to any applicable
information-sharing rules, and information obtained through third
parties, subject to any applicable information-sharing rules. A card
issuer may also consider information obtained through any
empirically derived, demonstrably and statistically sound model that
reasonably estimates a consumer's income or assets.
[rtrif]iii. Information regarding household income or assets.
Consideration of information regarding a consumer's household income
or assets does not by itself satisfy the requirement in Sec.
226.51(a) to consider the consumer's independent ability to pay. For
example, if a card issuer requests on its application form that
applicants provide their household income, the card issuer may not
rely solely on the information provided to satisfy the requirements
of Sec. 226.51(a). Instead, the card issuer would need to obtain
additional information about an applicant's independent income (such
as by contacting the applicant). However, if a card issuer requests
on its application form that applicants provide their income
(without reference to household income), the card issuer may rely on
the information provided to satisfy the requirements of Sec.
226.51(a).[ltrif]
* * * * *
51(a)(2) Minimum periodic payments.
* * * * *
3. Mandatory fees. For purposes of estimating required minimum
periodic payments under the safe harbor set forth in Sec.
226.51(a)(2)(ii), mandatory fees that must be assumed to be charged
include those fees the card issuer knows the consumer will be
required to pay under the terms of the account if the account is
opened, such as an annual fee. [rtrif]If a mandatory fee is a
promotional fee (as defined in Sec. 226.16(g)), the issuer must use
the post-promotional fee amount for purposes of Sec.
226.51(a)(2)(ii).[ltrif]
* * * * *
Section 226.52--Limitations on Fees
52(a) Limitations [rtrif]prior to account opening and[ltrif]
during first year after account opening.
52(a)(1) General rule.
1. Application. [lsqbb]Section 226.52(a)(1) applies if a card
issuer charges any fees to the account during the first year after
the account is opened (unless the fees are specifically exempted by
Sec. 226.52(a)(2)). Thus, if a card issuer charges a non-exempt fee
to the account during the first year after account opening, Sec.
226.52(a)(1) provides that the total amount of non-exempt fees the
consumer is required to pay with respect to the account during the
first year cannot exceed 25 percent of the credit limit in effect
when the account is opened.[rsqbb] [rtrif]The[ltrif]
[lsqbb]This[rsqbb] 25
[[Page 67502]]
percent limit [rtrif]in Sec. 226.52(a)(1)[ltrif] applies to fees
that the card issuer charges to the account as well as to fees that
the card issuer requires the consumer to pay with respect to the
account through other means (such as through a payment from the
consumer[rtrif]'s asset account[ltrif] to the card issuer or from
another credit account provided by the card issuer). For example:
* * * * *
ii. Assume that, under the terms of a credit card account, a
consumer is required to pay $125 in fees for the issuance or
availability of credit during the first year after account opening.
At account opening on January 1 of year one, the credit limit for
the account is $500. Section 226.52(a)(1) permits the card issuer to
charge the $125 in fees to the account. However, Sec. 226.52(a)(1)
prohibits the card issuer from requiring the consumer to make
payments to the card issuer for additional non-exempt fees with
respect to the account [rtrif]prior to account opening or[ltrif]
during the first year after account
opening[rtrif].[ltrif][lsqbb]or[rsqbb] [rtrif]Section 226.52(a)(1)
also prohibits the card issuer from[ltrif] requiring the consumer to
open a separate credit account with the card issuer to fund the
payment of additional non-exempt fees [rtrif]prior to the opening of
the credit card account or [ltrif] during the first year
[rtrif]after the credit card account is opened[ltrif].
[rtrif]iii. Assume that, on January 1 of year one, a consumer is
required to pay a $100 fee in order to apply for a credit card
account. On January 5, the card issuer approves the consumer's
application, assigns the account a credit limit of $1,000, and
provides the consumer with account-opening disclosures consistent
with Sec. 226.6. The card issuer also permits the consumer to begin
using the account for transactions on January 5. The consumer is
required to pay $150 in fees for the issuance or availability of
credit, which Sec. 226.52(a)(1) permits the card issuer to charge
to the account on January 5. However, because the $100 application
fee is subject to the 25 percent limit in Sec. 226.52(a)(1), the
card issuer is prohibited from requiring the consumer to pay any
additional non-exempt fees with respect to the account until January
5 of year two.[ltrif]
2. Fees that exceed 25 percent limit. A card issuer that charges
a fee to a credit card account that exceeds the 25 percent limit
complies with Sec. 226.52(a)(1) if the card issuer waives or
removes the fee and any associated interest charges or credits the
account for an amount equal to the fee and any associated interest
charges within a reasonable amount of time but no later than the end
of the billing cycle following the billing cycle during which the
fee was charged. For example, assuming the facts in [rtrif]the
example in[ltrif] comment 52(a)(1)-1[rtrif].i.[ltrif] above, the
card issuer complies with Sec. 226.52(a)(1) if the card issuer
charged the $2.50 cash advance fee to the account on July 15 of year
one but waived or removed the fee or credited the account for $2.50
(plus any interest charges on that $2.50) at the end of the billing
cycle.
3. Changes in credit limit during first year.
* * * * *
ii. Decreases in credit limit. If a card issuer decreases the
credit limit during the first year after the account is opened,
Sec. 226.52(a)(1) requires the card issuer to waive or remove any
fees charged to the account that exceed 25 percent of the reduced
credit limit or to credit the account for an amount equal to any
fees the consumer was required to pay with respect to the account
that exceed 25 percent of the reduced credit limit within a
reasonable amount of time but no later than the end of the billing
cycle following the billing cycle during which [rtrif]the credit
limit was reduced[ltrif][lsqbb]the fee was charged[rsqbb]. For
example[rtrif]:[ltrif][lsqbb],[rsqbb]
[rtrif]A. Assume[ltrif][lsqbb]assume[rsqbb] that, at account
opening on January 1, the credit limit for a credit card account is
$1,000 and the consumer is required to pay $250 in fees for the
issuance or availability of credit. The billing cycles for the
account begin on the first day of the month and end on the last day
of the month. On July 30, the card issuer decreases the credit limit
for the account to $500. Section 226.52(a)(1) requires the card
issuer to waive or remove $175 in fees from the account or to credit
the account for an amount equal to $175 within a reasonable amount
of time but no later than August 31.
[rtrif]B. Assume that, on June 25 of year one, a consumer is
required to pay a $75 fee in order to apply for a credit card
account. At account opening on July 1 of year one, the credit limit
for the account is $500 and the consumer is required to pay $50 in
fees for the issuance or availability of credit. The billing cycles
for the account begin on the first day of the month and end on the
last day of the month. On February 15 of year two, the card issuer
decreases the credit limit for the account to $250. Section
226.52(a)(1) requires the card issuer to waive or remove fees from
the account or to credit the account for an amount equal to $62.50
within a reasonable amount of time but no later than March 31 of
year two.[ltrif]
52(a)(2) Fees not subject to limitations.
1. Covered fees. Except as provided in Sec. 226.52(a)(2), Sec.
226.52(a) applies to any fees [rtrif]or other charges[ltrif] that a
card issuer will or may require the consumer to pay with respect to
a credit card account [rtrif]prior to account opening and[ltrif]
during the first year after account opening[rtrif], other than
charges attributable to periodic interest rates[ltrif]. For example,
Sec. 226.52(a) applies to:
* * * * *
iii. Fees that the consumer is required to pay in order to
engage in transactions using the account (such as cash advance fees,
balance transfer fees, foreign transaction fees, and fees for using
the account for purchases); [lsqbb]and[rsqbb]
iv. Fees that the consumer is required to pay for violating the
terms of the account (except to the extent specifically excluded by
Sec. 226.52(a)(2)(i))[rtrif];[ltrif][lsqbb].[rsqbb]
[rtrif]v. Fixed finance charges; and
vi. Minimum charges imposed if a charge would otherwise have
been determined by applying a periodic interest rate to a balance
except for the fact that such charge is smaller than the
minimum.[ltrif]
* * * * *
52(b) Limitations on penalty fees.
* * * * *
52(b)(1)(ii) Safe harbors.
1. Multiple violations of same type. [lsqbb]Section
226.52(b)(1)(ii)(A) permits a card issuer to impose a fee that does
not exceed $25 for the first violation of a particular type. For a
subsequent violation of the same type during the next six billing
cycles, Sec. 226.52(b)(1)(ii)(B) permits the card issuer to impose
a fee that does not exceed $35.[rsqbb]
i. [rtrif]Same billing cycle or next six billing cycles.[ltrif]
[lsqbb]Next six billing cycles.[rsqbb] [rtrif]A card issuer cannot
impose a fee for a violation pursuant to Sec. 226.52(b)(1)(ii)(B)
unless a fee has previously been imposed for the same type of
violation pursuant to Sec. 226.52(b)(1)(ii)(A). Once a fee has been
imposed for a violation pursuant to Sec. 226.52(b)(1)(ii)(A), the
card issuer may impose a fee pursuant to Sec. 226.52(b)(1)(ii)(B)
for any subsequent violation of the same type until that type of
violation has not occurred for a period of six consecutive complete
billing cycles.[ltrif] [lsqbb]A fee may be imposed pursuant to Sec.
226.52(b)(1)(ii)(B) if, during the six billing cycles following the
billing cycle in which a violation occurred, another violation of
the same type occurs.[rsqbb]
* * * * *
ii. Relationship to Sec. Sec. 226.52(b)(2)(ii) and
226.56(j)(1)[lsqbb](i)[rsqbb]. If multiple violations are based on
the same event or transaction such that Sec. 226.52(b)(2)(ii)
prohibits the card issuer from imposing more than one fee, the event
or transaction constitutes a single violation for purposes of Sec.
226.52(b)(1)(ii). Furthermore, consistent with Sec.
226.56(j)(1)(i), no more than one violation for exceeding an
account's credit limit can occur during a single billing cycle for
purposes of Sec. 226.52(b)(1)(ii). [rtrif]However, Sec.
226.52(b)(2)(ii) does not prohibit a card issuer from imposing fees
for exceeding the credit limit in consecutive billing cycles based
on the same over-the-limit transaction to the extent permitted by
Sec. 226.56(j)(1). In these circumstances, the second and third
over-the-limit fees permitted by Sec. 226.56(j)(1) may be imposed
pursuant to Sec. 226.52(b)(1)(ii)(B). See comment 52(b)(2)(ii)-
1.[ltrif]
iii. Examples[rtrif].[ltrif] [lsqbb]:[rsqbb] * * * * *
* * * * *
52(b)(2) Prohibited fees.
* * * * *
52(b)(2)(i) Fees that exceed dollar amount associated with
violation.
* * * * *
5. Inactivity fees. Section 226.52(b)(2)(i)(B)(2) prohibits a
card issuer from imposing a fee [rtrif]with respect to a credit card
account under an open-end (not home-secured) consumer credit
plan[ltrif] based on [lsqbb]account[rsqbb] inactivity [rtrif]on that
account[ltrif] (including the consumer's failure to use the account
for a particular number or dollar amount of transactions or a
particular type of transaction). For example, Sec.
226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a $50
fee [rtrif]when a credit card account under an open-end (not home-
secured) consumer credit plan is not used[ltrif] [lsqbb]when a
consumer fails to use the account[rsqbb] for [rtrif]at least[ltrif]
$2,000 in purchases over the course of a year. Similarly, [rtrif]if
the card issuer promotes the waiver or rebate of an annual fee for
purposes of Sec. 226.55(e) with respect to a particular type of
account,[ltrif] Sec. 226.52(b)(2)(i)(B)(2) prohibits a card issuer
[[Page 67503]]
from imposing a $50 annual fee on all [rtrif]such [ltrif] accounts
but waiving the fee [rtrif]on any account that is used[ltrif]
[lsqbb]if the consumer uses the account[rsqbb] for [rtrif]at
least[ltrif] $2,000 in purchases over the course of a year.
[rtrif]However, if the card issuer does not promote the waiver or
rebate of an annual fee for purposes of Sec. 226.55(e), Sec.
226.52(b)(2)(i)(B)(2) does not prohibit a card issuer from
considering account activity along with other factors when deciding
whether to waive or rebate annual fees on individual accounts (such
as in response to a consumer's request).[ltrif]
* * * * *
52(b)(2)(ii) Multiple fees based on single event or transaction.
1. Single event or transaction. Section 226.52(b)(2)(ii)
prohibits a card issuer from imposing more than one fee for
violating the terms or other requirements of an account based on a
single event or transaction. [rtrif]If Sec. 226.56(j)(1) permits a
card issuer to impose fees for exceeding the credit limit in
consecutive billing cycles based on the same over-the-limit
transaction, those fees are not based on a single event or
transaction for purposes of Sec. 226.52(b)(2)(ii).[ltrif] The
following examples illustrate the application of Sec.
226.52(b)(2)(ii). Assume for purposes of these examples that the
billing cycles for a credit card account begin on the first day of
the month and end on the last day of the month and that the payment
due date for the account is the twenty-fifth day of the month.
i. Assume that the required minimum periodic payment due on
March 25 is $20. On March 26, the card issuer has not received any
payment and imposes a late payment fee. [rtrif]Consistent with
Sec. Sec. 226.52(b)(1)(ii)(A) and (b)(2)(i), the card issuer may
impose a $20 late payment fee on March 26. However, Sec. [ltrif]
[lsqbb]Section[rsqbb] 226.52(b)(2)(ii) prohibits the card issuer
from imposing an additional late payment fee if the $20 minimum
payment has not been received by a subsequent date (such as March
31). [lsqbb]However, Sec. 226.52(b)(2)(ii) does not prohibit the
card issuer from imposing an additional late payment fee if the
required minimum periodic payment due on April 25 (which may include
the $20 due on March 25) is not received on or before that
date.[rsqbb]
[rtrif]A. On April 3, the card issuer provides a periodic
statement disclosing that a $70 required minimum periodic payment is
due on April 25. This minimum payment includes the $20 minimum
payment due on March 25 and the $20 late payment fee imposed on
March 26. On April 20, the card issuer receives a $20 payment. No
additional payments are received during the April billing cycle.
Section 226.52(b)(2)(ii) does not prohibit the card issuer from
imposing a late payment fee based on the consumer's failure to make
the $70 required minimum periodic payment on or before April 25.
Accordingly, consistent with Sec. 226.52(b)(1)(ii)(B) and
(b)(2)(i), the card issuer may impose a $35 late payment fee on
April 26.
B. On April 3, the card issuer provides a periodic statement
disclosing that a $20 required minimum periodic payment is due on
April 25. This minimum payment does not include the $20 minimum
payment due on March 25 or the $20 late payment fee imposed on March
26. On April 20, the card issuer receives a $20 payment. No
additional payments are received during the April billing cycle.
Because the card issuer has received the required minimum periodic
payment due on April 25 and because Sec. 226.52(b)(2)(ii) prohibits
the card issuer from imposing a second late payment fee based on the
consumer's failure to make the $20 minimum payment due on March 25,
the card issuer cannot impose a late payment fee in these
circumstances.[ltrif]
* * * * *
iv. Assume that the credit limit for an account is $1,000 and
that, consistent with Sec. 226.56, the consumer has affirmatively
consented to the payment of transactions that exceed the credit
limit. On March 31, the balance on the account is $970 and the card
issuer has not received the $35 required minimum periodic payment
due on March 25. On that same date (March 31), a $70 transaction is
charged to the account, which increases the balance to $1,040.
Consistent with Sec. 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card
issuer may impose a late payment fee of $25 and an over-the-limit
fee of $25. Section 226.52(b)(2)(ii) does not prohibit the
imposition of both fees because those fees are based on different
events or transactions. [rtrif]No additional transactions are
charged to the account during the March, April, or May billing
cycles. If the account balance remains more than $35 above the
credit limit on April 26, the card issuer may impose an over-the-
limit fee of $35 pursuant to Sec. 226.52(b)(1)(ii)(B), consistent
with Sec. 226.56(j)(1). Furthermore, if the account balance remains
more than $35 above the credit limit on May 26, the card issuer may
again impose an over-the-limit fee of $35 pursuant to Sec.
226.52(b)(1)(ii)(B), to the extent consistent with Sec.
226.56(j)(1). Thereafter, Sec. 226.56(j)(1) does not permit the
card issuer to impose additional over-the-limit fees unless another
over-the-limit transaction occurs. However, if an over-the-limit
transaction occurs during the six billing cycles following the May
billing cycle, the card issuer may impose an over-the-limit fee of
$35 pursuant to Sec. 226.52(b)(1)(ii)(B).[ltrif]
[rtrif]v. Assume that the credit limit for the account is $5,000
and that, consistent with Sec. 226.56, the consumer has
affirmatively consented to the payment of transactions that exceed
the credit limit. On July 23, the balance on the account is $4,950.
On July 24, the card issuer receives the $100 required minimum
periodic payment due on July 25, reducing the balance to $4,850. On
July 26, a $75 transaction is charged to the account, which
increases the balance to $4,925. On July 27, the $100 payment is
returned for insufficient funds, increasing the balance to $5,025.
Consistent with Sec. Sec. 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the
card issuer may impose a returned payment fee of $25 or an over-the-
limit fee of $25. However, Sec. 226.52(b)(2)(ii) prohibits the card
issuer from imposing both fees because those fees would be based on
a single event or transaction.
vi. Assume that the required minimum periodic payment due on
March 25 is $50. On March 20, the card issuer receives a check for
$50, but the check is returned for insufficient funds on March 22.
Consistent with Sec. Sec. 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the
card issuer may impose a returned payment fee of $25. On March 25,
the card issuer receives a second check for $50, but the check is
returned for insufficient funds on March 27. Consistent with
Sec. Sec. 226.52(b)(1)(ii)(A), (b)(1)(ii)(B), and (b)(2)(i)(A), the
card issuer may impose a late payment fee of $25 or a returned
payment fee of $35. However, Sec. 226.52(b)(2)(ii) prohibits the
card issuer from imposing both fees because those fees would be
based on a single event or transaction.
vii. Assume that the required minimum periodic payment due on
February 25 is $100. On February 25, the card issuer receives a
check for $100. On March 3, the card issuer provides a periodic
statement disclosing that a $120 required minimum periodic payment
is due on March 25. On March 4, the $100 check is returned to the
card issuer for insufficient funds. Consistent with Sec. Sec.
226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a
late payment fee of $25 or a returned payment fee of $25 with
respect to the $100 payment. However, Sec. 226.52(b)(2)(ii)
prohibits the card issuer from imposing both fees because those fees
would be based on a single event or transaction. On March 20, the
card issuer receives a $120 check, which is not returned. No
additional payments are received during the March billing cycle.
Because the card issuer has received the required minimum periodic
payment due on March 25 and because Sec. 226.52(b)(2)(ii) prohibits
the card issuer from imposing a second fee based on the $100 payment
that was returned for insufficient funds, the card issuer cannot
impose a late payment fee in these circumstances.[ltrif]
* * * * *
Section 226.53--Allocation of Payments
* * * * *
4. Balances with the same rate. When the same annual percentage
rate applies to more than one balance on an account and a different
annual percentage rate applies to at least one other balance on that
account, Sec. 226.53 generally does not require that any particular
method be used when allocating among the balances with the same
annual percentage rate. Under these circumstances, a card issuer may
treat the balances with the same rate as a single balance or
separate balances. See example in comment 53-5.iv. However, when a
balance on a credit card account is subject to a deferred interest
or similar program that provides that a consumer will not be
obligated to pay interest that accrues on the balance if the balance
is paid in full prior to the expiration of a specified period of
time, that balance must be treated as a balance with an annual
percentage rate of zero for purposes of Sec. 226.53 during that
period of time. For example, if an account has a $1,000 purchase
balance and a $2,000 balance that is subject to a deferred interest
program that expires on July 1 and a 15% annual percentage rate
applies to both, the balances must be treated as balances with
different rates for purposes of Sec. 226.53 until July 1. In
addition, unless the card issuer allocates amounts paid by the
consumer in excess of the required minimum
[[Page 67504]]
periodic payment in the manner requested by the consumer pursuant to
Sec. 226.53(b)[rtrif](1)(ii)[ltrif] [lsqbb](2)[rsqbb], Sec.
226.53(b)(1)[rtrif](i)[ltrif] requires the card issuer to apply any
excess payments first to the $1,000 purchase balance except during
the last two billing cycles of the deferred interest period (when it
must be applied first to any remaining portion of the $2,000
balance). See example in comment 53-5.v.
5. * * * * *
v. * * * * *
A. Each month from February through June, the consumer pays $400
in excess of the required minimum periodic payment on the payment
due date, which is the twenty-fifth of the month. Any interest that
accrues on the purchases not subject to the deferred interest
program is paid by the required minimum periodic payment. The card
issuer does not accept requests from consumers regarding the
allocation of excess payments pursuant to Sec.
226.53(b)[rtrif](1)(ii)[ltrif] [lsqbb](2)[rsqbb]. Thus, Sec.
226.53(b)(1)[rtrif](i)[ltrif] requires the card issuer to allocate
the $400 excess payments received on February 25, March 25, and
April 25 consistent with Sec. 226.53(a). In other words, the card
issuer must allocate those payments as follows: $200 to pay off the
balance not subject to the deferred interest program (which is
subject to the 15% rate) and the remaining $200 to the deferred
interest balance (which is treated as a balance with a rate of
zero). However, Sec. 226.53(b)(1)[rtrif](i)[ltrif] requires the
card issuer to allocate the entire $400 excess payment received on
May 25 to the deferred interest balance. Similarly, Sec.
226.53(b)(1)[rtrif](i)[ltrif] requires the card issuer to allocate
the $400 excess payment received on June 25 as follows: $200 to the
deferred interest balance (which pays that balance in full) and the
remaining $200 to the balance not subject to the deferred interest
program.
B. Same facts as above, except that the card issuer does accept
requests from consumers regarding the allocation of excess payments
pursuant to Sec. 226.53(b)[rtrif](1)(ii)[ltrif] [lsqbb](2)[rsqbb].
In addition, on April 25, the card issuer receives an excess payment
of $800, which the consumer requests be allocated to pay off the
$800 balance subject to the deferred interest program. Section
226.53(b)[rtrif](1)(ii)[ltrif] [lsqbb](2)[rsqbb] permits the card
issuer to allocate the $800 excess payment in the manner requested
by the consumer.
53(b) Special rule[rtrif]s[ltrif] [lsqbb]for accounts with
balances subject to deferred interest or similar programs[rsqbb].
1. Deferred interest and similar programs. Section
226.53(b)[rtrif](1)[ltrif] applies to deferred interest or similar
programs under which the consumer is not obligated to pay interest
that accrues on a balance if that balance is paid in full prior to
the expiration of a specified period of time. For purposes of Sec.
226.53(b)[rtrif](1)[ltrif], ``deferred interest'' has the same
meaning as in Sec. 226.16(h)(2) and associated commentary. Section
226.53(b)[rtrif](1)[ltrif] applies regardless of whether the
consumer is required to make payments with respect to that balance
during the specified period. However, a grace period during which
any credit extended may be repaid without incurring a finance charge
due to a periodic interest rate is not a deferred interest or
similar program for purposes of Sec. 226.53(b)[rtrif](1)[ltrif].
Similarly, a temporary annual percentage rate of zero percent that
applies for a specified period of time consistent with Sec.
226.55(b)(1) is not a deferred interest or similar program for
purposes of Sec. 226.53(b)[rtrif](1)[ltrif] unless the consumer may
be obligated to pay interest that accrues during the period if a
balance is not paid in full prior to expiration of the period.
2. Expiration of [rtrif]deferred interest or similar[ltrif]
program during billing cycle. For purposes of Sec.
226.53(b)(1)[rtrif](i)[ltrif], a billing cycle does not constitute
one of the two billing cycles immediately preceding expiration of a
deferred interest or similar program if the expiration date for the
program precedes the payment due date in that billing cycle. For
example, assume that a credit card account has a balance subject to
a deferred interest program that expires on June 15. Assume also
that the billing cycles for the account begin on the first day of
the month and end on the last day of the month and that the required
minimum periodic payment is due on the twenty-fifth day of the
month. The card issuer does not accept requests from consumers
regarding the allocation of excess payments pursuant to Sec.
226.53(b)[rtrif](1)(ii)[ltrif] [lsqbb](2)[rsqbb]. Because the
expiration date for the deferred interest program (June 15) precedes
the due date in the June billing cycle (June 25), Sec.
226.53(b)(1)[rtrif](i)[ltrif] requires the card issuer to allocate
first to the deferred interest balance any amount paid by the
consumer in excess of the required minimum periodic payment during
the April and May billing cycles (as well as any amount paid by the
consumer before June 15). However, if the deferred interest program
expired on June 25 or on June 30 (or on any day in between), Sec.
226.53(b)(1)[rtrif](i)[ltrif] would apply only to the May and June
billing cycles.
3. Consumer requests.
i. Generally. Section 226.53(b) does not require a card issuer
to allocate amounts paid by the consumer in excess of the required
minimum periodic payment in the manner requested by the consumer,
provided that the card issuer instead allocates such amounts
consistent with Sec. 226.53[rtrif](a)[ltrif] or (b)(1)[rtrif](i),
as applicable[ltrif]. For example, a card issuer may decline
consumer requests regarding payment allocation as a general matter
or may decline such requests when a consumer does not comply with
requirements set by the card issuer (such as submitting the request
in writing or submitting the request prior to or contemporaneously
with submission of the payment), provided that amounts paid by the
consumer in excess of the required minimum periodic payment are
allocated consistent with Sec. 226.53[rtrif](a)[ltrif] or
(b)(1)[rtrif](i), as applicable[ltrif]. Similarly, a card issuer
that accepts requests pursuant to Sec. 226.53(b)[rtrif](1)(ii) or
(b)[ltrif](2) must allocate amounts paid by a consumer in excess of
the required minimum periodic payment consistent with Sec.
226.53[rtrif](a)[ltrif] or (b)(1)[rtrif](i), as applicable,[ltrif]
if the consumer does not submit a request. Furthermore, [lsqbb]in
these circumstances,[rsqbb] a card issuer [rtrif]that accepts
requests pursuant to Sec. 226.53(b)(1)(ii) or (b)(2)[ltrif] must
allocate consistent with Sec. 226.53[rtrif](a)[ltrif] or
(b)(1)[rtrif](i), as applicable,[ltrif] if the consumer submits a
request with which the card issuer cannot comply (such as a request
that contains a mathematical error), unless the consumer submits an
additional request with which the card issuer can comply.
ii. Examples of consumer requests that satisfy Sec.
226.53[rtrif](b)(1)(ii) or[ltrif] (b)(2). A consumer has made a
request for purposes of Sec. 226.53[rtrif](b)(1)(ii) or[ltrif]
(b)(2) if:
A. The consumer contacts the card issuer orally, electronically,
or in writing and specifically requests that a payment or payments
be allocated in a particular manner during the period of time that
the deferred interest or similar program applies to a balance on the
account [rtrif]or the period of time that a balance on the account
is secured [ltrif].
B. The consumer completes [rtrif]and submits to the card
issuer[ltrif] a form or payment coupon provided by the card issuer
for the purpose of requesting that a payment or payments be
allocated in a particular manner during the period of time that the
deferred interest or similar program applies to a balance on the
account [rtrif]or the period of time that a balance on the account
is secured[ltrif] [lsqbb]and submits that form or coupon to the card
issuer[rsqbb].
C. The consumer contacts the card issuer orally, electronically,
or in writing and specifically requests that a payment that the card
issuer has previously allocated consistent with Sec.
226.53[rtrif](a) or[ltrif] (b)(1)[rtrif](i), as applicable,[ltrif]
instead be allocated in a different manner.
iii. Examples of consumer requests that do not satisfy Sec.
226.53[rtrif](b)(1)(ii) or[ltrif] (b)(2). A consumer has not made a
request for purposes of Sec. 226.53[rtrif](b)(1)(ii) or[ltrif]
(b)(2) if:
A. The terms and conditions of the account agreement contain
preprinted language stating that by applying to open an
account[rtrif],[ltrif] [lsqbb]or[rsqbb] by using that account for
transactions subject to a deferred interest or similar
program[rtrif], or by using the account to purchase property in
which the card issuer holds a security interest[ltrif] the consumer
requests that payments be allocated in a particular manner.
* * * * *
D. The card issuer requires a consumer to accept a particular
payment allocation method as a condition of using a deferred
interest or similar program, [rtrif]purchasing property in which the
card issuer holds a security interest,[ltrif] making a payment, or
receiving account services or features.
* * * * *
Section 226.55--Limitations on Increasing Annual Percentage Rates,
Fees, and Charges
55(a) General rule.
1. [rtrif]Increase in rate, fee, or charge[ltrif]
[lsqbb]Examples[rsqbb]. Section 226.55(a) prohibits card issuers
from increasing an annual percentage rate or any fee or charge
required to be disclosed under Sec. 226.6(b)(2)(ii), (b)(2)(iii),
or (b)(2)(xii) on a credit card account unless specifically
permitted by one of the exceptions in Sec. 226.55(b). [rtrif]Except
as specifically provided in Sec. 226.55(b), this prohibition
applies even if the circumstances under which an increase will occur
are
[[Page 67505]]
disclosed in advance.[ltrif] The following examples illustrate the
general application of Sec. 226.55(a) and (b). Additional examples
illustrating specific aspects of the exceptions in Sec. 226.55(b)
are provided in the commentary to those exceptions.
* * * * *
55(b) Exceptions.
1. Exceptions not mutually exclusive. A card issuer may increase
an annual percentage rate or a fee or charge required to be
disclosed under Sec. 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii)
pursuant to an exception set forth in Sec. 226.55(b) even if that
increase would not be permitted under a different exception. For
example, although a card issuer cannot increase an annual percentage
rate pursuant to Sec. 226.55(b)(1) unless that rate is provided for
a specified period of at least six months, the card issuer may
increase an annual percentage rate during a specified period due to
an increase in an index consistent with Sec. 226.55(b)(2).
Similarly, although Sec. 226.55(b)(3) does not permit a card issuer
to increase an annual percentage rate during the first year after
account opening, the card issuer may increase the rate during the
first year after account opening pursuant to Sec. 226.55(b)(4) if
the required minimum periodic payment is not received within 60 days
after the due date. [rtrif]However, if Sec. 226.55(b)(4)(ii)
requires a card issuer to decrease the rate, fee, or charge that
applies to a balance while the account is subject to a workout or
temporary hardship arrangement or subject to 50 U.S.C. app. 527 or a
similar federal or state statute or regulation, the card issuer may
not impose a higher rate, fee, or charge on that balance pursuant to
Sec. 226.55(b)(5) or (b)(6) upon completion or failure of the
arrangement or once 50 U.S.C. app. 527 or the similar federal or
state statute or regulation no longer applies. For example, assume
that, on January 1, the annual percentage rate that applies to a
$1,000 balance is increased from 12% to 30% pursuant to Sec.
226.55(b)(4). On February 1, the rate on that balance is decreased
from 30% to 15% consistent with Sec. 226.55(b)(5) as a part of a
workout or temporary hardship arrangement. On July 1, Sec.
226.55(b)(4)(ii) requires the card issuer to reduce the rate that
applies to any remaining portion of the $1,000 balance from 15% to
12%. If the consumer subsequently completes or fails to comply with
the terms of the workout or temporary hardship arrangement, the card
issuer may not increase the 12% rate that applies to any remaining
portion of the $1,000 balance pursuant to Sec. 226.55(b)(5).[ltrif]
* * * * *
3. * * *
* * * * *
iii. * * *
[rtrif]C. Application of lower temporary rate during specified
period. Same facts as in paragraph iii. above. On June 30 of year
two, the account has a purchase balance of $1,000 at the 15% non-
variable rate. On July 1, the card issuer provides a notice pursuant
to Sec. 226.9(c) informing the consumer that the rate for the
$1,000 balance and new purchases will decrease to a non-variable
rate of 12% for six months (from July 1 through December 31 of year
two) and that, beginning on January 1 of year three, the rate for
purchases will increase to a variable rate that is currently 20% and
is determined by adding a margin of 10 percentage points to a
publicly-available index not under the card issuer's control. On
August 15 of year two, the consumer makes a $500 purchase. On
October 1, the card issuer provides another notice pursuant to Sec.
226.9(c) informing the consumer that the rate for the $1,000
balance, the $500 purchase, and new purchases will decrease to a
non-variable rate of 5% for six months (from October 1 of year two
through March 31 of year three) and that, beginning on April 1 of
year three, the rate for purchases will increase to a variable rate
that is currently 23% and is determined by adding a margin of 13
percentage points to the previously-disclosed index. On November 15
of year two, the consumer makes a $300 purchase. On April 1 of year
three, Sec. 226.55 permits the card issuer to begin accruing
interest using the following rates for any remaining portion of the
following balances: the 15% non-variable rate for the $1,000
balance; the variable rate determined using the 10-point margin for
the $500 purchase; and the variable rate determined using the 13-
point margin for the $300 purchase.[ltrif]
55(b)(1) Temporary rate [rtrif], fee, or charge[ltrif]
exception.
* * * * *
2. Period of six months or longer. A temporary annual percentage
rate [rtrif], fee, or charge[ltrif] must apply [lsqbb]to
transactions[rsqbb] for a specified period of six months or longer
before a card issuer can increase that rate [rtrif], fee, or
charge[ltrif] pursuant to Sec. 226.55(b)(1). The specified period
must expire no less than six months after the date on which the
[rtrif]card issuer[ltrif] [lsqbb]creditor[rsqbb] provides the
consumer with the disclosures required by Sec. 226.55(b)(1)(i) or,
if later, the date on which the account can be used for transactions
to which the temporary rate [rtrif], fee, or charge[ltrif] applies.
Section 226.55(b)(1) does not prohibit a card issuer from limiting
the application of a temporary annual percentage rate [rtrif], fee,
or charge[ltrif] to a particular category of transactions (such as
balance transfers or purchases over $100). However, in circumstances
where the card issuer limits application of the temporary
rate[rtrif], fee, or charge[ltrif] to a [rtrif]single[ltrif]
[lsqbb]particular[rsqbb] transaction, the specified period must
expire no less than six months after the date on which that
transaction occurred. The following examples illustrate the
application of Sec. 226.55(b)(1):
* * * * *
[rtrif]vii. Assume that a card issuer discloses at account
opening on January 1 of year one that the annual fee for the account
is $0 until January 1 of year two, when the fee will increase to
$50. On January 1 of year two, the card issuer may impose the $50
annual fee. However, the issuer must also comply with the notice
requirements in Sec. 226.9(e).
viii. Assume that a card issuer discloses at account opening on
January 1 of year one that the monthly maintenance fee for the
account is $0 until July 1 of year one, when the fee will increase
to $10. Beginning on July 1 of year one, the card issuer may impose
the $10 monthly maintenance fee (to the extent consistent with Sec.
226.52(a)).[ltrif]
* * * * *
4. Contingent or discretionary [lsqbb]rate[rsqbb] increases.
Section Sec. 226.55(b)(1) permits a card issuer to increase a
temporary annual percentage rate [rtrif], fee, or charge[ltrif] upon
the expiration of a specified period of time. However, Sec.
226.55(b)(1) does not permit a card issuer to apply an increased
rate [rtrif], fee, or charge[ltrif] that is contingent on a
particular event or occurrence or that may be applied at the card
issuer's discretion. The following examples illustrate rate
increases that are not permitted by Sec. 226.55:
* * * * *
[rtrif]iii. Assume that a card issuer discloses at account
opening on January 1 of year one that the annual fee for the account
is $10 but may be increased to $50 if a consumer's required minimum
periodic payment is received after the payment due date, which is
the fifteenth of the month. The payment due on July 15 is not
received until July 23. Section 226.55 does not permit the card
issuer to impose the $50 annual fee at this time. Furthermore, Sec.
226.55(b)(3) does not permit the card issuer to increase the $10
annual fee during the first year after account opening. However,
Sec. 226.55(b)(3) does permit the card issuer to impose the $50 fee
(or a different fee) on January 1 of year two if, on or before
November 16 of year one, the issuer informs the consumer of the
increased fee consistent with Sec. 226.9(c) and the consumer does
not reject that increase pursuant to Sec. 226.9(h).
iv. Assume that a card issuer discloses at account opening on
January 1 of year one that the annual fee for a credit card account
under an open-end (not home-secured) consumer credit plan is $0 but
may be increased to $100 if the consumer's balance in a deposit
account provided by the card issuer or its affiliate or subsidiary
falls below $5,000. On June 1 of year one, the balance on the
deposit account is $4,500. Section 226.55 does not permit the card
issuer to impose the $100 annual fee at this time. Furthermore,
Sec. 226.55(b)(3) does not permit the card issuer to increase the
$0 annual fee during the first year after account opening. However,
Sec. 226.55(b)(3) does permit the card issuer to impose the $100
fee (or a different fee) on January 1 of year two if, on or before
November 16 of year one, the issuer informs the consumer of the
increased fee consistent with Sec. 226.9(c) and the consumer does
not reject that increase pursuant to Sec. 226.9(h).[ltrif]
[rtrif]5. Application of increased fees and charges. Section
226.55(b)(1)(ii) limits the ability of a card issuer to apply an
increased fee or charge to certain transactions. However, to the
extent consistent with Sec. 226.55(b)(3)(c), and (d), a card issuer
generally is not prohibited from increasing a fee or charge that
applies to the account as a whole. See comments 55(c)(1)-3 and
55(d)-1.[ltrif]
* * * * *
55(b)(6) Servicemembers Civil Relief Act exception.
1. Rate[rtrif], fee, or charge[ltrif] that does not exceed rate
that applied before decrease. [rtrif]When a rate or a fee or charge
subject to
[[Page 67506]]
Sec. 226.55 has been decreased pursuant to 50 U.S.C. app. 527 or a
similar federal or state statute or regulation, Sec. 226.55(b)(6)
permits the card issuer to increase the rate, fee, or charge once 50
U.S.C. app. 527 or the similar statute or regulation no longer
applies. However, Sec. 226.55(b)(6) prohibits the card issuer from
applying to any transactions that occurred prior to the decrease a
rate, fee, or charge that exceeds the rate, fee, or charge that
applied to those transactions prior to the decrease (except to the
extent permitted by one of the other exceptions in Sec.
226.55(b)).[ltrif] [lsqbb]Once 50 U.S.C. app. 527 no longer applies,
Sec. 226.55(b)(6) prohibits a card issuer from applying an annual
percentage rate to any transactions that occurred prior to a
decrease in rate pursuant to 50 U.S.C. app. 527 that exceeds the
rate that applied to those transactions prior to the decrease.
However, this provision does not prohibit the card issuer from
applying an increased annual percentage rate once 50 U.S.C. app. 527
no longer applies, to the extent consistent with any of the other
exceptions in Sec. 226.55(b).[rsqbb] For example, if a temporary
rate applied prior to [rtrif]a decrease in rate pursuant to 50
U.S.C. app. 527[ltrif] [lsqbb]the decrease[rsqbb] and [rtrif]the
temporary rate[ltrif] [lsqbb]that rate[rsqbb] expired during the
period that 50 U.S.C. app. 527 applied to the account, the card
issuer may apply an increased rate once 50 U.S.C. app. 527 no longer
applies to the extent consistent with Sec. 226.55(b)(1). Similarly,
if a variable rate applied prior to [rtrif]a decrease in rate
pursuant to 50 U.S.C. app. 527[ltrif] [lsqbb]the decrease[rsqbb],
the card issuer may apply any increase in that variable rate once 50
U.S.C. app. 527 no longer applies to the extent consistent with
Sec. 226.55(b)(2).
[rtrif]2. Decreases in rates, fees, and charges to amounts
consistent with 50 U.S.C. app. 527 or similar statute or regulation.
If a card issuer deceases all annual percentage rates and all fees
and charges subject to Sec. 226.55 to amounts that are consistent
with 50 U.S.C. app. 527 or a similar federal or state statute or
regulation (including rates, fees, and charges that apply to new
transactions), the card issuer may increase those rates, fees, and
charges consistent with Sec. 226.55(b)(6).[ltrif]
[rtrif]3.[ltrif] [lsqbb]2.[rsqbb] Example. Assume that on
December 31 of year one the annual percentage rate that applies to a
$5,000 balance on a credit card account is a variable rate that is
determined by adding a margin of 10 percentage points to a publicly-
available index that is not under the card issuer's control.
[rtrif]The account is also subject to a monthly maintenance fee of
$10.[ltrif] On January 1 of year two, the card issuer reduces the
rate that applies to the $5,000 balance to a non-variable rate of 6%
[rtrif]and ceases to impose the $10 monthly maintenance fee and
other fees (including late payment fees)[ltrif] pursuant to 50
U.S.C. app. 527. [rtrif]The card issuer also decreases the rate that
applies to new transactions to 6%. During year two, the consumer
uses the account for $1,000 in new transactions.[ltrif] On January 1
of year three, 50 U.S.C. app. 527 ceases to apply and the card
issuer provides a notice pursuant to Sec. 226.9(c) informing the
consumer that on February 15 of year three the variable rate
determined using the 10-point margin will apply to any remaining
portion of the $5,000 balance [rtrif]and to any remaining portion of
the $1,000 balance. The notice also states that the $10 monthly
maintenance fee and other fees (including late payment fees) will
resume on February 15 of year three. Consistent with Sec.
226.9(c)(2)(iv)(B), the card issuer is not required to provide a
right to reject in these circumstances[ltrif]. On February 15 of
year three, Sec. 226.55(b)(6) permits the card issuer to begin
accruing interest on any remaining portion of the $5,000 [rtrif]and
$1,000[ltrif] balance[rtrif]s[ltrif] at the variable rate determined
using the 10-point margin [rtrif]and to resume imposing the $10
monthly maintenance fee and other fees (including late payment
fees)[ltrif].
55(c) Treatment of protected balances.
55(c)(1) Definition of protected balance.
* * * * *
3. Increased fees and charges. [rtrif]Except as provided in
Sec. 226.55(b)(3)(iii)[ltrif] [Once an account has been open for
more than one year], Sec. 226.55(b)(3) permits a card issuer to
increase a fee or charge required to be disclosed under Sec.
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) after complying with
the applicable notice requirements in Sec. 226.9(b) or (c),
provided that the increased fee or charge is not applied to a
protected balance. [rtrif]To the extent consistent with Sec.
226.55(b)(3)(iii), a[ltrif] [lsqbb]A[rsqbb] card issuer is not
prohibited from increasing a fee or charge that applies to the
account as a whole or to balances other than the protected balance.
For example, after the first year following account opening, a card
issuer may add [rtrif]or increase an[ltrif] [lsqbb]a new[rsqbb]
annual or a monthly maintenance fee [rtrif]for an active account
after complying with the notice requirements in Sec. 226.9(c),
including notifying the consumer of the right to reject the new or
increased fee under Sec. 226.9(h)[ltrif] [lsqbb]to an account or
increase such a fee so long as the fee is not based solely on the
protected balance[rsqbb]. [rtrif]However, except as otherwise
provided in Sec. 226.55(b), an increased fee or charge cannot be
applied to an account while the account is closed or while the card
issuer does not permit the consumer to use the account for new
transactions. See Sec. 226.55(b)(3)(iii); see also Sec. Sec.
226.52(b)(2)(i)(B)(3) and 226.55(d)(1). Furthermore[ltrif]
[lsqbb]However[rsqbb], if the consumer rejects an increase in a fee
or charge pursuant to Sec. 226.9(h), the card issuer is prohibited
from applying the increased fee or charge to the account and from
imposing any other fee or charge solely as a result of the
rejection. See Sec. 226.9(h)(2)(i) and (ii); comment 9(h)(2)(ii)-2.
[rtrif]4. Changing balance computation method. Nothing in Sec.
226.55 prohibits a card issuer from changing the balance computation
method that applies to new transactions as well as protected
balances.[ltrif]
* * * * *
[rtrif]55(e) Promotional waivers or rebates of interest, fees,
and other charges.
1. Generally. Nothing in Sec. 226.55 prohibits a card issuer
from waiving or rebating finance charges due to a periodic interest
rate or a fee or charge required to be disclosed under Sec.
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii). However, if a card
issuer promotes and applies the waiver or rebate to an account, the
card issuer cannot cease or terminate the waiver or rebate unless
permitted by one of the exceptions in Sec. 226.55(b). For example:
i. A card issuer applies an annual percentage rate of 15% to
balance transfers but promotes a program under which all of the
interest accrued on transferred balances will be waived or rebated
for one year. If, prior to the commencement of the one-year period,
the card issuer discloses the length of the period and the annual
percentage rate that will apply to transferred balances after
expiration of that period consistent with Sec. 226.55(b)(1)(i),
Sec. 226.55(b)(1) permits the card issuer to begin imposing
interest charges on transferred balances after one year.
Furthermore, if, during the one-year period, a required minimum
periodic payment is not received within 60 days of the payment due
date, Sec. 226.55(b)(4) permits the card issuer to begin imposing
interest charges on transferred balances (after providing a notice
consistent with Sec. 226.9(g) and Sec. 226.55(b)(4)(i)). However,
if a required minimum periodic payment is not more than 60 days
delinquent or if the consumer otherwise violates the terms or other
requirements of the account, Sec. 226.55 does not permit the card
issuer to begin imposing interest charges on transferred balances
until the expiration of the one-year period.
ii. A card issuer imposes a monthly maintenance fee of $10 but
promotes a program under which the fee will be waived or rebated for
the six months following account opening. If, prior to account
opening, the card issuer discloses the length of the period and the
monthly maintenance fee that will be imposed after expiration of
that period consistent with Sec. 226.55(b)(1)(i), Sec.
226.55(b)(1) permits the card issuer to begin imposing the monthly
maintenance fee six months after account opening. Furthermore, if,
during the six-month period, a required minimum periodic payment is
not received within 60 days of the payment due date, Sec.
226.55(b)(4) permits the card issuer to begin imposing the monthly
maintenance fee (after providing a notice consistent with Sec.
226.9(c) and Sec. 226.55(b)(4)(i)). However, if a required minimum
periodic payment is not more than 60 days delinquent or if the
consumer otherwise violates the terms or other requirements of the
account, Sec. 226.55 does not permit the card issuer to begin
imposing the monthly maintenance fee until the expiration of the
six-month period.
2. Promotion of waiver or rebate. For purposes of Sec.
226.55(e), a card issuer promotes a waiver or rebate if the card
issuer discloses the waiver or rebate in an advertisement (as
defined in Sec. 226.2(a)(2)). See comment 2(a)(2)-1. In addition, a
card issuer promotes a waiver or rebate for purposes of Sec.
226.55(e) if the card issuer discloses the waiver or rebate in
communications regarding existing accounts (such as communications
regarding a promotion that encourages additional or different uses
of an existing account), unless the communication relates to an
inquiry or dispute about a specific charge or occurs after the card
issuer has waived or rebated the interest, fees, or other charges.
i. The following are examples of circumstances in which a card
issuer is
[[Page 67507]]
promoting a waiver or rebate for purposes of Sec. 226.55(e):
A. A card issuer discloses the waiver or rebate in a newspaper,
magazine, leaflet, promotional flyer, catalog, sign, or point-of-
sale display.
B. A card issuer discloses the waiver or rebate on radio or
television or through electronic advertisements (such as on the
Internet).
C. A card issuer discloses a waiver or rebate to individual
consumers, such as by telephone, letter, or electronic
communication, through direct mail literature, or on or with account
statements. To the extent that a card issuer provides such
disclosures to its current accountholders, the issuer is promoting a
waiver or rebate for purposes of Sec. 226.55(e) if the disclosure
is provided before the issuer has waived or rebated the interest,
fees, or other charges subject to Sec. 226.55 (unless the
disclosure relates to an inquiry or dispute about a specific
charge).
ii. The following are examples of circumstances in which a card
issuer is not promoting a waiver or rebate for purposes of Sec.
226.55(e):
A. After a card issuer has waived or rebated interest, fees, or
other charges subject to Sec. 226.55 with respect to an account,
the issuer discloses the waiver or rebate to the accountholder on
the periodic statement or by telephone, letter, or electronic
communication. However, if the card issuer also discloses
prospective waivers or rebates in the same communication, the issuer
is promoting a waiver or rebate for purposes of Sec. 226.55(e).
B. A card issuer communicates with a consumer about a waiver or
rebate of interest, fees, or other charges subject to Sec. 226.55
in relation to an inquiry or dispute about a specific charge,
including a dispute under Sec. 226.12 or Sec. 226.13.
C. A card issuer waives or rebates interest, fees, or other
charges subject to Sec. 226.55 in order to comply with a legal
requirement (such as the limitations in Sec. 226.52(a)).
D. A card issuer discloses a grace period consistent with Sec.
226.5a, Sec. 226.6, or Sec. 226.7.
E. A card issuer provides an undisclosed period after the
payment due date during which interest, fees, or other charges
subject to Sec. 226.55 are waived or rebated even if a payment has
not been received.
F. A card issuer provides benefits (such as rewards points or
cash back on purchases or finance charges) that can be applied to
the account as credits, provided that the benefits are not promoted
as reducing interest, fees, or other charges subject to Sec.
226.55.
3. Relationship of Sec. 226.55(e) to grace period. Section
226.55(e) does not apply to the waiver of finance charges due to a
periodic rate consistent with a grace period, as defined in Sec.
226.5(b)(2)(ii)(3).[ltrif]
* * * * *
Section 226.58--Internet Posting of Credit Card Agreements
58(b) Definitions.
58(b)(1) Agreement.
1. Inclusion of pricing information. For purposes of this
section, a credit card agreement is deemed to include certain
information, such as annual percentage rates and fees, even if the
issuer does not otherwise include this information in the basic
credit contract. This information is listed under the defined term
``pricing information'' in [lsqbb]Sec.
226.58(b)(6)[rsqbb][rtrif]Sec. 226.58(b)(7)[ltrif]. For example,
the basic credit contract may not specify rates, fees and other
information that constitutes pricing information as defined in
[lsqbb]Sec. 226.58(b)(6)[rsqbb][rtrif]Sec. 226.58(b)(7)[ltrif];
instead, such information may be provided to the cardholder in a
separate document sent along with the card. However, this
information nevertheless constitutes part of the agreement for
purposes of Sec. 226.58.
* * * * *
58(b)(2) Amends.
1. Substantive changes. A change to an agreement is substantive,
and therefore is deemed an amendment of the agreement, if it alters
the rights or obligations of the parties. Section 226.58(b)(2)
provides that any change in the pricing information, as defined in
[lsqbb]Sec. 226.58(b)(6)[rsqbb][rtrif]Sec. 226.58(b)(7)[ltrif], is
deemed to be substantive. Examples of other changes that generally
would be considered substantive include: (i) Addition or deletion of
a provision giving the issuer or consumer a right under the
agreement, such as a clause that allows an issuer to unilaterally
change the terms of an agreement; (ii) addition or deletion of a
provision giving the issuer or consumer an obligation under the
agreement, such as a clause requiring the consumer to pay an
additional fee; (iii) changes that may affect the cost of credit to
the consumer, such as changes in a provision describing how the
minimum payment will be calculated; (iv) changes that may affect how
the terms of the agreement are construed or applied, such as changes
in a choice-of-law provision; and (v) changes that may affect the
parties to whom the agreement may apply, such as provisions
regarding authorized users or assignment of the agreement.
* * * * *
[rtrif]58(b)(4) Card issuer.
1. Card issuer clarified. Section 226.58(b)(4) provides that,
for purposes of Sec. 226.58, card issuer or issuer means the entity
to which a consumer is legally obligated, or would be legally
obligated, under the terms of a credit card agreement. For example,
Bank X and Bank Y work together to issue credit cards. A consumer
that obtains a credit card issued pursuant to this arrangement
between Bank X and Bank Y is subject to an agreement that states
``This is an agreement between you, the consumer, and Bank X that
governs the terms of your Bank Y Credit Card.'' The card issuer in
this example is Bank X, because the agreement creates a legally
enforceable obligation between the consumer and Bank X. Bank X is
the issuer even if the consumer applied for the card through a link
on Bank Y's Web site and the cards prominently feature the Bank Y
logo on the front of the card. [ltrif]
[lsqbb]58(b)(4)[rsqbb][rtrif]58(b)(5)[ltrif] Offers.
* * * * *
[lsqbb]58(b)(5)[rsqbb][rtrif]58(b)(6)[ltrif] Open account.
* * * * *
[lsqbb]58(b)(7)[rsqbb][rtrif]58(b)(8)[ltrif] Private label
credit card account and private label credit card plan.
* * * * *
2. Co-branded credit cards. The term private label credit card
account does not include accounts with so-called co-branded credit
cards. Credit cards that display the name, mark, or logo of a
merchant or affiliated group of merchants as well as the mark, logo,
or brand of payment network are generally referred to as co-branded
cards. While these credit cards may display the brand of the
merchant or affiliated group of merchants as the dominant brand on
the card, such credit cards are usable at any merchant that
participates in the payment network. Because these credit cards can
be used at multiple unaffiliated merchants, accounts with such
credit cards are not considered private label credit card accounts
under [lsqbb]Sec. 226.58(b)(7)[rsqbb][rtrif]Sec.
226.58(b)(8)[ltrif].
* * * * *
4. Private label credit card plan. Which credit card accounts
issued by a particular issuer constitute a private label credit card
plan is determined by where the credit cards can be used. All of the
private label credit card accounts issued by a particular card
issuer with credit cards usable at the same merchant or affiliated
group of merchants constitute a single private label credit card
plan, regardless of whether the rates, fees, or other terms
applicable to the individual credit card accounts differ. For
example, a card issuer has 3,000 open private label credit card
accounts with credit cards usable only at Merchant A and 5,000 open
private label credit card accounts with credit cards usable only at
Merchant B and its affiliates. The card issuer has two separate
private label credit card plans, as defined by [lsqbb]Sec.
226.58(b)(7)[rsqbb][rtrif]Sec. 226.58(b)(8)[ltrif]--one plan
consisting of 3,000 open accounts with credit cards usable only at
Merchant A and another plan consisting of 5,000 open accounts with
credit cards usable only at Merchant B and its affiliates.
The example above remains the same regardless of whether (or the
extent to which) the terms applicable to the individual open
accounts differ. For example, assume that, with respect to the card
issuer's 3,000 open accounts with credit cards usable only at
Merchant A in the example above, 1,000 of the open accounts have a
purchase APR of 12 percent, 1,000 of the open accounts have a
purchase APR of 15 percent, and 1,000 of the open accounts have a
purchase APR of 18 percent. All of the 5,000 open accounts with
credit cards usable only at Merchant B and Merchant B's affiliates
have the same 15 percent purchase APR. The card issuer still has
only two separate private label credit card plans, as defined by
[lsqbb]Sec. 226.58(b)(7)[rsqbb][rtrif]Sec. 226.58(b)(8)[ltrif].
The open accounts with credit cards usable only at Merchant A do not
constitute three separate private label credit card plans under
[lsqbb]Sec. 226.58(b)(7)[rsqbb][rtrif]Sec. 226.58(b)(8)[ltrif],
even though the accounts are subject to different terms.
* * * * *
58(c) Submission of agreements to Board.
* * * * *
[[Page 67508]]
58(c)(3) Amended agreements.
* * * * *
2. Submission of amended agreements. [rtrif]If a card issuer
amends a credit card agreement previously submitted to the Board,
Sec. 226.58(c)(3) requires the card issuer to submit the entire
amended agreement to the Board. The issuer must submit the amended
agreement to the Board by the first quarterly submission deadline
after the last day of the calendar quarter in which the change
became effective. However, the issuer is required to submit the
amended agreement to the Board only if the issuer offered the
amended agreement to the public as of the last business day of the
calendar quarter in which the change became effective. For example,
a card issuer submits an agreement to the Board on October 31. On
November 15, the issuer changes the balance computation method used
under the agreement. Because an element of the pricing information
has changed, the agreement has been amended for purposes of Sec.
226.58(c)(3). On December 31, the last business day of the calendar
quarter in which the change in the balance computation method became
effective, the issuer still offers the agreement to the public as
amended on November 15. The issuer must submit the entire amended
agreement to the Board no later than January 31.[ltrif] [lsqbb]If a
card issuer amends a credit card agreement previously submitted to
the Board, Sec. 226.58(c)(3) requires the card issuer to submit the
entire amended agreement to the Board by the first quarterly
submission deadline after the last day of the calendar quarter in
which the change became effective. For example, a card issuer
submits an agreement to the Board on October 31. On November 15, the
issuer changes the balance computation method used under the
agreement. Because an element of the pricing information has
changed, the agreement has been amended and the card issuer must
submit the entire amended agreement to the Board no later than
January 31.[rsqbb]
[rtrif]3. Agreements amended but no longer offered to the
public. A card issuer should submit an amended agreement to the
Board under Sec. 226.58(c)(3) only if the issuer offered the
amended agreement to the public as of the last business day of the
calendar quarter in which the amendment became effective. Agreements
that are not offered to the public as of the last day of the
calendar quarter should not be submitted to the Board. For example,
on December 31 a card issuer offers two agreements, Agreement A and
Agreement B. The issuer submits these agreements to the Board by
January 31 as required by Sec. 226.58. On February 15, the issuer
amends both Agreement A and Agreement B. On February 28, the issuer
stops offering Agreement A to the public. On March 15, the issuer
amends Agreement B a second time. As a result, on March 31, the last
business day of the calendar quarter, the issuer offers to the
public one agreement--Agreement B as amended on March 15. By the
April 30 quarterly submission deadline, the issuer must: (1) Notify
the Board that it is withdrawing Agreement A because Agreement A is
no longer offered to the public; and (2) submit to the Board
Agreement B as amended on March 15. The issuer should not submit to
the Board either Agreement A as amended on February 15 or the
earlier version of Agreement B (as amended on February 15), as
neither was offered to the public on March 31, the last business day
of the calendar quarter.[ltrif]
[lsqbb]3.[rsqbb][rtrif]4.[ltrif] Change-in-terms notices not
permissible. * * *
* * * * *
58(e) Agreements for all open accounts.
* * * * *
3. Issuers without interactive Web sites. Section 226.58(e)(2)
provides that a card issuer that does not maintain a Web site from
which cardholders can access specific information about their
individual accounts is not required to provide a cardholder with the
ability to request a copy of the agreement by using the card
issuer's Web site. A card issuer without a Web site of any kind
could comply by disclosing the telephone number on each periodic
statement; a card issuer with a non-interactive Web site could
comply in the same way, or alternatively could comply by displaying
the telephone number on the card issuer's Web site. [rtrif]An issuer
is considered to maintain an interactive Web site for purposes of
the Sec. 226.58(e)(2) special rule if the issuer provide
cardholders with access to specific information about their
individual accounts, such as balance information or copies of
statements, through a third-party interactive Web site. Such a Web
site is deemed to be maintained by the issuer for purposes of Sec.
226.58(e)(2) even where, for example, an unaffiliated entity designs
the Web site and owns and maintains the information technology
infrastructure that supports the Web site, cardholders with credit
cards from multiple issuers can access individual account
information through the same Web site, and the Web site is not
labeled, branded, or otherwise held out to the public as belonging
to the issuer. An issuer that provides cardholders with access to
specific information about their individual accounts through such a
Web site is not permitted to comply with the special rule in Sec.
226.58(e)(2). Instead, such an issuer must comply with Sec.
226.58(e)(1).[ltrif]
* * * * *
Section 226.59--Reevaluation of Rate Increases
59(a) General rule.
59(a)(1) Evaluation of increased rate.
* * * * *
[rtrif]3. Change in type of rate. i. Generally. A change from a
variable rate to a non-variable rate or from a non-variable rate to
a variable rate is not a rate increase for purposes of Sec. 226.59,
if the rate in effect immediately prior to the change in type of
rate is equal to or greater than the rate in effect immediately
after the change. For example, a change from a variable rate of
15.99% to a non-variable rate of 15.99% is not a rate increase for
purposes of Sec. 226.59 at the time of the change. See Sec. 226.55
for limitations on the permissibility of changing from a non-
variable rate to a variable rate.
ii. Change from non-variable rate to variable rate. A change
from a non-variable to a variable rate constitutes a rate increase
for purposes of Sec. 226.59 if the variable rate exceeds the non-
variable rate that would have applied if the change in type of rate
had not occurred. For example, assume a new credit card account
under an open-end (not home-secured) consumer credit plan is opened
on January 1 of year 1 and that a non-variable annual percentage
rate of 12% applies to all transactions on the account. On January 1
of year 2, upon 45 days' advance notice pursuant to Sec.
226.9(c)(2), the rate on all new transactions is changed to a
variable rate that is currently 12% and is determined by adding a
margin of 10 percentage points to a publicly-available index not
under the card issuer's control. The change from the 12% non-
variable rate to the 12% variable rate on January 1 of year 2 is not
a rate increase for purposes of Sec. 226.59(a). On April 1 of year
2, the value of the variable rate increases to 12.5%. The increase
in the variable rate from 12% to 12.5% is a rate increase for
purposes of Sec. 226.59, and the card issuer must begin
periodically conducting reviews of the account pursuant to Sec.
226.59.
iii. Change from variable rate to non-variable rate. A change
from a variable to a non-variable rate constitutes a rate increase
for purposes of Sec. 226.59 if the non-variable rate exceeds the
variable rate that would have applied if the change in type of rate
had not occurred. For example, assume a new credit card account
under an open-end (not home-secured) consumer credit plan is opened
on January 1 of year 1 and that a variable annual percentage rate
that is currently 15% and is determined by adding a margin of 10
percentage points to a publicly-available index not under the card
issuer's control applies to all transactions on the account. On
January 1 of year 2, upon 45 days' advance notice pursuant to Sec.
226.9(c)(2), the rate on all existing balances and new transactions
is changed to a non-variable rate that is currently 15%. The change
from the 15% variable rate to the 15% non-variable rate on January 1
of year 2 is not a rate increase for purposes of Sec. 226.59(a). On
April 1 of year 2, the value of the variable rate that would have
applied to the account decreases to 12.5%. Accordingly, on April 1
of year 2, the non-variable rate of 15% exceeds the 12.5% variable
rate that would have applied but for the change in type of rate. At
this time, the change to the non-variable rate of 15% constitutes a
rate increase for purposes of Sec. 226.59, and the card issuer must
begin periodically conducting reviews of the account pursuant to
Sec. 226.59.[ltrif]
[lsqbb]3.[rsqbb] [rtrif]4.[ltrif] Rate increases prior to
effective date of rule. For increases in annual percentage rates
made on or after January 1, 2009 and prior to August 22, 2010, Sec.
226.59(a) requires the card issuer to review the factors described
in Sec. 226.59(d) and reduce the rate, as appropriate, if the rate
increase is of a type for which 45 days' advance notice would
currently be required under Sec. 226.9(c)(2) or (g). For example,
45 days' notice is not required under Sec. 226.9(c)(2) if the rate
increase results from the increase in the index by which a properly-
disclosed variable rate is determined in accordance with Sec.
226.9(c)(2)(v)(C) or if the increase occurs upon expiration of a
specified period of time
[[Page 67509]]
and disclosures complying with Sec. 226.9(c)(2)(v)(B) have been
provided. The requirements of Sec. 226.59 do not apply to such rate
increases.
[lsqbb]4.[rsqbb] [rtrif]5.[ltrif] Amount of rate decrease. Even
in circumstances where a rate reduction is required, Sec. 226.59
does not require that a card issuer decrease the rate that applies
to a credit card account to the rate that was in effect prior to the
rate increase subject to Sec. 226.59(a). The amount of the rate
decrease that is required must be determined based upon the card
issuer's reasonable policies and procedures under Sec. 226.59(b)
for consideration of factors described in Sec. 226.59(a) and (d).
For example, assume a consumer's rate on new purchases is increased
from a variable rate of 15.99% to a variable rate of 23.99% based on
the consumer's making a required minimum periodic payment five days
late. The consumer makes all of the payments required on the account
on time for the six months following the rate increase. Assume that
the card issuer evaluates the account by reviewing the factors on
which the increase in an annual percentage rate was originally
based, in accordance with Sec. 226.59(d)(1)(i). The card issuer is
not required to decrease the consumer's rate to the 15.99% that
applied prior to the rate increase. However, the card issuer's
policies and procedures for performing the review required by Sec.
226.59(a) must be reasonable, as required by Sec. 226.59(b), and
must take into account any reduction in the consumer's credit risk
based upon the consumer's timely payments.
* * * * *
59(d) Factors.
* * * * *
[rtrif]6. Multiple rate increases between January 1, 2009 and
February 21, 2010. i. General. Section 226.59(d)(2) applies if an
issuer increased the rate applicable to a credit card account under
an open-end (not home-secured) consumer credit plan between January
1, 2009 and February 21, 2010, and the increase was not based solely
upon factors specific to the consumer. In some cases, a credit card
account may have been subject to multiple rate increases during the
period from January 1, 2009 to February 21, 2010. Some such rate
increases may have been based solely upon factors specific to the
consumer, while others may have been based on factors not specific
to the consumer, such as the issuer's cost of funds or market
conditions. In such circumstances, when conducting the first two
reviews required under Sec. 226.59, the card issuer may separately
review: (A) Rate increases imposed based on factors not specific to
the consumer, using the factors described in Sec. 226.59(d)(1)(ii)
(as required by Sec. 226.59(d)(2)); and (B) rate increases imposed
based on consumer-specific factors, using the factors described in
Sec. 226.59(d)(1)(i). If the review of factors described in Sec.
226.59(d)(1)(i) indicates that it is appropriate to continue to
apply a penalty rate to the account as a result of the consumer's
payment history or other behavior on the account, Sec. 226.59
permits the card issuer to continue to impose the penalty rate, even
if the review of the factors described in Sec. 226.59(d)(1)(ii)
would otherwise require a rate decrease.
ii. Example. Assume a credit card account was subject to a rate
of 15% on all transactions as of January 1, 2009. On May 1, 2009,
the issuer increased the rate on existing balances and new
transactions to 18%, based upon market conditions or other factors
not specific to the consumer or the consumer's account.
Subsequently, on September 1, 2009, based on a payment that was
received five days after the due date, the issuer increased the
applicable rate on existing balances and new transactions from 18%
to a penalty rate of 25%. When conducting the first review required
under Sec. 226.59, the card issuer reviews the rate increase from
15% to 18% using the factors described in Sec. 226.59(d)(1)(ii) (as
required by Sec. 226.59(d)(2)), and separately but concurrently
reviews the rate increase from 18% to 25% using the factors
described in paragraph Sec. 226.59(d)(1)(i). The review of the rate
increase from 15% to 18% based upon the factors described in Sec.
226.59(d)(1)(ii) indicates that a similarly situated new consumer
would receive a rate of 17%. The review of the rate increase from
18% to 25% based upon the factors described in Sec. 226.59(d)(1)(i)
indicates that it is appropriate to continue to apply the 25%
penalty rate based upon the consumer's late payment. Section 226.59
permits the rate on the account to remain at 25%.[ltrif]
* * * * *
59(f) Termination of obligation to review factors.
* * * * *
[rtrif]2. Example--relationship to Sec. 226.59(a). Assume that
on January 1, 2011, a consumer opens a new credit card account under
an open-end (not home-secured) consumer credit plan. The annual
percentage rate applicable to purchases is 15%. Upon providing 45
days' advance notice and to the extent permitted under Sec. 226.55,
the card issuer increases the rate applicable to new purchases to
18%, effective on September 1, 2012. The card issuer conducts
reviews of the increased rate in accordance with Sec. 226.59 on
January 1, 2013 and July 1, 2013, based on the factors described in
Sec. 226.59(d)(1)(ii). Based on the January 1, 2013 review, the
rate applicable to purchases remains at 18%. In the review conducted
on July 1, 2013, the card issuer determines that, based on the
relevant factors, the rate it would offer on a comparable new
account would be 14%. Consistent with Sec. 226.59(f), Sec.
226.59(a) requires that the card issuer reduce the rate on the
existing account to the 15% rate that was in effect prior to the
September 1, 2012 rate increase.[ltrif]
* * * * *
By order of the Board of Governors of the Federal Reserve
System, October 18, 2010.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2010-26515 Filed 11-1-10; 8:45 am]
BILLING CODE 6210-01-P