[Federal Register Volume 76, Number 79 (Monday, April 25, 2011)]
[Rules and Regulations]
[Pages 22948-23040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8843]
[[Page 22947]]
Vol. 76
Monday,
No. 79
April 25, 2011
Part II
Federal Reserve System
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12 CFR Part 226
Truth in Lending; Final Rule
Federal Register / Vol. 76 , No. 79 / Monday, April 25, 2011 / Rules
and Regulations
[[Page 22948]]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1393]
RIN 7100-AD55
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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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 is
further amending specific portions of the regulations and official
staff commentary.
DATES: Effective Date: October 1, 2011. Mandatory Compliance Date:
October 1, 2011. Creditors may, at their option, comply with this rule
prior to October 1, 2011.
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 instituted 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 (TILA Section 127(i))
and provisions regarding the amount of time that consumers have to make
payments (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 (TILA Section 171), over-the-limit
transactions (TILA Section 127(k)), and student cards (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 (TILA Section 149) and re-evaluation by creditors of rate
increases (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 (July 2009 Interim Final
Rule). 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). Independent of the Credit Card Act, this rule also incorporated
the Board's comprehensive changes to the Regulation Z provisions
applicable to open-end (not home-secured) credit, including amendments
that affected all of the five major types of required disclosures:
credit card applications and solicitations, account-opening
disclosures, periodic statements, notices of changes in terms, and
advertisements. Finally, on June 29, 2010, the Board published 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 must comply with particular
aspects of those rules. In order to provide guidance and facilitate
compliance with the final rules, the Board published proposed
amendments to portions of the regulation and the accompanying staff
commentary on November 2, 2010. See 75 FR 67458 (November 2010 Proposed
Rule).
In response to the proposed rule, the Board received approximately
200 comment letters from members of Congress, credit card issuers and
their employees, consumer groups and individual consumers, trade
associations, and others. Based on a review of these comments and on
its own analysis, the Board is adopting this final rule. The provisions
of this rule are discussed in detail in Section III of this
supplementary information. In the proposed rule, the Board encouraged
commenters to limit their submissions to the issues addressed in the
proposal, emphasizing 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 in those rules. Accordingly, to
the extent that commenters raised issues that are beyond the scope of
the proposed rule, those issues are not addressed in this final rule.
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 this final rule, 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 added a new,
somewhat narrower definition in order to implement the 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 ``credit card account under an
open-end (not home-secured) consumer credit plan'' to mean any open-end
credit account accessed by a credit card except: (1) A home-equity plan
subject to the requirements of Sec. 226.5b that is
[[Page 22949]]
accessed by a credit card; or (2) an overdraft line of credit that is
accessed by a debit card. This term is generally used in the provisions
of Regulation Z that implement the Credit Card Act.
The Board's February 2010 Final Rule 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 that the Credit Card Act apply broadly to all
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 that access a credit account 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 proposed 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 proposed to add
an additional example clarifying that an account number that accesses a
credit account is not a 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 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 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).
Consistent with this treatment of account numbers, the Board also
proposed to amend Sec. 226.2(a)(15)(ii)(B)--which currently excludes
overdraft lines of credit accessed by a debit card from the definition
of ``credit card account under an open-end (not home-secured) consumer
credit plan''--to also exclude overdraft lines 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). In addition, the Board proposed to adopt a new comment
2(a)(15)-4, which clarifies 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). Finally,
for clarity and consistency, the Board proposed additional non-
substantive revisions to the exception for home-equity plans in Sec.
226.2(a)(15)(ii)(A).
Except as discussed below, the revisions to Sec. 226.2(a)(15)(ii)
and the commentary to Sec. 226.2(a)(15) are adopted as proposed. While
industry commenters generally supported or did not oppose this aspect
of the proposal, comments from the prepaid card industry strongly
objected to the reference to prepaid cards in the proposed example in
comment 2(a)(15)-2. As discussed above, the Board's proposed amendments
to comment 2(a)(15)-2 were intended to clarify Sec. 226.2(a)(15)(i)'s
definition of ``credit card'' with respect to account numbers that
access lines of credit, not prepaid cards that access lines of credit.
Accordingly, the Board has revised the proposed example in comment
2(a)(15)-2 to remove the specific reference to prepaid cards. However,
a prepaid card is a credit card for purposes of Regulation Z if it
falls within the general definition of ``credit card'' set forth in
Sec. 226.2(a)(15) and the accompanying commentary.
Consumer group commenters objected to the proposed revisions to
comment 2(a)(15)-2, which could--in their view--create an incentive for
creditors to develop new products designed to circumvent the Credit
Card Act. However, the proposed revisions are intended to prevent
circumvention by clarifying that an account number that accesses an
open-end line of credit to purchase goods or services is generally
treated as a credit card for purposes of Regulation Z. To the extent
that additional products emerge that raise concerns regarding
circumvention, further revisions to Regulation Z may be appropriate.
Nevertheless, the Board has revised comment 2(a)(15)-2 to clarify that,
when an account number can access an open-end line of credit to
purchase goods or services, a creditor cannot evade Regulation Z's
credit card provisions by treating the purchases as cash advances or as
some other type of transaction.
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 proposed 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 also proposed to update the list of provisions in comment
2(a)(15)-3 that distinguish charge cards from credit cards. In
addition, the Board proposed to remove the statement in the comment
that, when the term ``credit card'' is used in the listed provisions,
it
[[Page 22950]]
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.
The Board did not receive significant comment on the proposed
revisions to comment 2(a)(15)-3. Accordingly, that comment is revised
as proposed.
Section 226.5 General Disclosure Requirements
5(b) Time of Disclosures
5(b)(2) Periodic Statements
Prior to enactment of 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.
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. Pub. L. 111-93, 123 Stat. 2998 (Nov. 6, 2009). The Technical
Corrections Act narrowed the requirement in TILA Section 163(a) 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
TILA 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 proposed 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 proposed to revise Sec. 226.5(b)(2)(ii) to
provide that, in these circumstances, the creditor must adopt
reasonable procedures designed to ensure that: (1) 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; and (2) payments received on or prior to that date are not
treated as late for any purpose. The Board also proposed corresponding
revisions to the commentary to Sec. 226.5(b)(2)(ii). Comments from
industry and consumer groups supported these revisions, which are
generally adopted as proposed. However, based on further analysis the
Board has revised Sec. 226.5(b)(2)(ii)(B) to clarify that the 14-day
requirement applies regardless of whether a grace period applies to the
account. In other words, the fact that a grace period applies to an
account does not permit the creditor to treat a payment as late during
the 14-day period, even if that payment does not satisfy the
requirements of the grace period.
The Board also proposed to delete comment 5(b)(2)(iii)-1, which
provided guidance regarding the pre-Credit Card Act versions of TILA
Section 163 and Sec. 226.5(b)(2) and was inadvertently retained in the
February 2010 Final Rule. Prior to enactment of the Credit Card Act,
TILA Section 163(b) stated that the 14-day mailing requirement did not
apply ``in any case where a creditor has been prevented, delayed, or
hindered in making timely mailing or delivery of [the] periodic
statement within the time specified * * * because of an act of God,
war, natural disaster, strike, or other excusable or justifiable cause.
* * *'' Comment 5(b)(2)(iii)-1 clarified that these exceptions did not
extend to the failure to provide a periodic statement because of a
computer malfunction. Consumer groups opposed the deletion of this
comment, arguing that the Board should reaffirm that a computer
malfunction never excuses a creditor from providing periodic statements
in a timely manner.
The Credit Card Act and the Board's final rules replaced the
exceptions in TILA Section 163(b) with a requirement that creditors
adopt ``reasonable procedures'' for ensuring that periodic statements
are mailed or delivered consistent with the appropriate timelines. In
the February 2010 Final Rule, the Board noted that the Credit Card
Act's removal of the statutory exceptions was consistent with the
adoption of a ``reasonable procedures'' standard insofar as a
creditor's procedures for responding to any of the situations listed in
prior TILA Section 163(b) will now be evaluated for reasonableness. See
75 FR 7667. Similarly, the Board believes that it is appropriate to
evaluate a creditor's procedures for responding to a computer
malfunction for reasonableness. Accordingly, the final rule deletes
comment 5(b)(2)(iii)-1.
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)
[[Page 22951]]
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.
In November 2010, the Board proposed 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 proposed 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 received no comment on this change, which is adopted as proposed.
In the supplementary information to the November 2010 Proposed
Rule, the Board noted 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 did not
propose to delete the reference to limitations on rate decreases from
Sec. 226.6(b)(2)(i)(A). But see 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 noted in the November 2010 Proposed Rule 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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In the November 2010 Proposed Rule, the Board proposed to adopt 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. Proposed Sec. 226.5a(b)(1)(iv)(C)
generally mirrored Sec. 226.5a(b)(1)(iv)(B) and provided 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 also proposed 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 also proposed
conforming amendments to the formatting requirements set forth in
Sec. Sec. 226.5a(a)(2)(iii) and 226.6(b)(1)(ii). For ease of
reference, this section of supplementary information addresses both
proposed Sec. 226.5a(b)(1)(iv)(C) and Sec. 226.6(b)(2)(i)(D)(3).
The Board also proposed 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. Proposed
comment 5a(b)(1)-5.iv generally mirrored relevant portions of the
guidance set forth in comment 5a(b)(1)-5.ii regarding the revocation of
introductory rates. In addition, proposed comment 5a(b)(1)-5.iv
clarified 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 proposed comment clarified that an issuer
may describe this circumstance as ``if your employment with [issuer or
third party] ends.''
Several industry commenters expressed concerns that the proposal
would add new disclosure requirements for employee preferred rates. One
commenter stated that when a creditor offers an employee rate it is not
usually disclosed in the tabular disclosures provided pursuant to
Sec. Sec. 226.5a and 226.6(b). This commenter stated that the tabular
disclosures are drafted for general use and, if an employee applies,
the account terms are subsequently amended to provide for the employee
preferred rate. The commenter asked the Board to clarify that the
proposal would not require creditors to disclose employee preferential
rates in the tables provided pursuant to Sec. Sec. 226.5a and
226.6(b). Two other industry commenters expressed concerns that the
proposal would require a new disclosure to be included in application
and account-opening disclosures relating to the potential loss of an
employee preferred rate. These commenters argued that such disclosure
requirements, particularly when paired with the advance notice
requirements of Sec. 226.9 and the limitations on rate increases in
Sec. 226.55, could result in reduced availability of beneficial
employee rate programs, because issuers would be required to provide
special disclosures to employees who receive preferred employee rates,
while at the same time the advance notice requirements and limitations
on rate increases would apply when the consumer's employment ends.
These commenters recommended that the temporary rate exception be
expanded
[[Page 22952]]
to permit issuers to increase rates, or fees where appropriate, based
on termination of a consumer's employment, without being subject to 45-
day advance notice or the limitations in Sec. 226.55.
The Board notes that proposed Sec. Sec. 226.5a(b)(1)(iv)(C) and
226.6(b)(2)(i)(D)(3) were not intended to impose any new disclosure
requirements regarding employee preferential rates, but were rather
intended to clarify the placement requirements for disclosures that are
already required under Regulation Z. Sections 226.5a(b)(1) and
226.6(b)(2)(i) currently require disclosure of 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. Thus, the Board
believes that under current Regulation Z requirements, employee
preferential rates must be included in the tabular disclosures provided
pursuant to Sec. Sec. 226.5a and 226.6(b), if they are, or will be,
included in the initial account agreement.\2\ In addition, Sec. Sec.
226.5a(b)(1)(iv)(A) and 226.6(b)(2)(i)(D) currently require that
certain additional disclosures be provided if a rate may increase as a
penalty for one or more events specified in the account agreement. As
stated in the supplementary information to its final rule published on
January 29, 2009, the Board believes that an increase in rate due to
the termination of a consumer's employment is a type of rate increase
as a penalty, even if the circumstances under which the change may
occur are set forth in the account agreement. See 74 FR 5244, 5346
(January 2009 Final Rule). Accordingly, the Board believes that
Sec. Sec. 226.5a(b)(1)(iv)(A) and 226.6(b)(2)(i)(D) currently require
disclosures regarding the revocation of an employee preferential rate
that is offered at account opening.
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\2\ If an employee preferential rate is not included in the
initial account agreement, but is instead added by an amendment to
the agreement after account opening, such a rate is not required to
be disclosed in the tabular disclosures pursuant to Sec. Sec.
226.5a and 226.6(b). But see Sec. 226.9(c)(2) and (g) for other
disclosure requirements that may apply.
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The Board noted in the proposal that the proposed placement
requirement would be appropriate in order to prevent ``information
overload'' and to focus consumers' attention on the disclosures that
they find the most important. The Board continues to believe that it is
appropriate to require that disclosures regarding the revocation of an
employee preferential rate be provided with the tabular disclosures
provided with credit card applications and solicitations and at account
opening. However, the Board is concerned that including this
information, which is likely relevant only to a limited subset of
consumers, in the tabular disclosure may distract other consumers from
other key disclosures. Accordingly, the Board is adopting Sec. Sec.
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) generally as proposed.
One industry commenter stated that the Board also should apply
proposed Sec. Sec. 226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) to
situations in which a preferential rate is offered to a bank's
insiders, such as executive officers, directors, or principal
shareholders. The commenter noted that applicable regulations may
permit preferential rates to be offered to such individuals, but that
such preferential rates might not be covered by proposed Sec. Sec.
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) because insiders such as
executive officers, directors, or principal shareholders are not
employees of the creditor. The Board believes that it is appropriate to
extend the guidance in Sec. Sec. 226.5a(b)(1)(iv)(C) and
226.6(b)(2)(i)(D)(3) to apply to individuals who, while not technically
employees of the card issuer or third party, have a similar affiliation
to such entities. The Board believes that, as with employee
preferential rates, requiring that disclosures regarding the revocation
of preferential rates offered to such insiders be placed in the tabular
disclosure may distract some consumers from other key disclosures and
contribute to information overload. Thus, as adopted, Sec. Sec.
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) would apply if a card
issuer or creditor discloses in the table a preferential annual
percentage rate for which only employees of the card issuer or
creditor, employees of a third party, or other individuals with similar
affiliations with the card issuer, creditor, or third party, such as
executive officers, directors, or principal shareholders, are eligible.
Consumer group commenters agreed with the Board's statement that
termination of an employee preferential rate is not a promotional rate
but is in fact a contingent rate increase. These commenters supported
the inclusion of footnote 1 in the supplementary information to the
proposal, which noted that 45 days' advance notice is required pursuant
to Sec. 226.9(g) prior to imposition of a higher rate upon loss of an
employee promotional rate and that the limitations set forth in Sec.
226.55 apply to the rate increase. Consumer groups requested that the
substance of this footnote be incorporated into the commentary and that
comment 55(b)(1)-4 be amended to expressly prohibit application of a
rate increase due to loss of an employee preferential rate to existing
balances on the account. For the reasons stated in the supplementary
information to the January 2009 Final Rule and February 2010 Final
Rule, the Board believes that rate increases that occur upon expiration
of an employee preferential rate should continue to be subject to the
advance notice requirements of Sec. 226.9(g) and the substantive
limitations in Sec. 226.55. See, e.g., 74 FR 5346, 75 FR 7736.
However, the Board believes that Regulation Z already clearly provides
that rate increases upon loss of an employee preferential rate require
45 days' advance notice under Sec. 226.9(g) and are subject to the
limitations in Sec. 226.55.
Proposed Sec. Sec. 226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3)
would have applied only to loss of employee preferential rates. The
Board solicited 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. Several industry commenters
identified other scenarios in which creditors or card issuers may offer
preferred rates that do not meet the definition of ``introductory
rates'' in Sec. 226.16(g)(2)(ii). For example, an issuer or creditor
may offer preferred rates for making payments automatically via
electronic recurring payments or payroll deduction. Other creditors may
offer preferred rates as relationship rewards, for example for
maintaining a deposit account with the creditor or for maintaining a
minimum balance in a deposit account with the creditor. If the consumer
fails to continue to meet the conditions associated with the
preferential rate, the preferential rate will be revoked and a higher
rate will be imposed.\3\
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\3\ Similar to employee preferential rates, the Board notes that
45 days' advance notice is required pursuant to Sec. 226.9(g) prior
to imposition of the higher rate when the consumer ceases to meet
the conditions for such preferential rates. In addition, the
limitations set forth in Sec. 226.55 apply.
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At this time, the Board is not extending the guidance in Sec. Sec.
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) to address the loss of
preferred rates offered in other circumstances, such as preferred rates
offered to consumers who make automatic payments or preferred rates
otherwise offered as relationship rewards. Unlike employee preferred
rates, which are likely relevant only to a subset of an issuer or
creditor's
[[Page 22953]]
consumers, the Board believes that relationship rewards or a discount
for making automatic payments may be relevant to a much larger portion
of a creditor's customer base. In addition, the Board believes that
creditors may be more likely to market credit products on the basis of
preferred rates based on automatic payments or other relationship
rewards than on the basis of discounted rates that are available only
if the consumer is employed with the creditor or another specific third
party. Accordingly, the Board is concerned that permitting disclosures
regarding the loss of preferential rate programs made available to the
general public, such as those based upon automatic payments or as other
types of relationship rewards, to be placed below the Sec. Sec. 226.5a
and 226.6 tables may detract from consumers' awareness and
understanding of the circumstances under which such preferred rates can
be terminated by the creditor.
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 is 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. 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 proposed 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 set
forth two examples. First, the proposed comment provided that if a card
issuer reserves the right to apply the increased rate to any balances
indefinitely, the issuer should disclose that the penalty rate may
apply indefinitely, even though Sec. Sec. 226.55(b)(4) and 226.59 may
impose limitations on the continued application of a penalty rate to
certain balances. The second example provided that if the issuer
generally provides that the increased rate will apply until the
consumer makes twelve timely consecutive required minimum periodic
payments, the issuer should disclose that the penalty rate will apply
until the consumer makes twelve consecutive timely minimum payments,
even though Sec. Sec. 226.55(b)(4) and 226.59 may impose limitations
on the continued application of a penalty rate to certain balances.\4\
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\4\ The Board notes that the second example in proposed comment
5a(b)(1)-5.i erroneously referred to Sec. 226.54(b)(4) instead of
Sec. 226.55(b)(4). This typographical error has been corrected in
the final rule.
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One industry commenter supported the proposed changes to comment
5a(b)(1)-5.i. However, two other industry commenters expressed concerns
regarding this aspect of the proposal. These commenters stated that
comment 5a(b)(1)-5.i could contribute to consumer confusion and reduce
a card issuer's incentive to implement practices that are more
beneficial to consumers than the minimum requirements of Regulation Z.
The commenters expressed concern that if an issuer discloses a practice
that is more beneficial to consumers than the requirements of
Sec. Sec. 226.55(b)(4) and 226.59--for example, that the issuer will
lower the rate if the consumer makes three consecutive timely minimum
payments--consumers will assume that the disclosed practice is
detrimental to their interests.
The Board notes that Sec. 226.5a(b)(1)(iv) requires issuers to
disclose a brief description of how long a penalty rate will remain in
effect. While the proposed clarification provided 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, Sec.
226.5a(b)(1)(iv) nonetheless requires a card issuer to provide a
disclosure regarding the duration of penalty rates. For example, if an
issuer's account agreement generally provides for no automatic cure for
penalty rates (except as required pursuant to Sec. 226.55(b)(4)), the
issuer would be required to disclose that the penalty rate may remain
in effect indefinitely. Similarly, if the account agreement provides
for a more advantageous cure for penalty rates than is required
pursuant to Sec. 226.55(b)(4), for example that penalty rates will be
reduced if the consumer makes three consecutive timely payments, the
issuer would disclose that fact. Accordingly, the Board believes that
consumers will be able to compare the practices of different issuers
and that a disclosure of an automatic penalty pricing cure based upon
three consecutive timely payments will compare favorably with the
disclosure provided by an issuer who offers no cure for penalty pricing
except to the extent required under Sec. Sec. 226.55(b)(4) and 226.59.
Accordingly, the Board is adopting the changes to comment 5a(b)(1)-
5.i as proposed. 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 (g) disclosing the associated rate
increase.
Other Amendments to Sec. 226.5a(b)(1)
The Board also proposed 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, contained an erroneous
reference to a disclosure in, rather than beneath, the table.
Accordingly, the Board proposed a technical amendment to comment
5a(b)(1)-5.ii for conformity with the placement requirements in Sec.
226.5a(b)(1)(iv)(B). The Board received no comments on this technical
correction, which is adopted as proposed.
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
[[Page 22954]]
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 has
revised 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 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 in the table. 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.
Thus, in the November 2010 Proposed Rule, the Board proposed 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 have been 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 have been deleted. As discussed above, the Board believed 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 in the table.
In addition, the Board proposed 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
noted 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 would have clarified 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
believed this disclosure language achieves its intended purpose of
explaining succinctly how a consumer can avoid all interest charges on
purchases.
The Board recognized 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 noted 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. As an example, the proposal noted that 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, proposed comment 5a(b)(5)-1
clarified that 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 would not have been
allowed to disclose the limitations on the imposition of finance
charges as a result of a loss of a grace period in
[[Page 22955]]
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.
Consumer group commenters objected to the proposed example in
comment 5a(b)(5)-1, arguing that, when a consumer pays the outstanding
balance shown on a periodic statement in full by the due date shown on
that statement, a card issuer should not be permitted to charge
interest on purchases based on the consumer's use of the account for a
cash advance. As discussed below, these commenters requested that the
Board ban this and other issuer practices related to grace periods
using its authority under the Federal Trade Commission Act (FTC Act).
In revising comment 5a(b)(5)-1, the Board intended to clarify the
requirements for disclosing grace periods, not to opine on whether
particular grace period practices are permissible. Accordingly, the
final version of comment 5a(b)(5)-1 does not include the proposed
example.
One industry commenter opposed the proposed modifications to
comment 5a(b)(5)-1 that would prohibit a card issuer from disclosing in
the table any 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. The commenter believes the impact
of payment allocation on whether interest is charged on purchases as
the result of a loss of a grace period is very important information
for an applicant attempting to determine the cost of a credit program
based on how they intend to use various features of the account. For
example, if a customer must pay one credit feature in full (due to
payment allocation requirements) before payments are applied to a
second credit feature nearing the end of its grace period, the
commenter believed that the consumer should be alerted to such a
situation in the table because it could require a significant
commitment of resources by the consumer to avoid paying interest on the
second credit feature. The commenter requested that the Board adopt
model language that would address this situation, such as the following
language: ``We will not charge you interest if you pay the full balance
of credit feature 1 and any balance in credit feature 2 in full by the
due date each billing period.''
Except as discussed above, comment 5a(b)(5)-1 is adopted as
proposed. As noted earlier, 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 in the table. Under
comment 5a(b)(5)-1, an issuer must use the following language to
describe the grace period 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 language achieves its intended purpose of
explaining succinctly how a consumer can avoid all interest charges on
purchases, namely by paying the entire balance by the due date each
month.
Ban on certain types of grace periods. In response to the November
2010 Proposed Rule, several consumer groups requested that the Board
develop model language for different types of grace periods and require
the use of such model language for all issuers. In addition, the
consumer groups requested that the Board use its authority under the
FTC Act to limit issuers to the types of grace period for which there
is model language. These consumer groups believe that some issuers are
making grace period disclosures, and structuring grace periods
themselves, in a manner that is confusing, deceptive, or unfair. In the
November 2010 Proposed Rule, the Board did not propose to use its FTC
Act authority to ban issuers from using certain types of grace periods,
and is not adopting such a ban as part of the final rule.
Conditions on the grace period for certain future promotional
offers. One industry commenter requested that the Board revise proposed
comment 5a(b)(5)-1 to clarify that an issuer is not required to
disclose in the table any conditions that a future promotional offer
might place on the grace period. Specifically, this commenter indicated
that some promotional offers place limitations on the grace period. For
example, a promotional offer may provide that the grace period is
eliminated for purchases under that offer, even if the customer pays
his or her balance in full. The commenter argued that if the promotion
is part of the account-opening offer, it is appropriate to include the
specific limitations in the account-opening table. The commenter
argued, however, that if the promotion is not offered at account-
opening, it would not be appropriate to include the specific
limitations in the account-opening table because they may never apply.
The commenter believed that such disclosure would be confusing to
consumers and potentially incorrect and misleading. In this case, the
commenter believed that the applicable grace period disclosures should
be given with the promotional materials.
To avoid consumer confusion, the Board believes that issuers should
not include in the table any conditions that a future promotional offer
might place on the grace period. The Board believes that it is more
appropriate for issuers to treat any conditions that a future
promotional offer might place on the grace period as a change to the
grace period under Sec. 226.9(c)(2), or under Sec. 226.9(b)(3) if the
change is applicable only to checks that access a credit card account.
The Board notes that if the change in the grace period is applicable
only to checks that access a credit card account, the issuer is not
required to provide a disclosure pursuant to Sec. 226.9(c)(2)
(including the 45-day notice requirement), so long as the issuer
complies with the disclosure requirements in Sec. 226.9(b)(3). See
comment 9(c)(2)-4. The Board recognizes that comment 9(c)(2)-1
indicates that no notice of a change in terms need be given under Sec.
226.9(c)(2) if the specific change is set forth initially. For comment
9(c)(2)-1 to apply, however, both the triggering event and the
resulting modification must be stated with specificity. The Board
believes that comment 9(c)(2)-1 is not applicable in these situations.
The Board believes that creditors are not able to identify with
sufficient specificity at account opening which future promotional
offers would trigger the additional conditions on the grace period in a
way that consumers would understand.
Other grace period disclosures. The proposal provides that the
Sec. 226.54 limitations on imposition of finance charges must not be
disclosed when describing a grace period in the disclosure table under
Sec. 226.5a(b)(5), or in the account-opening table under Sec.
226.6(b)(2)(v). One industry commenter suggested that the Board clarify
that the Sec. 226.54 limitations on imposition of finance charges must
not be disclosed with respect to any grace period disclosure required
by the regulation, such as the disclosure of any grace period related
to checks that access credit card accounts under Sec.
226.9(b)(3)(i)(D), on the periodic statement under Sec. 226.7(b)(8),
or on the renewal notice under Sec. 226.9(e).
1. Grace period disclosure for checks that access a credit card
account. Section 226.9(b)(3)(i)(D) provides that with respect to checks
that access a credit card account, creditors generally must disclose on
the front of the page containing those checks whether or not
[[Page 22956]]
any grace period will apply to the check transactions. This grace
period disclosure must be disclosed in a table, along with other
disclosures relating to the checks. Comment 9(b)(3)(i)(D)-1 currently
provides that creditors may use the following language to describe a
grace period on check transactions: ``Your due date is [at least] ----
---- days after the close of each billing cycle. We will not charge you
interest on check transactions if you pay your entire balance by the
due date each month.'' Creditors may use the following language to
describe that no grace period on check transactions is offered, as
applicable: ``We will begin charging interest on these checks on the
transaction date.''
As discussed above, one industry commenter suggested that the Board
clarify that the Sec. 226.54 limitations on imposition of finance
charges must not be disclosed with respect to the disclosure of any
grace period related to checks that access credit card accounts under
Sec. 226.9(b)(3)(i)(D), consistent with proposed guidance in comment
5a(b)(5)-1 and comments 6(b)(2)(v)-1 and -3. For the reasons discussed
below, the final rule revises comment 9(b)(3)(i)(D)-1 to be consistent
with guidance adopted under comment 5a(b)(5)-1 and comments 6(b)(2)(v)-
1 and -3. Specifically, revised comment 9(b)(3)(i)(D)-1 clarifies that
creditors in disclosing any grace period related to checks that access
a credit card under Sec. 226.9(b)(3)(i)(D) must 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 transactions as a result of a loss of
a grace period. The revised comment notes that some creditors may offer
a grace period on credit extended by the use of an access check under
which interest will not be charged on the check 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, comment 9(b)(3)(i)(D)-1 clarifies that
Sec. 226.9(b)(3)(i)(D) requires that the creditor disclose the grace
period 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 check
transactions if you pay your entire balance by the due date each
month.'' Revised comment 9(b)(3)(i)(D)-1 notes, however, that other
creditors may offer a grace period on check transactions under which
interest may be charged on check 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, revised comment 9(b)(3)(i)(D)-1 clarifies that Sec.
226.9(b)(3)(i)(D) requires the creditor to amend the above disclosure
language to describe accurately the conditions on the applicability of
the grace period.
The Board believes that it is appropriate to adopt similar guidance
for disclosure of a grace period applicable to access checks, as is
adopted for disclosure of a grace period in the disclosure table under
Sec. 226.5a and the account-opening table under Sec. 226.6. The grace
period disclosure on checks accessing a credit card account required
under Sec. 226.9(b)(3)(i)(D) must be disclosed in a tabular format on
the front of the page containing the checks, along with other required
disclosures. The Board believes that the language contained in revised
comment 9(b)(3)(i)(D)-1 for describing the grace period succinctly
communicates to the consumer how he or she can avoid all interest
charges on the check transactions, namely by paying the entire balance
on the account by the due date each month. 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 the check transactions due to the loss of a grace
period could reduce the effectiveness of the grace period disclosure,
and could distract consumers from other important information disclosed
in the table.
2. Grace period disclosure on periodic statements. Section
226.7(b)(8) provides that a creditor must disclose on the periodic
statement the date by which or the time period within which the new
balance or any portion of the new balance shown on that periodic
statement must be paid to avoid additional finance charges. Comment
7(b)(8)-3 clarifies that Sec. 226.7(b)(8) does not require a card
issuer to disclose the limitations on the imposition of finance charges
in Sec. 226.54. The final rule retains in comment 7(b)(8)-3 the
clarification that Sec. 226.7(b)(8) does not require a card issuer to
disclose the limitations on the imposition of finance charges in Sec.
226.54. The final rule also revises comment 7(b)(8)-3 to clarify that
Sec. 226.7(b)(8) does not require a card issuer to disclose the impact
of payment allocation on whether interest is charged on transactions as
a result of a loss of a grace period. Thus, under revised comment
7(b)(8)-3, a creditor would not be required to disclose under Sec.
226.7(b)(8) 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.
Nonetheless, unlike for the disclosure of the grace period in the
tables under Sec. Sec. 226.5a, 226.6, and 226.9(b)(3), a creditor in
disclosing the grace period on the periodic statement under Sec.
226.7(b)(8) would retain the flexibility to disclose the limitations on
the imposition of finance charges as a result of a loss of a grace
period in Sec. 226.54, and 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 that it is appropriate to provide creditors
with additional flexibility in describing the grace period on the
periodic statement because this disclosure is not subject to tabular or
other format requirements. In addition, the information about the
limitations on the imposition of finance charges as result of a loss of
a grace period in Sec. 226.54, and the impact of payment allocation on
whether interest is charged on transactions as a result of a loss of a
grace period could be more relevant to consumers on the periodic
statement, as consumers decide how much to pay in a particular billing
cycle. Some consumers might find this information useful in evaluating
the impact of a partial payment on whether they will pay interest on
transactions in that billing cycle as a result of a loss of the grace
period.
3. Grace period disclosures on renewal notices under Sec.
226.9(e). In some instances, a card issuer is required under Sec.
226.9(e) to send a notice to the consumer prior to the renewal of a
consumer's credit or charge card. In this renewal notice, the card
issuer must disclose certain account terms that would apply if the
account were renewed, such as any grace period applicable to purchases
as described in Sec. 226.5a(b)(5). The Board does not believe,
however, that any additional guidance is needed with respect to how a
card issuer must disclose the grace period disclosure in the renewal
notice under Sec. 226.9(e). Under Sec. 226.9(e), the grace period
disclosure must be described using the same level of detail as the
grace period disclosure in Sec. 226.5a(b)(5). See Sec.
226.9(e)(1)(i). Thus, guidance in Sec. 226.5a(b)(5) and related
commentary would be applicable to the grace period disclosure in the
renewal notice under Sec. 226.9(e).
4. Disclosure of change to the grace period under Sec.
226.9(c)(2). The Board also notes if a creditor changes any
[[Page 22957]]
grace period disclosed under Sec. 226.6(b)(2)(v), the creditor must
disclose the change under Sec. 226.9(c)(2), except as provided in
Sec. 226.9(c)(2)(v). The Board does not believe, however, that any
additional guidance is needed with respect to how to disclose any
change to the grace period under Sec. 226.9(c)(2). Under Sec.
226.9(c)(2)(iv)(D), the new grace period must be described using the
same level of detail as required when disclosing the grace period in
the account-opening table under Sec. 226.6(b)(2). Thus, guidance in
Sec. 226.6(b)(2)(v) and related commentary is applicable to the grace
period disclosure in the change-in-terms notice required under Sec.
226.9(c)(2).
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. In the November 2010 Proposed
Rule, the Board proposed to delete this cross-reference as obsolete
because there currently is no commentary to Sec. 226.5a(g). The Board
adopts this deletion as proposed. For clarity, the final rule also
revises comment 5a(b)(6)-1 to reference Sec. 226.5a(g), where
particular balance computation methods are described in the regulation.
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 proposed 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). The Board did not receive significant comment
on this aspect of the proposal, which is adopted as proposed.
In addition, for the reasons discussed in the supplementary
information to Sec. 226.5a(b)(1), the Board is adopting new Sec.
226.6(b)(2)(i)(D)(3), which requires 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 offers 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 in the table.
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 could 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 proposed 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 believed 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 have been deleted.
[[Page 22958]]
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 proposed 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 noted that some creditors do not offer a grace period on
cash advances and balance transfers, but offer 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 would have clarified 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 believed this disclosure language achieves its intended
purpose of explaining succinctly how a consumer can avoid all interest
charges on purchases, while explaining that no grace period is offered
for cash advances and balance transfers.
The Board recognized 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 noted 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. Proposed comment
6(b)(2)(v)-3 would have clarified 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 would not have been allowed to 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 would have clarified
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 proposed 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 noted
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, proposed comment
6(b)(2)(v)-1 would have clarified that 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 noted 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
would have clarified 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.
Consistent with 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
final rule adopts comments 6(b)(2)(v)-1 and -3 as proposed, except
that--as discussed above with respect to comment 5a(b)(5)-1--the Board
has removed the proposed example regarding the loss of a grace period
on purchases when the account is used for a cash advance. 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)-
3 clarifies that Sec. 226.6(b)(2)(v) requires the creditor to 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 believed this disclosure language achieves its intended
purpose of explaining succinctly how a consumer can avoid all interest
charges on purchases, while explaining that no grace period is offered
for cash advances and balance transfers.
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
[[Page 22959]]
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, in the November 2010 Proposed Rule, the Board
proposed 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
would have made 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 would
have provided 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.
In addition, the Board proposed 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, proposed comment 6(b)(2)(vi)-2 would have made clear that a
creditor must revise the names listed in Sec. 226.5a(g) to refer to
the other features. For example, under proposed comment 6(b)(2)(vi)-2,
when disclosing the name of the balance computation method applicable
to cash advances, a creditor would have been required to 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, under proposed comment 6(b)(2)(vi)-2, a creditor
would have been required to 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.
The Board received several comments supporting proposed comment
6(b)(2)(vi)-2, and no comments opposing it. For the reasons discussed
above, the Board adopts comment 6(b)(2)(vi)-2 as proposed.
Balance computation methods that consider transactions from
previous cycles. One industry commenter requested that the Board
confirm that the balance computation methods listed in Sec. 226.5a(g)
can be used for transactions that accrue interest beginning on the
transaction date even if the transaction date is prior to the first day
of the cycle in which the transaction posts to the account, which may
be the case for cash advances. The Board notes that Sec. 226.54
provides that a card issuer cannot impose finance charges as a result
of the loss of a grace period on a credit card account under an open-
end (not home-secured) consumer credit plan if those finance charges
are based on balances for days in billing cycles that precede the most
recent billing cycle. Nonetheless, Sec. 226.54 does not apply if
transactions are not eligible for a grace period. See comment 54(a)(1)-
1. Thus, in certain instances, a card issuer is not prohibited by Sec.
226.54 from calculating interest charges beginning on the transaction
date even if the transaction date is prior to the first day of the
cycle in which the transaction posts to the account. Nonetheless, a
creditor that uses such a balance computation method may not use the
names of the balance computation methods listed in Sec. 226.5a(g) to
describe such method. The balance computation methods listed in Sec.
226.5a(g) contemplate that the balances are computed using only days in
the current billing cycle. For balance computation methods that
calculate the balance using days from the previous cycle, the creditor
may not use the names of the balance computation methods listed in
Sec. 226.5a(g). Instead, the creditor must provide an explanation of
the method underneath the disclosure table required under Sec. 226.5a
and the account-opening table required under Sec. 226.6. See Sec.
226.5a(b)(2)(iii), Sec. 226.5a(b)(6), Sec. 226.6(b)(1)(ii), and Sec.
226.6(b)(2)(vi). In describing this balance computation method below
the tables required under Sec. 226.5a and Sec. 226.6, the creditor
must clearly explain the method in as much detail as set forth in the
descriptions of balance methods in Sec. 226.5a(g). See comment
5a(b)(6)-1.
Using the phrase ``(including new transactions'') in describing
balance computation method for Sec. 226.5a. One industry commenter
requested that, consistent with proposed comment 6(b)(2)(vi)-2, the
Board clarify that an issuer may use either the name ``daily balance
(including new purchases)'' or ``daily balance (including new
[[Page 22960]]
transactions)'' to disclose the balance computation method underneath
the disclosure table required by Sec. 226.5a. The final rule does not
contain this clarification. Section 226.5a(b)(6) requires that a card
issuer disclose on or with a credit card application or solicitation
information about the balance computation method it uses for purchases.
Under Sec. 226.5a(b)(6), an issuer is not required to disclose the
balance computation method used for other features on the account.
Accordingly, 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)''). Thus, the Board
believes it is appropriate to continue to describe the balance
computation methods in Sec. 226.5a(g) with respect to purchases.
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 must 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 issues and to provide flexibility to creditors,
consistent with proposed guidance in comment 6(b)(2)(vi), the Board
proposed 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, under proposed comment 7(b)(5)-7, if a creditor uses the
average daily balance method including new transactions as the balance
computation method for all features, a creditor would have been allowed
to 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 provided 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
proposed 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 would have
provided 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, under proposed comment 7(b)(5)-8, when disclosing the name of
the balance computation method applicable to cash advances, a creditor
would have been required to 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 would have been required to 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.
The Board received several comments supporting proposed comments
7(b)(5)-7 and -8, and no comments opposing them. For the reasons
discussed above, the Board adopts these comments as proposed.
[[Page 22961]]
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 proposed to amend comment 7(b)(6)-3 to clarify that this
guidance applies to fees as well as interest charged. The Board did not
receive significant comment on this clarification, which is adopted in
the final rule. The Board has modified the proposed comment to clarify
that creditors must disclose separate totals for interest and fees.
7(b)(8) Grace Period
See discussion regarding Sec. 226.5a(b)(5).
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 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. 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, in the November
2010 Proposed Rule, the Board proposed 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 have provided that an issuer's
rounding for all of these disclosures must be consistent. Under
proposed comment 7(b)(12)-1, an issuer would have been allowed to round
all of these disclosures to the nearest whole dollar when providing
them on periodic statements, or round all of these disclosures to the
nearest cent. An issuer would not have been allowed, however, to round
some of the disclosures to the nearest whole dollar, while rounding
other disclosures to the nearest cent. The Board believed that
requiring an issuer to be consistent in how it rounds these disclosures
helps to ensure that these disclosures remain consistent with each
other.
The Board received several comments supporting the proposed changes
to Sec. 226.7(b)(12)(i) and (b)(12)(ii) and comment 7(b)(12)-1, and no
comments opposing them. For the reasons discussed above, the Board
adopts these changes as proposed.
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 proposed to
amend Sec. 226.7(b)(14) and its commentary 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.
Industry commenters generally supported the proposal.
However, consumer group commenters opposed the proposal as well as
deferred interest plans generally. These commenters argued that the
deferred interest disclosure should be on the front of the first page
of the periodic statement, or in the alternative, grouped with the
disclosure of the deferred interest balance, deferred interest APR, and
accrued interest for the deferred interest balance.
The clarifications in Sec. 226.7(b)(14) and its commentary is
adopted as proposed. The Board believes this clarification ensures 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.
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
[[Page 22962]]
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. In the
November 2010 Proposed Rule, the Board proposed 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. Proposed Sec. 226.9(b)(3)(iii) generally mirrored the
disclosure requirements for variable rates set forth in Sec. Sec.
226.5a(b)(1)(i) and 226.6(b)(2)(i)(A). In describing how the applicable
rate will be determined, the proposal would have required the card
issuer to identify the type of index or formula that is used in setting
the rate. The proposal would not have permitted disclosure of the value
of the index and the amount of the margin that are used to calculate
the variable rate in the table. In addition, the proposal would not
have permitted a card issuer to disclose any applicable limitations on
rate increases in the table.
One card issuer commented in support of the proposed variable-rate
disclosure requirements in Sec. 226.9(b)(3)(iii). One other card
issuer agreed that it is important that variable rate information be
disclosed to consumers who receive checks that access a credit card
account, but questioned the benefit of providing the proposed variable
rate disclosures to consumers who have already received variable rate
disclosures at account opening. Several other issuers commented that
requiring additional disclosures about variable rates could contribute
to information overload and impose burden on issuers that may result in
reduced availability of promotional offers in connection with checks
that access a credit card account. Two such commenters recommended that
the final rule limit the requirement to provide variable rate
disclosures to situations where the promotional or post-promotional
rates or fees that apply to the checks exceed the rates applicable
prior to the promotion.
The Board continues to believe that it is important 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. Accordingly, the Board
is adopting Sec. 226.9(b)(3)(iii) as proposed. Even if variable rates
are disclosed at account opening, the Board also believes it is
important that consumers receive information regarding any applicable
variable rate at the same time that they receive other disclosures
regarding the check offer, including the annual percentage rates that
will apply to the checks. The Board is concerned that even if variable
rates are disclosed at account opening, consumers may not be aware when
they receive a check offer that the rates that apply to those checks
and that must be disclosed pursuant to Sec. 226.9(b)(3) also will be
variable rates. Indeed, it may be confusing or even misleading for the
rates disclosed pursuant to Sec. 226.9(b)(3) to state nothing
regarding the fact that the rates that apply to the checks are
variable, when disclosures of annual percentage rates provided with
credit card applications and solicitations and at account opening are
required to set forth certain information identifying a rate as
variable. The variable-rate disclosure requirements in new Sec.
226.9(b)(3)(iii) are based on the approach in Sec. Sec.
226.5a(b)(1)(i) and 226.6(b)(2)(i)(A), which was informed by consumer
testing conducted on behalf of the Board. The Board believes that Sec.
226.9(b)(3)(iii) strikes the appropriate balance between informing
consumers of key information regarding the variable rate or rates
applicable to checks that access a credit card account and 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. In the November 2010 Proposed Rule, the Board proposed 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
stated, 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).
Commenters who addressed this aspect of the proposal supported
comment 9(b)(3)(i)-2, which is adopted as proposed. As stated in the
November 2010 Proposed Rule, 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, 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 comment 9(b)(3)(i)-2 will ensure that consumers
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.
Finally, the Board has revised the guidance regarding grace periods
in comment 9(b)(3)(i)(D)-1 consistent with the revisions to the
commentary for Sec. 226.5a(b)(5), which are discussed in detail above.
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 proposed to 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). Commenters supported this
revision, which is adopted as proposed.
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
[[Page 22963]]
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 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 was asked whether 45
days' advance notice is required prior to changing the date or 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
date or 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 date or 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 proposed 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 proposed 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 noted in the November 2010 Proposed Rule that
defining the term ``significant change in account terms'' exclusively
in Sec. 226.9(c)(2)(ii) and deleting 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) would alleviate confusion
regarding compliance with the change-in-terms notice requirements.
Second, the Board proposed 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. The proposal would have amended Sec. 226.9(c)(2)(ii) 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.
Two industry commenters objected to the proposed amendment
clarifying that changes to terms required to be disclosed under Sec.
226.6(b)(4) are ``significant changes in account terms.'' These
commenters argued that 45 days' advance notice of changes in terms
required to be disclosed under Sec. 226.6(b)(4) is unnecessary and
that 45 days' advance notice should be required only in connection with
changes to those terms that are required to be disclosed in the account
opening disclosure table. The commenters argued that advance notice of
changes in terms required to be disclosed under Sec. 226.6(b)(4) would
better be addressed by state or contract law, and that highlighting
these changes by requiring notice pursuant to Sec. 226.9(c)(2) could
contribute to ``information overload.'' Finally, these commenters
indicated that application of the advance notice rules to changes in
terms required to be disclosed under Sec. 226.6(b)(4) would increase
regulatory burden and administrative costs.
In contrast, consumer groups and one industry commenter supported
the Board's proposal to expressly provide that changes to terms
required to be disclosed under Sec. 226.6(b)(4) are ``significant
changes in account terms.'' The industry commenter acknowledged that
the clarification could result in the provision of more change-in-terms
notices but agreed that the changes are significant to the consumer and
should be subject to 45 days' advance notice.
One industry commenter erroneously stated that the proposal would
create a new requirement that 45 days' advance notice be given prior to
changing the balance computation method applicable to an open-end (not
home-secured) account. This commenter argued that a change in the
balance computation method is not a significant change in account terms
and that 45 days' advance notice should not be required. The Board
notes that the balance computation method is a term required to be
disclosed under Sec. 226.6(b)(1) and (b)(2), and therefore a change in
the balance computation method currently is a ``significant change in
account terms'' under existing Sec. 226.9(c)(2)(ii), and would remain
a ``significant change in account terms'' under the November 2010
Proposed Rule.
The Board is adopting the changes to Sec. 226.9(c)(2)(i) and
(c)(2)(ii) as proposed. Accordingly, Sec. 226.9(c)(2)(ii) as adopted
specifically categorizes 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, for example, changes in the frequency with which a
variable rate may increase, 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 continues to believe 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.
As discussed below, the Board notes that the final rule provides
creditors with flexibility in how to format the notice of a change to a
term required to be disclosed pursuant to Sec. 226.6(b)(4); if the
change does not result in a change to a term required to be disclosed
pursuant to Sec. 226.6(b)(1) or (b)(2), the notice would not be
required to be presented in a tabular format pursuant to Sec.
226.9(c)(2)(iv)(D). The Board believes that this flexibility will
alleviate burden on creditors, while ensuring that the changes of the
most importance to consumers are appropriately highlighted.
Proposed Sec. 226.9(c)(2)(ii) did not specifically identify
changes in terms
[[Page 22964]]
required to be disclosed under Sec. 226.6(b)(3) in the list of
``significant change[s] in account terms.'' The Board stated in the
proposal that it believes 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
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.
Consumer group commenters objected to the existing rule set forth
in Sec. 226.9(c)(2)(iii), to the extent that it permits new fees that
are not disclosed in the account opening table to be disclosed orally
at a relevant time before the consumer agrees or becomes obligated to
pay the charge. Consumer groups believe that the addition of a new fee,
other than one-time fees for time-sensitive matters, should require a
change in terms notice. However, for the reasons discussed in the
supplementary information to the January 2009 Final Rule, the Board is
not expanding the 45-day advance notice requirements to 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). See, e.g., 74 FR 5273, 74 FR 5345.
The Board proposed one wording change to Sec. 226.9(c)(2)(iii) and
comment 9(c)(2)(iii)-1; the proposal would have replaced 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). The Board received no comments on this change, which
is adopted as proposed.
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) did 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
disclosures that must be given. Accordingly, given that these are not
terms of the account, the Board noted in the proposal that there are no
corresponding changes in terms for which it is appropriate to require
advance notice.\5\ In contrast, the acquisition of a security interest
is expressly included in Sec. 226.9(c)(2)(ii)'s definition of
``significant change in account terms'' for which 45 days' advance
notice must generally be provided. The Board received no comments on
this aspect of the proposal, which is adopted as proposed.
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\5\ 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 are required to be
disclosed in accordance with Sec. 226.9(c)(2)(iii).
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The Board is also amending Sec. 226.9(c)(2)(i)(A) to correct a
technical issue; this amendment is not intended as a substantive change
to the change-in-terms notice requirements. Consumer group commenters
noted that in the February 2010 Final Rule, the Board created a new
Sec. 226.9(c)(2)(i)(B) to address change-in-terms notice requirements
for changes agreed to by the consumer. As discussed in the
supplementary information to the February 2010 Final Rule, new Sec.
226.9(c)(2)(i)(B) generally included guidance that was formerly
included in the commentary to Sec. 226.9(c)(2), which was moved into
the regulation for clarity. See 75 FR 7693. Section 226.9(c)(2)(i)(B)
sets forth guidance regarding which changes are deemed to be ``agreed
to'' by the consumer. Consumer group commenters on the November 2010
Proposed Rule expressed concerns that the retention in the February
2010 Final Rule of a separate reference to changes agreed to by the
consumer in Sec. 226.9(c)(2)(i)(A) could be read as creating a
different, broader standard than the one set forth in Sec.
226.9(c)(2)(i)(B). Accordingly, the Board is amending Sec.
226.9(c)(2)(i)(A) to expressly cross-reference Sec. 226.9(c)(2)(i)(B),
in order to clarify that the guidance in Sec. 226.9(c)(2)(i)(B) is
intended to exclusively address what it means for a change to be
``agreed to by the consumer.''
9(c)(2)(iv) Disclosure Requirements
As discussed above, the Board is amending 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 proposed 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
proposed to amend Sec. 226.9(c)(2)(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 proposed 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 therefore would not be
in a tabular format in the samples in G-17 to appendix G. Accordingly,
the Board proposed 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 received only one comment on this aspect of the proposal,
from an industry commenter that supported this flexible approach to
providing disclosures of changes to terms required to be disclosed
under Sec. 226.6(b)(4). Accordingly, the Board is adopting the changes
to Sec. 226.9(c)(2)(iv)(A)(1) and (c)(2)(iv)(D)(1) as proposed.
Right To Reject
The Board proposed 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
[[Page 22965]]
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 proposed 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
proposed 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 fees for consumers who are 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 charged higher
rates 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 statutes or regulations, 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
proposed to exempt such increases from the right to reject, although
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. Commenters generally supported this aspect
of the proposal, which is adopted as proposed.
Section 226.9(c)(2)(iv)(B) also provides that the right to reject
does not apply to changes to an annual percentage rate applicable to a
consumer's account. As discussed above, the Board has amended the
definition of ``significant change in account terms'' under Sec.
226.9(c)(2)(ii) to expressly include changes to terms required to be
disclosed under Sec. 226.6(b)(4). Section 226.6(b)(4) requires
disclosure of certain information regarding periodic rates that may be
used to calculate interest. One industry commenter asked the Board to
expressly provide that changes to terms required to be disclosed under
Sec. 226.6(b)(4) do not trigger the right to reject under Sec.
226.9(c)(2)(iv)(B). The Board believes that the broad language of Sec.
226.9(c)(2)(iv)(B), which refers to ``a change in an annual percentage
rate applicable to a consumer's account'' generally encompasses changes
to terms required to be disclosed under Sec. 226.6(b)(4).\6\
Accordingly, while the Board believes that the right to reject does not
apply to most changes to terms required to be disclosed under Sec.
226.6(b)(4), it is not adopting any amendments to the text of Sec.
226.9(c)(2)(iv)(B) to address such changes.
---------------------------------------------------------------------------
\6\ The right to reject would apply, however, to changes to a
balance computation method applicable to a consumer's account; the
balance computation method is a required disclosure pursuant to both
Sec. 226.6(b)(2)(vi) and (b)(4)(i)(D).
---------------------------------------------------------------------------
Changes in Type of Rate
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 proposed
to 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 also proposed to 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 proposed to replace comments 9(c)(2)(v)-
3 and -4 with cross references to comments 9(c)(2)(iv)-3 and -4.
Commenters generally supported these proposed revisions, which are
adopted as proposed. In addition, as suggested by consumer group
commenters, the Board has added a cross reference in comment
9(c)(2)(iv)-4 to comment 55(b)(2)-4, which addresses the limitations in
Sec. 226.55(b)(2) on changing the rate that applies to a protected
balance from a non-variable rate to a variable rate.
Finally, the Board has clarified that 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 or a non-variable rate to a lower variable
rate in order to comply with Sec. 226.55(b)(4). Section 226.55(b)(4)
permits a card issuer to increase the rate that applies to an existing
credit card balance if the account becomes more than 60 days
delinquent. However, if the consumer makes the next six required
minimum payments on time, Sec. 226.55(b)(4) requires the card issuer
to lower the rate on the existing balance to
[[Page 22966]]
the pre-existing rate. For example, assume that a credit card account
became more than 60 days delinquent and that, after providing 45 days
advance notice, the card issuer increased the rate on the existing
balance from a 15% variable rate to a 30% non-variable penalty rate. If
the consumer made the next six required minimum payments on time, Sec.
226.55(b)(4) requires the card issuer to lower the rate that applies to
the existing balance to the 15% variable rate. However, the card issuer
is not required to provide 45 days advance notice before doing so.
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.
In November 2010, the Board proposed to clarify the proximity and
prominence requirements for the disclosure of introductory rates that
are disclosed at account opening. The Board noted 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). Accordingly, the Board
sought to address 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.
Specifically, the Board proposed 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. The Board proposed to renumber existing comments
9(c)(2)(v)-10 through 9(c)(2)(v)-12 accordingly.
Industry commenters generally supported proposed comment
9(c)(2)(v)-10. These commenters indicated that permitting promotional
rates to be disclosed in the account-opening table under Sec.
226.9(c)(2)(v)(B), even if the duration of the period is disclosed in a
smaller, non-bold font, would facilitate creditors' ability to continue
to make beneficial promotional offers to consumers. However, several
industry commenters objected to the language limiting comment
9(c)(2)(v)-10 to circumstances where the listing of the introductory
rate in the tabular disclosure is the first listing of the rate. These
commenters expressed particular concern regarding private label credit
card programs that provide a cover page at account opening which
includes a reference to the temporary rate offer. Accordingly, for such
programs, commenters indicated that the account-opening table often may
not be the first listing of the promotional rate. These commenters
stated that the Board should permit lenders to comply with the
disclosure requirement for temporary and introductory rates by
including the required information in the account-opening table
provided pursuant to Sec. 226.6(b) even if it is not the first
listing.
The Board is adopting comment 9(c)(2)(v)-10 as proposed. The Board
continues to believe 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.
The Board notes that Sec. 226.9(c)(2)(v)(B)(2) and comment
9(c)(2)(v)-6, which were adopted in the February 2010 Final Rule, apply
the close proximity and equal prominence requirements for the Sec.
226.9(c)(2)(v)(B) disclosures to the first listing of the temporary
rate. The Board adopted this ``first listing'' rule in response to
concerns raised by a commenter that, as originally proposed, Sec.
226.9(c)(2)(v)(B) could have been construed to apply the close
proximity and equal prominence requirements to each disclosure of the
promotional rate, not just the first listing. See 75 FR 7699. The Board
proposed comment 9(c)(2)(v)-10, not as a reconsideration of the ``first
listing'' rule set forth in Sec. 226.9(c)(2)(v)(B)(2) and comment
9(c)(2)(v)-6, but to clarify the relationship between the formatting
requirements of Sec. Sec. 226.9(c)(2)(v)(B) and 226.6(b). The Board
continues to believe that the ``first listing'' standard set forth in
Sec. 226.9(c)(2)(v)(B)(2) and comment 9(c)(2)(v)-6 is appropriate, to
ensure that consumers notice the disclosures required under Sec.
226.9(c)(2)(v)(B) by requiring that those disclosures be closely
proximate and equally prominent to the most prominent disclosure of the
temporary rate.
Consumer groups did not oppose proposed comment 9(c)(2)(v)-10 but
urged the Board to also require that creditors comply with Sec.
226.16(g) as part of compliance with in Sec. 226.9(c)(2)(v)(B),
especially when the first listing of the introductory rate is not in
the account-opening table. However, the Board is not expressly
requiring compliance with Sec. 226.16(g) as a condition of the
exception set forth in Sec. 226.9(c)(2)(v)(B), for several reasons.
[[Page 22967]]
First, the requirements of Sec. 226.16(g) apply independently of the
change-in-terms provisions in Sec. 226.9(c)(2). The Board is concerned
that making compliance with the advertising requirements in Sec.
226.16(g) a prerequisite for compliance with Sec. 226.9(c)(2)(v)(B)
could be misconstrued as suggesting that the requirements of Sec.
226.16(g) do not otherwise independently apply. Second, Sec. 226.16(g)
applies to advertisements of an open-end (not home-secured) plan. The
definition of advertisement is set forth in Sec. 226.2(a) and related
staff commentary; comment 2(a)(2)-1.ii.F expressly states that
communications about an existing credit account (for example, a
promotion encouraging additional or different uses of an existing
credit card account) are not advertisements. In contrast, Sec.
226.9(c)(2)(v)(B) applies to promotional rates offered on both new and
existing accounts; therefore, any reference to compliance with Sec.
226.16(g) would be inapplicable in cases where a creditor is utilizing
the exception in Sec. 226.9(c)(2)(v)(B) for a promotion offered on an
existing account.
One commenter urged the Board to clarify, given an issuer's ability
to combine application disclosures with account-opening disclosures,
that placing the temporary rate information in the tabular disclosure
provided pursuant to Sec. 226.5a would meet the timing, proximity, and
prominence requirements of Sec. 226.9(c)(2)(v)(B). The Board believes
that no additional clarification is necessary. In certain
circumstances, comment 5a-2 permits the account-opening summary table
described under Sec. 226.6(b)(1) to be substituted for the disclosures
required by Sec. 226.5a. Accordingly, when an issuer combines
application disclosures with account-opening disclosures, the
disclosures being provided are the Sec. 226.6(b) disclosures, to which
comment 9(c)(2)(v)-10 already applies.
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, this rule for telephone offers of promotional rates is
intended to ensure that consumers may take immediate advantage of
promotions that they believe to be beneficial, while protecting
consumers by allowing them to terminate the promotion and thus avoid
adverse consequences, upon receipt of written disclosures. Consistent
with the rationale discussed in the February 2010 Final Rule, the Board
proposed to amend comment 9(c)(2)(v)-5.ii to provide that, in
connection with telephone offers of temporary rates or fees,\7\ 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 noted that, since such an offer never results
in the increase in an interest rate or fee even on a prospective basis,
it may be unnecessary to provide consumers with the opportunity to
reject such an offer. The Board also proposed a conforming change to
comment 9(c)(2)(v)-5.iii.
---------------------------------------------------------------------------
\7\ As discussed below, the Board proposed to extend the
exception in Sec. 226.9(c)(2)(v)(B) to apply to temporary fee
reductions; accordingly, proposed comment 9(c)(2)(v)-5.ii applied
both to temporary rate and temporary fee offers.
---------------------------------------------------------------------------
Several industry commenters supported the proposed amendment to
comment 9(c)(2)(v)-5.ii. These commenters stated that it makes little
sense to offer a consumer a right to reject a temporary rate or fee
offer if the rejection can only result in the consumer's account being
subject to higher fees or charges. Consumer group commenters, on the
other hand, opposed the proposed amendment to comment 9(c)(2)(v)-5.ii.
Consumer groups indicated that even if the rate that will apply after a
temporary rate expires does not exceed the rate that applied
immediately prior to commencement of the temporary rate, a consumer
might wish to reject the promotional offer if he or she purchased goods
without comprehending that the promotional rate was temporary. These
commenters stated that at a minimum, the Board should provide consumers
with the right to return any goods without charge when the consumer
bought goods based upon telephone disclosure of a promotional rate
program.
The Board is adopting comment 9(c)(2)(v)-5.ii as proposed. The
Board believes that it is not necessary to provide consumers with a
right to reject a temporary rate or fee offer when the rate or fee that
will apply upon expiration of the temporary offer does not exceed the
rate or fee that applied immediately prior to commencement of the
promotion. In these circumstances, consumers still must receive oral
disclosures in advance of the terms of the promotion, including the
period for which the reduced rate or fee will be in effect. An issuer
that fails to provide these oral disclosures has not complied with
Sec. 226.9(c)(2)(v)(B) and must provide 45 days' advance notice prior
to raising the rate or fee upon expiration of the promotion; in
addition, in circumstances where Sec. 226.55 applies, such issuers are
prohibited from increasing the rate or fee applicable to existing
balances. Finally, the Board believes that when the rate or fee that
will be in effect after the promotion expires does not exceed the
standard rate or fee in effect prior to the commencement of the
promotion, this situation presents less potential for harm to consumers
than when the rate or fee after the promotion expires will exceed the
rate or fee in effect prior to commencement of the promotion.
Exception for Temporary Reductions in Fees
The Board also proposed 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.
[[Page 22968]]
However, upon further review, the Board proposed in November 2010
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 proposed 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, proposed Sec. 226.9(c)(2)(v)(B) permitted 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 proposed 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 also proposed 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. Comment 9(c)(2)(v)-2 was previously 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 proposed to expand Sec.
226.9(c)(2)(v)(B) to cover promotional fee offers in addition to
promotional rate offers, the Board proposed in November 2010 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.
Industry commenters generally supported the proposed amendment that
would create an exception to the 45-day advance notice requirements for
temporary fee arrangements disclosed in advance in accordance with
Sec. 226.9(c)(2)(v)(B). Commenters indicated that the proposed
clarifications provide necessary guidance regarding the content of a
notice of a temporary fee, and stated that adopting the proposed
amendments to Sec. 226.9(c)(2)(v)(B) would help to facilitate the
continued availability of temporary fee reductions.
Consumer group commenters expressed concerns regarding the proposed
amendments to Sec. 226.9(c)(2)(v)(B), but did not oppose promotional
fee programs. Consumer groups indicated that it is important for
consumers to receive advance notice when the period for a promotional
fee expires and an increased fee will be imposed, and suggested that
this is particularly necessary for promotional programs for annual
fees. If a specific promotion provides, for example, that no annual fee
will be imposed during the first year after account opening but that an
annual fee will be imposed in subsequent years, consumer groups believe
that consumers may forget the terms of the promotion during the first
year and be unduly surprised when a fee is imposed in year two.
Consumer groups urged the Board to require a notice stating that the
post-promotional fee will, or may, be imposed in the next billing
cycle, on the periodic statement for the billing cycle prior to
expiration of the promotional period.
The Board is adopting the changes to Sec. 226.9(c)(2)(v)(B) and
the related staff commentary generally as proposed. The Board believes
that it is appropriate to establish standardized disclosure
requirements for promotional fee offers that permit creditors to
provide advance disclosures of temporary fees, the period for which
those temporary fees will be in effect, and the fee that will apply
upon expiration of the temporary fee. Offers of temporarily reduced
fees can benefit consumers and the Board believes that the amendments
to Sec. 226.9(c)(2)(v)(B) and the related staff commentary
appropriately balance ensuring that consumers receive important
information regarding the terms of a temporarily reduced fee with
promoting the continued availability of offers that benefit consumers.
The Board notes that consumers will continue to receive advance
notice prior to imposition of an annual fee on a credit or charge card
account pursuant to Sec. 226.9(e) in addition to the notice set forth
in Sec. 226.9(c)(2)(v)(B). The Board recognizes that Sec. 226.9(e)
requires only 30 days or one billing cycle's advance notice, rather
than the 45 days' advance notice required for changes in terms under
Sec. 226.9(c)(2). However, Sec. 226.9(e) does require that the
renewal notice provided prior to imposition of an annual fee disclose
how and when the cardholder may terminate credit availability under the
account to avoid paying the fee. Accordingly, the Board notes that for
annual fees imposed on credit card accounts, the consumer will receive
both the Sec. 226.9(c)(2)(v)(B) notice prior to commencement of the
promotion and a notice pursuant to Sec. 226.9(e) immediately prior to
imposition of the annual fee.
Several industry commenters urged the Board to provide additional
guidance regarding the treatment under Sec. 226.9(c)(2) of temporary
waivers of penalty fees. These commenters stated that temporary penalty
fee waivers should be excluded from all notice requirements, including
disclosure requirements for promotional fee reductions. These
commenters indicated that a temporary reduction of the penalty fee
should not trigger notice to the consumer because the reduction is an
accommodation made only in circumstances where the consumer has not
complied with the terms of the account agreement. One commenter noted
that penalty fee waivers or reductions are typically provided in
connection with workout programs rather than as a part of a marketing
solicitation or offer.
The Board agrees with commenters that it would be appropriate to
provide an exception to Sec. 226.9(c)(2) for penalty fee waivers
offered in connection with workout or similar programs. The Board
understands that such waivers of penalty fees are generally an
accommodation to consumers and that creditors do not market such
waivers, given that penalty fees may only be imposed if consumers
violate the terms of the account. Section 226.9(c)(2)(v)(D) sets forth
an exception to the 45-day advance notice requirements for certain
increases in rates or fees or charges due to the completion of, or a
consumer's failure to comply with the terms of, a workout or temporary
hardship arrangement provided that the annual percentage rate or fee or
charge applicable following the increase does not exceed the rate that
applied prior to the commencement of the workout or temporary hardship
arrangement. Accordingly, the final rule amends Sec. 226.9(c)(2)(v)(D)
and comment 9(c)(2)(v)-11 to refer to fees required to be disclosed
pursuant to Sec. 226.6(b)(2)(viii) (late payment fees), (b)(2)(ix)
(over-the-limit fees), and (b)(2)(xi) (returned-payment fees). The
Board believes that this expansion of the workout exception under Sec.
226.9(c)(2)(v) will encourage the waiver or reduction of penalty fees
as part of a workout or other temporary hardship arrangement, which may
be beneficial to consumers who are subject to such arrangements.
[[Page 22969]]
Variable Rate Exception
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
November 2010, the Board proposed to correct a typographical error in
Sec. 226.9(c)(2)(v)(C). 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 proposed 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 noted in the proposal 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
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 that is not a credit card
account, if the variable rate is subject to a fixed minimum or
``floor.''
The Board proposed 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 stated that 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.
Accordingly, the Board proposed 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 substantive provisions of Sec. 226.55
would have continued to apply only to credit card accounts under an
open-end (not home-secured) consumer credit plan; however, the proposed
change clarified 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.
Consumer groups supported both aspects of the proposed changes to
Sec. 226.9(c)(2)(v)(C), and stated that variable rate ``floors''
should be discouraged for all types of open-end credit. Several
industry commenters opposed the portion of the guidance that would
apply consistent guidance regarding when a variable rate plan is deemed
to be outside of a creditor's control to all open-end (not home-
secured) plans. These commenters stated that it is unnecessary to
establish a consistent interpretation and that it would stifle
competitive pricing. These commenters further argued that this
clarification exceeds Congressional intent and the scope of the Credit
Card Act.
The Board is adopting the changes to Sec. 226.9(c)(2)(v)(C) and
comment 9(c)(2)(v)-12 as proposed. The Board notes that it is adopting
this clarification using its TILA Section 105(a) authority, rather than
pursuant to the Credit Card Act, because this clarification pertains to
open-end (not home-secured) credit that is not a credit card under an
open-end (not home-secured) consumer credit plan. The Board continues
to believe that, for consistency, it is appropriate to limit the
variable rate exception to the change-in-terms notice requirements to
only those rates that vary according to the operation of an index that
is not under the control of the creditor and is available to the
general public. The Board notes that for open-end (not home-secured)
plans that are not credit card accounts under an open-end (not home-
secured) consumer credit plan, the regulation does not prohibit
variable rates that are subject to a minimum or ``floor,'' but for such
rates the creditor must comply with the advance notice requirements of
Sec. 226.9(c).
9(e) Disclosures Upon Renewal of Credit or Charge Card
Section 226.9(e), which implements TILA Section 127(d), sets forth
the disclosures that card issuers must provide in connection with
renewal of a consumer's credit or charge card account. Section
226.9(e)(1) requires, in part, that a card issuer that has amended any
term of a cardholder's account required to be disclosed under Sec.
226.6(b)(1) and (b)(2) that has not previously been disclosed to the
consumer must mail or deliver a written renewal notice to the
cardholder.
The Board did not propose any amendments to Sec. 226.9(e) or its
associated commentary in the November 2010 Proposed Rule. However, the
Board has become aware of a typographical error in the title to comment
9(e)-10, which is currently entitled ``Disclosure of changes in terms
not required to be disclosed pursuant to Sec. 226.6(b)(1) and
(b)(2).'' For conformity with the substance of the comment and the rule
set forth in Sec. 226.9(e), the Board is correcting the error by
deleting the word ``not'' from the title of comment 9(e)-10.
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.
In November 2010, the Board proposed several amendments to Sec.
226.10 intended to address confusion regarding the distinction between
[[Page 22970]]
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.
Specifically, the Board proposed 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 proposed to add two additional
examples to comment 10(b)-2. Proposed comment 10(b)(2)-ii stated 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
stated 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).\8\ In contrast, the supplementary information to the
proposal noted that 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 proposed to amend Sec. 226.10(b)(4), which
addresses the treatment of nonconforming payments. The proposal amended
Sec. 226.10(b)(4) 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.
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\8\ The Board notes that the requirements of Sec. 226.10(b)(3),
when applicable, are not conditioned on whether the card issuer
promotes in-person payments at its branches or offices. Section
226.10(b)(3) applies to credit card accounts under an open-end (not
home-secured) consumer credit plan and generally requires that
payments made in person at a branch or office of a card issuer that
is a financial institution be considered received on the date on
which the consumer makes the payment.
---------------------------------------------------------------------------
Consumer group commenters generally supported the Board's proposal
to clarify that payments made via any specific method of payment
promoted by the creditor generally are conforming payments for purposes
of Sec. 226.10. Consumer groups urged the Board to adopt a broad
definition of what it means to ``promote'' a method of payment, and
suggested that making any statement offering a particular payment
option should constitute promotion. These commenters further urged the
Board to clearly specify in the regulation that payments made via a
promoted method are conforming payments.
Industry commenters generally supported the Board's efforts to
clarify the definition of a ``conforming payment.'' However, industry
commenters expressed concerns regarding the Board's specific guidance
regarding what constitutes ``promotion'' of a method of payment. Two
such commenters noted that the Board's proposed examples were helpful,
but noted that they were not fully explanatory; these commenters asked
the Board to provide further guidance as to the definition of
``promotes.'' Several industry commenters were concerned that the
Board's proposal would treat all payment methods made available to
consumers as promoted, and therefore as conforming payments. These
commenters argued that there is a distinction between actively
promoting a payment option and responding to a consumer inquiry as to
permissible alternatives for making payments, and urged the Board to
adopt a narrower approach. One commenter stated that the final rule
should be revised to indicate that there must be active advertising or
encouragement of use of a particular payment method, rather than a mere
listing of a method, in order for a method to be deemed promoted. This
commenter stated that listing a payment option on a periodic statement
or disclosing a payment option on a toll-free number should not, by
itself, constitute promoting or advertising a particular payment
option.
Several industry commenters identified specific payment methods
that they believe should not be treated as ``conforming payments.''
Many of these commenters urged the Board not to treat payments made
through third-party payment intermediaries as promoted payment methods
that constitute conforming payments. These commenters stated that a
consumer might, for example, ask a customer service representative of
the issuer for information about payment options. In response, the
issuer's representative might provide the consumer with a list of such
options that includes, among others, a third-party payment option. The
commenters stated that the use of the third-party payment option should
not be considered a promoted payment option, because the card issuer
has no control over the receipt and handling of the payment through
that third party. Commenters noted that there might be particular
operational concerns and costs associated with treating such payments
as conforming and noted that some card issuers might cease to disclose
such payment methods among their suggested payment alternatives.
One other industry commenter indicated that the Board should
clarify that payments made to a debt management program, a portion of
which may ultimately be sent to a card issuer, should not be considered
conforming payments. This commenter expressed concern that the required
disclosure pursuant to Sec. 226.7(b)(12)(i)(E) of information
regarding credit counseling services might be deemed to constitute
promotion of debt management agencies. This commenter also asked the
Board to clarify that payments made to third-party collection agencies
do not constitute conforming payments. This commenter noted that a
cardholder's account must become delinquent before payments may be made
to a third party collection agency and that issuers would accordingly
be unlikely to promote third party collection agencies as a payment
method.
The Board continues to believe 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
[[Page 22971]]
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. 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.
Accordingly, the Board is adopting the amendments to comment 10(b)-
2 and Sec. 226.10(b)(4) generally as proposed. However, Sec.
226.10(b)(4) has been restructured without intended substantive change
from the proposal, to more clearly provide that payments made via a
promoted method are conforming payments. For the reasons discussed
above, the Board is adopting a new Sec. 226.10(b)(4)(ii) which states
that if a creditor promotes a method for making payments, such payments
shall be considered conforming payments under Sec. 226.10(b) and shall
be credited to the consumer's account as of the date of receipt, except
when a delay in crediting does not result in a finance or other charge.
The Board acknowledges, however, that additional guidance would be
helpful as to whether certain actions by the creditor constitute
promotion of a particular payment method. The Board believes that as a
practical matter, not every payment method made available or disclosed
to consumers is ``promoted,'' and accordingly is declining to adopt a
rule providing that every statement offering a particular payment
option constitutes promotion. Whether promotion has occurred is a fact-
specific determination and, accordingly, the Board believes that
``promotion'' is best defined by a set of illustrative examples,
including those examples that were proposed in November 2010 and are
being adopted as part of comment 10(b)-2.
In addition, the Board is adopting a new comment 10(b)-2.iv to
address payments made via a third-party payment method. Comment 10(b)-
2.iv states that if a creditor promotes that payments may be made
through an unaffiliated third party, such as by disclosing the Web site
address of that third party on the periodic statement, payments made
via that third party's Web site generally are conforming payments for
purposes of Sec. 226.10(b). In contrast, if a customer service
representative of the creditor confirms to a consumer that payments may
be made via an unaffiliated third party, but the creditor does not
otherwise promote that method of payment, Sec. 226.10(b) permits the
creditor to treat payments made via such third party as nonconforming
payments in accordance with Sec. 226.10(b)(4). The Board believes that
if a creditor advertises or prominently discloses a third-party payment
method on the periodic statement, it would be inconsistent with
consumer expectations for payments made by that method to be credited
only after five days. However, the Board acknowledges that same-day
crediting of payments made via unaffiliated third parties may raise
special operational concerns and that mere confirmation by a customer
service representative that a payment may be made via a specific third
party does not by itself constitute ``promotion.''
The Board is not adopting any additional guidance at this time
regarding payments made to debt management programs or third-party
collection agencies. The Board believes that whether a payment must be
treated as conforming is best determined by looking at whether the
creditor promotes the payment method rather than to the identity of the
party accepting the payment. Accordingly, a payment made to a debt
management program or third-party collection agency would not
constitute a conforming payment unless the creditor promotes that
method of payment. In addition, the required disclosure pursuant to
Sec. 226.7(b)(12)(i)(E) of information regarding credit counseling
services does not by itself constitute promotion of debt management
programs as payment methods. The disclosure required pursuant to Sec.
226.7(b)(12)(i)(E) is a general statement regarding the availability of
credit counseling services; as set forth on Model Forms G-18(C), this
disclosure consists solely of a toll-free telephone number and a
statement that the consumer may call this number for more information
about credit counseling services. The required disclosure does not
suggest that a consumer may make payments via this toll-free number
and, accordingly, the Board does not believe that this constitutes
promotion of payment through a debt management program. In addition,
while the Board believes it will depend on the specific facts and
circumstances in any given case, the Board agrees with commenters that
creditors do not generally promote payments via third party collection
agencies, because promotion of such payments would entail promoting
that consumers may permit their accounts to become delinquent.
10(e) Limitations on Fees Related to Method of Payment
Section 226.10(e), which implements TILA Section 127(l), generally
prohibits a card issuer from 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, in lieu of the card issuer imposing a fee for
making a payment, the third-party service provider may charge consumers
a fee for making a payment. Proposed comment 10(e)-4 clarified that
third-party service providers or other third parties who receive
payments on behalf of a card issuer are prohibited from charging a
separate fee for payment, except as otherwise permitted by paragraph
(e).
Several industry commenters requested that the Board clarify that
the proposal does not apply to independent payment services which
receive payments on behalf of the consumer and transmit the payments to
an issuer at the direction of the consumer. In addition, one commenter
asserted that the restriction on imposing a fee in paragraph (e) should
not apply to third parties simply because the issuer makes
administrative arrangements to receive payments through a third party
or arranges for a discounted payment rate for customers to make a
payment through a third party. Commenters expressed concern that the
proposal would inhibit innovation in or availability of payment
methods. One commenter also requested further clarification regarding
payments initiated from a deposit account at a financial institution
that offers bill payment services and also issues credit cards.
Consumer group commenters generally supported the proposed
clarification. A member of Congress also supported the proposed
clarification and asserted that permitting third-party service
providers to charge a fee to allow a consumer to make a payment would
undermine the intent of the Credit Card Act, which adopted TILA Section
127(l).
Based on the comments and further analysis, the Board believes that
it
[[Page 22972]]
would be inconsistent with the intent of the Credit Card Act for
consumers to pay a separate fee for making a payment through a third
party that provides payment-related services, such as collecting,
receiving, or processing a payment, on behalf of an issuer, unless the
issuer itself would be permitted to charge the fee. Accordingly, in
order to effectuate the purposes of the Credit Card Act and to prevent
circumvention, the Board is revising Sec. 226.10(e) and adopting
comment 10(e)-4 with revisions and illustrative examples. The Board is
adopting these amendments in order to clarify that a third party that
collects, receives, or processes payments on behalf of an issuer is
prohibited from charging a consumer a separate fee for making a
payment, except as otherwise permitted by paragraph (e).
For example, if an issuer uses a service provider to receive,
collect, or process payments made through the issuer's Web site or made
through an automated telephone payment service, the limitation in Sec.
226.10(e) applies because the third party is processing or receiving
payments on behalf of the card issuer. In contrast, however, if a
consumer makes a payment to the card issuer from a checking account at
a depository institution using a payment service provided by the
depository institution, the limitation in Sec. 226.10(e) would not
apply because the depository institution is not collecting, receiving,
or processing a payment on behalf of the card issuer.
10(f) Changes by Card Issuer
The Board proposed to replace a reference to ``consumer'' in
comment 226.10(f)-3.ii with ``card issuer'' in order to correct a
typographical error. The Board received no significant comment on this
aspect of the proposal, which is adopted as proposed.
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: Late charges in the
order of entry to the account; then to finance charges in the order of
entry to the account; and then to 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 into the commentary from a
footnote to Sec. 226.12, 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. However,
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 proposed to revise comment 12(c)-4 to clarify that, with
respect to credit card accounts under an open-end (not home-secured)
consumer credit plan, Sec. 226.53 and the guidance in comment 53-3
control. However, with respect to other types of credit card accounts
(such as credit cards that access home-equity plans), the Board
proposed to retain the long-standing guidance in comment 12(c)-4.
Commenters generally supported the proposed revisions to comment
12(c)-4, which--except as discussed below--are adopted with non-
substantive, organizational changes. One industry commenter noted that
some card issuers use a single platform to service all types of credit
card accounts, regardless of whether an account is a credit card
account under an open-end (not home-secured) consumer credit plan
subject to Sec. 226.53. This commenter requested clarification that,
for purposes of comment 12(c)-4, issuers are permitted to apply a
single set of payment allocation procedures to all credit card accounts
by following Sec. 226.53 and comment 53-3. Because a card issuer's
voluntary compliance with the guidance in comment 53-3 will generally
minimize the assessment of interest charges and any reduction in
disputed amounts, the Board has revised comment 12(c)-4 to provide the
requested guidance.
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 a creditor 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 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
[[Page 22973]]
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 proposed 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 clarified 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.
Industry and consumer group commenters supported these revisions,
which are adopted as proposed. Accordingly, 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
comment.
Section 226.14 Determination of Annual Percentage Rate
14(a) General Rule
The Board proposed to clarify the effect of a leap year on
determining the annual percentage rate for disclosures required for
open-end (not home-secured) credit accounts. Proposed comment 14(a)-6
clarified that a creditor generally may 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. One industry
commenter supported the Board's proposed clarification. The Board
believes that the clarification promotes accuracy in the disclosure of
annual percentage rates and minimizes potential consumer confusion and
operational burden for creditors. Accordingly, the Board is adopting
comment 14(a)-6 as proposed.
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 adopting 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 proposed 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 proposed these
changes using its authority under TILA Section 105(a) to effectuate the
purposes of TILA.
The disclosure requirements under proposed Sec. 226.16(g)
generally applied to ``promotional fee[s],'' as defined in new Sec.
226.16(g)(2)(iv). In particular, proposed Sec. 226.16(g)(2)(iv)
defined ``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 proposed advertising
requirements for promotional fee offers applied 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). As noted in
the November 2010 Proposed Rule, based in part on the Board's consumer
testing, 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
proposed 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).
Commenters on this aspect of the proposal generally supported the
proposed amendments to Sec. 226.16(g) that would impose advertising
requirements similar to those for promotional rate offers on
promotional fees. Accordingly, the Board is adopting amendments to
Sec. 226.16(g) and the related commentary generally as proposed. The
Board continues to believe that requiring that creditors clearly
disclose the conditions of a promotional fee offer will promote the
informed use of credit by consumers.
One commenter stated that the Board should revise the definition of
``promotional fee'' in proposed Sec. 226.16(g)(2)(iv) to clarify that
a promotional fee offer may be limited to a specific balance or
specific transaction. The Board agrees that it is appropriate to
clarify that a promotional fee offer may be limited in this manner and
notes that such a limitation would be consistent with the definition of
``promotional rate'' in Sec. 226.16(g)(2)(i). Accordingly, the final
rule defines ``promotional fee'' as a fee required to be disclosed
under Sec. 226.6(b)(1) and (b)(2) applicable to an open-end (not home-
secured) plan, or 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 fee that will be in effect at the end of that period for
such plan or types of balances or transactions. The Board notes that as
adopted, Sec. 226.16(g)(2)(i) clarifies that promotional fees may
apply either to the plan as a whole, such as an annual fee, or to
particular balances or transactions, such as a balance transfer fee.
The Board has included a reference to ``types'' of balances or
transactions in Sec. 226.16(g)(2)(i) to reflect the fact that a
creditor may structure an introductory fee offer such that a creditor
will waive or reduce a fee only for one or more specific transactions,
while other transactions of the same type will be subject to a standard
fee set forth in the account agreement. In such circumstances, the
waived or reduced fee is nonetheless a ``promotional fee''
[[Page 22974]]
for purposes of Sec. 226.16(g)(2)(i). For example, a card issuer may
waive the balance transfer fee on any balances transferred at account
opening; for other balance transfers, the issuer imposes a standard
balance transfer fee of 3% of the amount of the balance. Although no
fee will be imposed on the balance transfer made pursuant to the
introductory offer, because other transactions of the same type are
subject to a standard 3% fee, the $0 fee imposed on the balance
transferred at account opening constitutes a ``promotional fee''
pursuant to Sec. 226.16(g)(2)(i).
Several industry commenters objected to the Board's proposal to
require creditors to disclose the term ``introductory'' or ``intro'' in
immediate proximity to each listing of the introductory fee in a
written or electronic advertisement pursuant to proposed Sec.
226.16(g)(3). These commenters asked the Board to consider providing
additional flexibility, to permit creditors to use phrases such as ``no
annual fee for the first year'' or ``$40 annual fee waived for the
first year,'' and noted that they believe these phrases to be more
understandable and succinct than use of the term ``introductory,'' as
required by the proposal. One commenter stated that for one-time fees
(such as a waiver of balance transfer fees associated with the
application), the term ``introductory'' would not add value to the
consumer, because there will never be a balance transfer fee associated
with the specific balance transfer that was the subject of the
promotional fee offer.
The Board is adopting the requirement to use the term
``introductory'' or ``intro,'' as proposed, in connection with written
or electronic advertisements of introductory fees. The Board believes
that having consistent rules for advertisements of introductory rates
and introductory fees will promote consumer understanding of
introductory fees. In particular, the Board has concerns that
permitting different terminology for introductory fees than
introductory rates may detract from consumer understanding that
introductory fees are, like introductory rates, being offered only for
a limited time or on a particular transaction or transactions.
Accordingly, the Board is not revising Sec. 226.16(g)(3) to permit
statements such as ``no annual fee for the first year'' and ``$40
annual fee waived for the first year,'' and the final rule requires,
consistent with the proposal, that issuers use the word
``introductory'' or ``intro'' to highlight the temporary nature of such
offers.
Section 226.30 Limitation on Rates
The Board proposed to make a technical correction to comment 30-
8.i.C to correct a typographical error. The Board did not receive any
significant comments on this aspect of the proposal, which is adopted
as proposed.
Section 226.51 Ability to Pay
The Credit Card Act and the Board's February 2010 Final Rule
In its February 2010 Final Rule, the Board adopted Sec. 226.51,
which 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.\9\
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\9\ 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.
Section 226.51 does not require card issuers to verify a consumer's
income or assets before opening a new account or increasing the credit
limit on an existing account. Instead, a card issuer may consider a
consumer's income or assets based on information from a variety of
sources, including information provided by a consumer on a credit card
application. See comment 51(a)(1)-4. In the February 2010 Final Rule,
the Board stated that verification was not required by TILA Section 150
and could be burdensome for both consumers and card issuers, especially
when accounts are opened at point of sale or by telephone. For example,
a consumer who wants to open a credit card account in a store to get a
discount or a promotional rate on a purchase is unlikely to be carrying
paystubs or other documents that verify his or her income. Similarly,
because these types of documents typically contain personally
identifiable information about the consumer, the card issuer would need
to establish procedures for safeguarding that information. The Board
concluded that these burdens outweighed the benefits of requiring
verification because, unlike the subprime mortgage market, there was no
evidence of widespread inflation of consumers' incomes in the credit
card market. The Board also noted that, because credit card accounts
are generally unsecured, card issuers have the incentive to verify
income when either the information supplied by the consumer is
inconsistent with the data the card issuer has already obtained or when
the risk in the amount of the credit line warrants such verification.
See 75 FR 7721.
November 2010 Proposed Rule
Some card issuers request on their application forms that
applicants provide their ``income'' or ``salary,'' while other issuers
request that applicants provide their ``household income.'' In the
November 2010 Proposed Rule, the Board acknowledged 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 noted that there has been uncertainty as to whether
[[Page 22975]]
Sec. 226.51 established different standards for underage and adult
consumers with respect to the consideration of household income and
assets.
In order to resolve this confusion, the November 2010 Proposed Rule
would have amended 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. The Board further proposed to
clarify in a revised comment 51(a)(1)-4 that consideration of
information regarding the consumer's household income or assets does
not by itself satisfy this requirement. Thus, if a card issuer
requested on its application forms that applicants state their
``household income,'' the proposed rule generally would not have been
permitted the issuer to use the income information provided by an
applicant to satisfy the ability-to-pay requirement. In contrast,
however, the income information provided by an applicant could be used
if a card issuer requested on its application forms that applicants
simply state their ``income'' or ``salary.''
Comments
Consumer group commenters supported the proposed rule, noting that
it would limit card issuers' ability to extend credit to consumers who
do not have sufficient income or assets and must rely on the income or
assets of a spouse or other household member who is not liable on the
account. In particular, these commenters expressed concern that, while
a married couple may have sufficient collective income to make the
required payments on their credit card debts during the marriage, the
spouse who is solely liable for those debts may not have sufficient
income to make the payments if the marriage ends. Thus, they argued,
consumers and issuers are better protected if spouses apply jointly and
are collectively liable for credit card debt incurred during a
marriage.
Comments from members of Congress, credit card issuers, retailers,
trade associations, and individual consumers generally supported
applying the proposed limitations on the consideration of spousal and
other household income when an applicant or accountholder is under the
age of 21. However, these commenters strongly objected to the
application of these limitations to consumers who are 21 or older. They
argued that this aspect of the proposed rule was inconsistent with the
Credit Card Act and the Board's Regulation B and would reduce access to
credit, particularly for married women who do not work outside the
home.
Final Rule
Pursuant to its authority under TILA Section 105(a) and Section 2
of the Credit Card Act, the Board is generally adopting the amendments
to Sec. 226.51 and its commentary as proposed. Specifically, the Board
is amending Sec. 226.51 to require that a card issuer consider a
consumer's independent ability to make the required payments on a
credit card account, regardless of the consumer's age. Furthermore, the
Board is revising comment 51(a)(1)-4 to clarify that a card issuer may
not use the income or assets of a person who is not liable for debts
incurred on the account to satisfy the requirements of Sec. 226.51,
unless a Federal or State statute or regulation grants a consumer who
is liable on the account an ownership interest in such income or
assets. Thus, if a card issuer prompts an applicant to provide his or
her ``household income'' on a credit card application, the card issuer
cannot rely solely on the information provided by an applicant to
satisfy the requirements of Sec. 226.51. 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 that applicants provide their income without
reference to household income (such as by requesting ``income'' or
``salary''), the issuer may rely on the information provided by
applicants to satisfy the requirements of Sec. 226.51.
As discussed below, the Board believes that this final rule
effectuates the purpose of the Credit Card Act's ability-to-pay
requirement by protecting consumers from incurring unaffordable levels
of credit card debt. The following discussion also addresses concerns
raised by commenters.
Consistency with the Credit Card Act. The Board believes that
applying an independent ability-to-pay requirement to consumers age 21
and older is consistent with both the language and the intent of TILA
Section 150. Specifically, TILA Section 150 requires card issuers to
consider ``the ability of the consumer to make the required payments''
(emphasis added), which indicates that Congress intended card issuers
to consider only the ability to pay of the consumer or consumers who
are responsible for making payments on the account. Thus, it would be
inconsistent with TILA Section 150 to permit card issuers to establish
a consumer's ability to pay based on the income or assets of
individuals who are not liable for debts incurred on the account.
Some industry commenters argued that the Credit Card Act's use of
the term ``independent'' in TILA Section 127(c)(8)(B)(ii) but not in
TILA Section 150 indicates Congress' intent to establish a less
stringent standard for consideration of spousal or other household
income when the consumer is 21 or older. However, as discussed above,
the Board believes that interpreting the Credit Card Act to permit card
issuers to establish a consumer's ability to pay based on the income or
assets of individuals who are not responsible for making payments on
the account would be inconsistent with the language and intent of TILA
Section 150. Furthermore, the Board believes that it would be contrary
to the intent of the Credit Card Act to interpret the differences
between TILA Section 127(c)(8)(B)(ii) and TILA Section 150 as limiting
the Board's authority to establish reasonable standards for evaluating
a consumer's ability to pay.\10\
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\10\ See Credit Card Act Sec. 2 (granting the Board the
authority to ``issue such rules * * * as it considers necessary to
carry out this Act. * * *'').
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Other commenters argued that a spouse who has access to household
income has the ``ability * * * to make the required payments,'' even if
the spouse does not have a legal ownership interest in the income.
Under this interpretation, if the income of an applicant's spouse is
deposited into a checking or other account to which the applicant has
access, the applicant would have the ability to use that income to make
the required payments. The Board agrees that TILA Section 150 could be
interpreted in this manner. However, this interpretation could not be
limited to circumstances involving spouses without requiring card
issuers to treat unmarried consumers less favorably than married
consumers, which would be inconsistent with the Equal Credit
Opportunity Act, 15 U.S.C. 1691 (ECOA), as implemented in the Board's
Regulation B (12 CFR Part 202).\11\
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\11\ Regulation B prohibits a creditor from discriminating
against an applicant on a prohibited basis (which includes marital
status) regarding any aspect of a credit transaction. See 12 CFR
202.2(z), 202.4(a). Under Regulation B, a creditor discriminates
against an applicant if it treats the applicant less favorably than
other applicants. See 12 CFR 202.2(n).
---------------------------------------------------------------------------
Furthermore, the Board is concerned that, if this interpretation
were applied to all consumers regardless of marital status, it could
encourage consumers to provide--and card issuers to extend credit based
on--overstated income information. Specifically, a consumer may
understand a credit card application asking for ``household income'' to
request the income of all
[[Page 22976]]
household members, including those who are not liable for debts
incurred on the account. For example, if an adult applicant lives with
his or her parents, the applicant may understand ``household income''
to include the parents' income even if the parents are not liable on
the account. In the subprime mortgage lending market, the Board found
that lenders relying on overstated incomes to make loans could not
accurately assess consumers' repayment ability.\12\ The Board believes
that TILA Section 150 was intended to prevent similar practices in the
credit card market.\13\
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\12\ See 73 FR 44522, 44539-44551 (July 30, 2008) (discussing
the Board's concerns regarding overstated income in the context of
higher-priced mortgage loans secured by the consumer's principal
dwelling).
\13\ Some card issuers stated that credit card accounts opened
based on household income do not have a higher rate of delinquency
or loss than accounts opened based on individual income. However,
they did not provide any data in support of this statement.
---------------------------------------------------------------------------
Consistency with Regulation B. In the November 2020 Proposed Rule,
the Board noted that there has been some confusion as to whether
Regulation B requires a card issuer to consider spousal or other
household income when considering a consumer's ability to pay under
Sec. 226.51. Accordingly, the Board clarified 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). Furthermore, in the proposal, the Board clarified
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 Sec. 226.51 does not permit a card issuer to consider spousal or
other household income, the Board's November 2010 Proposed Rule stated
that the card issuer does not violate Regulation B by excluding such
income from consideration.
Nevertheless, some commenters raised concerns that this aspect of
the proposed rule was inconsistent with Regulation B. In particular,
these commenters argued that, because Regulation B limits card issuers'
ability to request information concerning an applicant's spouse (such
as the spouse's income),\14\ issuers must request ``household income''
on their application forms in order to avoid violating Regulation B.
---------------------------------------------------------------------------
\14\ See 12 CFR 202.5(c). However, Regulation B does permit a
creditor to request information concerning an applicant's spouse if,
for example, the spouse will be permitted to use the account, the
spouse will be contractually liable on the account, the applicant is
relying on the spouse's income as a basis for repayment of the
credit requested, or the applicant resides in a community property
state. See 12 CFR 202.5(c)(2).
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These commenters did not raise any new issues with respect to the
relationship between Sec. 226.51 and Regulation B. Thus, as in the
proposal, the Board concludes that a card issuer does not violate
Regulation B by virtue of complying with Sec. 226.51. Several
commenters requested that the Board delay finalizing this rule until
such time as Regulation B could be amended to resolve any conflicts.
However, because this rule does not conflict with Regulation B, the
Board does not believe that such amendments are necessary.
Effect on access to credit. Comments from members of Congress,
credit card issuers, retailers, trade associations, and individual
consumers expressed concern that the proposed rule would unfairly
restrict access to credit for consumers who do not work outside the
home, particularly married women. These commenters stated that, in
families where only one spouse is employed outside the home, the other
spouse is often responsible for managing the family's finances and
making major purchases that require access to credit (such as opening a
new credit card account in a store in order to finance the purchase of
an appliance).\15\ These commenters argued that, if a spouse who is not
employed cannot rely on the employed spouse's income when applying for
credit, the application would likely be denied, despite the fact that
the employed spouse's income can be used to make the required payments
on the account.\16\ Commenters also raised similar concerns with
respect to low-income families where both spouses work (particularly
military families) because the spouses may need to pool their incomes
in order to satisfy the ability-to-pay requirements of Sec. 226.51.
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\15\ The Board notes, however, that commenters did not submit
any data supporting this statement.
\16\ Again, commenters generally did not submit data
substantiating this contention. One credit card issuer estimated
that, if the proposed rule were adopted, over 10% of applications
that are currently approved would be denied. However, the issuer did
not provide any information about how this estimate was made.
---------------------------------------------------------------------------
The Board believes that TILA Section 150 was intended to strengthen
credit card underwriting standards in order to protect consumers from
incurring unaffordable levels of credit card debt. Consistent with this
intent, the Board adopted Sec. 226.51, which requires that, before
opening a new credit card account or increasing the credit limit on an
existing account, card issuers must evaluate whether a consumer has the
income or assets necessary to make the required payments on the credit
card account and on any other debts. Thus, to the extent that credit
card issuers previously extended credit to consumers who lacked
sufficient income or assets to repay debts incurred on the account,
Sec. 226.51 now prohibits them from doing so. Similarly, to the extent
that card issuers are currently extending credit based on the income of
persons who are not liable on the account, the Board believes that it
is consistent with the purposes of TILA Section 150 and Sec. 226.51 to
restrict this practice.
Furthermore, for the following reasons, the Board believes that
married women who do not work outside the home and low-income families
will continue to have access to credit. First, the final rule permits
card issuers to ask for ``income'' or ``salary'' on their application
forms and to use the information provided by applicants to satisfy the
ability-to-pay requirement. As noted above, some card issuers currently
request ``income'' or ``salary'' on their applications, while other
issuers request ``household income.'' The Board is unaware of any
evidence that card issuers who request ``income'' or ``salary'' extend
less credit to married women who do not work outside the home or to
low-income families than issuers that request ``household income.''
Second, nothing in Sec. 226.51 prohibits card issuers from
considering the combined incomes of spouses or other household members
who apply for credit jointly. Indeed, comment 51(a)(1)-6 currently
states that, when two or more consumers open an account jointly, the
card issuer may consider their collective ability to make the required
payments. Thus, a consumer who does not have sufficient income to open
a credit card account independently can open an account by applying
jointly with a spouse who has sufficient income. The Board understands
that a joint application could be inconvenient or impracticable in
certain circumstances, such as when a consumer's spouse is not
available to apply in a retail setting. However, the Board does not
believe that these concerns warrant permitting issuers to extend credit
based on the income of persons who are not liable on the account.
Third, consumers without sufficient income to open a credit card
account independently can obtain access to credit and build a credit
history by becoming authorized users on the credit card account of a
spouse, which is a common practice. In particular, the Board notes that
a long-standing
[[Page 22977]]
provision of Regulation B provides that, when a consumer is permitted
to use a spouse's account, a creditor that furnishes credit information
to the credit bureaus generally must reflect the participation of both
spouses for that account.\17\
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\17\ See 12 CFR 202.10.
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Finally, as noted above, the final rule permits a card issuer to
consider the income of a consumer's spouse if a Federal or State
statute or regulation grants the consumer an ownership interest in that
income. For example, in community property states such as California
and Texas, spouses are presumed to have joint ownership of property
acquired during the marriage. Thus, if an applicant resides in a
community property state, the applicant's income would generally
include the income of the applicant's spouse for purposes of Sec.
226.51(a). In these circumstances, a card issuer could--consistent with
Regulation B--request that applicants who reside in community property
states provide information regarding their spouses' incomes.\18\
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\18\ See 12 CFR 202.5(c)(2)(iv), (d)(1).
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Additional Revisions to Commentary
The Board has also made the following revisions to the commentary
to Sec. 226.51:
Comments 51(a)(1)-1 and -2 have been amended to clarify
that, consistent with the revisions to Sec. 226.51(a), card issuers
must consider the consumer's independent ability to make the required
payments.
Comments 51(a)(1)-4 and -6 and comment 51(b)(1)-2 have
been amended to clarify that card issuers generally are not permitted
to consider the income or assets of persons who are not liable for
debts incurred on the account (such as authorized users).
In order to improve clarity, the guidance in comment
51(a)(1)-4 has been reorganized into three subparagraphs.
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, comment 51(a)(2)-3 has been amended 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.
The Board has adopted a new comment 51(b)(1)-2 to clarify
that information regarding income and assets that satisfies the
requirements of Sec. 226.51(a) also satisfies the requirements in
Sec. 226.51(b)(1) for consumers under the age of 21.
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.\19\ 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 proposed 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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\19\ 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
Fees Charged Prior to Account Opening
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 the intent of Section 127(n)(1) insofar as it alters
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 proposed 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 the 25 percent limitation to fees the consumer is
required to pay before
[[Page 22978]]
account opening and during the first year after account opening.\20\
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\20\ 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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Consumer groups, a member of Congress, and a credit card issuer
supported the proposed amendment on the grounds that it would prevent
evasion and further the purposes of TILA Section 127(n). In contrast,
the proposal was opposed by other industry commenters (including
employees of a credit card issuer that focuses on the subprime market).
These commenters argued that the proposed amendment was inconsistent
with the plain language of the Credit Card Act insofar as it would
apply the 25 percent limitation to fees charged prior to account
opening. They also argued that the proposal would force subprime credit
card issuers to reduce credit availability by limiting revenue derived
from fees. However, for the reasons discussed above, the Board believes
that the proposed rule is necessary to preserve the statutory
relationship between the costs and benefits of opening a credit card
account. Accordingly, in order to effectuate the purposes of TILA
Section 127(n) and to prevent evasion, the Board is adopting this
aspect of the proposal in the final rule. See TILA Section 105(a);
Credit Card Act Sec. 2.
Account Opening
The proposed rule noted that some confusion exists regarding when
the one-year period in Sec. 226.52(a)(1) begins and ends. In order to
resolve any uncertainty as to when the 25 percent limitation in Sec.
226.52(a)(1) ceases to apply, the Board proposed to 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.
Although consumer groups supported this aspect of the proposal,
industry commenters noted that, in certain circumstances, it would be
operationally burdensome to track the precise date on which a
particular account can first be used for transactions. These commenters
conceded that the date an account is opened on a card issuer's system
will coincide with the date the account can first be used for
transactions when the account is opened at the point of sale in order
to purchase merchandise. However, they stated that these dates will not
coincide when a credit card is mailed to a consumer because the date
the account can first be used for transactions will depend on how long
it takes for the card to be delivered and how long the consumer waits
after delivery to activate the card. Industry commenters recommended
that, in order to establish a consistent standard, the first year after
account opening under Sec. 226.52(a) instead be measured from the date
the account is opened on the card issuer's system.
The Board is concerned that deducting delivery time from the one-
year period in TILA Section 127(n) would reduce protections for
consumers. However, in order to reduce the operational burden on card
issuers, the Board is adopting new comment 52(a)(1)-4 to provide
additional guidance regarding how a card issuer determines the date on
which the account may first be used by the consumer to engage in
transactions. As an initial matter, this comment clarifies that a card
issuer may consider an account open for purposes of Sec. 226.52(a)(1)
on the date the account is first used by the consumer for a transaction
(such as when an account is opened at point of sale in order to make a
purchase). In addition, to address circumstances in which a credit card
and account-opening disclosures are mailed or delivered to consumers,
the comment provides several alternative methods of determining the
date on which the account may first be used for transactions (even if
the account is not actually used for a transaction on that date).
First, if a card issuer requires consumers to comply with
reasonable activation procedures for preventing fraud or unauthorized
use of a new account (such as requiring the consumer to provide
information that verifies his or her identity over the telephone after
receiving the card) before permitting the consumer to use the account
for transactions, the card issuer may consider the account open on the
date the consumer complies with those procedures, provided that the
account may be used for transactions on that date.
Second, a card issuer may consider an account open for purposes of
Sec. 226.52(a)(1) on the date that is seven days after the card issuer
mails or delivers to the consumer account-opening disclosures that are
consistent with Sec. 226.6, provided that the consumer may use the
account for transactions after complying with any reasonable activation
procedures for preventing fraud or unauthorized use. The Board has
previously used seven days as a general measure of the amount of time
required for credit card mailings to reach consumers.\21\ Accordingly,
the Board believes that a seven-day period reasonably estimates the
amount of time required for account-opening disclosures to reach
consumers by mail.
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\21\ See 74 FR 5498, 5511 (Jan. 29, 2009) (discussing rationale
behind adoption of a 21-day period between mailing or delivery of
periodic statements and the payment due date); see also Credit Card
Act Sec. 106(b) (adopting same 21-day period in revised TILA
Section 163).
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The following example illustrates the application of this guidance:
Assume that a card issuer approves a consumer's application for a
credit card account under an open-end (not home-secured) consumer
credit plan and establishes the account on its internal systems on July
1 of year one. On July 5, the card issuer mails or delivers to the
consumer account-opening disclosures that are consistent with Sec.
226.6. If the consumer may use the account for transactions after
complying with any reasonable procedures imposed by the card issuer for
preventing fraud and unauthorized use, the card issuer may consider the
account open on July 12 of year one for purposes of Sec. 226.52(a)(1)
regardless of when the consumer actually activates the account.
Accordingly, Sec. 226.52(a)(1) ceases to apply to the account on July
12 of year two.
While this guidance should alleviate much of the burden associated
with tracking the date on which an account is opened for purposes of
Sec. 226.52(a),
[[Page 22979]]
the Board recognizes that, in some cases, it may be difficult for card
issuers to determine the specific date on which account-opening
disclosures are mailed or delivered to a particular consumer.
Accordingly, comment 52(a)(1)-4 further clarifies that, if a card
issuer has reasonable procedures designed to ensure that account-
opening disclosures that are consistent with Sec. 226.6 are mailed or
delivered to consumers no later than a certain number of days after the
card issuer establishes the account on its system, the card issuer may
add that number of days to the seven-day period for purposes of
determining when the account was opened under Sec. 226.52(a)(1). As
discussed above, Congress and the Board have adopted a similar
``reasonable procedures'' standard for the provision of credit card
periodic statements.\22\ Accordingly, for purposes of Sec.
226.52(a)(1), the Board believes that the same standard is appropriate
for the provision of credit card account-opening disclosures.\23\
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\22\ See Credit Card Act Sec. 106(b); Sec. 226.5(b)(2).
\23\ The Board notes that the account-opening definition in
Sec. 226.52(a)(1) and the guidance in the accompanying commentary
should not be construed as altering the timing requirements for the
provision of account-opening disclosures under Sec. 226.5(b)(1)(i),
which--as discussed above--require creditors to provide account-
opening disclosures that are consistent with Sec. 226.6 before the
first transaction is made on the account.
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Using the facts in the example above, if the card issuer
establishes the account on its internal systems on July 1 of year one
and has adopted reasonable procedures designed to ensure that account-
opening disclosures are mailed or delivered to consumers no later than
three days after an account is established, the issuer may consider the
account open on July 11 of year one for purposes of Sec. 226.52(a)(1).
Therefore, Sec. 226.52(a)(1) ceases to apply to the account on July 11
of year two.
Additional Amendments
The Board 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 to permit card issuers to evade the 25 percent
limitation by collecting fees from the consumer by other means. Indeed,
as discussed in the February 2010 Final 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 proposed to 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 also proposed
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. Consumer groups and most industry
commenters supported this aspect of the proposal. Although some
industry commenters argued that the Board should strictly apply the
statutory language, the Board believes that doing so would undermine
the purpose of the Credit Card Act. Accordingly, the Board is adopting
this aspect of the proposal.
52(a)(2) Fees Not Subject to Limitations
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 concluded elsewhere in Regulation Z that such
charges should be treated as fees. See comment 7(b)(6)-4. Accordingly,
for consistency, the Board proposed 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 proposed
to clarify that Sec. 226.52(a)(1) applies to other fixed finance
charges.
Consumer group commenters supported the proposed revisions.
However, one industry commenter requested that, because Sec.
226.52(a)(1) does not apply to accrued interest, only the difference
between the accrued interest and the minimum interest charge be
considered a fee. For example, the commenter suggested that, if the
interest accrued during a billing cycle is 40 cents and the minimum
interest charge is $1.00, only 60 cents should be considered a fee
under Sec. 226.52(a)(1). The Board declines to adopt this approach
because, in these circumstances, the card issuer is not imposing
accrued interest. Instead, the card issuer has chosen to impose a
higher, pre-determined charge in lieu of interest. Furthermore,
subdividing the minimum interest charge into accrued interest and fee
portions would be inconsistent with the disclosure of minimum interest
charges in the tables provided with applications and solicitations and
at account opening. Sections 226.5a and 226.6 require that the minimum
interest charge be disclosed in the tables with headings, content, and
format substantially similar to the model forms in Appendix G-10 and G-
17, which disclose the minimum interest charge as a single, specific
amount. See Sec. Sec. 226.5a(a)(2), (b)(3); 226.6(b)(1), (b)(2)(iii).
Furthermore, as noted above, card issuers are required to treat the
entire minimum interest charge as a fee for purposes of the periodic
statement disclosures required by Sec. 226.7(b)(6). The Board is
concerned that permitting issuers to subdivide the minimum interest
charge into interest and fees in these disclosures would be confusing
to consumers. Similarly, if issuers were permitted to subdivide the
minimum interest charge for purposes of Sec. 226.52(a) but not for
purposes of the disclosures in Sec. 226.7, consumers would not be able
to, for example, use the fee disclosures on their periodic statements
to determine whether the total amount of fees imposed are consistent
with the 25 percent limitation. Accordingly, the revisions to comment
52(a)(2)-1 are adopted as proposed.
52(a)(3) Rule of Construction
The Board proposed to correct a typographical error in Sec.
226.52(a)(3) by replacing the words ``This paragraph (a)'' with
``Paragraph (a) of this section.'' The Board did not receive any
significant comment on this correction, which is adopted as proposed.
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 proposed to amend Sec. 226.52(b) and the
accompanying commentary to provide additional guidance and illustrative
examples. As discussed below, those amendments are generally adopted as
proposed.
[[Page 22980]]
52(b)(1)(ii) Safe Harbors
The safe harbors in Sec. 226.52(b)(1)(ii)(A)-(B) provide that a
card issuer generally 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 below, the Board proposed to
make several significant amendments to Sec. 226.52(b)(1)(ii) and its
commentary. In addition, the Board proposed several non-substantive
clarifying or organizational amendments.\24\ Except as noted below,
these amendments were generally supported by commenters and are adopted
as proposed.
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\24\ In particular, the Board proposed to 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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Multiple Violations During a Billing Cycle
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 proposed to 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.
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. Although
consumer group commenters suggested that multiple returned payment fees
could be prohibited in these circumstances, the Board believes that a
card issuer should be permitted to impose two returned payment fees
during a billing cycle if a consumer makes two separate payments that
are returned during that billing cycle. Furthermore, in these
circumstances, 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 has revised Sec. 226.52(b)(1)(ii)(B) to clarify
that this is permitted. The Board has also amended comment
52(b)(1)(ii)-1 for consistency with the revisions to Sec.
226.52(b)(1)(ii)(A)-(B) and provided an illustrative example in comment
52(b)(2)(ii)-1.
Multiple Over-the-Limit Fees
The Board has adopted the proposed revisions to comment
52(b)(1)(ii)-1.ii in order 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. Consumer group commenters argued
that, notwithstanding this statutory language, the Board should use its
authority under TILA Section 105(a) and Section 2 of the Credit Card
Act to prohibit the imposition of multiple over-the-limit fees in these
circumstances. However, because it appears that Congress intended to
permit this practice, the Board does not believe that it would be
appropriate to interpret Sec. 226.52(b) as prohibiting such fees.
Accordingly, the Board has provided 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 a single over-the-limit transaction. The Board
has further clarified 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 has been inserted to comment
52(b)(2)(ii)-1, where similar guidance and an illustrative example are
also be provided.
Waiver of Penalty Fees
As discussed in the June 2010 Final Rule, the safe harbor in Sec.
226.52(b)(1)(ii) was designed to permit card issuers to increase the
penalty for repeated violations of the same type in order to, among
other things, deter consumers from engaging in future violations. See
75 FR 37531-37534, 37540-37543. In order to accomplish this purpose,
the Board proposed to revise Sec. 226.52(b)(1)(ii)(B) to clarify that,
under the safe harbor, the higher $35 fee could only be imposed if the
card issuer had previously imposed the lower $25 fee for a violation of
the same type. The Board is adopting these revisions as proposed.
However, industry commenters raised concerns about when a fee would
be considered ``imposed'' under the proposed amendment. In particular,
these commenters noted that card issuers often voluntarily choose to
waive the penalty fee for an initial violation but would lose the
incentive do so if they could not impose the higher fee for subsequent
violations. Because the waiver of penalty fees is beneficial to
consumers, the Board has clarified in comment 52(b)(1)(ii)-1.i that a
fee has been imposed for purposes of Sec. 226.52(b)(1)(ii) even if the
card issuer waives or rebates all or part of the fee. Thus, under the
safe harbor, a card issuer may waive the $25 fee for an initial
violation and still impose a $35 fee for a repeated violation of the
same type during the same billing cycle or the next six billing cycles.
The Board notes that, in order to demonstrate compliance with the
safe harbors in Sec. 266.52(b)(1)(ii), a card issuer must be able to
establish that the $35 fee was not imposed for the first violation of a
particular type during the relevant billing cycles. One method that
card issuers may use to accomplish this is to disclose the imposition
of the initial $25 fee and the waiver of that fee on the consumer's
periodic statements.
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 consumer fails
to use the account for $2,000 in purchases over the course of a year.
Furthermore, to prevent circumvention, the comment clarifies
[[Page 22981]]
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 proposed 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).\25\
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\25\ The promotion of waivers and rebates is discussed in detail
below with respect to Sec. 226.55(e).
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Industry commenters generally supported the proposed revisions.
However, consumer group commenters requested that waivers based on
account activity only be permitted when requested by the consumer, even
if the possibility of a waiver is not promoted to consumers. As
discussed in greater detail below with respect to Sec. 226.55(e), the
Board believes that a card issuer waiver program or policy that is not
promoted does not raise the same circumvention concerns as a promoted
program or policy. Accordingly, the amendments to comment 52(b)(2)(i)-5
are adopted as proposed, with non-substantive revisions.
52(b)(2)(ii) Multiple Fees Based on a Single Event or Transaction
The Board proposed 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.
Consumer group and one industry commenter supported this aspect of
the proposal. In contrast, two industry commenters opposed it on the
grounds that the card issuer cannot include the past due amount in the
next minimum payment when a payment is returned after the periodic
statement has been mailed or delivered to the consumer. However, it is
unclear how often this scenario occurs. Furthermore, although the card
issuer cannot impose a late payment fee if the consumer pays the amount
reflected on the statement by the due date, the card issuer is
permitted to impose a fee based on the returned payment. Accordingly,
for the reasons discussed above, the revisions to comment 52(b)(2)(ii)-
1 are adopted as proposed.
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 pay off the secured balance in
order 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 is
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 proposed 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
[[Page 22982]]
in Sec. 226.53(b)(2). Specifically, revised Sec. 226.53(b)(2)
provided 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, even if a higher rate applies to another balance.
The Board also proposed to revise the commentary to Sec. 226.53
consistent with the proposed revisions to Sec. 226.53(b). In
particular, the Board proposed to 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.
Industry and consumer group commenters generally supported the
proposal, although consumer groups expressed concern that a special
payment allocation rule for secured credit card balances could
encourage the use of open-end credit accounts for transactions that are
more appropriately treated as closed-end credit. Accordingly, the Board
is adopting the proposed revisions to Sec. 226.53 and its commentary
pursuant to its authority under TILA Section 105(a) and Section 2 of
the Credit Card Act, while specifically noting that, in order to
qualify as open-end credit under Regulation Z, an account must meet the
definition of open-end credit in Sec. 226.2(a)(20) and its commentary.
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 proposed 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. Commenters generally supported
this revision, which is adopted as proposed.
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 proposed 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 enter into 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 proposed revisions to
comment 55(b)-1 clarifying 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 also proposed 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
[[Page 22983]]
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).
Consumer group commenters supported this aspect of the proposal,
while one industry commenter argued that the proposed amendments would
make card issuers less inclined to provide workout or temporary
hardship arrangements. Because workout and temporary hardship
arrangements can provide important benefits to card issuers as well as
consumers by reducing the likelihood that a delinquent account will
become a loss, the Board does not believe that the proposed revisions
to comment 55(b)-1 will result in a significant reduction in the
availability of such arrangements. Accordingly, for the reasons
discussed above, the Board is adopting this aspect of the proposal.
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, provided that information
regarding the reduction 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 believes that, upon further review, it is
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 proposed 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, Sec. 226.55(b)(1), as amended, would permit a card
issuer to, for example, 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 proposed to amend comments 55(b)(1)-2-4 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 also proposed 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. Sec. 226.9 and
226.55(b)(3)). Finally, the Board proposed to 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.
Commenters generally supported the proposed revisions, although
several industry commenters argued that promotional fee reductions
should be exempted from the requirement in Sec. 226.55(b)(1) that
promotional reductions last at least six months. In support of this
argument, these commenters noted that Sec. 226.55(b)(1)'s six-month
requirement implements TILA Section 172(b), which applies only to
promotional reductions in rates. See Credit Card Act Sec. 101(d).
However, as discussed above and in the February 2010 Final Rule, the
Credit Card Act does not contain any exception for promotional fee
reductions. Thus, in using its authority under TILA Section 105(a) and
Section 2 of the Credit Card Act to establish such an exception, the
Board believes that it is important to ensure that consumers receive
the same protections with respect to promotional fee reductions that
they receive with respect to promotional rate reductions. Accordingly,
the Board adopts the revisions to Sec. 226.55(b)(1) and its commentary
as proposed.
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 proposed to 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.
Consumer group commenters supported the proposed revisions, but
industry commenters raised concerns regarding the burden of determining
whether an account is closed or transaction privileges are suspended
before increasing a rate, fee, or charge. These commenters noted that
transaction privileges on an account may be temporarily suspended
because the consumer has exceeded his or her credit limit, because the
account is more than 60 days' delinquent, because the account is
subject to a workout or temporary hardship agreement, or because the
issuer is investigating potential fraudulent use of the account. They
also noted that an account may be open and transactions may be
permitted when the card issuer provides 45 days' advance notice of the
increase consistent with Sec. 226.9, but the account may be closed or
transaction privileges may be suspended by the time the card issuer is
permitted to implement the increase.
[[Page 22984]]
Industry commenters argued that issuers should be permitted to
increase rates, fees, and charges on closed accounts and accounts where
transaction privileges have been suspended, noting that Sec. 226.55
would still prevent issuers from applying increased rates to existing
balances and that consumers would still have the right to reject an
increased fee or charge under Sec. 226.9(h). However, when an account
cannot be used for new transactions, the Board believes that it would
be inconsistent with the purpose of the Credit Card Act to permit
increases that can only be applied to the account's existing balance.
Furthermore, with respect to increases in fees and charges, the Board
is concerned that consumers will be less likely to notice changes to a
closed account and therefore less likely to exercise their right to
reject. Accordingly, the Board is adopting the proposed amendment to
Sec. 226.55(b)(3)(iii) clarifying that issuers are prohibited from
increasing rates and fees and charges subject to Sec. 226.55 when an
account is closed or while the card issuer does not permit the consumer
to use the account for new transactions.
However, the Board recognizes that certain suspensions of
transaction privileges (particularly those related to potential
fraudulent use of the account) may last for relatively short periods of
time. In these circumstances, the Board does not believe that, as a
general matter, it is necessary for the card issuer to provide an
additional Sec. 226.9 notice simply because transaction privileges may
have been suspended on the date the original notice was sent, the date
the increase was scheduled to go into effect, or some date in between.
Accordingly, the Board has adopted a new comment 55(b)(3)-6, which
clarifies that, if Sec. 226.9 permits a card issuer to apply an
increased rate, fee, or charge on a particular date and the account is
closed on that date or transaction privileges are suspended on that
date, the card issuer may delay application of the increased rate, fee,
or charge until the first day of the following billing cycle without
relinquishing the ability to apply that rate, fee, or charge. This
guidance is consistent with the guidance provided by the Board in
comment 55(b)-2.iii for mid-cycle increases. However, comment 55(b)(3)-
6 would further clarify that, if the account is closed or the card
issuer does not permit the consumer to use the account for new
transactions on the first day of the following billing cycle, then the
card issuer must provide a new notice of the increased rate, fee, or
charge consistent with Sec. 226.9.
Finally, consistent with the amendments to Sec. 226.52(a)(1), the
Board has clarified 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. In
addition, the Board has adopted a new comment 55(b)(3)-7, which
clarifies that an account is considered open for purposes of Sec.
226.55(b)(3)(iii) on any date that the card issuer may consider the
account open for purposes of Sec. 226.52(a)(1).
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 proposed to 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 proposed to 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.'' The Board also proposed corresponding amendments to the
relevant commentary.
Finally, the Board noted in the proposal 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 proposed
to 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 also proposed to 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.
Commenters generally supported the proposed revisions. However,
consumer group commenters expressed concern that the guidance in new
comment 55(b)(6)-2 could be construed to permit increases in rates,
fee, or charges that are unrelated to a consumer leaving military
service. Because this was not the Board's intent, the proposed comment
has been revised to clarify that the guidance applies only when other
rates, fees, or charges have been reduced pursuant to the SCRA or a
similar Federal or State statute or regulation. Otherwise, the
revisions to Sec. 226.55(b)(6) and its commentary are adopted as
proposed.
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 has revised 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.
[[Page 22985]]
The Board also proposed to 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 balances. The Board did not receive any significant comment
on this guidance, which is adopted as proposed. 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 proposed 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 clarified 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).
Comments from a member of Congress, consumer groups, and a credit
card issuer supported Sec. 226.55(e) on the grounds that it is
necessary to prevent evasion of the Credit Card Act's limitations on
card issuers' ability to increase the costs associated with existing
balances. In contrast, some industry commenters opposed Sec.
226.55(e), arguing that it would unnecessarily restrict issuers'
ability to offer waivers and rebates that benefit consumers. However,
because Sec. 226.55(e) permits card issuers to offer waiver or rebate
programs that are consistent with the Credit Card Act's limitations and
generally does not restrict issuers' ability to waive or rebate
interest, fee, and other charges on an individualized basis (as
discussed below), the Board does not believe that it will result in a
substantial reduction in benefits for consumers. Accordingly, in order
to ensure that consumers' existing credit card balances receive the
protections in the Credit Card Act and Sec. 226.55, the Board is
adopting Sec. 226.55(e) as proposed.
As discussed in the proposal, 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, proposed comment 55(e)-1 clarified 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 proposed comment also provided examples of
promotional waiver or rebate programs that would comply with Sec.
226.55. In order to address concerns raised by consumer group
commenters, the Board has revised this comment to clarify that Sec.
226.55(e) applies to both temporary and permanent terminations of
waivers or rebates as well as to both partial and full terminations.
Otherwise, this comment is adopted as proposed.
Proposed comment 55(e)-2 clarified 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
followed the existing guidance regarding advertisements in Sec.
226.2(a)(2) and the accompanying commentary. Thus, under the proposed
guidance, a card issuer promotes a waiver or rebate program for
purposes of Sec. 226.55(e) if, for example, it discloses the waiver or
rebate in a newspaper, magazine, leaflet, promotional flyer, catalog,
sign, or point-of-sale display. Similarly, a card issuer promotes a
waiver or rebate program for purposes of Sec. 226.55(e) if it
discloses 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 does not promote a
program for purposes of Sec. 226.55(e) if it discloses 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 proposed comment deviated 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), the Board believes that it would be inconsistent with the
purpose of Sec. 226.55(e) to exclude from coverage direct personal
contacts regarding waiver or rebate programs or the promotion of waiver
or rebate programs to existing accountholders. Accordingly, proposed
comment 55(e)-2 clarified that programs disclosed to existing
accountholders through direct personal contacts or otherwise are
generally 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 clarified 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 is not
promoting a waiver or rebate if 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.
[[Page 22986]]
Proposed comment 55(e)-2 also provided 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 solicited 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.
Industry commenters argued that a number of additional categories
of communications should not be considered promotion under Sec.
226.55(e), including any offer of a waiver or rebate in connection with
a ``customer accommodation'' or ``customer service policy,'' an offer
of a waiver or rebate made to ``maintain a relationship,'' or ``actions
or conditions outside the credit card account relationship.'' The Board
is concerned that these exclusions would be too vague to accomplish the
purposes of Sec. 226.55(e) or to provide clear guidance to card
issuers. Furthermore, as noted above, comment 55(e)-2 clarifies that
Sec. 226.55(e) does not interfere with a card issuer's ability to
accommodate customers or maintain customer relationships by, for
example, disclosing a waiver in relation to a consumer's inquiry or
dispute about a specific charge or disclosing a waiver after the fact.
In addition, although industry commenters suggested that communications
regarding waivers or rebates offered in relation to workout or
temporary hardship arrangements not be considered promotions for
purposes of Sec. 226.55(e), the Board does not believe that such an
exclusion is necessary because, consistent with Sec. 226.55(b)(5), a
card issuer may waive or rebate fees and charges subject to Sec.
226.55 during a workout or temporary hardship arrangement and then
return the fee or charge to its previous amount once the arrangement
ends.
Consumer group commenters argued that, for purposes of Sec.
226.55(e), promotion should include any disclosure of a prospective
waiver or rebate unless the waiver or rebate is provided in response to
a consumer inquiry or dispute. The Board is concerned, however, that
this definition of promotion may be overbroad.
Consumer group commenters also objected to the guidance in proposed
comment 55(e)-2 clarifying 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 interest, fees, or other charges
subject to Sec. 226.55. These commenters argued that such programs are
sufficiently similar to promotional waiver or rebate programs that they
should be subject to the same requirements. The Board disagrees,
provided that--as stated in comment 55(e)-2--the card issuer does not
promote the rewards as reducing interest, fees, or other charges.
In the proposal, the Board noted 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 noted 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 regarding circumvention as the loss of a waiver
or rebate of interest, fees, or other charges subject to Sec. 226.55.
Accordingly, although the Board has made certain non-substantive
revisions to comment 55(e)-2, it is otherwise adopted as proposed.
Finally, proposed comment 55(e)-3 provided guidance regarding the
relationship between Sec. 226.55(e) and a grace period. Specifically,
this comment clarified 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). The Board did not
receive any significant comment on this guidance, which is adopted as
proposed.
Section 226.58 Internet Posting of Credit Card Agreements
58(b) Definitions
58(b)(1) Agreement
Section 226.58(b)(1) defines ``agreement'' or ``credit card
agreement'' as a 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, as defined in Sec. 226.2(a)(15).
The Board did not propose any changes to Sec. 226.58(b)(1). One
commenter asked the Board to exclude from the scope of Sec. 226.58
lines of credit accessed by debit cards that can be used only at
automated teller machines. These products are credit card accounts
under an open-end (not home-secured) consumer credit plan, as defined
in Sec. 226.2(a)(15), and agreements related to these products
therefore fall within the Sec. 226.58(b)(1) definition. The commenter
argued that these products do not function like other credit cards and
that including agreements for these products in the Board's database
would not facilitate comparison shopping by consumers.
The Board is not adopting this suggested change. When adopting the
February 2010 Final Rule, the Board considered several comments
requesting that the Board exclude lines of credit accessed by a debit
card that can be used only at automated teller machines from the
requirements of the Credit Card Act generally. The Board declined to
exclude these products, citing Congress's apparent intent that the
Credit Card Act apply broadly and the lack of an alternative regulatory
regime for these products. See 75 FR 7664. Consistent with the approach
the Board has taken in implementing other sections of the Credit Card
Act, lines of credit accessed by debit cards that can be used only at
automated teller machines remain subject to Sec. 226.58.
58(b)(4) Card Issuer
The Board proposed to add new Sec. 226.58(b)(4) to define the term
``card issuer'' solely for purposes of Sec. 226.58. The proposed
definition provided that, solely 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 proposed to add new comment 58(b)(4)-1
to provide an example of how the definition of card issuer would apply.
One commenter objected to the addition of the definition of card
issuer. This commenter stated that, given the complex nature of the
relationships between institutions that partner to issue credit cards,
the Board should not mandate which institution must make quarterly
submissions to the Board or post agreements on its Web site under Sec.
226.58. This commenter also argued that the Board should not adopt the
proposed definition unless the Board is aware of actual confusion
regarding the allocation of responsibilities under Sec. 226.58.
[[Page 22987]]
The Board continues to believe that it is appropriate to adopt the
definition of card issuer as proposed. It is precisely because of the
complex nature of relationships between institutions that partner to
issue credit cards that the Board believes it is beneficial to adopt
the proposed definition. The Board understands that these relationships
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. Without a
bright-line rule defining which institution is the issuer, institutions
may find it difficult to determine their obligations under Sec.
226.58. Indeed, the Board understands that there is significant
uncertainty regarding the application of Sec. 226.58 where
institutions partner to issue credit cards. For example:
The de minimis exception in Sec. 226.58(c)(5) 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 a case.
Section 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 is adopting the Sec. 226.58(b)(4) definition of card
issuer and comment 58(b)(4)-1 as proposed. The definition would apply
solely with respect to Sec. 226.58 and would not change the definition
of card issuer for purposes of other provisions of Regulation Z. Also
as proposed, the Board is renumbering Sec. 226.58(b)(4), (b)(5),
(b)(6), and (b)(7) as Sec. 226.58(b)(5), (b)(6), (b)(7), and (b)(8),
respectively, and is making conforming changes to references to these
subsections.
Based on its review of the comments and further analysis, the final
rule also includes new comments 58(b)(4)-2 and 58(b)(4)-3, which
provide additional clarification regarding the application of Sec.
226.58 to institutions that partner to issue credit cards. Comment
58(b)(4)-2 provides that an institution that is the card issuer as
defined in Sec. 226.58(b)(4) has a legal obligation to comply with the
requirements of Sec. 226.58. However, the comment clarifies that a
card issuer generally may use a third-party service provider to satisfy
its obligations under Sec. 226.58, provided that the issuer acts in
accordance with regulatory guidance regarding use of third-party
service providers and other applicable regulatory guidance. In some
cases, an issuer may wish to arrange for the institution with which it
partners to issue credit cards to fulfill the requirements of Sec.
226.58 on the issuer's behalf.
For example, a retailer and a bank work together to issue credit
cards. Under Sec. 226.58(b)(4), the bank is the issuer of these credit
cards for purposes of Sec. 226.58. However, the retailer services the
credit card accounts, including mailing account opening materials and
periodic statements to cardholders. While the bank is responsible for
ensuring compliance with Sec. 226.58, the bank may arrange for the
retailer (or another appropriate third-party service provider) to
submit credit card agreements to the Board under Sec. 226.58 on the
bank's behalf. The bank must comply with regulatory guidance regarding
use of third-party service providers and other applicable regulatory
guidance.
Comment 58(b)(4)-3 provides additional information regarding the
posting of agreements on issuer Web sites when institutions partner to
issue credit cards. As explained in comments 58(d)-2 and 58(e)-3,
discussed below, if an issuer provides cardholders with access to
specific information about their individual accounts, such as balance
information or copies of statements, through a third-party Web site,
the issuer is deemed to maintain that Web site for purposes of Sec.
226.58. Such a Web site is deemed to be maintained by the issuer for
purposes of Sec. 226.58 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. A partner institution's Web site is an example of a third-party
Web site that may be deemed to be maintained by the issuer for purposes
of Sec. 226.58.
For example, a retailer and a bank work together to issue credit
cards. Under Sec. 226.58(b)(4), the bank is the issuer of these credit
cards for purposes of Sec. 226.58. The bank does not have a Web site.
However, cardholders can access information about their individual
accounts, such as balance information and copies of statements, through
a Web site maintained by the retailer. The retailer designs the Web
site and owns and maintains the information technology infrastructure
that supports the Web site. The Web site is branded and held out to the
public as belonging to the retailer. Because cardholders can access
information about their individual accounts through this Web site, the
Web site is deemed to be maintained by the bank for purposes of Sec.
226.58. The bank therefore may comply with Sec. 226.58(d) by ensuring
that agreements offered to the public are posted on the retailer's Web
site in accordance with Sec. 226.58(d). The bank may comply with Sec.
226.58(e) by ensuring that cardholders can request copies of their
individual agreements through the retailer's Web site in accordance
with Sec. 226.58(e)(1). The bank need not create and maintain a Web
site branded and held out to the public as belonging to the bank in
order to comply with Sec. 226.58(d) and (e) as long as the bank
ensures that the retailer's Web site complies with these sections.
Comment 58(b)(4)-3 also notes that Sec. 226.58(d)(1) provides
that, with respect to an agreement offered solely for accounts under
one or more private label credit card plans, an issuer may comply with
Sec. 226.58(d) by posting the agreement on the publicly available Web
site of at least one of the merchants at which credit cards issued
under each private label credit card plan with 10,000 or more open
accounts may be used. The comment clarifies that this rule is not
conditioned on cardholders' ability to access account-specific
information through the merchant's Web site.
[[Page 22988]]
58(b)(6) Pricing Information
The Board proposed to amend the Sec. 226.58(b)(6) definition of
``pricing information'' to omit the information listed in Sec.
226.6(b)(4). The Board solicited 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.
Commenters generally supported this revision, which is adopted as
proposed.
58(c) Submission of Agreements to Board
58(c)(1) Quarterly Submissions
Quarterly Submission Deadlines. The Board proposed 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. The Board received no comments objecting to this change and
is adopting the amendment to Sec. 226.58(c)(1) as proposed.
Submission of Amended Agreements. The Board proposed to revise
Sec. 226.58(c)(1)(iii) to clarify that an issuer is required to submit
an amended agreement 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 received no comments objecting to this change and is
adopting the proposed revision to Sec. 226.58(c)(1)(iii). The Board
also is adopting the corresponding revisions to Sec. 226.58(c)(3), as
discussed below.
Notice of Withdrawal of Agreements. The Board proposed to amend
Sec. 226.58(c)(1)(iv) to include cross references to Sec.
226.58(c)(6) and (c)(7), in addition to Sec. 226.58(c)(4) and (c)(5).
These cross references were unintentionally omitted from the February
2010 Final Rule. The Board received no comments objecting to this
change and is adopting the amendment to Sec. 226.58(c)(1)(iv) as
proposed.
58(c)(2) Timing of First Two Submissions
The Board proposed to delete the special rules in Sec.
226.58(c)(2) 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. Because the February
22, 2010, and August 2, 2010, deadlines have passed, Sec. 226.58(c)(2)
has no prospective relevance. The Board received no comments objecting
to this change. As proposed, the special rules are deleted and Sec.
226.58(c)(2) is reserved.
58(c)(3) Amended Agreements
The Board proposed to amend Sec. 226.58(c)(3) to clarify that an
issuer is required to submit an amended agreement 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 proposed to revise comment 58(c)(3)-2 to reflect this
clarification and to add new comment 58(c)(3)-3, which provides an
example of the application of revised Sec. 226.58(c)(3). The Board
also proposed to renumber existing comment 58(c)(3)-3, regarding
change-in-terms notices, as 58(c)(3)-4. The Board received no comments
objecting to these changes and is adopting them as proposed.
58(c)(8) Form and Content of Agreements Submitted to the Board
The Board proposed 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. As the Board noted in
its proposal, 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 for card issuers
and others, the Board proposed to address their treatment by amending
Sec. 226.58(c)(8)(i)(C)(1).
Two commenters expressed their support for this change. No
commenters objected. The Board is adopting the revision to Sec.
226.58(c)(8)(i)(C)(1) as proposed.
Section 226.58(c)(8)(ii)(A) states that pricing information must be
set forth in a single addendum that contains only the pricing
information. The Board did not propose any changes to Sec.
226.58(c)(8)(ii)(A). However, one commenter asked the Board to allow
creditors submitting agreements to the Board to include additional
disclosures in the addendum. The commenter stated that some creditors
use complex automated systems to prepare the addenda that are submitted
to the Board. Removing information that is not required therefore may
impose burdensome programming costs on some issuers.
Section 226.58(c)(8)(i)(C) specifies that certain items, such as
disclosures required by State or Federal law, are not deemed to be part
of an agreement for purposes of Sec. 226.58 and therefore are not
required to be included in submissions to the Board. The Board notes,
however, that issuers are not prohibited by this or any other provision
of Sec. 226.58 from including these items in submitted agreements if
an issuer chooses to do so. The Board believes it is appropriate to
provide similar flexibility with respect to information included in the
pricing information addendum under Sec. 226.58(c)(8)(ii) and therefore
is amending this section.
As amended, Sec. 226.58(c)(8)(ii)(A) continues to provide that
pricing information must be set forth in a single addendum to the
agreement. However, under amended Sec. 226.58(c)(8)(ii)(A), issuers
are permitted, but not required, to include in this addendum any other
information listed in Sec. 226.6(b) regarding account-opening
disclosures for open-end (not home-secured) plans, provided that the
information is complete and accurate as of the applicable date under
Sec. 226.58.
The Board continues to believe that certain information listed in
Sec. 226.6(b) is unlikely to substantially assist consumers in
shopping for a credit card, and therefore should not be required in
agreements submitted to the Board under Sec. 226.58. For example, the
Board continues to believe that the Web site reference and billing
error rights reference required to be included in account-opening
disclosures by Sec. Sec. 226.6(b)(2)(xiv) and (b)(2)(xv) are not
useful bases for comparison shopping because they do not vary, and
therefore are not necessary in agreements submitted to the Board under
Sec. 226.58. However, it appears that amending Sec.
226.58(c)(8)(ii)(A) to permit the inclusion of other information listed
in
[[Page 22989]]
Sec. 226.6(b) will reduce the compliance burden for some issuers
without undermining the usefulness of the agreements provided pursuant
to Sec. 226.58.
58(d) Posting of Agreements Offered to the Public
Section 226.58(d) requires card issuers to post and maintain on
their publicly available Web site the credit card agreements that the
issuer submits to the Board under Sec. 226.58(c). As discussed above,
the Board understands that there has been some confusion regarding the
application of Sec. 226.58 where institutions partner to issue credit
cards. In order to provide additional information regarding the
application of Sec. 226.58 to these relationships, the Board is
adopting new Sec. 226.58(b)(4), defining card issuer for purposes of
Sec. 226.58, and new comments 58(b)(4)-1, 58(b)(4)-2, and 58(b)(4)-3,
discussed above. The Board also is revising comment 58(e)-3 to clarify
the application of Sec. 226.58(e) to institutions that provide
cardholders with access to account-specific information through Web
sites maintained by third parties, as discussed below. Because the
Board believes it also would be beneficial to provide similar
clarification regarding Sec. 226.58(d), the final rule includes
corresponding revisions to comment 58(d)-2.
Comment 58(d)-2 explains that, unlike Sec. 226.58(e), Sec.
226.58(d) does not include a special rule for card issuers that do not
otherwise maintain a Web site. If a card issuer is required to submit
one or more agreements to the Board under Sec. 226.58(c), that card
issuer must post those agreements on a publicly available Web site it
maintains (or, with respect to a private label credit card, on the
publicly available Web site of at least one of the merchants at which
the card may be used, as provided in Sec. 226.58(d)(1)). As revised,
comment 58(d)-2 clarifies that if an issuer provides cardholders with
access to specific information about their individual accounts, such as
balance information or copies of statements, through a third-party Web
site, the issuer is deemed to maintain that Web site for purposes of
Sec. 226.58. Such a Web site is deemed to be maintained by the issuer
for purposes of Sec. 226.58 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. Therefore, issuers that provide cardholders with access to
account-specific information through a third-party Web site can comply
with Sec. 226.58(d) by ensuring that the agreements the issuer submits
to the Board are posted on the third-party Web site in accordance with
Sec. 226.58(d). To avoid potential confusion, revised comment 58(d)-2
also notes that, in contrast, the Sec. 226.58(d)(1) rule regarding
agreements for private label credit cards is not conditioned on
cardholders' ability to access account-specific information through the
merchant's Web site.
58(e) Agreements for All Open Accounts
58(e)(2) Special Rule for Issuers Without Interactive Web Sites
The Board proposed to revise comment 58(e)-3 to clarify the
application of 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 clarifies that, in
these circumstances, 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 Board did not receive any comments objecting to the proposed
revision of comment 58(e)-3. The comment is revised as proposed.
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
requested additional clarification regarding what constitutes a rate
increase for purposes of Sec. 226.59. In particular, issuers requested
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 proposed 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.\26\ Proposed comment
59(a)(1)-3.i provided 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 stated 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
[[Page 22990]]
also cross-referenced Sec. 226.55 for limitations on the
permissibility of changing from a non-variable rate to a variable rate.
---------------------------------------------------------------------------
\26\ The proposal would have renumbered existing comments
59(a)(1)-3 and 59(a)(1)-4 accordingly.
---------------------------------------------------------------------------
Proposed comment 59(a)(1)-3.ii set forth special guidance regarding
a change from a non-variable to a variable rate. Proposed comment
59(a)(1)-3.ii stated 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
illustrated 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-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 stated 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 set 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.
One credit union trade association supported proposed comment
59(a)(1)-3. Other industry commenters generally supported the portion
of the proposal that clarified that a change to the type of rate is not
a rate increase for purposes of Sec. 226.59 if the rate following the
change is equal or less than to the rate prior to the change. However,
industry commenters opposed the proposed commentary to Sec. 226.59(a)
that provided that such a change in type of rate does constitute a rate
increase for purposes of Sec. 226.59 at the point in time when the
rate that applies (whether variable or non-variable) exceeds the rate
that would have applied if the change in the type of rate had not
occurred. Several of these commenters argued that reevaluation of a
rate increase due to a change in a predisclosed index that is beyond
the control of the issuer is not necessary and that TILA Section 148
was not intended to cover rate increases where the change is due to an
increase in an index beyond the issuer's control. These commenters
urged the Board to modify the proposal to provide that issuers must
conduct a rate reevaluation under Sec. 226.59 only if the rate that
applies immediately after the change in type of rate exceeds the rate
that applied prior to the change. One commenter raised particular
concerns regarding portfolio-wide changes to variable rate structures,
such as the removal of rate floors or conversions from non-variable to
variable rates, that were implemented in order to facilitate compliance
with the Credit Card Act.
Consumer group commenters, on the other hand, opposed the portion
of proposed comment 59(a)(1)-3 that would provide that a change in type
of rate is not an increase when, at the time of the change, the result
is an equal or lower rate. These commenters expressed particular
concern regarding changes from non-variable to variable rates and urged
the Board to treat the change in type of rate as triggering review
requirements under Sec. 226.59, in all cases, at the time of the
change. Consumer groups were particularly concerned that, as proposed,
comment 59(a)(1)-3 could permit an issuer to review only the increase
in the index used to compute the variable rate, and would not require
consideration of the margin selected for determination of the new
variable rate at the time of the change. These commenters raised an
example of a consumer's rate being changed from a non-variable rate of
15% to a rate determined by adding a margin of 10% to a prime rate. As
proposed, these commenters were concerned that Sec. 226.59 and comment
59(a)(1)-3 would not require the issuer to review the decision to
impose a margin of 10% on the consumer's account.
The Board is generally adopting comment 59(a)(1)-3 as proposed. The
Board believes, as stated in the supplementary information to the June
2010 Final Rule, that the rate reevaluation requirements of TILA
Section 148 as implemented in Sec. 226.59 should not apply to an
increase in a variable rate due to fluctuations in the index on which
that rate is based. See 75 FR 37549. Accordingly, the Board used its
authority under TILA Section 105(a) to provide that Sec. 226.59(a)
applies only to those rate increases for which 45 days' advance notice
is required under Sec. 226.9(c)(2) or (g). For example, if a card
issuer discloses at account-opening a variable rate applicable to
purchases, currently 15.99%, that will vary based on an index outside
the issuer's control, there is no review requirement when that variable
rate increases to 16.99% due to fluctuations in the index. However, the
Board believes that it would be inconsistent with the intent of TILA
Section 148 to create an exception to the review requirements of Sec.
226.59 in the circumstances where the rate increase would not have
occurred but for the issuer changing the type of rate. In those
circumstances, from the consumer's perspective, the change in type of
rate resulted in a rate increase relative to the rate that would
otherwise have applied to the account.
For example, assume that a consumer opens an account on January 1
of year one where the disclosed rate applicable to purchases is a non-
variable rate of 12%. On June 1 of year 2, after providing 45 days'
advance notice pursuant to Sec. 226.9(c)(2), the issuer changes the
rate applicable to the consumer's new purchases to a variable rate that
is currently 12%. On September 1 of year 2, the variable rate increases
to 12.99% due to fluctuations in an index outside of the control of the
issuer. Given that the rate now exceeds the 12% rate disclosed to the
consumer at account opening, the Board believes that a rate increase
has occurred and
[[Page 22991]]
that it would be inappropriate to except this rate increase from Sec.
226.59. The Board believes that it would be reasonable for a consumer
in this situation to expect that purchases would continue to be subject
to a 12% non-variable rate and that, accordingly, the subsequent
increase in the rate to 12.99%, based on fluctuations in the value of
the index, constitutes a rate increase from the perspective of that
consumer. The Board believes that this situation is distinguishable
from the situation where a consumer opens an account that is subject to
a variable rate and, thus, is on notice from the time of account
opening that the rate is subject to change in accordance with the
relevant index.
As discussed in the proposal, 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 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, 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 is applying 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 may have
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 notes that the removal of variable rate floors would not,
by itself, give rise to review requirements pursuant to Sec. 226.59.
The removal of a variable rate floor, in the absence of other changes,
can only result in a reduction in the annual percentage rate imposed on
a consumer's account. See 75 FR 37550. However, to the extent that an
issuer concurrently removed the floor applicable to a consumer's
account and increased the margin at the same time, the Board believes
that the change should be subject to the review requirements of Sec.
226.59, if the rate following the change exceeds the rate in effect
prior to the change.
In addition, industry commenters indicated that developing and
maintaining a system to track rate increases that are tied to an index
over time would be burdensome. These commenters noted that because
index values may continue to rise and fall over a period of months or
years, the proposal would in effect require issuers to track the new
rate and rate in effect prior to the change in type of rate
indefinitely. Several commenters requested that the final rule permit
an issuer to cease reviewing the change in the index after a single
review. The Board is aware that new comment 59(a)(1)-3 does impose an
ongoing review requirement; however, the Board believes that this is
consistent with the intent of TILA Section 148. In the June 2010 Final
Rule, the Board expressly declined to adopt a specific time limit for
the review obligation under Sec. 226.59. See 75 FR 37559. The Board
noted that TILA Section 148 does not expressly create such a time
limit. The Board continues to believe that many issuers will implement
automated systems to perform the periodic reevaluation of rate
increases and, accordingly, once these systems are in place, there
should not be undue burden associated with the ongoing review of
accounts subject to Sec. 226.59.
The Board has modified comments 59(a)(1)-3.ii and 59(a)(1)-3.iii
from the proposal to address consumer groups' concerns that, as
proposed, Sec. 226.59 would require only that the issuer review
changes in the index on which a variable rate is based rather than the
margin applicable to the consumer's account, when the rate increase
results from a change in type of rate. As adopted, the examples in
comments 59(a)(1)-3.ii and 59(a)(1)-3.iii clarify that the relevant
rate increase for purposes of the reevaluation under Sec. 226.59 is
the increase from the rate (variable or non-variable) that would have
applied if the change in type of rate had not occurred to the rate
(variable or non-variable) that applies after the rate increase. For
example, assume the consumer's account was subject to a non-variable
rate of 8% prior to the change and was converted to a variable rate
(index plus margin) that was also 8% on the effective date of the
change. After six months, the consumer's rate increases--based on an
increase in the index value--to a variable rate of 10%. The increase
that must be evaluated for purposes of Sec. 226.59 is the increase
from the non-variable rate of 8% to a variable rate of 10%. In other
words, the issuer may not review just the increase in the index value,
i.e., the change from a variable rate of 8% to a variable rate of 10%,
but must also review the original rate conversion.
Several industry commenters indicated that it was unclear how an
issuer must conduct the review required by Sec. 226.59, for rate
increases resulting from a change in type of rate, and urged the Board
to clarify that Sec. 226.59 does not require issuers to revert to the
type of rate that applied to the account prior to the change. For
example, if an issuer converted an account from a non-variable rate to
a variable rate, these commenters urged the Board to provide that Sec.
226.59 should under no circumstances require the issuer to convert the
account back to a non-variable rate. The Board agrees that Sec. 226.59
is not intended to dictate the type of rate that an issuer must apply
to a consumer's account. Accordingly, the Board is renumbering existing
comment 59(a)(1)-5 as comment 59(a)(1)-5.i and adopting a new comment
59(a)(1)-5.ii which would provide that if a rate increase subject to
Sec. 226.59 involves a change from a variable rate to a non-variable
rate or from a non-variable rate to a variable rate, Sec. 226.59 does
not require that the issuer reinstate the same type of rate that
applied prior to the change. However, the comment would explain that
the amount of any rate decrease that is required must be determined
based upon the card issuer's reasonable policies and procedures
[[Page 22992]]
under Sec. 226.59(b) for consideration of factors described in Sec.
226.59(a) and (d).
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 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.
As discussed in the supplementary information to the November 2010
Proposed Rule, 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 proposed a
new comment 59(d)-6 to clarify the application of the rule in these
circumstances. Proposed comment 59(d)-6 noted 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 noted 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 proposed comment
clarified 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
clarified 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 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
[[Page 22993]]
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 noted in the proposal 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
indicated that the clarification in proposed comment 59(d)-6 would be
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.
The Board received no significant comment opposing comment 59(d)-6.
Two industry commenters supported proposed comment 59(d)-6 and stated
that it was prudent in light of safe and sound underwriting
considerations. One of these commenters stated that the Board should
clarify that comment 59(d)-6 applies to any rate increase based on
factors specific to the consumer and not just to penalty rates. The
Board is adopting comment 59(d)-6 generally as proposed, with several
modifications to clarify that the comment applies to rates increased
based on factors specific to the consumer, regardless of whether those
rates are penalty rates. In particular, the last sentence of comment
59(d)-6.i as adopted states that if the review of factors described in
Sec. 226.59(d)(1)(i) indicates that it is appropriate to continue to
apply a penalty or other increased rate to the account as a result of
the consumer's payment history or other factors specific to the
consumer, Sec. 226.59 permits the card issuer to continue to impose
the penalty or other increased rate, even if the review of the factors
described in Sec. 226.59(d)(1)(ii) would otherwise require a rate
decrease.
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 noted in the November 2010 Proposed Rule that
some confusion had 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 proposed 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. To clarify the
relationship between Sec. 226.59(a) and (f), the Board proposed to
adopt a new comment 59(f)-2, which 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 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.
Commenters who addressed proposed comment 59(f)-2 supported this
aspect of the proposal and, accordingly, comment 59(f)-2 is adopted as
proposed. As noted in the supplementary information to the November
2010 Proposed Rule, 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 continues to believe 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.
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), in the November
2010 Proposed Rule, the Board proposed to
[[Page 22994]]
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), in the
November 2010 Proposed Rule, the Board proposed to revise paragraph (f)
of Appendix M1 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.
Under the proposal, if a card issuer chose under Sec. 226.7(b)(12) to
round the disclosures to the nearest whole dollar, the card issuer
would have been required to 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 chose, however, to round
the disclosures to the nearest cent, the card issuer would have been
required to 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). The Board
believed that this would ensure that the savings estimate for repayment
in 36 months would be calculated consistent with how the other
disclosures would be shown on the periodic statement.
The Board received several comments supporting the proposed changes
to Appendix M1, and no comments opposing them. For the reasons
discussed above, the Board adopts these changes as proposed.
IV. Mandatory Compliance Dates
A. Mandatory compliance date. Consistent with TILA Section 105(d),
this final rule is effective and compliance is mandatory on October 1,
2011. However, creditors may, at their option, comply with this rule
prior to that date.
Most commenters requested an October 1, 2011 effective date.
Although some industry commenters requested additional time to comply,
the Board believes that, given the largely technical nature of this
final rule, an October 1, 2011 effective date provides creditors with
sufficient time to bring their systems and practices into compliance.
B. Prospective application. This final rule is prospective in
application. The following paragraphs set forth additional guidance and
examples as to how a creditor must comply with the final rule by the
mandatory compliance date. Except as otherwise stated, the final rule
applies to existing as well as new accounts and balances.
C. Tabular summaries that accompany applications or solicitations
(Sec. 226.5a). Credit and charge card applications provided or made
available to consumers on or after October 1, 2011 must comply with the
final rule, including format and terminology requirements. For example,
if a direct-mail application or solicitation is mailed to a consumer on
September 30, 2011, it is not required to comply with the new
requirements, even if the consumer does not receive it until October 7,
2011. In contrast, a direct-mail application or solicitation that is
mailed to consumers on or after October 1, 2011 must comply with the
final rule. If a creditor makes an application or solicitation
available to the general public (such as ``take-one'' applications),
any new applications or solicitations issued by the creditor on or
after October 1, 2011 must comply with the new rule. However, if a
creditor issues an application or solicitation by making it available
to the public prior to October 1, 2011 (for example, by restocking an
in-store display of ``take-one'' applications on September 15, 2011),
those applications need not comply with the new rule, even if a
consumer may pick up one of the applications from the display after
October 1, 2011. Any ``take-one'' applications that the creditor uses
to restock the display on or after October 1, 2011, however, must
comply with the final rule.
D. Account-opening disclosures (Sec. 226.6). Account-opening
disclosures furnished on or after October 1, 2011 must comply with the
final rule, including format and terminology requirements. The relevant
date for purposes of this requirement is the date on which the
disclosures are furnished, not when the consumer applies for the
account. For example, if a consumer applies for an account on September
30, 2011 but the account-opening disclosures are not mailed until
October 2, 2011, those disclosures must comply with the final rule. In
addition, if the disclosures are furnished by mail, the relevant date
is the day on which the disclosures were sent, not the day on which the
consumer receives the disclosures. Thus, if a creditor mails the
account-opening disclosures on September 30, 2011, the disclosures are
not required to comply with the final rule, even if the consumer
receives those disclosures on October 7, 2011.
E. Periodic statements (Sec. Sec. 226.5(b)(2) and 226.7). Periodic
statements mailed or delivered on or after October 1, 2011 must comply
with Sec. Sec. 226.5(b)(2) and 226.7, as revised by the final rule.
For example, if a creditor mails a periodic statement to the consumer
on September 30, 2011, that statement is not required to comply with
the final rule, even if the consumer does not receive the statement
until October 7, 2011. However, a statement mailed on October 1, 2011
must comply with the final rule.
F. Checks that access a credit card account (Sec. 226.9(b)). A
creditor must comply with the disclosure requirements of Sec.
226.9(b)(3) (as revised by the final rule) for checks that access a
credit account that are provided on or after October 1, 2011. Thus, for
example, if a creditor mails access checks to a consumer on September
30, 2011, these checks are not required to comply with new Sec.
226.9(b)(3), even if the consumer receives them on October 7, 2011.
However, checks mailed on October 1, 2011 must comply with the final
rule.
G. Notices of changes in terms and penalty rate increases (Sec.
226.9(c)(2)).
In general. The relevant date for determining whether a change-in-
terms notice must comply with the new requirements of revised Sec.
226.9(c)(2) is the date on which the notice is provided, not the
effective date of the change. Thus, the requirements of the final rule
apply to notices mailed or delivered on or after October 1, 2011. For
example, if a creditor provides a notice on September 30, 2011, the
notice is not required to comply with new Sec. 226.9(c)(2), even if
the consumer receives the notice on October 7, 2011 and the change
disclosed in the notice is effective on November 15, 2011.
[[Page 22995]]
Promotional fees. The final rule applies the existing requirements
for promotional rate programs in Sec. 226.9(c)(2)(v)(B) to promotional
programs under which a fee will increase after a specified period of
time. Some creditors may have outstanding promotional fee programs that
were in place before the effective date of this final rule, but under
which the promotional fee will not expire until after October 1, 2011.
For example, on January 1, 2010, a creditor may have opened an account
with annual fee of $0 for the first year and a $50 annual fee
thereafter. These creditors may have concerns about whether the
disclosures that they have provided to consumers regarding these
promotional programs are sufficient to qualify for the exception in
revised Sec. 226.9(c)(2)(v)(B). In order to address these concerns,
the Board is providing the following guidance, which is modeled after
the guidance provided with respect to promotional rates in the July
2009 Interim Final Rule and the February 2010 Final Rule. See 74 FR
36091-36092; 75 FR 7783-7784.
The Board notes that, as revised by this final rule, Sec.
226.9(c)(2)(v)(B) requires written disclosures of the term of the
promotional fee and the fee that will apply when the promotional fee
expires. The final rule further requires that the term of the
promotional fee and the fee that will apply when the promotional fee
expires be disclosed in close proximity and equally prominent to the
disclosure of the promotional fee. The Board anticipates that many
creditors offering such a promotional fee program may already have
complied with these advance notice requirements in connection with
offering the promotional program.
The Board is nonetheless aware that some other creditors may be
uncertain as to whether written disclosures provided at the time an
existing promotional fee program was offered are sufficient to comply
with the exception in Sec. 226.9(c)(2)(v)(B). For example, for
promotional fee offers provided after October 1, 2011, the disclosure
under Sec. 226.9(c)(2)(v)(B)(1) must include the fee that will apply
after the expiration of the promotional period. For an existing
promotional fee program, a creditor might instead have disclosed this
fee narratively--for example, by stating that the annual fee would be
reduced to $0 for one year and that the ``standard'' or ``pre-
existing'' annual fee would apply thereafter. The Board does not
believe that it is appropriate to require a creditor to provide 45
days' advance notice before expiration of the promotional period when
the creditor provided disclosures that were generally consistent with
Sec. 226.9(c)(2)(v)(B) but were not technically compliant because they
described the post-promotional fee narratively. This would have the
impact of imposing the requirements of this final rule retroactively,
to disclosures given prior to the October 1, 2011 effective date.
Therefore, a creditor that made disclosures prior to October 1, 2011
that generally complied with Sec. 226.9(c)(2)(v)(B) but that described
the type of post-promotional fee rather than disclosing the actual fee
is not required to provide an additional notice pursuant to Sec.
226.9(c)(2) before expiration of the promotional fee in order to use
the exception.
Similarly, the Board acknowledges that there may be some creditors
with outstanding promotional fee programs that did not make--or,
without conducting extensive research, are not aware if they made--
written disclosures of the length of the promotional period and the
post-promotional fee. For example, some creditors may have made these
disclosures orally. For the same reasons described in the foregoing
paragraph, the Board believes that it would be inappropriate to
preclude use of the Sec. 226.9(c)(2)(v)(B) exception by creditors
offering these promotional fee programs. That interpretation of the
rule would in effect require creditors to comply with the precise
requirements of the exception before issuance of this final rule or its
October 1, 2011 effective date.
However, the Board believes at the same time that it would be
inconsistent with the final rule for creditors that provided no advance
notice of the term of the promotion and the post-promotional fee to
receive an exemption from the general notice requirements of Sec.
229.9(c)(2). Consequently, any creditor that, prior to October 1, 2011,
provides a written disclosure to consumers subject to an existing
promotional fee program stating the length of the promotional period
and the fee that will apply after the promotional fee expires is not
required to provide an additional notice pursuant to Sec. 226.9(c)(2)
prior to applying the post-promotional fee. In addition, any creditor
that provided, prior to October 1, 2011, oral disclosures of the length
of the promotional period and the fee that will apply after the
promotional period also need not provide an additional notice under
Sec. 226.9(c)(2). However, any creditor subject to Sec. 226.9(c)(2)
that has not provided advance notice of the term of a promotion and the
fee that will apply upon expiration of that promotion in the manner
described above prior to October 1, 2011 will be required to provide 45
days' advance notice containing the content set forth in this final
rule before raising the fee.
H. Advertising rules (Sec. 226.16). Advertisements occurring on or
after October 1, 2011, such as an advertisement broadcast on the radio,
published in a newspaper, or mailed on October 1, 2011 or later, must
comply with revised Sec. 226.16.
I. Ability to pay rules (Sec. 226.51). The revisions to Sec.
226.51 apply to the opening of new accounts on or after October 1, 2011
as well as to credit line increases on existing accounts on or after
October 1, 2011. However, consistent with the February 2010 Final Rule,
revised Sec. 226.51 does not apply to accounts opened in response to
firm offers of credit made consistent with the Fair Credit Reporting
Act before October 1, 2011, provided that the income requirements
established by the creditor as specific criteria prior to prescreening
were consistent with the version of Sec. 226.51 in effect at that
time. See 75 FR 7785; see also 15 U.S.C. 1681(l)(1)(A).
In addition, if an application is required to comply with the
revised disclosure requirements in Sec. 226.5a (as discussed above),
the application must also request income information in a manner
consistent with revised Sec. 226.51 if the card issuer intends to rely
on the information to comply with Sec. 226.51. For example, if direct-
mail applications requesting that consumers age 21 or older provide
their ``household income'' are mailed to consumers on September 30,
2011, the card issuer may rely on the income information provided by
consumers on the applications for purposes of Sec. 226.51, even if the
applications were not received by consumers until October 7, 2011.
However, if the same applications are mailed to consumers on or after
October 1, 2011, the card issuer cannot rely solely on the income
information provided by consumers on the applications.
Similarly, if a card issuer makes applications available to the
general public (such as ``take-one'' applications), any new
applications issued by the card issuer on or after October 1, 2011 must
request income information in a manner consistent with revised Sec.
226.51 if the card issuer intends to rely on the information to comply
with Sec. 226.51. For example, if a card issuer restocks an in-store
display of ``take-one'' applications requesting that consumers age 21
or older provide their ``household income'' on September 15, 2011, the
card issuer may rely on the income information provided by consumers on
the applications for purposes of Sec. 226.51, even though a consumer
may
[[Page 22996]]
pick up one of the applications from the display after October 1, 2011.
However, any ``take-one'' applications that the card issuer uses to
restock the display on or after October 1, 2011 must request income
information in a manner consistent with revised Sec. 226.51 if the
card issuer intends to rely on the information to comply with Sec.
226.51.
J. Limitations on fees (Sec. 226.52).
Limitations on fees imposed prior to or during first year (Sec.
226.52(a)). The revisions to Sec. 226.52(a) are effective on October
1, 2011. Accordingly, the revised limitations on the imposition of fees
in Sec. 226.52(a) apply to accounts opened and fees imposed on or
after October 1, 2011. However, revised Sec. 226.52(a) does not
require card issuers to waive or rebate fees imposed prior to October
1, 2011. For example, assume that a card issuer imposes a $50
application fee on August 1, 2011, the account is opened on August 2
with a $400 credit limit, and $100 in account-opening fees are imposed
on August 3. Revised Sec. 226.52(a) does not require the card issuer
to waive or rebate $50 in fees on October 1, 2011. However, beginning
on October 1, 2011, revised Sec. 226.52(a) prohibits the card issuer
from imposing any additional non-exempt fees with respect to the
account until August 2, 2012.
The revised definition of account opening in Sec. 226.52(a)
applies only to accounts opened on or after October 1, 2011. Because
many card issuers currently track only the date that accounts are
opened on their systems, it would be difficult for card issuers to
determine the account-opening date consistent with revised Sec.
226.52(a) for accounts opened prior to October 1.
Limitations on penalty fees (Sec. 226.52(b)). The revisions to
Sec. 226.52(b) are effective on October 1, 2011. However, the final
rule does not require card issuers to waive or rebate fees imposed
prior to October 1, 2011. For example, assume that a card issuer does
not impose a late payment fee when a consumer pays late in August 2011,
but imposes a $35 late payment when the consumer pays late in September
2011. Revised Sec. 226.52(b)(1)(ii)(B) does not require the issuer to
waive or rebate $10 on October 1, 2011, nor does it prevent the card
issuer from imposing a $35 fee if the consumer pays late again in
November 2011.
K. Limitations on increasing annual percentage rates, fees, and
charges (Sec. 226.55). The revisions to Sec. 226.55 are effective on
October 1, 2011.
Temporary fees (Sec. 226.55(b)(1)). See the transition guidance
provided above regarding Sec. 226.9(c)(2)(v)(B) for guidance regarding
application of the disclosure requirements in Sec. 226.55(b)(1)(i) to
promotional fee programs established prior to October 1, 2011. The
requirement in Sec. 226.55(b)(1) that temporary fees expire after a
period of no less than six months applies to temporary fees offered on
or after October 1, 2011. Thus, for example, if a card issuer offered a
temporary fee on September 1, 2011 that applied until January 1, 2012,
Sec. 226.55(b)(1) would not prohibit the card issuer from applying an
increased fee on January 1 so long as the card issuer previously
disclosed the period during which the temporary fee would apply and the
increased fee that would apply thereafter.
Increases in rates and certain fees and charges that apply to new
transactions (Sec. 226.55(b)(3)); treatment of protected balances
(Sec. 226.55(c)). The revisions to Sec. 226.55(b)(3)(iii) regarding
the circumstances under which an increased fee or charge that is
subject to Sec. 226.55 applies to an existing balance (as opposed to
the account as a whole) apply to any increase in a fee or charge on or
after October 1, 2011. However, a card issuer is not required to waive,
rebate, or reduce any fee or charge imposed consistent with Regulation
Z prior to October 1, 2011. Furthermore, as discussed above with
respect to Sec. 226.52(a), the revised definition of account opening
under Sec. 226.55(b)(3)(iii) applies only to accounts opened on or
after October 1, 2011.
Promotional waivers or rebates of interest, fees, and charges
(Sec. 226.55(e)). New Sec. 226.55(e) applies to any waiver or rebate
of interest, fees, or charges subject to Sec. 226.55 that is promoted
by a card issuer and applied to an account on or after October 1, 2011.
If a card issuer waives or rebates interest, fees, or charges subject
to Sec. 226.55 prior to October 1, 2011, Sec. 226.55(e) does not
prohibit the issuer from ceasing to waive or rebate such interest,
fees, or charges on or after October 1 unless the card issuer promotes
the waiver or rebate on or after October 1.
L. Internet posting of credit card agreements (Sec. 226.58).
Because the final rule becomes effective on October 1, 2011, the
submissions that issuers must send to the Board by May 2, 2011
(reflecting agreements offered to the public as of the end of the first
calendar quarter, March 31, 2011) and by August 1, 2011 (reflecting
agreements offered to the public as of the end of the second calendar
quarter, June 30, 2011) are not subject to the final rule. Compliance
with the final rule is required for submissions that issuers must send
to the Board by October 31, 2011 (reflecting agreements offered as of
the end of the third calendar quarter, September 30, 2011) and to
subsequent submissions.
V. Regulatory Analysis
This final rule clarifies 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.) (RFA) 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 final rule's amendments are clarifications and do
not alter the substance of these analyses and determinations, the Board
continues to rely on those analyses and determinations for purposes of
this rulemaking.\27\
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\27\ In the proposal, the Board noted that the amendments to
Sec. 226.9(c)(2)(v)(B) 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 anticipated
that the proposed rule would impose no additional burden on card
issuers that are small entities because the clarification provides
an alternative means of complying with disclosures that are
otherwise required by Sec. 226.9(c)(2). The Board did not receive
any significant comment on this preliminary determination, which is
adopted in this final rule.
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RFA. The Small Business Administration's Office of Advocacy (SBA)
submitted a comment on the initial regulatory flexibility analysis
(IRFA) in the Board's proposed rule. Otherwise, the Board did not
receive substantive comments specifically addressing this analysis.
Section 1601 of the Small Business Jobs Act of 2010 and Executive Order
13272 generally require Federal agencies to respond in a final rule to
written comments submitted by the SBA on a proposed rule, unless the
public interest is not served by doing so. The Board's response to the
SBA's comment letter is set forth below.
The SBA expressed concern that the Board's IRFA did not adequately
assess the impact of the proposed rule on small entities. The SBA
encouraged the Board
[[Page 22997]]
to issue a second IRFA to determine the impact on small entities and to
consider alternatives that meet the Board's objectives while minimizing
the impact on small entities. For the reasons stated below, the Board
believes the analysis in its IRFA complied with the requirements of the
RFA. Accordingly, the Board is proceeding with a final rule.
This rulemaking is part of a series of rules that have extensively
revised and expanded the regulatory requirements for entities that
offer open-end (not home-secured) consumer credit, particularly credit
card accounts. In January 2009, the Board adopted a final rule that
comprehensively amended the requirements of Regulation Z that apply to
credit card accounts and other open-end (not home-secured) consumer
credit. See 74 FR 5244 (Jan. 29, 2009). In that rule, the Board
performed a RFA analysis and determined that the amendments would have
a significant economic impact on a substantial number of small
entities. See id. at 5390-5392.
In May 2009, the Credit Card Accountability, Responsibility, and
Disclosure Act of 2009 (Credit Card Act) was signed in to law, which
required the Board to extensively revise the January 2009 final rule
and to issue three stages of additional rules. See Pub. L. No. 111-24,
123 Stat. 1734 (2009); see also 75 FR 37526 (describing rulemaking
requirements of the Credit Card Act). Consistent with the requirements
of the Credit Card Act, the Board issued an interim final rule in July
2009 and final rules in February and June 2010. See 74 FR 36077 (July
22, 2009); 75 FR 7658 (Feb. 22, 2010); 75 FR 37526 (June 29, 2010). In
each of these rules, the Board conducted an RFA analysis and determined
that the amendments to Regulation Z would have a significant economic
impact on a substantial number of small entities, relying in part on
the RFA analyses and determinations in the Board's prior credit card
rules. See 74 FR 36092-36093; 75 FR 7789-7791; 75 FR 37565-37567. These
analyses and determinations were not challenged by the SBA or other
commenters.
Most recently, the Board issued a proposed rule in November 2010 to
clarify aspects of the February and June 2010 credit card rules in
order to facilitate compliance. See 75 FR 67459 (Nov. 2, 2010). In that
proposal, the Board stated that it would continue to rely on the RFA
analyses and determinations in its prior credit card rulemakings
because the proposed clarifications would not, if adopted, alter the
substance of those analyses and determinations. See id. 67486.
The SBA suggested in its comment letter that the Board's reliance
on the RFA analyses and determinations in prior credit card rulemakings
was not appropriate. However, the RFA specifically provides that,
``[i]n order to avoid duplicative action, an agency may consider a
series of closely related rules as one rule for the purposes of [the
RFA analysis].'' 5 U.S.C. 605(c). Thus, the Board has met or exceeded
the requirements of the RFA by performing separate analyses for each of
the credit card rulemakings preceding the November 2010 proposed
clarifications.
The SBA also commented that the Board failed to consider updated
information about the number of small entities that may be impacted by
the proposed clarifications. Although the total number of small
entities likely to be affected by the Board's regulations is unknown
because the open-end credit provisions of Regulation Z have broad
applicability to individuals and businesses that extend even small
amounts of consumer credit, the Board estimated in prior rulemakings
that, based on data from Reports of Condition and Income (call
reports), there were approximately 4,100 card issuers with assets of
$175 million or less. See 74 FR 5391 (citing June 2008 call report
data). Based on the most recent final call report data (from September
2010), the Board estimates that there are approximately 3,700 such
issuers. Notwithstanding this reduction in the number of affected small
entities, the Board continues to believe that its credit card
regulations (including this final rule) will have a significant
economic impact on a substantial number of small entities.
Finally, the SBA suggested that the Board did not sufficiently
address alternatives to the proposed rule which would minimize the
impact on small entities. However, the Board solicited comment on
alternatives to several of the proposed requirements. See, e.g., 75 FR
67474. Furthermore, as discussed above in III. Section-by-Section
Analysis, the Board has provided specific model language and transition
guidance based on the comments in order to ease compliance and
operational burden on small entities.
PRA. 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.
VI. List of Revisions to Official Staff Interpretations
For clarity, the following is a list of revisions made by this
final rule to the Official Staff Interpretations:
Section 226.2--Definitions and Rules of Construction, 2(a)(15)
Credit card: Paragraphs 2. and 3. are revised and paragraph 4. is
added.
Section 226.5--General Disclosure Requirements, 5(b)(2) Periodic
statements:
(1) Paragraph 5(b)(2)(ii): Paragraphs 1. through 4. are revised;
and
(2) The heading Paragraph 5(b)(2)(iii) and paragraph 1. under that
heading are deleted.
Section 226.5a--Credit and Charge Card Applications and
Solicitations, 5a(b) Required disclosures:
(1) 5a(b)(1) Annual percentage rate: Paragraph 5. is revised;
(2) 5a(b)(2) Fees for issuance or availability: paragraph 4. is
revised;
(3) 5a(b)(5) Grace period: Paragraph 1. is revised and paragraph 4.
is deleted; and
(4) 5a(b)(6) Balance computation method: Paragraph 1. is revised.
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:
(1) 6(b)(2)(v) Grace period: Paragraphs 1. and 3. are revised and
paragraph 4. is deleted; and
(2) 6(b)(2)(vi) Balance computation method: Paragraph 1. is revised
and paragraph 2. is added.
Section 226.7--Periodic Statement, 7(b) Rules affecting open-end
(not home-secured) plans:
(1) Paragraph 1. is revised;
(2) 7(b)(5) Balance on which finance charge computed: Paragraphs 7.
and 8. are revised;
(3) 7(b)(6) Charges imposed: Paragraph 3. is revised;
(4) 7(b)(8) Grace period: Paragraph 3. is revised; and
(5) 7(b)(12) Repayment disclosures: Paragraph 1. is added.
Section 226.9-Subsequent Disclosure Requirements:
(1) 9(b) Disclosures for supplemental credit access devices and
additional features, 9(b)(3) Checks that access a credit card account:
(i) 9(b)(3)(i) Disclosures: Paragraph 2. is added; and
(ii) 9(b)(3)(i)(D): Paragraph 1. is revised;
[[Page 22998]]
(2) 9(c) Change in terms, 9(c)(2) Rules affecting open-end (not
home-secured) plans:
(i) Paragraph 1. is revised;
(ii) 9(c)(2)(iii) Charges not covered by Sec. 226.6(b)(1) and
(b)(2): Paragraph 1. is revised;
(iii) 9(c)(2)(iv) Disclosure requirements: Paragraphs 3. and 4. are
revised;
(iv) 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; and
(v) 9(e) Disclosures upon renewal of credit or charge card:
Paragraph 10. is revised.
Section 226.10--Payments:
(1) 10(b) Specific requirements for payments: Paragraph 2. is
revised;
(2) 10(e) Limitations on fees related to method of payment:
Paragraph 4. is added; and
(3) 10(f) Changes by card issuer: Paragraph 3. is revised.
Section 226.12--Special Credit Card Provisions, 12(c) Right of
cardholder to assert claims or defenses against card issuer: Paragraph
4. is revised.
Section 226.13--Billing Error Resolution, 13(c) Time for
resolution; general procedures, Paragraph 13(c)(2): Paragraph 2. is
revised.
Section 226.14--Determination of Annual Percentage Rate, 14(a)
General rule: Paragraph 6. is added.
Section 226.16--Advertising:
(1) Paragraphs 1. and 2. are revised; and
(2) 16(g) Promotional rates: Paragraphs 2., 3., and 4. are revised.
Section 226.30--Limitation on Rates: Paragraph 8. is revised.
Section 226.51--Ability to Pay:
(1) 51(a) General rule, 51(a)(1) Consideration of ability to pay:
Paragraphs 1., 2., 4. and 6. are revised;
(2) 51(a)(2) Minimum periodic payments: Paragraph 3. is revised;
and
(3) 51(b) Rules affecting young consumers, 51(b)(1) Applications
from young consumers: Paragraph 2. is revised.
Section 226.52--Limitations on Fees:
(1) 52(a) Limitations during first year after account opening:
(i) The subheading 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;
(ii) 52(a)(1) General rule: Paragraphs 1., 2., and 3. are revised
and paragraph 4. is added; and
(iii) 52(a)(2) Fees not subject to limitations: Paragraph 1. is
revised;
(2) 52(b) Limitations on penalty fees:
(i) 52(b)(1)(ii) Safe harbors: Paragraph 1. is revised; and
(ii) 52(b)(2) Prohibited fees:
(A) 52(b)(2)(i) Fees that exceed dollar amount associated with
violation: paragraph 5. is revised; and
(B) 52(b)(2)(ii) Multiple fees based on single event or
transaction: Paragraph 1. is revised.
Section 226.53--Allocation of Payments:
(1) Paragraphs 4. and 5. are revised; and
(2) The subheading 53(b) Special rule for accounts with balances
subject to deferred interest or similar programs is revised to read
53(b) Special rules and, under that subheading, paragraphs 1., 2., and
3. are revised.
Section 226.55-- Limitations on Increasing Annual Percentage Rates,
Fees, and Charges:
(1) 55(a) General rule: Paragraph 1. is revised;
(2) 55(b) Exceptions: Paragraphs 1. and 3. are revised;
(3) The subheading 55(b)(1) Temporary rate exception is revised to
read 55(b)(1) Temporary rate, fee, or charge exception and, under that
subheading, paragraphs 2. and 4. are revised and paragraph 5. is added;
(4) 55(b)(3) Advance notice exception: Paragraphs 6. and 7. are
added;
(5) 55(b)(6) Servicemembers Civil Relief Act exception: Paragraphs
1. and 2. are revised and paragraph 3. is added;
(6) 55(c) Treatment of protected balances, 55(c)(1) Definition of
protected balance: Paragraph 3. is revised and paragraph 4. is added;
and
(7) The subheading 55(e) Promotional waivers or rebates of
interest, fees, and other charges is added and, under that subheading,
paragraphs 1., 2., and 3. are added.
Section 226.58--Internet Posting of Credit Card Agreements:
(1) 58(b) Definitions:
(i) 58(b)(1) Agreement: Paragraph 1. is revised;
(ii) 58(b)(2) Amends: Paragraph 1. is revised;
(iii) The subheading 58(b)(4) Card issuer is added and paragraphs
1., 2., and 3. are added under that subheading;
(iv) The subheading 58(b)(4) Offers is revised to read 58(b)(5)
Offers;
(v) The subheading 58(b)(5) Open account is revised to read
58(b)(6) Open account; and
(vi) The subheading 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 subheading, paragraphs 2. and 4. are revised;
(2) 58(c) Submission of agreements to Board, 58(c)(3) Amended
agreements: Paragraph 2. is revised, paragraph 3. is renumbered as
paragraph 4., and a new paragraph 3. is added;
(3) 58(d) Posting of agreements offered to the public: Paragraph 2.
is revised; and
(4) 58(e) Agreements for all open accounts: Paragraph 3. is
revised.
Section 226.59--Reevaluation of Rate Increases:
(1) 59(a) General rule, 59(a)(1) Evaluation of increased rate:
Paragraphs 3. and 4. are renumbered as paragraphs 4. and 5. and a new
paragraph 3. is added;
(2) 59(d) Factors: Paragraph 6. is added; and
(3) 59(f) Termination of obligation to review factors: Paragraph 2.
is added.
List of Subjects in 12 CFR Part 226
Advertising, Consumer protection, Federal Reserve System, Reporting
and recordkeeping requirements, Truth in Lending.
Authority and Issuance
For the reasons set forth in the preamble, the Board amends
Regulation Z, 12 CFR part 226, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
0
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. No. 111-24 Sec. 2, 123 Stat. 1734; Pub. L. No.
111-203, 124 Stat. 1376.
Subpart B--Open-End Credit
0
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 that is accessed
by a credit card, except:
(A) A home-equity plan subject to the requirements of Sec. 226.5b
that is accessed by a credit card; or
(B) An overdraft line of credit that is accessed by a debit card or
an account number.
* * * * *
0
3. Section 226.5 is amended by revising the heading for paragraph
(b)(2)(ii)(A) and revising paragraph (b)(2)(ii)(B) to read as follows:
Sec. 226.5 General disclosure requirements.
* * * * *
(b) * * *
[[Page 22999]]
(2) * * *
(ii) * * *
(A) Credit card accounts under an open-end (not home-secured)
consumer credit plan. * * *
* * * * *
(B) Open-end consumer credit plans. For accounts under an open-end
consumer credit plan, a creditor must adopt reasonable procedures
designed to ensure that:
(1) If a grace period applies to the account:
(i) Periodic statements are mailed or delivered at least 21 days
prior to the date on which the grace period expires; and
(ii) The creditor does not impose finance charges as a result of
the loss of the 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.
(2) Regardless of whether a grace period applies 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.
(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\
---------------------------------------------------------------------------
\10\ [Reserved]
---------------------------------------------------------------------------
* * * * *
0
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),
(b)(1)(iv)(C) 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 shall not be included in the table.
* * * * *
(iv) Penalty rates. (A) In general. Except as provided in paragraph
(b)(1)(iv)(B) and (C) 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 this paragraph (b)(1)
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.
(C) Employee preferential rates. If a card issuer discloses in the
table a preferential annual percentage rate for which only employees of
the card issuer, employees of a third party, or other individuals with
similar affiliations with the card issuer or third party, such as
executive officers, directors, or principal shareholders 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.
* * * * *
0
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 (v) (except for (b)(2)(i)(D)(2)) and
(b)(2)(vii) through (xiv) of this section shall be in the table.
Disclosures required by paragraphs (b)(2)(i)(D)(2), (b)(2)(i)(D)(3),
(b)(2)(vi), and (b)(2)(xv) of this section shall be placed directly
below the table. Disclosures required by paragraphs (b)(3) through (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 creditor must disclose a rate based on the applicable
index or formula in accordance with the 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) and (b)(2)(i)(D)(3) 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
[[Page 23000]]
the rate that will apply after the introductory rate is revoked.
(3) Employee preferential rates. If a creditor discloses in the
table a preferential annual percentage rate for which only employees of
the creditor, employees of a third party, or other individuals with
similar affiliations with the creditor or third party, such as
executive officers, directors, or principal shareholders 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.
* * * * *
0
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 either to the nearest whole dollar or to the nearest cent,
at the card issuer's option;
(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 either to the nearest whole
dollar or to the nearest cent, at the card issuer's option;
(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 either to the nearest whole
dollar or to the nearest cent, at the card issuer's option; 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 either to the nearest whole dollar or to the
nearest cent, at the card issuer's option.
(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, after rounding as set forth in
paragraph (b)(12)(f)(1)(i) of this section 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 either to the nearest whole
dollar or to the nearest cent, at the issuer's option;
(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
(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 any page of 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.
0
7. Section 226.9 is amended by adding paragraph (b)(3)(ii) and by
revising paragraphs (c)(2)(i)(A), (c)(2)(ii), (c)(2)(iii),
(c)(2)(iv)(A)(1), (c)(2)(iv)(B), (c)(2)(iv)(D), (c)(2)(v)(B)(1) through
(3), (c)(2)(v)(C), and (c)(2)(v)(D).
The additions and revisions read as follows:
Sec. 226.9 Subsequent disclosure requirements.
* * * * *
(b) * * *
(3) * * *
[[Page 23001]]
(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.
(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, 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 as described in paragraph (c)(2)(i)(B) of this section; for such
changes, notice must be given in accordance with the timing
requirements of paragraph (c)(2)(i)(B) of this section. 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, a change to a term
required to be disclosed under Sec. 226.6(b)(4), 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 must 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) or Sec. 226.6(b)(4), 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, 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, 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, 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), 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 or
fee 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 or fee that would apply
after expiration of the period;
(2) The disclosure of the length of the period and the annual
percentage rate or fee 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 or fee that applies during the
specified period of time; and
(3) The annual percentage rate or fee that applies after that
period does not exceed the rate or fee 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 or other account agreement that
provides for changes in the rate according to operation of an index
that is not under the control of the creditor and is available to the
general public; or
(D) When the change is an increase in an annual percentage rate, a
fee or charge required to be disclosed under Sec. 226.6(b)(2)(ii),
(b)(2)(iii), (b)(2)(viii), (b)(2)(ix), (b)(2)(ix) or (b)(2)(xii), or
the required minimum periodic payment due to the completion of a
workout or temporary hardship arrangement by the consumer or the
consumer's failure to comply with the terms of such an arrangement,
provided that:
* * * * *
0
8. Section 226.10 is amending by revising paragraphs (b)(4) and (e) to
read as follows:
Sec. 226.10 Payments.
* * * * *
[[Page 23002]]
(b) * * *
(4) Nonconforming payments. (i) In general. Except as provided in
paragraph (b)(4)(ii) of this section, 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, the creditor shall
credit the payment within five days of receipt.
(ii) Payment methods promoted by creditor. If a creditor promotes a
method for making payments, such payments shall be considered
conforming payments in accordance with this paragraph (b) and shall be
credited to the consumer's account as of the date of receipt, except
when a delay in crediting does not result in a finance or other charge.
* * * * *
(e) Limitations on fees related to method of payment. For credit
card accounts under an open-end (not home-secured) consumer credit
plan, a creditor may not impose a separate fee to allow consumers to
make a payment by any method, such as mail, electronic, or telephone
payments, unless such payment method involves an expedited service by a
customer service representative of the creditor. For purposes of
paragraph (e) of this section, the term ``creditor'' includes a third
party that collects, receives, or processes payments on behalf of a
creditor.
* * * * *
0
9. Section 226.16(g) is revised to read as follows:
Sec. 226.16 Advertising.
* * * * *
(g) Promotional rates and fees. (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 a
promotional rate or promotional fee may be applicable.
(iv) Promotional fee means a fee required to be disclosed under
Sec. 226.6(b)(1) and (2) applicable to an open-end (not home-secured)
plan, or 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 fee that will be in effect at the end of that period for such plan
or types of balances or transactions.
(v) Introductory fee means a promotional fee offered in connection
with the opening of an account.
(3) Stating the term ``introductory''. If any annual percentage
rate or fee that may be applied to the account is an introductory rate
or introductory fee, the term introductory or intro must be in
immediate proximity to each listing of the introductory rate or
introductory fee in a written or electronic advertisement.
(4) Stating the promotional period and post-promotional rate or
fee. If any annual percentage rate that may be applied to the account
is a promotional rate under paragraph (g)(2)(i) of this section or any
fee that may be applied to the account is a promotional fee under
paragraph (g)(2)(iv) of this section, the information in paragraphs
(g)(4)(i) and, as applicable, (g)(4)(ii) or (iii) of this section must
be stated in a clear and conspicuous manner in the advertisement. If
the rate or fee is stated in a written or electronic advertisement, the
information in paragraphs (g)(4)(i) and, as applicable, (g)(4)(ii) or
(iii) of this section must also be stated in a prominent location
closely proximate to the first listing of the promotional rate or
promotional fee.
(i) When the promotional rate or promotional fee will end;
(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; and
(iii) The fee that will apply after the end of the promotional
period.
(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.
* * * * *
0
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) General rule. (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 consumer's independent ability 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 independent income or assets and current
obligations. Reasonable policies and procedures to consider a
consumer's independent ability to make the required payments include
the 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 independent income or assets.
* * * * *
(b) * * *
(1) * * *
(ii) * * *
(B) Financial information indicating such cosigner, guarantor, or
joint applicant has the independent ability to make the required
minimum periodic payments on such debts, consistent with paragraph (a)
of this section.
* * * * *
0
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 prior to account opening and during first year
after account opening. (1) General rule. 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 an open-
end (not home-secured) consumer credit plan prior to account opening
and during the first year after account opening must not exceed 25
percent of the credit limit in effect when
[[Page 23003]]
the account is opened. 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.
* * * * *
(3) Rule of construction. Paragraph (a) of this section 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, as applicable:
(A) $25.00;
(B) $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; or
(C) 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.
(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.
* * * * *
0
12. Section 226.53 is amended by revising paragraph (b) to read as
follows:
Sec. 226.53 Allocation of payments.
* * * * *
(b) Special rules. (1) Accounts with balances subject to deferred
interest or similar program. 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:
(i) 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
(ii) 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.
(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.
0
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, fee, or charge exception. 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) 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, fee,
or charge 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, fee,
or charge to transactions that occurred prior to the period that
exceeds the annual percentage rate, fee, or charge 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, fee, or charge to transactions
that occurred within 14 days after provision of the notice that exceeds
the annual percentage rate, fee, or charge 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, fee,
or charge to transactions that occurred during the period that exceeds
the increased annual percentage rate, fee, or charge 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), (iii), or (xii) during the first year
after the account is opened, 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.
* * * * *
(6) Servicemembers Civil Relief Act exception. If an annual
percentage rate or a fee or charge required to be disclosed under Sec.
226.6(b)(2)(ii), (iii), or (xii) has been decreased pursuant to 50
U.S.C. app. 527 or a similar Federal or State statute or regulation, a
card issuer may increase that annual percentage rate, fee, or charge
once 50 U.S.C. app. 527 or the similar statute or regulation no longer
applies, provided that the card issuer must not apply to any
transactions that occurred prior to the decrease an annual percentage
rate, fee, or charge that exceeds the annual percentage rate, fee, or
charge that applied to those transactions prior to the decrease.
* * * * *
(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), (iii), or (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 on that account constitutes an increase in an annual percentage
rate, fee, or charge for purposes of this section.
0
14. Section 226.58 is amended by:
0
A. Revising paragraphs (b)(1) and (2);
0
B. Redesignating paragraphs (b)(4) through (7) as paragraphs (b)(5)
through (8);
0
C. Adding a new paragraph (b)(4); and
0
D. Revising paragraphs (c)(1) and (3), removing and reserving paragraph
(c)(2), and revising paragraph (c)(8) 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)
[[Page 23004]]
consumer credit plan. ``Agreement'' or ``credit card agreement'' also
includes the pricing information, as defined in Sec. 226.58(b)(7).
(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 Sec. 226.58(b)(7), is
deemed to be substantive.
* * * * *
(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.
* * * * *
(c) Submission of agreements to Board. (1) Quarterly submissions. A
card issuer must make quarterly submissions to the Board, in the form
and manner specified by the Board. 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:
(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 and that the
card issuer offered to the public as of the last business day of the
preceding calendar quarter, 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
Sec. 226.58(c)(4), (c)(5), (c)(6), and (c)(7).
(2) [Reserved].
(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
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, 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) Form and content of agreements submitted to the Board. (i) Form
and content generally. (A) Each agreement must contain the provisions
of the agreement and the pricing information in effect as of the last
business day of the preceding calendar quarter.
(B) Agreements must not include any personally identifiable
information relating to any cardholder, such as name, address,
telephone number, or account number.
(C) The following are not deemed to be part of the agreement for
purposes of Sec. 226.58, and therefore are not required to be included
in submissions to the Board:
(1) Disclosures required by State or Federal law, such as affiliate
marketing notices, privacy policies, billing rights notices, or
disclosures under the E-Sign Act;
(2) Solicitation materials;
(3) Periodic statements;
(4) Ancillary agreements between the issuer and the consumer, such
as debt cancellation contracts or debt suspension agreements;
(5) Offers for credit insurance or other optional products and
other similar advertisements; and
(6) Documents that may be sent to the consumer along with the
credit card or credit card agreement such as a cover letter, a
validation sticker on the card, or other information about card
security.
(D) Agreements must be presented in a clear and legible font.
(ii) Pricing information. (A) Pricing information must be set forth
in a single addendum to the agreement. The addendum must contain all of
the pricing information, as defined by Sec. 226.58(b)(7). The addendum
may, but is not required to, contain any other information listed in
Sec. 226.6(b), provided that information is complete and accurate as
of the applicable date under Sec. 226.58. The addendum may not contain
any other information.
(B) Pricing information that may vary from one cardholder to
another depending on the cardholder's creditworthiness or state of
residence or other factors must be disclosed either by setting forth
all the possible variations (such as purchase APRs of 13 percent, 15
percent, 17 percent, and 19 percent) or by providing a range of
possible variations (such as purchase APRs ranging from 13 percent to
19 percent).
(C) If a rate included in the pricing information is a variable
rate, the issuer must identify the index or formula used in setting the
rate and the margin. Rates that may vary from one cardholder to another
must be disclosed by providing the index and the possible margins (such
as the prime rate plus 5 percent, 8 percent, 10 percent, or 12 percent)
or range of margins (such as the prime rate plus from 5 to 12 percent).
The value of the rate and the value of the index are not required to be
disclosed.
(iii) Optional variable terms addendum. Provisions of the agreement
other than the pricing information that may vary from one cardholder to
another depending on the cardholder's creditworthiness or state of
residence or other factors may be set forth in a single addendum to the
agreement separate from the pricing information addendum.
(iv) Integrated agreement. Issuers may not provide provisions of
the agreement or pricing information in the form of change-in-terms
notices or riders (other than the pricing information addendum and the
optional variable terms addendum). Changes in provisions or pricing
information must be integrated into the text of the agreement, the
pricing information addendum or the optional variable terms addendum,
as appropriate.
* * * * *
0
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.
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
[[Page 23005]]
total cost estimate calculated under paragraph (c) of this appendix
(rounded to the nearest cent). 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.
0
16. In Supplement I to Part 226:
0
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.
0
B. Under Section 226.5--General Disclosure Requirements, subheading
5(b)(2) Periodic statements:
0
i. Under Paragraph 5(b)(2)(ii), paragraphs 1. through 4. are revised;
and
0
ii. The heading Paragraph 5(b)(2)(iii) and paragraph 1. under that
heading are removed.
0
C. Under Section 226.5a--Credit and Charge Card Applications and
Solicitations, 5a(b) Required disclosures is revised.
0
D. Under Section 226.6--Account-Opening Disclosures, subheading 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 is revised.
0
E. Under Section 226.7--Periodic Statement, 7(b) Rules affecting open-
end (not home-secured) plans is revised.
0
F. Under Section 226.9-Subsequent Disclosure Requirements:
0
i. Under 9(b) Disclosures for supplemental credit access devices and
additional features, 9(b)(3) Checks that access a credit card account
is revised;
0
ii. Under 9(c) Change in terms, 9(c)(2) Rules affecting open-end (not
home-secured) plans is revised;
0
iii. Under 9(e) Disclosures upon renewal of credit or charge card,
paragraph 10. is revised.
0
G. Under Section 226.10--Payments:
0
i. Under 10(b) Specific requirements for payments, paragraph 2. is
revised;
0
ii. Under 10(e) Limitations on fees related to method of payment,
paragraph 4. is added; and
0
iii. Under 10(f) Changes by card issuer, paragraph 3. is revised.
0
H. Under Section 226.12--Special Credit Card Provisions, subheading
12(c) Right of cardholder to assert claims or defenses against card
issuer, paragraph 4. is revised.
0
I. Under Section 226.13--Billing Error Resolution, subheading 13(c)
Time for resolution; general procedures, subheading Paragraph 13(c)(2),
paragraph 2. is revised.
0
J. Under Section 226.14--Determination of Annual Percentage Rate,
subheading 14(a) General rule, paragraph 6. is added.
0
K. Under Section 226.16--Advertising:
0
i. Paragraphs 1. and 2. are revised; and
0
ii. 16(g) Promotional rates is revised.
0
L. Under Section 226.30--Limitation on Rates, paragraph 8. is revised.
0
M. Section 226.51--Ability to Pay is revised.
0
N. Section 226.52--Limitations on Fees is revised.
0
O. Under Section 226.53-- Allocation of Payments:
0
i. Paragraphs 4. and 5. are revised; and
0
ii. 53(b) is revised.
0
P. Under Section 226.55-- Limitations on Increasing Annual Percentage
Rates, Fees, and Charges:
0
i. 55(a) General rule is revised;
0
ii. Under 55(b) Exceptions, paragraphs 1. and 3. are revised;
0
iii. 55(b)(1) Temporary rate exception is revised;
0
iv. Under 55(b)(3) Advance notice exception, paragraphs 6. and 7. are
added;
0
v. 55(b)(6) Servicemembers Civil Relief Act exception is revised;
0
vi. Under 55(c) Treatment of protected balances, 55(c)(1) Definition of
protected balance is revised; and
0
vii. 55(e) Promotional waivers or rebates of interest, fees, and other
charges is added.
0
Q. Under Section 226.58--Internet Posting of Credit Card Agreements:
0
i. 58(b) Definitions is revised;
0
ii. Under 58(c) Submission of agreements to Board, 58(c)(3) Amended
agreements is revised;
0
iii. 58(d) Posting of agreements offered to the public is revised; and
0
iv. 58(e) Agreements for all open accounts is revised.
0
R. Under Section 226.59-Reevaluation of Rate Increases:
0
i. Under 59(a) General rule, 59(a)(1) Evaluation of increased rate is
revised;
0
ii. Under 59(d) Factors, paragraph 6. is added; and
0
iii. 59(f) Termination of obligation to review factors is revised.
The revisions and additions read as follows:
Supplement I to Part 226--Official Staff Interpretations
* * * * *
Subpart A--General
* * * * *
Sec. 226.2--Definitions and Rules of Construction
* * * * *
2(a)(15) Credit card.
* * * * *
2. Examples. i. Examples of credit cards include:
A. A card that guarantees checks or similar instruments, if the
asset account is also tied to an overdraft line or if the instrument
directly accesses a line of credit.
B. A card that accesses both a credit and an asset account (that
is, a debit-credit card).
C. An identification card that permits the consumer to defer
payment on a purchase.
D. An identification card indicating loan approval that is
presented to a merchant or to a lender, whether or not the consumer
signs a separate promissory note for each credit extension.
E. A card or device that can be activated upon receipt to access
credit, even if the card has a substantive use other than credit,
such as a purchase-price discount card. Such a card or device is a
credit card notwithstanding the fact that the recipient must first
contact the card issuer to access or activate the credit feature.
ii. In contrast, credit card does not include, for example:
A. A check-guarantee or debit card with no credit feature or
agreement, even if the creditor occasionally honors an inadvertent
overdraft.
B. Any card, key, plate, or other device that is used in order
to obtain petroleum products for business purposes from a wholesale
distribution facility or to gain access to that facility, and that
is required to be used without regard to payment terms.
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), regardless of whether
the creditor treats such transactions as purchases, cash advances,
or some other type of transaction. Furthermore, if the line of
credit can also be accessed by a card (such as a debit card), that
card is a credit card for purposes of Sec. 226.2(a)(15)(i).
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. 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. The term charge card is, however, distinguished from
credit card or credit card account under an open-end (not home-
secured) consumer credit plan in Sec. Sec. 226.5a,
226.6(b)(2)(xiv), 226.7(b)(11), 226.7(b)(12), 226.9(e), 226.9(f),
226.28(d), 226.52(b)(1)(ii)(C), and appendices G-10 through G-13.
4. Credit card account under an open-end (not home-secured)
consumer credit plan. An
[[Page 23006]]
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).
* * * * *
Subpart B--Open-End Credit
Sec. 226.5--General Disclosure Requirements
* * * * *
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 or 14-day
period required by Sec. 226.5(b)(2)(ii) when determining, as
applicable, the payment due date for purposes of Sec.
226.5(b)(2)(ii)(A), the date on which any grace period expires for
purposes of 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). For example:
A. If a creditor has adopted reasonable procedures designed to
ensure that periodic statements 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 are
mailed or delivered to consumers no later than three days after the
closing date of the billing cycle, the payment due date for purposes
of Sec. 226.5(b)(2)(ii)(A) and the date on which any grace period
expires for purposes of Sec. 226.5(b)(2)(ii)(B)(1) 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)
and (b)(2)(ii)(B)(1) on treating a payment as late and imposing
finance charges apply for 24 days after the closing date of the
billing cycle.
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.
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 prohibitions in Sec. 226.5(b)(2)(ii)(A)(2) and (b)(2)(B)(2)(ii)
on treating a payment as late for any purpose apply only during the
21-day or 14-day period (as applicable) 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, for a credit card account under an open-end (not
home-secured) consumer credit plan, 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.
ii. Same facts as in paragraph i. above. On April 20, the card
issuer receives a payment of $30 and no additional payment is
received on or before April 25. Section 226.5(b)(2)(ii)(A)(2) does
not prohibit the card issuer from treating the required minimum
periodic payment as late.
iii. Same facts as in paragraph i. above. On May 4, the card
issuer has not received the $50 required minimum periodic payment
that was due on April 25. The periodic statement mailed on May 4
states that a required minimum periodic payment of $150 is due on
May 25. Section 226.5(b)(2)(ii)(A)(2) does not permit the card
issuer to treat the $150 required minimum periodic payment as late
until April 26. However, the card issuer may continue to treat the
$50 required minimum periodic payment as late during this period.
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.
3. Grace periods. i. Definition of grace period. For purposes of
Sec. 226.5(b)(2)(ii)(B), ``grace period'' means a period within
which any credit extended may be repaid without incurring a finance
charge due to a periodic interest rate. A deferred interest or
similar promotional program under which the consumer is not
obligated to pay interest that accrues on a balance if that balance
is paid in full prior to the expiration of a specified period of
time is not a grace period for purposes of Sec. 226.5(b)(2)(ii)(B).
Similarly, a period following the payment due date during which a
late payment fee will not be imposed is not a grace period for
purposes of Sec. 226.5(b)(2)(ii)(B). See comments 7(b)(11)-1,
7(b)(11)-2, and 54(a)(1)-2.
ii. Applicability of Sec. 226.5(b)(2)(ii)(B)(1). Section
226.5(b)(2)(ii)(B)(1) 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)(1) 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)(1)(ii)
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
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)(i) 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)(1)(ii) 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)(1)(ii) 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 for a credit card
account under an open-end (not home-secured) consumer credit plan 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. A
card issuer that complies with Sec. 226.5(b)(2)(ii)(A) as discussed
above with respect to a charge card account has also complied with
Sec. 226.5(b)(2)(ii)(B)(2). Section 226.5(b)(2)(ii)(B)(1) 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
[[Page 23007]]
with Sec. 226.2(a)(15)(iii), charge card accounts do not impose a
finance charge based on a periodic rate.
ii. Charged-off accounts. For purposes of Sec.
226.5(b)(2)(ii)(A)(1), the payment due date for a credit card
account under an open-end (not home-secured) consumer credit plan 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. 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. Section 226.5(b)(2)(ii)(B)(1) 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.
* * * * *
Sec. 226.5a--Credit and Charge Card Applications and Solicitations
* * * * *
5a(b) Required disclosures.
1. Tabular format. Provisions in Sec. 226.5a(b) and its
commentary provide that certain information must appear or is
permitted to appear in a table. The tabular format is required for
Sec. 226.5a(b) disclosures given pursuant to Sec. 226.5a(c),
(d)(2), (e)(1) and (f). The tabular format does not apply to oral
disclosures given pursuant to Sec. 226.5a(d)(1). (See Sec.
226.5a(a)(2).)
2. Accuracy. Rules concerning accuracy of the disclosures
required by Sec. 226.5a(b), including variable rate disclosures,
are stated in Sec. 226.5a(c)(2), (d)(3), and (e)(4), as applicable.
5a(b)(1) Annual percentage rate.
1. Variable-rate accounts--definition. For purposes of Sec.
226.5a(b)(1), a variable-rate account exists when rate changes are
part of the plan and are tied to an index or formula. (See the
commentary to Sec. 226.6(b)(4)(ii) for examples of variable-rate
plans.)
2. Variable-rate accounts--fact that rate varies and how the
rate will be determined. In describing how the applicable rate will
be determined, the card issuer must identify in the table the type
of index or formula used, such as the prime rate. In describing the
index, the issuer may not include in the table details about the
index. For example, if the issuer uses a prime rate, the issuer must
disclose the rate as a ``prime rate'' and may not disclose in the
table other details about the prime rate, such as the fact that it
is the highest prime rate published in the Wall Street Journal two
business days before the closing date of the statement for each
billing period. The issuer may not disclose in the table the current
value of the index (such as that the prime rate is currently 7.5
percent) or the amount of the margin or spread added to the index or
formula in setting the applicable rate. A card issuer may not
disclose any applicable limitations on rate increases or decreases
in the table, such as describing that the rate will not go below a
certain rate or higher than a certain rate. (See Samples G-10(B) and
G-10(C) for guidance on how to disclose the fact that the applicable
rate varies and how it is determined.)
3. Discounted initial rates. i. Immediate proximity. If the term
``introductory'' is in the same phrase as the introductory rate, as
that term is defined in Sec. 226.16(g)(2)(ii), it will be deemed to
be in immediate proximity of the listing. For example, an issuer
that uses the phrase ``introductory balance transfer APR X percent''
has used the word ``introductory'' within the same phrase as the
rate. (See Sample G-10(C) for guidance on how to disclose clearly
and conspicuously the expiration date of the introductory rate and
the rate that will apply after the introductory rate expires, if an
introductory rate is disclosed in the table.)
ii. Subsequent changes in terms. The fact that an issuer may
reserve the right to change a rate subsequent to account opening,
pursuant to the notice requirements of Sec. 226.9(c) and the
limitations in Sec. 226.55, does not, by itself, make that rate an
introductory rate. For example, assume an issuer discloses an annual
percentage rate for purchases of 12.99% but does not specify a time
period during which that rate will be in effect. Even if that issuer
subsequently increases the annual percentage rate for purchases to
15.99%, pursuant to a change-in-terms notice provided under Sec.
226.9(c), the 12.99% is not an introductory rate.
iii. More than one introductory rate. If more than one
introductory rate may apply to a particular balance in succeeding
periods, the term ``introductory'' need only be used to describe the
first introductory rate. For example, if an issuer offers a rate of
8.99% on purchases for six months, 10.99% on purchases for the
following six months, and 14.99% on purchases after the first year,
the term ``introductory'' need only be used to describe the 8.99%
rate.
4. Premium initial rates--subsequent changes in terms. The fact
that an issuer may reserve the right to change a rate subsequent to
account opening, pursuant to the notice requirements of Sec.
226.9(c) and the limitations in Sec. 226.55 (as applicable), does
not, by itself, make that rate a premium initial rate. For example,
assume an issuer discloses an annual percentage rate for purchases
of 18.99% but does not specify a time period during which that rate
will be in effect. Even if that issuer subsequently reduces the
annual percentage rate for purchases to 15.99%, the 18.99% is not a
premium initial rate. If the rate decrease is the result of a change
from a non-variable rate to a variable rate or from a variable rate
to a non-variable rate, see comments 9(c)(2)(v)-3 and 9(c)(2)(v)-4
for guidance on the notice requirements under Sec. 226.9(c).
5. Increased penalty rates. i. In general. For rates that are
not introductory rates or employee preferential rates, 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 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 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. 226.55(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. (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
[[Page 23008]]
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
directly beneath 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 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.''
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.''
6. Rates that depend on consumer's creditworthiness. i. In
general. The card issuer, at its option, may disclose the possible
rates that may apply as either specific rates, or a range of rates.
For example, if there are three possible rates that may apply (9.99,
12.99 or 17.99 percent), an issuer may disclose specific rates
(9.99, 12.99 or 17.99 percent) or a range of rates (9.99 to 17.99
percent). The card issuer may not disclose only the lowest, highest
or median rate that could apply. (See Samples G-10(B) and G-10(C)
for guidance on how to disclose a range of rates.)
ii. Penalty rates. If the rate is a penalty rate, as described
in Sec. 226.5a(b)(1)(iv), the card issuer 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. For
example, if the penalty rate could be up to 28.99 percent, but the
issuer may impose a penalty rate that is less than that rate
depending on factors at the time the penalty rate is imposed, the
issuer may disclose the penalty rate as ``up to'' 28.99 percent. The
issuer also must include a statement that the penalty rate for which
the consumer may qualify will depend on the consumer's
creditworthiness, and other factors if applicable.
iii. Other factors. Section 226.5a(b)(1)(v) applies even if
other factors are used in combination with a consumer's
creditworthiness to determine the rate for which a consumer may
qualify at account opening. For example, Sec. 226.5a(b)(1)(v) would
apply if the issuer considers the type of purchase the consumer is
making at the time the consumer opens the account, in combination
with the consumer's creditworthiness, to determine the rate for
which the consumer may qualify at account opening. If other factors
are considered, the issuer should amend the statement about
creditworthiness, to indicate that the rate for which the consumer
may qualify at account opening will depend on the consumer's
creditworthiness and other factors. Nonetheless, Sec.
226.5a(b)(1)(v) does not apply if a consumer's creditworthiness is
not one of the factors that will determine the rate for which the
consumer may qualify at account opening (for example, if the rate is
based solely on the type of purchase that the consumer is making at
the time the consumer opens the account, or is based solely on
whether the consumer has other banking relationships with the card
issuer).
7. Rate based on another rate on the account. In some cases, one
rate may be based on another rate on the account. For example,
assume that a penalty rate as described in Sec. 226.5a(b)(1)(iv)(A)
is determined by adding 5 percentage points to the current purchase
rate, which is 10 percent. In this example, the card issuer in
disclosing the penalty rate must disclose 15 percent as the current
penalty rate. If the purchase rate is a variable rate, then the
penalty rate also is a variable rate. In that case, the card issuer
also must disclose the fact that the penalty rate may vary and how
the rate is determined, such as ``This APR may vary with the market
based on the Prime Rate.'' In describing the penalty rate, the
issuer shall not disclose in the table the amount of the margin or
spread added to the current purchase rate to determine the penalty
rate, such as describing that the penalty rate is determined by
adding 5 percentage points to the purchase rate. (See Sec.
226.5a(b)(1)(i) and comment 5a(b)(1)-2 for further guidance on
describing a variable rate.)
8. Rates. The only rates that shall be disclosed in the table
are annual percentage rates determined under Sec. 226.14(b).
Periodic rates shall not be disclosed in the table.
9. Deferred interest or similar transactions. An issuer offering
a deferred interest or similar plan, such as a promotional program
that provides that a consumer will not be 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, may not disclose a 0%
rate as the rate applicable to deferred interest or similar
transactions if there are any circumstances under which the consumer
will be obligated for interest on such transactions for the deferred
interest or similar period.
5a(b)(2) Fees for issuance or availability.
1. Membership fees. Membership fees for opening an account must
be disclosed under this paragraph. A membership fee to join an
organization that provides a credit or charge card as a privilege of
membership must be disclosed only if the card is issued
automatically upon membership. Such a fee shall not be disclosed in
the table if membership results merely in eligibility to apply for
an account.
2. Enhancements. Fees for optional services in addition to basic
membership privileges in a credit or charge card account (for
example, travel insurance or card-registration services) shall not
be disclosed in the table if the basic account may be opened without
paying such fees. Issuing a card to each primary cardholder (not
authorized users) is considered a basic membership privilege and
fees for additional cards, beyond the first card on the account,
must be disclosed as a fee for issuance or availability.
[[Page 23009]]
Thus, a fee to obtain an additional card on the account beyond the
first card (so that each cardholder would have his or her own card)
must be disclosed in the table as a fee for issuance or availability
under Sec. 226.5a(b)(2). This fee must be disclosed even if the fee
is optional; that is, if the fee is charged only if the cardholder
requests one or more additional cards. (See the available credit
disclosure in Sec. 226.5a(b)(14).)
3. One-time fees. Disclosure of non-periodic fees is limited to
fees related to opening the account, such as one-time membership or
participation fees, or an application fee that is excludable from
the finance charge under Sec. 226.4(c)(1). The following are
examples of fees that shall not be disclosed in the table:
i. Fees for reissuing a lost or stolen card.
ii. Statement reproduction fees.
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 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 in accordance with the
requirements of Sec. Sec. 226.9(c)(2)(v)(B) and 226.55(b)(1).
5. Periodic fees and one-time fees. A card issuer disclosing a
periodic fee must disclose the amount of the fee, how frequently it
will be imposed, and the annualized amount of the fee. A card issuer
disclosing a non-periodic fee must disclose that the fee is a one-
time fee. (See Sample G-10(C) for guidance on how to meet these
requirements.)
5a(b)(3) Fixed finance charge; minimum interest charge.
1. Example of brief statement. See Samples G-10(B) and G-10(C)
for guidance on how to provide a brief description of a minimum
interest charge.
2. Adjustment of $1.00 threshold amount. Consistent with Sec.
226.5a(b)(3), the Board will publish adjustments to the $1.00
threshold amount, as appropriate.
5a(b)(4) Transaction charges.
1. Charges imposed by person other than card issuer. Charges
imposed by a third party, such as a seller of goods, shall not be
disclosed in the table under this section; the third party would be
responsible for disclosing the charge under Sec. 226.9(d)(1).
2. Foreign transaction fees. A transaction charge imposed by the
card issuer for the use of the card for purchases includes any fee
imposed by the issuer for purchases in a foreign currency or that
take place outside the United States or with a foreign merchant.
(See comment 4(a)-4 for guidance on when a foreign transaction fee
is considered charged by the card issuer.) If an issuer charges the
same foreign transaction fee for purchases and cash advances in a
foreign currency, or that take place outside the United States or
with a foreign merchant, the issuer may disclose this foreign
transaction fee as shown in Samples G-10(B) and G-10(C). Otherwise,
the issuer must revise the foreign transaction fee language shown in
Samples G-10(B) and G-10(C) to disclose clearly and conspicuously
the amount of the foreign transaction fee that applies to purchases
and the amount of the foreign transaction fee that applies to cash
advances.
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. 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.'' 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. 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.
2. No grace period. The issuer may use the following language to
describe that no grace period on any purchases is offered, as
applicable: ``We will begin charging interest on purchases on the
transaction date.''
3. Grace period on some purchases. If the issuer provides a
grace period on some types of purchases but no grace period on
others, the issuer may combine and revise the language in comments
5a(b)(5)-1 and -2 as appropriate to describe to which types of
purchases a grace period applies and to which types of purchases no
grace period is offered.
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 Sec.
226.5a(g), 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 Sec.
226.5a(g), 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).
2. Determining the method. In determining which balance
computation method to disclose for purchases, the card issuer must
assume that a purchase balance will exist at the end of any grace
period. Thus, for example, if the average daily balance method will
include new purchases only if purchase balances are not paid within
the grace period, the card issuer would disclose the name of the
average daily balance method that includes new purchases. The card
issuer must not assume the existence of a purchase balance, however,
in making other disclosures under Sec. 226.5a(b).
5a(b)(7) Statement on charge card payments.
1. Applicability and content. The disclosure that charges are
payable upon receipt of the periodic statement is applicable only to
charge card accounts. In making this disclosure, the card issuer may
make such modifications as are necessary to more accurately reflect
the circumstances of repayment under the account. For example, the
disclosure might read, ``Charges are due and payable upon receipt of
the periodic statement and must be paid no later than 15 days after
receipt of such statement.''
5a(b)(8) Cash advance fee.
1. Content. See Samples G-10(B) and G-10(C) for guidance on how
to disclose clearly and conspicuously the cash advance fee.
2. Foreign cash advances. Cash advance fees required to be
disclosed under Sec. 226.5a(b)(8) include any charge imposed by the
card issuer for cash advances in a foreign currency or that take
place outside the United States or with a foreign merchant. (See
comment 4(a)-4 for guidance on when a foreign transaction fee is
considered charged by the card issuer.) If an issuer charges the
same foreign transaction fee for purchases and cash advances in a
foreign currency or that take place outside the United States or
with a foreign merchant, the issuer may disclose this foreign
transaction fee as shown in Samples G-10(B) and (C). Otherwise, the
issuer must revise the foreign transaction fee language shown in
Samples G-10(B) and (C) to disclose clearly and conspicuously the
amount of the foreign transaction fee that applies to purchases and
the amount of the foreign transaction fee that applies to cash
advances.
3. ATM fees. An issuer is not required to disclose pursuant to
Sec. 226.5a(b)(8) any charges imposed on a cardholder by an
institution other than the card issuer for the use of the other
institution's ATM in a shared or interchange system.
5a(b)(9) Late payment fee.
1. Applicability. The disclosure of the fee for a late payment
includes only those fees that will be imposed for actual,
unanticipated late payments. (See the commentary to Sec.
226.4(c)(2) for additional guidance on late payment fees. See
Samples G-10(B) and G-10(C) for guidance on how to disclose clearly
and conspicuously the late payment fee.)
5a(b)(10) Over-the-limit fee.
1. Applicability. The disclosure of fees for exceeding a credit
limit does not include fees for other types of default or for
services related to exceeding the limit. For example, no disclosure
is required of fees for reinstating credit privileges or fees for
the dishonor of checks on an account that, if paid, would cause the
credit limit to be exceeded. (See Samples G-10(B) and G-10(C) for
guidance on how to disclose clearly and conspicuously the over-the-
limit fee.)
5a(b)(13) Required insurance, debt cancellation, or debt
suspension coverage.
1. Content. See Sample G-10(B) for guidance on how to comply
with the requirements in Sec. 226.5a(b)(13).
[[Page 23010]]
5a(b)(14) Available credit.
1. Calculating available credit. If the 15 percent threshold
test is met, the issuer must disclose the available credit excluding
optional fees, and the available credit including optional fees. In
calculating the available credit to disclose in the table, the
issuer must consider all fees for the issuance or availability of
credit described in Sec. 226.5a(b)(2), and any security deposit,
that will be imposed and charged to the account when the account is
opened, such as one-time issuance and set-up fees. For example, in
calculating the available credit, issuers must consider the first
year's annual fee and the first month's maintenance fee (as
applicable) if they are charged to the account on the first billing
statement. In calculating the amount of the available credit
including optional fees, if optional fees could be charged multiple
times, the issuer shall assume that the optional fee is only imposed
once. For example, if an issuer charges a fee for each additional
card issued on the account, the issuer in calculating the amount of
the available credit including optional fees may assume that the
cardholder requests only one additional card. In disclosing the
available credit, the issuer shall round down the available credit
amount to the nearest whole dollar.
2. Content. See Sample G-10(C) for guidance on how to provide
the disclosure required by Sec. 226.5a(b)(14) clearly and
conspicuously.
5a(b)(15) Web site reference.
1. Content. See Samples G-10(B) and G-10(C) for guidance on
disclosing a reference to the Web site established by the Board and
a statement that consumers may obtain on the Web site information
about shopping for and using credit card accounts.
* * * * *
Sec. 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)(iii) Fixed finance charge; minimum interest charge.
1. Example of brief statement. See Samples G-17(B), G-17(C), and
G-17(D) for guidance on how to provide a brief description of a
minimum interest charge.
6(b)(2)(v) Grace period.
1. Grace period. Creditors must state any conditions on the
applicability of the grace period. 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.'' 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.
2. No grace period. Creditors may use the following language to
describe that no grace period is offered, as applicable: ``We will
begin charging interest on [applicable transactions] on the
transaction date.''
3. Grace period on some features. Some creditors do not offer a
grace period on cash advances and balance transfers, but offer 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 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. In these circumstances, Sec.
226.6(a)(2)(v) requires the creditor to amend the above disclosure
language to describe accurately 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.
6(b)(2)(vi) Balance computation method.
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. 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.
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.
6(b)(2)(xiii) Available credit.
1. Right to reject the plan. Creditors may use the following
language to describe consumers' right to reject a plan after
receiving account-opening disclosures: ``You may still reject this
plan, provided that you have not yet used the account or paid a fee
after receiving a billing statement. If you do reject the plan, you
are not responsible for any fees or charges.''
* * * * *
Sec. 226.7--Periodic Statement
* * * * *
7(b) Rules affecting open-end (not home-secured) plans.
[[Page 23011]]
1. Deferred interest or similar transactions. Creditors offer a
variety of payment plans for purchases that permit consumers to
avoid interest charges if the purchase balance is paid in full by a
certain date. ``Deferred interest'' has the same meaning as in Sec.
226.16(h)(2) and associated commentary. The following provides
guidance for a deferred interest or similar plan where, for example,
no interest charge is imposed on a $500 purchase made in January if
the $500 balance is paid by July 31.
i. Annual percentage rates. Under Sec. 226.7(b)(4), creditors
must disclose each annual percentage rate that may be used to
compute the interest charge. Under some plans with a deferred
interest or similar feature, if the deferred interest balance is not
paid by a certain date, July 31 in this example, interest charges
applicable to the billing cycles between the date of purchase in
January and July 31 may be imposed. Annual percentage rates that may
apply to the deferred interest balance ($500 in this example) if the
balance is not paid in full by July 31 must appear on periodic
statements for the billing cycles between the date of purchase and
July 31. However, if the consumer does not pay the deferred interest
balance by July 31, the creditor is not required to identify, on the
periodic statement disclosing the interest charge for the deferred
interest balance, annual percentage rates that have been disclosed
in previous billing cycles between the date of purchase and July 31.
ii. Balances subject to periodic rates. Under Sec. 226.7(b)(5),
creditors must disclose the balances subject to interest during a
billing cycle. The deferred interest balance ($500 in this example)
is not subject to interest for billing cycles between the date of
purchase and July 31 in this example. Periodic statements sent for
those billing cycles should not include the deferred interest
balance in the balance disclosed under Sec. 226.7(b)(5). This
amount must be separately disclosed on periodic statements and
identified by a term other than the term used to identify the
balance disclosed under Sec. 226.7(b)(5) (such as ``deferred
interest balance''). During any billing cycle in which an interest
charge on the deferred interest balance is debited to the account,
the balance disclosed under Sec. 226.7(b)(5) should include the
deferred interest balance for that billing cycle.
iii. Amount of interest charge. Under Sec. 226.7(b)(6)(ii),
creditors must disclose interest charges imposed during a billing
cycle. For some deferred interest purchases, the creditor may impose
interest from the date of purchase if the deferred interest balance
($500 in this example) is not paid in full by July 31 in this
example, but otherwise will not impose interest for billing cycles
between the date of purchase and July 31. Periodic statements for
billing cycles preceding July 31 in this example should not include
in the interest charge disclosed under Sec. 226.7(b)(6)(ii) the
amounts a consumer may owe if the deferred interest balance is not
paid in full by July 31. In this example, the February periodic
statement should not identify as interest charges interest
attributable to the $500 January purchase. This amount must be
separately disclosed on periodic statements and identified by a term
other than ``interest charge'' (such as ``contingent interest
charge'' or ``deferred interest charge''). The interest charge on a
deferred interest balance should be reflected on the periodic
statement under Sec. 226.7(b)(6)(ii) for the billing cycle in which
the interest charge is debited to the account.
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 any page of 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)(1) Previous balance.
1. Credit balances. If the previous balance is a credit balance,
it must be disclosed in such a way so as to inform the consumer that
it is a credit balance, rather than a debit balance.
2. Multifeatured plans. In a multifeatured plan, the previous
balance may be disclosed either as an aggregate balance for the
account or as separate balances for each feature (for example, a
previous balance for purchases and a previous balance for cash
advances). If separate balances are disclosed, a total previous
balance is optional.
3. Accrued finance charges allocated from payments. Some open-
end credit plans provide that the amount of the finance charge that
has accrued since the consumer's last payment is directly deducted
from each new payment, rather than being separately added to each
statement and reflected as an increase in the obligation. In such a
plan, the previous balance need not reflect finance charges accrued
since the last payment.
7(b)(2) Identification of transactions.
1. Multifeatured plans. Creditors may, but are not required to,
arrange transactions by feature (such as disclosing purchase
transactions separately from cash advance transactions). Pursuant to
Sec. 226.7(b)(6), however, creditors must group all fees and all
interest separately from transactions and may not disclose any fees
or interest charges with transactions.
2. Automated teller machine (ATM) charges imposed by other
institutions in shared or interchange systems. A charge imposed on
the cardholder by an institution other than the card issuer for the
use of the other institution's ATM in a shared or interchange system
and included by the terminal-operating institution in the amount of
the transaction need not be separately disclosed on the periodic
statement.
7(b)(3) Credits.
1. Identification--sufficiency. The creditor need not describe
each credit by type (returned merchandise, rebate of finance charge,
etc.)--``credit'' would suffice--except if the creditor is using the
periodic statement to satisfy the billing-error correction notice
requirement. (See the commentary to Sec. 226.13(e) and (f).)
Credits may be distinguished from transactions in any way that is
clear and conspicuous, for example, by use of debit and credit
columns or by use of plus signs and/or minus signs.
2. Date. If only one date is disclosed (that is, the crediting
date as required by the regulation), no further identification of
that date is necessary. More than one date may be disclosed for a
single entry, as long as it is clear which date represents the date
on which credit was given.
3. Totals. A total of amounts credited during the billing cycle
is not required.
7(b)(4) Periodic rates.
1. Disclosure of periodic interest rates--whether or not
actually applied. Except as provided in Sec. 226.7(b)(4)(ii), any
periodic interest rate that may be used to compute finance charges,
expressed as and labeled ``Annual Percentage Rate,'' must be
disclosed whether or not it is applied during the billing cycle. For
example:
i. If the consumer's account has both a purchase feature and a
cash advance feature, the creditor must disclose the annual
percentage rate for each, even if the consumer only makes purchases
on the account during the billing cycle.
ii. If the annual percentage rate varies (such as when it is
tied to a particular index), the creditor must disclose each annual
percentage rate in effect during the cycle for which the statement
was issued.
2. Disclosure of periodic interest rates required only if
imposition possible. With regard to the periodic interest rate
disclosure (and its corresponding annual percentage rate), only
rates that could have been imposed during the billing cycle
reflected on the periodic statement need to be disclosed. For
example:
i. If the creditor is changing annual percentage rates effective
during the next billing cycle (either because it is changing terms
or because of a variable-rate plan), the annual percentage rates
required to be disclosed under Sec. 226.7(b)(4) are only those in
effect during the billing cycle reflected on the periodic statement.
For example, if the annual percentage rate applied during May was
18%, but the creditor will increase the rate to 21% effective June
1, 18% is the only required disclosure under Sec. 226.7(b)(4) for
the periodic statement reflecting the May account activity.
ii. If the consumer has an overdraft line that might later be
expanded upon the consumer's request to include secured advances,
the rates for the secured advance feature need not be given until
such time as the consumer has requested and received access to the
additional feature.
iii. If annual percentage rates applicable to a particular type
of transaction changed after a certain date and the old rate is only
being applied to transactions that took place prior to that date,
the creditor need not continue to disclose the old rate for those
consumers that have no outstanding balances to which that rate could
be applied.
3. Multiple rates--same transaction. If two or more periodic
rates are applied to the same balance for the same type of
transaction (for example, if the interest charge consists of a
monthly periodic interest rate of 1.5%
[[Page 23012]]
applied to the outstanding balance and a required credit life
insurance component calculated at 0.1% per month on the same
outstanding balance), creditors must disclose the periodic interest
rate, expressed as an 18% annual percentage rate and the range of
balances to which it is applicable. Costs attributable to the credit
life insurance component must be disclosed as a fee under Sec.
226.7(b)(6)(iii).
4. Fees. Creditors that identify fees in accordance with Sec.
226.7(b)(6)(iii) need not identify the periodic rate at which a fee
would accrue if the fee remains unpaid. For example, assume a fee is
imposed for a late payment in the previous cycle and that the fee,
unpaid, would be included in the purchases balance and accrue
interest at the rate for purchases. The creditor need not separately
disclose that the purchase rate applies to the portion of the
purchases balance attributable to the unpaid fee.
5. Ranges of balances. See comment 6(b)(4)(i)(B)-1. A creditor
is not required to adjust the range of balances disclosure to
reflect the balance below which only a minimum charge applies.
6. Deferred interest transactions. See comment 7(b)-1.i.
7(b)(5) Balance on which finance charge computed.
1. Split rates applied to balance ranges. If split rates were
applied to a balance because different portions of the balance fall
within two or more balance ranges, the creditor need not separately
disclose the portions of the balance subject to such different rates
since the range of balances to which the rates apply has been
separately disclosed. For example, a creditor could disclose a
balance of $700 for purchases even though a monthly periodic rate of
1.5% applied to the first $500, and a monthly periodic rate of 1% to
the remainder. This option to disclose a combined balance does not
apply when the interest charge is computed by applying the split
rates to each day's balance (in contrast, for example, to applying
the rates to the average daily balance). In that case, the balances
must be disclosed using any of the options that are available if two
or more daily rates are imposed. (See comment 7(b)(5)-4.)
2. Monthly rate on average daily balance. Creditors may apply a
monthly periodic rate to an average daily balance.
3. Multifeatured plans. In a multifeatured plan, the creditor
must disclose a separate balance (or balances, as applicable) to
which a periodic rate was applied for each feature. Separate
balances are not required, however, merely because a grace period is
available for some features but not others. A total balance for the
entire plan is optional. This does not affect how many balances the
creditor must disclose--or may disclose--within each feature. (See,
for example, comments 7(b)(5)-4 and 7(b)(4)-5.)
4. Daily rate on daily balance. i. If a finance charge is
computed on the balance each day by application of one or more daily
periodic interest rates, the balance on which the interest charge
was computed may be disclosed in any of the following ways for each
feature:
ii. If a single daily periodic interest rate is imposed, the
balance to which it is applicable may be stated as:
A. A balance for each day in the billing cycle.
B. A balance for each day in the billing cycle on which the
balance in the account changes.
C. The sum of the daily balances during the billing cycle.
D. The average daily balance during the billing cycle, in which
case the creditor may, at its option, explain that the average daily
balance is or can be multiplied by the number of days in the billing
cycle and the periodic rate applied to the product to determine the
amount of interest.
iii. If two or more daily periodic interest rates may be
imposed, the balances to which the rates are applicable may be
stated as:
A. A balance for each day in the billing cycle.
B. A balance for each day in the billing cycle on which the
balance in the account changes.
C. Two or more average daily balances, each applicable to the
daily periodic interest rates imposed for the time that those rates
were in effect. The creditor may, at its option, explain that
interest is or may be determined by (1) multiplying each of the
average balances by the number of days in the billing cycle (or if
the daily rate varied during the cycle, by multiplying by the number
of days the applicable rate was in effect), (2) multiplying each of
the results by the applicable daily periodic rate, and (3) adding
these products together.
5. Information to compute balance. In connection with disclosing
the interest charge balance, the creditor need not give the consumer
all of the information necessary to compute the balance if that
information is not otherwise required to be disclosed. For example,
if current purchases are included from the date they are posted to
the account, the posting date need not be disclosed.
6. Non-deduction of credits. The creditor need not specifically
identify the total dollar amount of credits not deducted in
computing the finance charge balance. Disclosure of the amount of
credits not deducted is accomplished by listing the credits (Sec.
226.7(b)(3)) and indicating which credits will not be deducted in
determining the balance (for example, ``credits after the 15th of
the month are not deducted in computing the interest charge.'').
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). 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.
7(b)(6) Charges imposed.
1. Examples of charges. See commentary to Sec. 226.6(b)(3).
2. Fees. Costs attributable to periodic rates other than
interest charges shall be disclosed as a fee. For example, if a
consumer obtains credit life insurance that is calculated at 0.1%
per month on an outstanding balance and a monthly interest rate of
1.5% applies to the same balance, the creditor must
[[Page 23013]]
disclose the dollar cost attributable to interest as an ``interest
charge'' and the credit insurance cost as a ``fee.''
3. Total fees and interest charged 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 calendar-year-to-date totals at the
end of the calendar year by separately aggregating finance charges
attributable to periodic interest rates and 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 separate year-to-date totals for interest charged and
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 separate year-to-date totals for
interest charged and fees imposed January 1, 2011, through December
31, 2011.
B. A creditor may disclose calendar-year-to-date totals at the
end of the calendar year by separately aggregating finance charges
attributable to periodic interest rates and 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 separate year-to-date totals for interest charged and
fees imposed from December 10, 2010, through December 9, 2011.
ii. Quarterly statements. Creditors issuing quarterly statements
may apply the guidance set forth for monthly statements to comply
with the requirement to provide calendar year-to-date totals on
quarterly statements.
4. Minimum charge in lieu of interest. A minimum charge imposed
if a charge would otherwise have been determined by applying a
periodic rate to a balance except for the fact that such charge is
smaller than the minimum must be disclosed as a fee. For example,
assume a creditor imposes a minimum charge of $1.50 in lieu of
interest if the calculated interest for a billing period is less
than that minimum charge. If the interest calculated on a consumer's
account for a particular billing period is 50 cents, the minimum
charge of $1.50 would apply. In this case, the entire $1.50 would be
disclosed as a fee; the periodic statement would reflect the $1.50
as a fee, and $0 in interest.
5. Adjustments to year-to-date totals. In some cases, a creditor
may provide a statement for the current period reflecting that fees
or interest charges imposed during a previous period were waived or
reversed and credited to the account. Creditors may, but are not
required to, reflect the adjustment in the year-to-date totals, nor,
if an adjustment is made, to provide an explanation about the reason
for the adjustment. Such adjustments should not affect the total
fees or interest charges imposed for the current statement period.
6. Acquired accounts. An institution that acquires an account or
plan must include, as applicable, fees and charges imposed on the
account or plan prior to the acquisition in the aggregate
disclosures provided under Sec. 226.7(b)(6) for the acquired
account or plan. Alternatively, the institution may provide separate
totals reflecting activity prior and subsequent to the account or
plan acquisition. For example, a creditor that acquires an account
or plan on August 12 of a given calendar year may provide one total
for the period from January 1 to August 11 and a separate total for
the period beginning on August 12.
7. Account upgrades. A creditor that upgrades, or otherwise
changes, a consumer's plan to a different open-end credit plan must
include, as applicable, fees and charges imposed for that portion of
the calendar year prior to the upgrade or change in the consumer's
plan in the aggregate disclosures provided pursuant to Sec.
226.7(b)(6) for the new plan. For example, assume a consumer has
incurred $125 in fees for the calendar year to date for a retail
credit card account, which is then replaced by a cobranded credit
card account also issued by the creditor. In this case, the creditor
must reflect the $125 in fees incurred prior to the replacement of
the retail credit card account in the calendar year-to-date totals
provided for the cobranded credit card account. Alternatively, the
institution may provide two separate totals reflecting activity
prior and subsequent to the plan upgrade or change.
7(b)(7) Change-in-terms and increased penalty rate summary for
open-end (not home-secured) plans.
1. Location of summary tables. If a change-in-terms notice
required by Sec. 226.9(c)(2) is provided on or with a periodic
statement, a tabular summary of key changes must appear on the front
of the statement. Similarly, if a notice of a rate increase due to
delinquency or default or as a penalty required by Sec. 226.9(g)(1)
is provided on or with a periodic statement, information required to
be provided about the increase, presented in a table, must appear on
the front of the statement.
7(b)(8) Grace period.
1. Terminology. In describing the grace period, the language
used must be consistent with that used on the account-opening
disclosure statement. (See Sec. 226.5(a)(2)(i).)
2. Deferred interest transactions. See comment 7(b)-1.iv.
3. Limitation on the imposition of finance charges in Sec.
226.54. Section 226.7(b)(8) does not require a card issuer to
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 transactions as
a result of a loss of a grace period.
7(b)(9) Address for notice of billing errors.
1. Terminology. The periodic statement should indicate the
general purpose for the address for billing-error inquiries,
although a detailed explanation or particular wording is not
required.
2. Telephone number. A telephone number, e-mail address, or Web
site location may be included, but the mailing address for billing-
error inquiries, which is the required disclosure, must be clear and
conspicuous. The address is deemed to be clear and conspicuous if a
precautionary instruction is included that telephoning or notifying
the creditor by e-mail or Web site will not preserve the consumer's
billing rights, unless the creditor has agreed to treat billing
error notices provided by electronic means as written notices, in
which case the precautionary instruction is required only for
telephoning.
7(b)(10) Closing date of billing cycle; new balance.
1. Credit balances. See comment 7(b)(1)-1.
2. Multifeatured plans. In a multifeatured plan, the new balance
may be disclosed for each feature or for the plan as a whole. If
separate new balances are disclosed, a total new balance is
optional.
3. Accrued finance charges allocated from payments. Some plans
provide that the amount of the finance charge that has accrued since
the consumer's last payment is directly deducted from each new
payment, rather than being separately added to each statement and
therefore reflected as an increase in the obligation. In such a
plan, the new balance need not reflect finance charges accrued since
the last payment.
7(b)(11) Due date; late payment costs.
1. Informal periods affecting late payments. Although the terms
of the account agreement may provide that a card issuer may assess a
late payment fee if a payment is not received by a certain date, the
card issuer may have an informal policy or practice that delays the
assessment of the late payment fee for payments received a brief
period of time after the date upon which a card issuer has the
contractual right to impose the fee. A card issuer must disclose the
due date according to the legal obligation between the parties, and
need not consider the end of an informal ``courtesy period'' as the
due date under Sec. 226.7(b)(11).
2. Assessment of late payment fees. Some state or other laws
require that a certain number of days must elapse following a due
date before a late payment fee may be imposed. In addition, a card
issuer may be restricted by the terms of the account agreement from
imposing a late payment fee until a payment is late for a certain
number of days following a due date. For example, assume a payment
is due on March 10 and the account agreement or state law provides
that a late payment fee cannot be assessed before March 21. A card
issuer must disclose the due date under the terms of the legal
obligation (March 10 in this example), and not a date different than
the due date, such as when the card issuer is restricted by the
account agreement or state or other law from imposing a late payment
fee unless a payment is late for a certain number of days following
the due date (March 21 in this example). Consumers' rights under
state law to avoid the imposition of late payment fees during a
specified period following a due date are unaffected by the
disclosure requirement. In this example, the card issuer would
disclose March 10 as the due date for purposes of Sec.
226.7(b)(11), but could not, under state law, assess a late payment
fee before March 21.
[[Page 23014]]
3. Fee or rate triggered by multiple events. If a late payment
fee or penalty rate is triggered after multiple events, such as two
late payments in six months, the card issuer may, but is not
required to, disclose the late payment and penalty rate disclosure
each month. The disclosures must be included on any periodic
statement for which a late payment could trigger the late payment
fee or penalty rate, such as after the consumer made one late
payment in this example. For example, if a cardholder has already
made one late payment, the disclosure must be on each statement for
the following five billing cycles.
4. Range of late fees or penalty rates. A card issuer that
imposes a range of late payment fees or rates on a credit card
account under an open-end (not home-secured) consumer credit plan
may state the highest fee or rate along with an indication lower
fees or rates could be imposed. For example, a phrase indicating the
late payment fee could be ``up to $29'' complies with this
requirement.
5. Penalty rate in effect. If the highest penalty rate has
previously been triggered on an account, the card issuer may, but is
not required to, delete the amount of the penalty rate and the
warning that the rate may be imposed for an untimely payment, as not
applicable. Alternatively, the card issuer may, but is not required
to, modify the language to indicate that the penalty rate has been
increased due to previous late payments (if applicable).
6. Same day each month. The requirement that the due date be the
same day each month means that the due date must generally be the
same numerical date. For example, a consumer's due date could be the
25th of every month. In contrast, a due date that is the same
relative date but not numerical date each month, such as the third
Tuesday of the month, generally would not comply with this
requirement. However, a consumer's due date may be the last day of
each month, even though that date will not be the same numerical
date. For example, if a consumer's due date is the last day of each
month, it will fall on February 28th (or February 29th in a leap
year) and on August 31st.
7. Change in due date. A creditor may adjust a consumer's due
date from time to time provided that the new due date will be the
same numerical date each month on an ongoing basis. For example, a
creditor may choose to honor a consumer's request to change from a
due date that is the 20th of each month to the 5th of each month, or
may choose to change a consumer's due date from time to time for
operational reasons. See comment 2(a)(4)-3 for guidance on
transitional billing cycles.
8. Billing cycles longer than one month. The requirement that
the due date be the same day each month does not prohibit billing
cycles that are two or three months, provided that the due date for
each billing cycle is on the same numerical date of the month. For
example, a creditor that establishes two-month billing cycles could
send a consumer periodic statements disclosing due dates of January
25, March 25, and May 25.
9. Payment due date when the creditor does not accept or receive
payments by mail. If the due date in a given month falls on a day on
which the creditor does not receive or accept payments by mail and
the creditor is required to treat a payment received the next
business day as timely pursuant to Sec. 226.10(d), the creditor
must disclose the due date according to the legal obligation between
the parties, not the date as of which the creditor is permitted to
treat the payment as late. For example, assume that the consumer's
due date is the 4th of every month and the creditor does not accept
or receive payments by mail on Thursday, July 4. Pursuant to Sec.
226.10(d), the creditor may not treat a mailed payment received on
the following business day, Friday, July 5, as late for any purpose.
The creditor must nonetheless disclose July 4 as the due date on the
periodic statement and may not disclose a July 5 due date.
7(b)(12) Repayment disclosures.
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.
Paragraph 7(b)(12)(i)(F).
1. Minimum payment repayment estimate disclosed on the periodic
statement is three years or less. Section 226.7(b)(12)(i)(F)(2)(i)
provides that a credit card issuer is not required to provide the
disclosures related to repayment in 36 months if the minimum payment
repayment estimate disclosed under Sec. 226.7(b)(12)(i)(B) after
rounding is 3 years or less. For example, if the minimum payment
repayment estimate is 2 years 6 months to 3 years 5 months, issuers
would be required under Sec. 226.7(b)(12)(i)(B) to disclose that it
would take 3 years to pay off the balance in full if making only the
minimum payment. In these cases, an issuer would not be required to
disclose the 36-month disclosures on the periodic statement because
the minimum payment repayment estimate disclosed to the consumer on
the periodic statement (after rounding) is 3 years or less.
7(b)(12)(iv) Provision of information about credit counseling
services.
1. Approved organizations. Section 226.7(b)(12)(iv)(A) requires
card issuers to provide information regarding at least three
organizations that have been approved by the United States Trustee
or a bankruptcy administrator pursuant to 11 U.S.C. 111(a)(1) to
provide credit counseling services in, at the card issuer's option,
either the state in which the billing address for the account is
located or the state specified by the consumer. A card issuer does
not satisfy the requirements in Sec. 226.7(b)(12)(iv)(A) by
providing information regarding providers that have been approved
pursuant to 11 U.S.C. 111(a)(2) to offer personal financial
management courses.
2. Information regarding approved organizations. i. Provision of
information obtained from United States Trustee or bankruptcy
administrator. A card issuer complies with the requirements of Sec.
226.7(b)(12)(iv)(A) if, through the toll-free number disclosed
pursuant to Sec. 226.7(b)(12)(i) or (b)(12)(ii), it provides the
consumer with information obtained from the United States Trustee or
a bankruptcy administrator, such as information obtained from the
Web site operated by the United States Trustee. Section
226.7(b)(12)(iv)(A) does not require a card issuer to provide
information that is not available from the United States Trustee or
a bankruptcy administrator. If, for example, the Web site address
for an organization approved by the United States Trustee is not
available from the Web site operated by the United States Trustee, a
card issuer is not required to provide a Web site address for that
organization. However, Sec. 226.7(b)(12)(iv)(B) requires the card
issuer to, at least annually, update the information it provides for
consistency with the information provided by the United States
Trustee or a bankruptcy administrator.
ii. Provision of information consistent with request of approved
organization. If requested by an approved organization, a card
issuer may at its option provide, in addition to the name of the
organization obtained from the United States Trustee or a bankruptcy
administrator, another name used by that organization through the
toll-free number disclosed pursuant to Sec. 226.7(b)(12)(i) or
(b)(12)(ii). In addition, if requested by an approved organization,
a card issuer may at its option provide through the toll-free number
disclosed pursuant to Sec. 226.7(b)(12)(i) or (b)(12)(ii) a street
address, telephone number, or Web site address for the organization
that is different than the street address, telephone number, or Web
site address obtained from the United States Trustee or a bankruptcy
administrator. However, if requested by an approved organization, a
card issuer must not provide information regarding that organization
through the toll-free number disclosed pursuant to Sec.
226.7(b)(12)(i) or (b)(12)(ii).
iii. Information regarding approved organizations that provide
credit counseling services in a language other than English. A card
issuer may at its option provide through the toll-free number
disclosed pursuant to Sec. 226.7(b)(12)(i) or (b)(12)(ii)
information regarding approved organizations that provide credit
counseling services in languages other than English. In the
alternative, a card issuer may at its option state that such
information is available from the Web site operated by the United
States Trustee. Disclosing this Web site address does not by itself
constitute a statement that organizations have been approved by the
United States Trustee for purposes of comment 7(b)(12)(iv)-2.iv.
iv. Statements regarding approval by the United States Trustee
or a bankruptcy
[[Page 23015]]
administrator. Section 226.7(b)(12)(iv) does not require a card
issuer to disclose through the toll-free number disclosed pursuant
to Sec. 226.7(b)(12)(i) or (b)(12)(ii) that organizations have been
approved by the United States Trustee or a bankruptcy administrator.
However, if a card issuer chooses to make such a disclosure, Sec.
226.7(b)(12)(iv) requires that the card issuer also disclose that:
A. The United States Trustee or a bankruptcy administrator has
determined that the organizations meet the minimum requirements for
nonprofit pre-bankruptcy budget and credit counseling;
B. The organizations may provide other credit counseling
services that have not been reviewed by the United States Trustee or
a bankruptcy administrator; and
C. The United States Trustee or the bankruptcy administrator
does not endorse or recommend any particular organization.
3. Automated response systems or devices. At their option, card
issuers may use toll-free telephone numbers that connect consumers
to automated systems, such as an interactive voice response system,
through which consumers may obtain the information required by Sec.
226.7(b)(12)(iv) by inputting information using a touch-tone
telephone or similar device.
4. Toll-free telephone number. A card issuer may provide a toll-
free telephone number that is designed to handle customer service
calls generally, so long as the option to receive the information
required by Sec. 226.7(b)(12)(iv) is prominently disclosed to the
consumer. For automated systems, the option to receive the
information required by Sec. 226.7(b)(12)(iv) is prominently
disclosed to the consumer if it is listed as one of the options in
the first menu of options given to the consumer, such as ``Press or
say `3' if you would like information about credit counseling
services.'' If the automated system permits callers to select the
language in which the call is conducted and in which information is
provided, the menu to select the language may precede the menu with
the option to receive information about accessing credit counseling
services.
5. Third parties. At their option, card issuers may use a third
party to establish and maintain a toll-free telephone number for use
by the issuer to provide the information required by Sec.
226.7(b)(12)(iv).
6. Web site address. When making the repayment disclosures on
the periodic statement pursuant to Sec. 226.7(b)(12), a card issuer
at its option may also include a reference to a Web site address (in
addition to the toll-free telephone number) where its customers may
obtain the information required by Sec. 226.7(b)(12)(iv), so long
as the information provided on the Web site complies with Sec.
226.7(b)(12)(iv). The Web site address disclosed must take consumers
directly to the Web page where information about accessing credit
counseling may be obtained. In the alternative, the card issuer may
disclose the Web site address for the Web page operated by the
United States Trustee where consumers may obtain information about
approved credit counseling organizations. Disclosing this Web site
address does not by itself constitute a statement that organizations
have been approved by the United States Trustee for purposes of
comment 7(b)(12)(iv)-2.iv.
7. Advertising or marketing information. If a consumer requests
information about credit counseling services, the card issuer may
not provide advertisements or marketing materials to the consumer
(except for providing the name of the issuer) prior to providing the
information required by Sec. 226.7(b)(12)(iv). Educational
materials that do not solicit business are not considered
advertisements or marketing materials for this purpose. Examples:
i. Toll-free telephone number. As described in comment
7(b)(12)(iv)-4, an issuer may provide a toll-free telephone number
that is designed to handle customer service calls generally, so long
as the option to receive the information required by Sec.
226.7(b)(12)(iv) through that toll-free telephone number is
prominently disclosed to the consumer. Once the consumer selects the
option to receive the information required by Sec.
226.7(b)(12)(iv), the issuer may not provide advertisements or
marketing materials to the consumer (except for providing the name
of the issuer) prior to providing the required information.
ii. Web page. If the issuer discloses a link to a Web site
address as part of the disclosures pursuant to comment 7(b)(12)(iv)-
6, the issuer may not provide advertisements or marketing materials
(except for providing the name of the issuer) on the Web page
accessed by the address prior to providing the information required
by Sec. 226.7(b)(12)(iv).
7(b)(12)(v) Exemptions.
1. Billing cycle where paying the minimum payment due for that
billing cycle will pay the outstanding balance on the account for
that billing cycle. Under Sec. 226.7(b)(12)(v)(C), a card issuer is
exempt from the repayment disclosure requirements set forth in Sec.
226.7(b)(12) for a particular billing cycle where paying the minimum
payment due for that billing cycle will pay the outstanding balance
on the account for that billing cycle. For example, if the entire
outstanding balance on an account for a particular billing cycle is
$20 and the minimum payment is $20, an issuer would not need to
comply with the repayment disclosure requirements for that
particular billing cycle. In addition, this exemption would apply to
a charged-off account where payment of the entire account balance is
due immediately.
7(b)(13) Format requirements.
1. Combined deposit account and credit account statements. Some
financial institutions provide information about deposit account and
open-end credit account activity on one periodic statement. For
purposes of providing disclosures on the front of the first page of
the periodic statement pursuant to Sec. 226.7(b)(13), the first
page of such a combined statement shall be the page on which credit
transactions first appear.
* * * * *
Sec. 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.
1. Front of the page containing the checks. The following would
comply with the requirement that the tabular disclosures provided
pursuant to Sec. 226.9(b)(3) appear on the front of the page
containing the checks:
i. Providing the tabular disclosure on the front of the first
page on which checks appear, for an offer where checks are provided
on multiple pages;
ii. Providing the tabular disclosure on the front of a mini-book
or accordion booklet containing the checks; or
iii. Providing the tabular disclosure on the front of the
solicitation letter, when the checks are printed on the front of the
same page as the solicitation letter even if the checks can be
separated by the consumer from the solicitation letter using
perforations.
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).
Paragraph 9(b)(3)(i)(D).
1. Grace period. A creditor may not disclose under Sec.
226.9(b)(3)(i)(D) 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 credit extended by the use of an access
check under which interest will not be charged on the check
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.
226.9(b)(3)(i)(D) requires that the creditor disclose the grace
period 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 check transactions if you pay your entire balance by the
due date each month.'' However, other creditors may offer a grace
period on check transactions under which interest may be charged on
check 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.
226.9(b)(3)(i)(D) requires the creditor to amend the above
disclosure language to describe accurately the conditions on the
applicability of the grace period. Creditors may use the following
language to describe that no grace period on check transactions is
offered, as applicable: ``We will begin
[[Page 23016]]
charging interest on these checks on the transaction date.''
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 consistent with any
applicable requirements, such as 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 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 a rate or fee at its discretion.
2. State law issues. Some issues are not addressed by Sec.
226.9(c)(2) because they are controlled by state or other applicable
laws. These issues include the types of changes a creditor may make,
to the extent otherwise permitted by this regulation.
3. Change in billing cycle. Whenever the creditor changes the
consumer's billing cycle, it must give a change-in-terms notice if
the change affects any of the terms described in Sec.
226.9(c)(2)(i), unless an exception under Sec. 226.9(c)(2)(v)
applies; for example, the creditor must give advance notice if the
creditor initially disclosed a 28-day grace period on purchases and
the consumer will have fewer days during the billing cycle change.
See also Sec. 226.7(b)(11)(i)(A) regarding the general requirement
that the payment due date for a credit card account under an open-
end (not home-secured) consumer credit plan must be the same day
each month.
4. Relationship to Sec. 226.9(b). If a creditor adds a feature
to the account on the type of terms otherwise required to be
disclosed under Sec. 226.6, the creditor must satisfy: The
requirement to provide the finance charge disclosures for the added
feature under Sec. 226.9(b); and any applicable requirement to
provide a change-in-terms notice under Sec. 226.9(c), including any
advance notice that must be provided. For example, if a creditor
adds a balance transfer feature to an account more than 30 days
after account-opening disclosures are provided, it must give the
finance charge disclosures for the balance transfer feature under
Sec. 226.9(b) as well as comply with the change-in-terms notice
requirements under Sec. 226.9(c), including providing notice of the
change at least 45 days prior to the effective date of the change.
Similarly, if a creditor makes a balance transfer offer on finance
charge terms that are higher than those previously disclosed for
balance transfers, it would also generally be required to provide a
change-in-terms notice at least 45 days in advance of the effective
date of the change. A creditor may provide a single notice under
Sec. 226.9(c) to satisfy the notice requirements of both paragraphs
(b) and (c) of Sec. 226.9. For checks that access a credit card
account subject to the disclosure requirements in Sec. 226.9(b)(3),
a creditor is not subject to the notice requirements under Sec.
226.9(c) even if the applicable rate or fee is higher than those
previously disclosed for such checks. Thus, for example, the
creditor need not wait 45 days before applying the new rate or fee
for transactions made using such checks, but the creditor must make
the required disclosures on or with the checks in accordance with
Sec. 226.9(b)(3).
9(c)(2)(i) Changes where written advance notice is required.
1. Affected consumers. Change-in-terms notices need only go to
those consumers who may be affected by the change. For example, a
change in the periodic rate for check overdraft credit need not be
disclosed to consumers who do not have that feature on their
accounts. If a single credit account involves multiple consumers
that may be affected by the change, the creditor should refer to
Sec. 226.5(d) to determine the number of notices that must be
given.
2. Timing--effective date of change. The rule that the notice of
the change in terms be provided at least 45 days before the change
takes effect permits mid-cycle changes when there is clearly no
retroactive effect, such as the imposition of a transaction fee. Any
change in the balance computation method, in contrast, would need to
be disclosed at least 45 days prior to the billing cycle in which
the change is to be implemented.
3. Changes agreed to by the consumer. See also comment
5(b)(1)(i)-6.
4. Form of change-in-terms notice. Except if Sec.
226.9(c)(2)(iv) applies, a complete new set of the initial
disclosures containing the changed term complies with Sec.
226.9(c)(2)(i) if the change is highlighted on the disclosure
statement, or if the disclosure statement is accompanied by a letter
or some other insert that indicates or draws attention to the term
being changed.
5. Security interest change--form of notice. A creditor must
provide a description of any security interest it is acquiring under
Sec. 226.9(c)(2)(iv). A copy of the security agreement that
describes the collateral securing the consumer's account may also be
used as the notice, when the term change is the addition of a
security interest or the addition or substitution of collateral.
6. Examples. See comment 55(a)-1 and 55(b)-3 for examples of how
a card issuer that is subject to Sec. 226.55 may comply with the
timing requirements for notices required by Sec. 226.9(c)(2)(i).
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 must 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.
1. Changing margin for calculating a variable rate. If a
creditor is changing a margin used to calculate a variable rate, the
creditor must disclose the amount of the new rate (as calculated
using the new margin) in the table described in Sec.
226.9(c)(2)(iv), and include a reminder that the rate is a variable
rate. For example, if a creditor is changing the margin for a
variable rate that uses the prime rate as an index, the creditor
must disclose in the table the new rate (as calculated using the new
margin) and indicate that the rate varies with the market based on
the prime rate.
2. Changing index for calculating a variable rate. If a creditor
is changing the index used to calculate a variable rate, the
creditor must disclose the amount of the new rate (as calculated
using the new index) and indicate that the rate varies and how the
rate is determined, as explained in Sec. 226.6(b)(2)(i)(A). For
example, if a creditor is changing from using a prime rate to using
the LIBOR in calculating a variable rate, the creditor would
disclose in the table the new rate (using the new index) and
indicate that the rate varies with the market based on the LIBOR.
3. Changing from a variable rate to a non-variable rate. If a
creditor is changing a rate applicable to a consumer's account from
a variable rate to a non-variable rate, the creditor generally 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. 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. Finally, 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 Sec.
226.55(b)(4).
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
[[Page 23017]]
non-variable rate to a variable rate, the creditor generally 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. 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. Finally, 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 Sec.
226.55(b)(4). See comment 55(b)(2)-4 regarding the limitations in
Sec. 226.55(b)(2) on changing the rate that applies to a protected
balance from a non-variable rate to a variable rate.
5. Changes in the penalty rate, the triggers for the penalty
rate, or how long the penalty rate applies. If a creditor is
changing the amount of the penalty rate, the creditor must also
redisclose the triggers for the penalty rate and the information
about how long the penalty rate applies even if those terms are not
changing. Likewise, if a creditor is changing the triggers for the
penalty rate, the creditor must redisclose the amount of the penalty
rate and information about how long the penalty rate applies. If a
creditor is changing how long the penalty rate applies, the creditor
must redisclose the amount of the penalty rate and the triggers for
the penalty rate, even if they are not changing.
6. Changes in fees. If a creditor is changing part of how a fee
that is disclosed in a tabular format under Sec. 226.6(b)(1) and
(b)(2) is determined, the creditor must redisclose all relevant
information related to that fee regardless of whether this other
information is changing. For example, if a creditor currently
charges a cash advance fee of ``Either $5 or 3% of the transaction
amount, whichever is greater. (Max: $100),'' and the creditor is
only changing the minimum dollar amount from $5 to $10, the issuer
must redisclose the other information related to how the fee is
determined. For example, the creditor in this example would disclose
the following: ``Either $10 or 3% of the transaction amount,
whichever is greater. (Max: $100).''
7. Combining a notice described in Sec. 226.9(c)(2)(iv) with a
notice described in Sec. 226.9(g)(3). If a creditor is required to
provide a notice described in Sec. 226.9(c)(2)(iv) and a notice
described in Sec. 226.9(g)(3) to a consumer, the creditor may
combine the two notices. This would occur if penalty pricing has
been triggered, and other terms are changing on the consumer's
account at the same time.
8. Content. Sample G-20 contains an example of how to comply
with the requirements in Sec. 226.9(c)(2)(iv) when a variable rate
is being changed to a non-variable rate on a credit card account.
The sample explains when the new rate will apply to new transactions
and to which balances the current rate will continue to apply.
Sample G-21 contains an example of how to comply with the
requirements in Sec. 226.9(c)(2)(iv) when the late payment fee on a
credit card account is being increased, and the returned payment fee
is also being increased. The sample discloses the consumer's right
to reject the changes in accordance with Sec. 226.9(h).
9. Clear and conspicuous standard. See comment 5(a)(1)-1 for the
clear and conspicuous standard applicable to disclosures required
under Sec. 226.9(c)(2)(iv)(A)(1).
10. Terminology. See Sec. 226.5(a)(2) for terminology
requirements applicable to disclosures required under Sec.
226.9(c)(2)(iv)(A)(1).
11. Reasons for increase. i. In general. Section
226.9(c)(2)(iv)(A)(8) requires card issuers to disclose the
principal reason(s) for increasing an annual percentage rate
applicable to a credit card account under an open-end (not home-
secured) consumer credit plan. The regulation does not mandate a
minimum number of reasons that must be disclosed. However, the
specific reasons disclosed under Sec. 226.9(c)(2)(iv)(A)(8) are
required to relate to and accurately describe the principal factors
actually considered by the card issuer in increasing the rate. A
card issuer may describe the reasons for the increase in general
terms. For example, the notice of a rate increase triggered by a
decrease of 100 points in a consumer's credit score may state that
the increase is due to ``a decline in your creditworthiness'' or ``a
decline in your credit score.'' Similarly, a notice of a rate
increase triggered by a 10% increase in the card issuer's cost of
funds may be disclosed as ``a change in market conditions.'' In some
circumstances, it may be appropriate for a card issuer to combine
the disclosure of several reasons in one statement. However, Sec.
226.9(c)(2)(iv)(A)(8) requires that the notice specifically disclose
any violation of the terms of the account on which the rate is being
increased, such as a late payment or a returned payment, if such
violation of the account terms is one of the four principal reasons
for the rate increase.
ii. Example. Assume that a consumer made a late payment on the
credit card account on which the rate increase is being imposed,
made a late payment on a credit card account with another card
issuer, and the consumer's credit score decreased, in part due to
such late payments. The card issuer may disclose the reasons for the
rate increase as a decline in the consumer's credit score and the
consumer's late payment on the account subject to the increase.
Because the late payment on the credit card account with the other
issuer also likely contributed to the decline in the consumer's
credit score, it is not required to be separately disclosed.
However, the late payment on the credit card account on which the
rate increase is being imposed must be specifically disclosed even
if that late payment also contributed to the decline in the
consumer's credit score.
9(c)(2)(v) Notice not required.
1. Changes not requiring notice. The following are examples of
changes that do not require a change-in-terms notice:
i. A change in the consumer's credit limit except as otherwise
required by Sec. 226.9(c)(2)(vi).
ii. A change in the name of the credit card or credit card plan.
iii. The substitution of one insurer for another.
iv. A termination or suspension of credit privileges.
v. Changes arising merely by operation of law; for example, if
the creditor's security interest in a consumer's car automatically
extends to the proceeds when the consumer sells the car.
2. Skip features. i. Skipped or reduced payments. If a credit
program allows consumers to skip or reduce one or more payments
during the year, no notice of the change in terms is required either
prior to the reduction in payments or upon resumption of the higher
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 payment schedule, 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 skip feature may also be used to notify the
consumer of the resumption of the original payment schedule, either
by stating explicitly when the higher resumes 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 or fees. If a credit
program involves temporary reductions in an interest rate or fee, no
notice of the change in terms is required either prior to the
reduction or upon resumption of the original rate or fee 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 or fee, even
though no notice is required prior to the reduction. The notice
provided prior to resuming the original rate or fee 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. See
comment 9(c)(2)(iv)-3.
4. Changing from a non-variable rate to a variable rate. See
comment 9(c)(2)(iv)-4.
5. Temporary rate or fee 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) or the imposition
of a fee that will be in effect for a specified period of time (a
temporary fee) if:
i. The consumer accepts the offer of the temporary rate or
temporary fee by telephone;
[[Page 23018]]
ii. The creditor permits the consumer to reject the temporary
rate or temporary fee offer and have the rate or rates or fee 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), 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; and
iii. The disclosures required by Sec. 226.9(c)(2)(v)(B) and the
consumer's right to reject the temporary rate or temporary fee offer
and have the rate or rates or fee that previously applied to the
consumer's account reinstated, if applicable, are disclosed to the
consumer as part of the temporary rate or temporary fee 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 or fee in the disclosure provided to the consumer.
For purposes of Sec. 226.9(c)(2)(v)(B), the first statement of the
temporary rate or fee is the most prominent listing on the front
side of the first page of the disclosure. If the temporary rate or
fee does not appear on the front side of the first page of the
disclosure, then the first listing of the temporary rate or fee 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 or fee that would apply after expiration of the
period on a separate page or document from the temporary rate or fee
and the length of the period, provided that the disclosure of the
annual percentage rate or fee 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 or fee and length of
the period.
8. Disclosure of annual percentage rates. If a rate disclosed
pursuant to Sec. 226.9(c)(2)(v)(B) or (c)(2)(v)(D) is a variable
rate, the creditor must disclose the fact that the rate may vary and
how the rate is determined. For example, a creditor could state
``After October 1, 2009, your APR will be 14.99%. This APR will vary
with the market based on the Prime Rate.''
9. Deferred interest or similar programs. If the applicable
conditions are met, the exception in Sec. 226.9(c)(2)(v)(B) applies
to deferred interest or similar promotional programs under which the
consumer is not obligated to pay interest that accrues on a balance
if that balance is paid in full prior to the expiration of a
specified period of time. For purposes of this comment and Sec.
226.9(c)(2)(v)(B), ``deferred interest'' has the same meaning as in
Sec. 226.16(h)(2) and associated commentary. For such programs, a
creditor must disclose pursuant to Sec. 226.9(c)(2)(v)(B)(1) the
length of the deferred interest period and the rate that will apply
to the balance subject to the deferred interest program if that
balance is not paid in full prior to expiration of the deferred
interest period. Examples of language that a creditor may use to
make the required disclosures under Sec. 226.9(c)(2)(v)(B)(1)
include:
i. ``No interest if paid in full in 6 months. If the balance is
not paid in full in 6 months, interest will be imposed from the date
of purchase at a rate of 15.99%.''
ii. ``No interest if paid in full by December 31, 2010. If the
balance is not paid in full by that date, interest will be imposed
from the transaction date at a rate of 15%.''
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.
11. 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), (b)(2)(viii),
(b)(2)(ix), (b)(2)(xi), 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.
12. Index not under creditor's control. See comment 55(b)(2)-2
for guidance on when an index is deemed to be under a creditor's
control.
13. 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.
* * * * *
9(e) Disclosures upon renewal of credit or charge card.
* * * * *
10. Disclosure of changes in terms required to be disclosed
pursuant to Sec. 226.6(b)(1) and (b)(2). Clear and conspicuous
disclosure of a changed term on a periodic statement provided to a
consumer prior to renewal of the consumer's account constitutes
prior disclosure of that term for purposes of Sec. 226.9(e)(1).
Card issuers should refer to Sec. 226.9(c)(2) for additional
timing, content, and formatting requirements that apply to certain
changes in terms under that paragraph.
* * * * *
Sec. 226.10--Payments
* * * * *
10(b) Specific requirements for payments.
* * * * *
2. Payment methods promoted by creditor. 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). For example:
i. 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).
[[Page 23019]]
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).
iv. If a creditor promotes that payments may be made through an
unaffiliated third party, such as by disclosing the Web site address
of that third party on the periodic statement, payments made via
that third party's Web site generally would be conforming payments
for purposes of Sec. 226.10(b). In contrast, if a customer service
representative of the creditor confirms to a consumer that payments
may be made via an unaffiliated third party, but the creditor does
not otherwise promote that method of payment, Sec. 226.10(b)
permits the creditor to treat payments made via such third party as
nonconforming payments in accordance with Sec. 226.10(b)(4).
* * * * *
10(e) Limitations on fees related to method of payment.
* * * * *
4. Creditor. For purposes of Sec. 226.10(e), the term
``creditor'' includes a third party that collects, receives, or
processes payments on behalf of a creditor. For example:
i. Assume that a creditor uses a service provider to receive,
collect, or process on the creditor's behalf payments made through
the creditor's Web site or made through an automated telephone
payment service. In these circumstances, the service provider would
be considered a creditor for purposes of paragraph (e).
ii. Assume that a consumer pays a fee to a money transfer or
payment service in order to transmit a payment to the creditor on
the consumer's behalf. In these circumstances, the money transfer or
payment service would not be considered a creditor for purposes of
paragraph (e).
iii. Assume that a consumer has a checking account at a
depository institution. The consumer makes a payment to the creditor
from the checking account using a bill payment service provided by
the depository institution. In these circumstances, the depository
institution would not be considered a creditor for purposes of
paragraph (e).
* * * * *
10(f) Changes by card issuer.
* * * * *
3. Safe harbor. i. General. A card issuer may elect not to
impose a late fee or finance charge on a consumer's account for the
60-day period following a change in address for receiving payment or
procedures for handling cardholder payments which could reasonably
be expected to cause a material delay in crediting of a payment to
the consumer's account. For purposes of Sec. 226.10(f), a late fee
or finance charge is not imposed if the fee or charge is waived or
removed, or an amount equal to the fee or charge is credited to the
account.
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 card issuer 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.
* * * * *
Sec. 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. 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.
i. 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.
ii. For other types of credit card accounts, creditors may, at
their option, apply payments consistent with Sec. 226.53 and
comment 53-3. In the alternative, payments and other credits may be
applied to: Late charges in the order of entry to the account; then
to finance charges in the order of entry to the account; and then to
any debits other than the transaction subject to the claim or
defense in the order of entry to the account. In these
circumstances, 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.
* * * * *
Sec. 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, Sec. 226.13(c)(2) prohibits a creditor 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.
However, if a consumer receives more than one credit to correct the
same billing error, Sec. 226.13 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.
* * * * *
Sec. 226.14--Determination of Annual Percentage Rate
14(a) General rule.
* * * * *
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.
* * * * *
Sec. 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 or promotional
fee 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
[[Page 23020]]
printed in a certain type size nor need they appear in any
particular place in the advertisement.
2. Clear and conspicuous standard--promotional rates or
payments; deferred interest or similar offers. i. For purposes of
Sec. 226.16(d)(6), a clear and conspicuous disclosure means that
the required information in Sec. 226.16(d)(6)(ii)(A)-(C) is
disclosed with equal prominence and in close proximity to the
promotional rate or payment to which it applies. If the information
in Sec. 226.16(d)(6)(ii)(A)-(C) is the same type size and is
located immediately next to or directly above or below the
promotional rate or payment to which it applies, without any
intervening text or graphical displays, the disclosures would be
deemed to be equally prominent and in close proximity.
Notwithstanding the above, for electronic advertisements that
disclose promotional rates or payments, compliance with the
requirements of Sec. 226.16(c) is deemed to satisfy the clear and
conspicuous standard.
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, as applicable, (g)(4)(ii) and (g)(4)(iii) must be equally
prominent to the promotional rate or promotional fee to which it
applies. If the information in Sec. 226.16(g)(4)(i) and, as
applicable, (g)(4)(ii) and (g)(4)(iii) is the same type size as the
promotional rate or promotional fee 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 the deferred interest period, the
disclosure would be deemed to be equally prominent.
* * * * *
16(g) Promotional rates.
1. Rate in effect at the end of the promotional period. If the
annual percentage rate that will be in effect at the end of the
promotional period (i.e., the post-promotional rate) is a variable
rate, the post-promotional rate for purposes of Sec.
226.16(g)(2)(i) is the rate that would have applied at the time the
promotional rate was advertised if the promotional rate was not
offered, consistent with the accuracy requirements in Sec.
226.5a(c)(2) and (e)(4), as applicable.
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 or
introductory fee 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, as applicable, (g)(4)(ii) and (g)(4)(iii)
that is in the same paragraph as the first listing of the
promotional rate or promotional fee 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 or promotional fee is the most prominent
listing of the rate or fee 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 or promotional fee does not appear on the front
side of the first page of the principal promotional document, then
the first listing of the promotional rate or promotional fee is the
most prominent listing of the rate or fee on the subsequent pages of
the principal promotional document. If the promotional rate or
promotional fee 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 or fee on the front side of
the first page of each document listing the promotional rate or
promotional fee. If the promotional rate or promotional fee does not
appear on the front side of the first page of a document, then the
first listing of the promotional rate or promotional fee is the most
prominent listing of the rate or fee on the subsequent pages of the
document. If the listing of the promotional rate or promotional fee
with the largest type size on the front side of the first page (or
subsequent pages if the promotional rate or promotional fee is not
listed on the front side of the first page) of the principal
promotional document (or each document listing the promotional rate
or promotional fee if the promotional rate or promotional fee 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).
5. Post-promotional rate depends on consumer's creditworthiness.
For purposes of disclosing the rate that may apply after the end of
the promotional rate period, at the advertiser's option, the
advertisement may disclose the rates that may apply as either
specific rates, or a range of rates. For example, if there are three
rates that may apply (9.99%, 12.99% or 17.99%), an issuer may
disclose these three rates as specific rates (9.99%, 12.99% or
17.99%) or as a range of rates (9.99%-17.99%).
* * * * *
Sec. 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:
A. The maximum interest rate will not exceed X%.
B. The interest rate will never be higher than X percentage
points above the initial rate of Y%.
C. The interest rate will not exceed X%, or X percentage points
above [a rate to be determined at some future point in time],
whichever is less.
D. The maximum interest rate will not exceed X%, or the state
usury ceiling, whichever is less.
ii. The following statements would not comply with this section:
A. The interest rate will never be higher than X percentage
points over the prevailing market rate.
B. The interest rate will never be higher than X percentage
points above [a rate to be determined at some future point in time].
C. The interest rate will not exceed the state usury ceiling
which is currently X%.
iii. A creditor may state the maximum rate in terms of a maximum
annual percentage rate that may be imposed. Under an open-end credit
plan, this normally would be the corresponding annual percentage
rate. (See generally Sec. 226.6(a)(1)(ii) and (b)(4)(i)(A).)
* * * * *
Sec. 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 independent ability
to make the required minimum periodic payments under the terms of an
account based on the consumer's independent 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 independent 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.
3. Credit line increase. When a card issuer considers increasing
the credit line on an existing account, Sec. 226.51(a) applies
whether the consideration is based upon a request of the consumer or
is initiated by the card issuer.
4. Income and assets. i. Sources of information. For purposes of
Sec. 226.51(a), a card issuer may consider the consumer's income
and assets based on:
A. Information provided by the consumer in connection with the
credit card account under an open-end (not home-secured) consumer
credit plan;
B. Information provided by the consumer in connection with any
other financial
[[Page 23021]]
relationship the card issuer or its affiliates have with the
consumer (subject to any applicable information-sharing rules);
C. Information obtained through third parties (subject to any
applicable information-sharing rules); and
D. Information obtained through any empirically derived,
demonstrably and statistically sound model that reasonably estimates
a consumer's income and assets.
ii. Income and assets of persons liable for debts incurred on
account. For purposes of Sec. 226.51(a), a card issuer may consider
any current or reasonably expected income and assets of the consumer
or consumers who are applying for a new account and will be liable
for debts incurred on that account. Similarly, when a card issuer is
considering whether to increase the credit limit on an existing
account, the card issuer may consider any current or reasonably
expected income and assets of the consumer or consumers who are
accountholders and are liable for debts incurred on that account. A
card issuer may also consider any current or reasonably expected
income and assets of a cosigner or guarantor who is or will be
liable for debts incurred on the account. However, a card issuer may
not use the income and assets of an authorized user or other person
who is not liable for debts incurred on the account to satisfy the
requirements of Sec. 226.51, unless a Federal or State statute or
regulation grants a consumer who is liable for debts incurred on the
account an ownership interest in such income and assets. Information
about current or reasonably expected income and assets includes, for
example, 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.
iii. Household income and assets. Consideration of information
regarding a consumer's household income 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 forms that applicants provide their ``household
income,'' the card issuer may not rely solely on the information
provided by applicants 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 forms that applicants provide their income without
reference to household income (such as by requesting ``income'' or
``salary''), the card issuer may rely on the information provided by
applicants to satisfy the requirements of Sec. 226.51(a).
5. Current obligations. A card issuer may consider the
consumer's current obligations based on information provided by the
consumer or in a consumer report. In evaluating a consumer's current
obligations, a card issuer need not assume that credit lines for
other obligations are fully utilized.
6. Joint applicants and joint accountholders. With respect to
the opening of a joint account for two or more consumers or a credit
line increase on such an account, the card issuer may consider the
collective ability of all persons who are or will be liable for
debts incurred on the account to make the required payments.
51(a)(2) Minimum periodic payments.
1. Applicable minimum payment formula. For purposes of
estimating required minimum periodic payments under the safe harbor
set forth in Sec. 226.51(a)(2)(ii), if the account has or may have
a promotional program, such as a deferred payment or similar
program, where there is no applicable minimum payment formula during
the promotional period, the issuer must estimate the required
minimum periodic payment based on the minimum payment formula that
will apply when the promotion ends.
2. Interest rate for purchases. For purposes of estimating
required minimum periodic payments under the safe harbor set forth
in Sec. 226.51(a)(2)(ii), if the interest rate for purchases is or
may be a promotional rate, the issuer must use the post-promotional
rate to estimate interest charges.
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. 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).
51(b) Rules affecting young consumers.
1. Age as of date of application or consideration of credit line
increase. Sections 226.51(b)(1) and (b)(2) apply only to a consumer
who has not attained the age of 21 as of the date of submission of
the application under Sec. 226.51(b)(1) or the date the credit line
increase is requested by the consumer (or if no request has been
made, the date the credit line increase is considered by the card
issuer) under Sec. 226.51(b)(2).
2. Liability of cosigner, guarantor, or joint accountholder.
Sections 226.51(b)(1)(ii) and (b)(2) require the signature or
written consent of a cosigner, guarantor, or joint accountholder
agreeing either to be secondarily liable for any debt on the account
incurred by the consumer before the consumer has attained the age of
21 or to be jointly liable with the consumer for any debt on the
account. Sections 226.51(b)(1)(ii) and (b)(2) do not prohibit a card
issuer from also requiring the cosigner, guarantor, or joint
accountholder to assume liability for debts incurred after the
consumer has attained the age of 21, consistent with any agreement
made between the parties.
3. Authorized users exempt. If a consumer who has not attained
the age of 21 is being added to another person's account as an
authorized user and has no liability for debts incurred on the
account, Sec. 226.51(b)(1) and (b)(2) do not apply.
4. Electronic application. Consistent with Sec.
226.5(a)(1)(iii), an application may be provided to the consumer in
electronic form without regard to the consumer consent or other
provisions of the Electronic Signatures in Global and National
Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.) in the
circumstances set forth in Sec. 226.5a. The electronic submission
of an application from a consumer or a consent to a credit line
increase from a cosigner, guarantor, or joint accountholder to a
card issuer would constitute a written application or consent for
purposes of Sec. 226.51(b) and would not be considered a consumer
disclosure for purposes of the E-Sign Act.
51(b)(1) Applications from young consumers.
1. Relation to Regulation B. In considering an application or
credit line increase on the credit card account of a consumer who is
less than 21 years old, creditors must comply with the applicable
rules in Regulation B (12 CFR part 202).
2. Financial information. Information regarding income and
assets that satisfies the requirements of Sec. 226.51(a) also
satisfies the requirements of Sec. 226.51(b)(1). See comment
51(a)(1)-4.
51(b)(2) Credit line increases for young consumers.
1. Relation to Regulation B. In considering an application or
credit line increase on the credit card account of a consumer who is
less than 21 years old, creditors must comply with the applicable
rules in Regulation B (12 CFR part 202).
Sec. 226.52--Limitations on Fees
52(a) Limitations prior to account opening and during first year
after account opening.
52(a)(1) General rule.
1. Application. The 25 percent limit in Sec. 226.52(a)(1)
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's asset account to the card issuer or from
another credit account provided by the card issuer). For example:
i. Assume that, under the terms of a credit card account, a
consumer is required to pay $120 in fees for the issuance or
availability of credit at account opening. The consumer is also
required to pay a cash advance fee that is equal to five percent of
the cash advance and a late payment fee of $15 if the required
minimum periodic payment is not received by the payment due date
(which is the twenty-fifth of the month). 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 to the
account the $120 in fees for the issuance or availability of credit
at account opening. On February 1 of year one, the consumer uses the
account for a $100 cash advance. Section 226.52(a)(1) permits the
card issuer to charge a $5 cash-advance fee to the account. On March
26 of year one, the card issuer has not received the consumer's
required minimum periodic payment. Section 226.52(a)(2) permits the
card issuer to charge a $15 late payment fee to the account. On July
15 of year one, the consumer uses the account for a $50 cash
advance. Section 226.52(a)(1) does not permit
[[Page 23022]]
the card issuer to charge a $2.50 cash advance fee to the account.
Furthermore, Sec. 225.52(a)(1) prohibits the card issuer from
collecting the $2.50 cash advance fee from the consumer by other
means.
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 prior to account opening or during the first
year after account opening. Section 226.52(a)(1) also prohibits the
card issuer from requiring the consumer to open a separate credit
account with the card issuer to fund the payment of additional non-
exempt fees prior to the opening of the credit card account or
during the first year after the credit card account is opened.
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 date on which the account may first be used by
the consumer to engage in transactions is 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.
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 the example in
comment 52(a)(1)-1.i. 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. i. Increases in
credit limit. If a card issuer increases the credit limit during the
first year after the account is opened, Sec. 226.52(a)(1) does not
permit the card issuer to require the consumer to pay additional
fees that would otherwise be prohibited (such as a fee for
increasing the credit limit). For example, assume that, at account
opening on January 1, the credit limit for a credit card account is
$400 and the consumer is required to pay $100 in fees for the
issuance or availability of credit. On July 1, the card issuer
increases the credit limit for the account to $600. Section
226.52(a)(1) does not permit the card issuer to require the consumer
to pay additional fees based on the increased credit limit.
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 the credit limit was
reduced. For example:
A. Assume 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.
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.
4. Date on which account may first be used by consumer to engage
in transactions.
i. Methods of compliance. For purposes of Sec. 226.52(a)(1), 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.
A card issuer may consider an account open for purposes of Sec.
226.52(a)(1) on any of the following dates:
A. The date the account is first used by the consumer for a
transaction (such as when an account is established in connection
with financing the purchase of goods or services).
B. The date the consumer complies with any reasonable activation
procedures imposed by the card issuer for preventing fraud or
unauthorized use of a new account (such as requiring the consumer to
provide information that verifies his or her identity), provided
that the account may be used for transactions on that date.
C. The date that is seven days after the card issuer mails or
delivers to the consumer account-opening disclosures that comply
with Sec. 226.6, provided that the consumer may use the account for
transactions after complying with any reasonable activation
procedures imposed by the card issuer for preventing fraud or
unauthorized use of the new account (such as requiring the consumer
to provide information that verifies his or her identity). If a card
issuer has reasonable procedures designed to ensure that account-
opening disclosures that comply with Sec. 226.6 are mailed or
delivered to consumers no later than a certain number of days after
the card issuer establishes the account, the card issuer may add
that number of days to the seven-day period for purposes of
determining the date on which the account was opened.
ii. Examples.
A. Assume that, on July 1 of year one, a credit card account
under an open-end (not home-secured) consumer credit plan is
established in connection with financing the purchase of goods or
services and a $500 transaction is charged to the account by the
consumer. The card issuer may consider the account open on July 1 of
year one for purposes of Sec. 226.52(a)(1). Accordingly, Sec.
226.52(a)(1) ceases to apply to the account on July 1 of year two.
B. Assume that, on July 1 of year one, a card issuer approves a
consumer's application for a credit card account under an open-end
(not home-secured) consumer credit plan and establishes the account
on its internal systems. On July 5, the card issuer mails or
delivers to the consumer account-opening disclosures that comply
with Sec. 226.6. If the consumer may use the account for
transactions on the date the consumer complies with any reasonable
procedures imposed by the card issuer for preventing fraud or
unauthorized use, the card issuer may consider the account open on
July 12 of year one for purposes of Sec. 226.52(a)(1). Accordingly,
Sec. 226.52(a)(1) ceases to apply to the account on July 12 of year
two.
C. Same facts as in paragraph B above except that the card
issuer has adopted reasonable procedures designed to ensure that
account-opening disclosures that comply with Sec. 226.6 are mailed
or delivered to consumers no later than three days after an account
is established on its systems. If the consumer may use the account
for transactions on the date the consumer complies with any
reasonable procedures imposed by the card issuer for preventing
fraud or unauthorized use, the card issuer may consider the account
open on July 11 of year one for purposes of Sec. 226.52(a)(1).
Accordingly, Sec. 226.52(a)(1) ceases to apply to the account on
July 11 of year two. However, if the consumer uses the account for a
transaction or complies with the card issuer's reasonable procedures
for preventing fraud or unauthorized use on July 8 of year one, the
card issuer may, at its option, consider the account open on that
date for purposes of Sec. 226.52(a)(1) and Sec. 226.52(a)(1)
therefore ceases to apply to the account on July 8 of year two.
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 or other charges that a card issuer
will or may require the consumer to pay with respect to a credit
card account prior to account
[[Page 23023]]
opening and during the first year after account opening, other than
charges attributable to periodic interest rates. For example, Sec.
226.52(a) applies to:
i. Fees that the consumer is required to pay for the issuance or
availability of credit described in Sec. 226.5a(b)(2), including
any fee based on account activity or inactivity and any fee that a
consumer is required to pay in order to receive a particular credit
limit;
ii. Fees for insurance described in Sec. 226.4(b)(7) or debt
cancellation or debt suspension coverage described in Sec.
226.4(b)(10) written in connection with a credit transaction, if the
insurance or debt cancellation or debt suspension coverage is
required by the terms of the account;
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);
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));
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.
2. Fees the consumer is not required to pay. Section
226.52(a)(2)(ii) provides that Sec. 226.52(a) does not apply to
fees that the consumer is not required to pay with respect to the
account. For example, Sec. 226.52(a) generally does not apply to
fees for making an expedited payment (to the extent permitted by
Sec. 226.10(e)), fees for optional services (such as travel
insurance), fees for reissuing a lost or stolen card, or statement
reproduction fees.
3. Security deposits. A security deposit that is charged to a
credit card account is a fee for purposes of Sec. 226.52(a). In
contrast, however, a security deposit is not subject to the 25
percent limit in Sec. 226.52(a)(1) if it is not charged to the
account. For example, Sec. 226.52(a)(1) does not prohibit a card
issuer from requiring a consumer to provide funds at account opening
pledged as security for the account that exceed 25 percent of the
credit limit at account opening so long as those funds are not
obtained from the account.
52(a)(3) Rule of construction.
1. Fees or charges otherwise prohibited by law. Section
226.52(a) does not authorize the imposition or payment of fees or
charges otherwise prohibited by law. For example, see 16 CFR
310.4(a)(4).
52(b) Limitations on penalty fees.
1. Fees for violating the account terms or other requirements.
For purposes of Sec. 226.52(b), a fee includes any charge imposed
by a card issuer based on an act or omission that violates the terms
of the account or any other requirements imposed by the card issuer
with respect to the account, other than charges attributable to
periodic interest rates. Accordingly, for purposes of Sec.
226.52(b), a fee does not include charges attributable to an
increase in an annual percentage rate based on an act or omission
that violates the terms or other requirements of an account.
i. The following are examples of fees that are subject to the
limitations in Sec. 226.52(b) or are prohibited by Sec. 226.52(b):
A. Late payment fees and any other fees imposed by a card issuer
if an account becomes delinquent or if a payment is not received by
a particular date.
B. Returned payment fees and any other fees imposed by a card
issuer if a payment received via check, automated clearing house, or
other payment method is returned.
C. Any fee or charge for an over-the-limit transaction as
defined in Sec. 226.56(a), to the extent the imposition of such a
fee or charge is permitted by Sec. 226.56.
D. Any fee imposed by a card issuer if payment on a check that
accesses a credit card account is declined.
E. Any fee or charge for a transaction that the card issuer
declines to authorize. See Sec. 226.52(b)(2)(i)(B).
F. Any fee imposed by a card issuer 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). See Sec. 226.52(b)(2)(i)(B).
G. Any fee imposed by a card issuer based on the closure or
termination of an account. See Sec. 226.52(b)(2)(i)(B).
ii. The following are examples of fees to which Sec. 226.52(b)
does not apply:
A. Balance transfer fees.
B. Cash advance fees.
C. Foreign transaction fees.
D. Annual fees and other fees for the issuance or availability
of credit described in Sec. 226.5a(b)(2), except to the extent that
such fees are based on account inactivity. See Sec.
226.52(b)(2)(i)(B).
E. Fees for insurance described in Sec. 226.4(b)(7) or debt
cancellation or debt suspension coverage described in Sec.
226.4(b)(10) written in connection with a credit transaction,
provided that such fees are not imposed as a result of a violation
of the account terms or other requirements of an account.
F. Fees for making an expedited payment (to the extent permitted
by Sec. 226.10(e)).
G. Fees for optional services (such as travel insurance).
H. Fees for reissuing a lost or stolen card.
2. Rounding to nearest whole dollar. A card issuer may round any
fee that complies with Sec. 226.52(b) to the nearest whole dollar.
For example, if Sec. 226.52(b) permits a card issuer to impose a
late payment fee of $21.50, the card issuer may round that amount up
to the nearest whole dollar and impose a late payment fee of $22.
However, if the late payment fee permitted by Sec. 226.52(b) were
$21.49, the card issuer would not be permitted to round that amount
up to $22, although the card issuer could round that amount down and
impose a late payment fee of $21.
52(b)(1) General rule.
1. Relationship between Sec. 226.52(b)(1)(i), (b)(1)(ii), and
(b)(2).
i. Relationship between Sec. 226.52(b)(1)(i) and (b)(1)(ii). A
card issuer may impose a fee for violating the terms or other
requirements of an account pursuant to either Sec. 226.52(b)(1)(i)
or (b)(1)(ii).
A. A card issuer that complies with the safe harbors in Sec.
226.52(b)(1)(ii) is not required to determine that its fees
represent a reasonable proportion of the total costs incurred by the
card issuer as a result of a type of violation under Sec.
226.52(b)(1)(i).
B. A card issuer may impose a fee for one type of violation
pursuant to Sec. 226.52(b)(1)(i) and may impose a fee for a
different type of violation pursuant to Sec. 226.52(b)(1)(ii). For
example, a card issuer may impose a late payment fee of $30 based on
a cost determination pursuant to Sec. 226.52(b)(1)(i) but impose
returned payment and over-the-limit fees of $25 or $35 pursuant to
the safe harbors in Sec. 226.52(b)(1)(ii).
C. A card issuer that previously based the amount of a penalty
fee for a particular type of violation on a cost determination
pursuant to Sec. 226.52(b)(1)(i) may begin to impose a penalty fee
for that type of violation that is consistent with Sec.
226.52(b)(1)(ii) at any time (subject to the notice requirements in
Sec. 226.9), provided that the first fee imposed pursuant to Sec.
226.52(b)(1)(ii) is consistent with Sec. 226.52(b)(1)(ii)(A). For
example, assume that a late payment occurs on January 15 and that,
based on a cost determination pursuant to Sec. 226.52(b)(1)(i), the
card issuer imposes a $30 late payment fee. Another late payment
occurs on July 15. The card issuer may impose another $30 late
payment fee pursuant to Sec. 226.52(b)(1)(i) or may impose a $25
late payment fee pursuant to Sec. 226.52(b)(1)(ii)(A). However, the
card issuer may not impose a $35 late payment fee pursuant to Sec.
226.52(b)(1)(ii)(B). If the card issuer imposes a $25 fee pursuant
to Sec. 226.52(b)(1)(ii)(A) for the July 15 late payment and
another late payment occurs on September 15, the card issuer may
impose a $35 fee for the September 15 late payment pursuant to Sec.
226.52(b)(1)(ii)(B).
ii. Relationship between Sec. 226.52(b)(1) and (b)(2). Section
226.52(b)(1) does not permit a card issuer to impose a fee that is
inconsistent with the prohibitions in Sec. 226.52(b)(2). For
example, if Sec. 226.52(b)(2)(i) prohibits the card issuer from
imposing a late payment fee that exceeds $15, Sec. 226.52(b)(1)(ii)
does not permit the card issuer to impose a higher late payment fee.
52(b)(1)(i) Fees based on costs.
1. Costs incurred as a result of violations. Section
226.52(b)(1)(i) does not require a card issuer to base a fee on the
costs incurred as a result of a specific violation of the terms or
other requirements of an account. Instead, for purposes of Sec.
226.52(b)(1)(i), a card issuer must have determined that a fee for
violating the terms or other requirements of an account represents a
reasonable proportion of the costs incurred by the card issuer as a
result of that type of violation. A card issuer may make a single
determination for all of its credit card portfolios or may make
separate determinations for each portfolio. The factors relevant to
this determination include:
i. The number of violations of a particular type experienced by
the card issuer during a prior period of reasonable length (for
example, a period of twelve months).
ii. The costs incurred by the card issuer during that period as
a result of those violations.
iii. At the card issuer's option, the number of fees imposed by
the card issuer as a result
[[Page 23024]]
of those violations during that period that the card issuer
reasonably estimates it will be unable to collect. See comment
52(b)(1)(i)-5.
iv. At the card issuer's option, reasonable estimates for an
upcoming period of changes in the number of violations of that type,
the resulting costs, and the number of fees that the card issuer
will be unable to collect. See illustrative examples in comments
52(b)(1)(i)-6 through -9.
2. Amounts excluded from cost analysis. The following amounts
are not costs incurred by a card issuer as a result of violations of
the terms or other requirements of an account for purposes of Sec.
226.52(b)(1)(i):
i. Losses and associated costs (including the cost of holding
reserves against potential losses and the cost of funding delinquent
accounts).
ii. Costs associated with evaluating whether consumers who have
not violated the terms or other requirements of an account are
likely to do so in the future (such as the costs associated with
underwriting new accounts). However, once a violation of the terms
or other requirements of an account has occurred, the costs
associated with preventing additional violations for a reasonable
period of time are costs incurred by a card issuer as a result of
violations of the terms or other requirements of an account for
purposes of Sec. 226.52(b)(1)(i).
3. Third party charges. As a general matter, amounts charged to
the card issuer by a third party as a result of a violation of the
terms or other requirements of an account are costs incurred by the
card issuer for purposes of Sec. 226.52(b)(1)(i). For example, if a
card issuer is charged a specific amount by a third party for each
returned payment, that amount is a cost incurred by the card issuer
as a result of returned payments. However, if the amount is charged
to the card issuer by an affiliate or subsidiary of the card issuer,
the card issuer must have determined that the charge represents a
reasonable proportion of the costs incurred by the affiliate or
subsidiary as a result of the type of violation. For example, if an
affiliate of a card issuer provides collection services to the card
issuer on delinquent accounts, the card issuer must have determined
that the amounts charged to the card issuer by the affiliate for
such services represent a reasonable proportion of the costs
incurred by the affiliate as a result of late payments.
4. Amounts charged by other card issuers. The fact that a card
issuer's fees for violating the terms or other requirements of an
account are comparable to fees assessed by other card issuers does
not satisfy the requirements of Sec. 226.52(b)(1)(i).
5. Uncollected fees. For purposes of Sec. 226.52(b)(1)(i), a
card issuer may consider fees that it is unable to collect when
determining the appropriate fee amount. Fees that the card issuer is
unable to collect include fees imposed on accounts that have been
charged off by the card issuer, fees that have been discharged in
bankruptcy, and fees that the card issuer is required to waive in
order to comply with a legal requirement (such as a requirement
imposed by 12 CFR part 226 or 50 U.S.C. app. 527). However, fees
that the card issuer chooses not to impose or chooses not to collect
(such as fees the card issuer chooses to waive at the request of the
consumer or under a workout or temporary hardship arrangement) are
not relevant for purposes of this determination. See illustrative
examples in comments 52(b)(2)(i)-6 through -9.
6. Late payment fees. i. Costs incurred as a result of late
payments. For purposes of Sec. 226.52(b)(1)(i), the costs incurred
by a card issuer as a result of late payments include the costs
associated with the collection of late payments, such as the costs
associated with notifying consumers of delinquencies and resolving
delinquencies (including the establishment of workout and temporary
hardship arrangements).
ii. Examples.
A. Late payment fee based on past delinquencies and costs.
Assume that, during year one, a card issuer experienced 1 million
delinquencies and incurred $26 million in costs as a result of those
delinquencies. For purposes of Sec. 226.52(b)(1)(i), a $26 late
payment fee would represent a reasonable proportion of the total
costs incurred by the card issuer as a result of late payments
during year two.
B. Adjustment based on fees card issuer is unable to collect.
Same facts as above except that the card issuer imposed a late
payment fee for each of the 1 million delinquencies experienced
during year one but was unable to collect 25% of those fees (in
other words, the card issuer was unable to collect 250,000 fees,
leaving a total of 750,000 late payments for which the card issuer
did collect or could have collected a fee). For purposes of Sec.
226.52(b)(2)(i), a late payment fee of $35 would represent a
reasonable proportion of the total costs incurred by the card issuer
as a result of late payments during year two.
C. Adjustment based on reasonable estimate of future changes.
Same facts as paragraphs A. and B. above except the card issuer
reasonably estimates that--based on past delinquency rates and other
factors relevant to potential delinquency rates for year two--it
will experience a 2% decrease in delinquencies during year two (in
other words, 20,000 fewer delinquencies for a total of 980,000). The
card issuer also reasonably estimates that it will be unable to
collect the same percentage of fees (25%) during year two as during
year one (in other words, the card issuer will be unable to collect
245,000 fees, leaving a total of 735,000 late payments for which the
card issuer will be able to collect a fee). The card issuer also
reasonably estimates that--based on past changes in costs incurred
as a result of delinquencies and other factors relevant to potential
costs for year two--it will experience a 5% increase in costs during
year two (in other words, $1.3 million in additional costs for a
total of $27.3 million). For purposes of Sec. 226.52(b)(1)(i), a
$37 late payment fee would represent a reasonable proportion of the
total costs incurred by the card issuer as a result of late payments
during year two.
7. Returned payment fees. i. Costs incurred as a result of
returned payments. For purposes of Sec. 226.52(b)(1)(i), the costs
incurred by a card issuer as a result of returned payments include:
A. Costs associated with processing returned payments and
reconciling the card issuer's systems and accounts to reflect
returned payments;
B. Costs associated with investigating potential fraud with
respect to returned payments; and
C. Costs associated with notifying the consumer of the returned
payment and arranging for a new payment.
ii. Examples.
A. Returned payment fee based on past returns and costs. Assume
that, during year one, a card issuer experienced 150,000 returned
payments and incurred $3.1 million in costs as a result of those
returned payments. For purposes of Sec. 226.52(b)(1)(i), a $21
returned payment fee would represent a reasonable proportion of the
total costs incurred by the card issuer as a result of returned
payments during year two.
B. Adjustment based on fees card issuer is unable to collect.
Same facts as above except that the card issuer imposed a returned
payment fee for each of the 150,000 returned payments experienced
during year one but was unable to collect 15% of those fees (in
other words, the card issuer was unable to collect 22,500 fees,
leaving a total of 127,500 returned payments for which the card
issuer did collect or could have collected a fee). For purposes of
Sec. 226.52(b)(2)(i), a returned payment fee of $24 would represent
a reasonable proportion of the total costs incurred by the card
issuer as a result of returned payments during year two.
C. Adjustment based on reasonable estimate of future changes.
Same facts as paragraphs A. and B. above except the card issuer
reasonably estimates that--based on past returned payment rates and
other factors relevant to potential returned payment rates for year
two--it will experience a 2% increase in returned payments during
year two (in other words, 3,000 additional returned payments for a
total of 153,000). The card issuer also reasonably estimates that it
will be unable to collect 25% of returned payment fees during year
two (in other words, the card issuer will be unable to collect
38,250 fees, leaving a total of 114,750 returned payments for which
the card issuer will be able to collect a fee). The card issuer also
reasonably estimates that--based on past changes in costs incurred
as a result of returned payments and other factors relevant to
potential costs for year two--it will experience a 1% decrease in
costs during year two (in other words, a $31,000 reduction in costs
for a total of $3.069 million). For purposes of Sec.
226.52(b)(1)(i), a $27 returned payment fee would represent a
reasonable proportion of the total costs incurred by the card issuer
as a result of returned payments during year two.
8. Over-the-limit fees. i. Costs incurred as a result of over-
the-limit transactions. For purposes of Sec. 226.52(b)(1)(i), the
costs incurred by a card issuer as a result of over-the-limit
transactions include:
A. Costs associated with determining whether to authorize over-
the-limit transactions; and
B. Costs associated with notifying the consumer that the credit
limit has been exceeded and arranging for payments to reduce the
balance below the credit limit.
ii. Costs not incurred as a result of over-the-limit
transactions. For purposes of
[[Page 23025]]
Sec. 226.52(b)(1)(i), costs associated with obtaining the
affirmative consent of consumers to the card issuer's payment of
transactions that exceed the credit limit consistent with Sec.
226.56 are not costs incurred by a card issuer as a result of over-
the-limit transactions.
iii. Examples.
A. Over-the-limit fee based on past fees and costs. Assume that,
during year one, a card issuer authorized 600,000 over-the-limit
transactions and incurred $4.5 million in costs as a result of those
over-the-limit transactions. However, because of the affirmative
consent requirements in Sec. 226.56, the card issuer was only
permitted to impose 200,000 over-the-limit fees during year one. For
purposes of Sec. 226.52(b)(1)(i), a $23 over-the-limit fee would
represent a reasonable proportion of the total costs incurred by the
card issuer as a result of over-the-limit transactions during year
two.
B. Adjustment based on fees card issuer is unable to collect.
Same facts as above except that the card issuer was unable to
collect 30% of the 200,000 over-the-limit fees imposed during year
one (in other words, the card issuer was unable to collect 60,000
fees, leaving a total of 140,000 over-the-limit transactions for
which the card issuer did collect or could have collected a fee).
For purposes of Sec. 226.52(b)(2)(i), an over-the-limit fee of $32
would represent a reasonable proportion of the total costs incurred
by the card issuer as a result of over-the-limit transactions during
year two.
C. Adjustment based on reasonable estimate of future changes.
Same facts as paragraphs A. and B. above except the card issuer
reasonably estimates that--based on past over-the-limit transaction
rates, the percentages of over-the-limit transactions that resulted
in an over-the-limit fee in the past (consistent with Sec. 226.56),
and factors relevant to potential changes in those rates and
percentages for year two--it will authorize approximately the same
number of over-the-limit transactions during year two (600,000) and
impose approximately the same number of over-the-limit fees
(200,000). The card issuer also reasonably estimates that it will be
unable to collect the same percentage of fees (30%) during year two
as during year one (in other words, the card issuer was unable to
collect 60,000 fees, leaving a total of 140,000 over-the-limit
transactions for which the card issuer will be able to collect a
fee). The card issuer also reasonably estimates that--based on past
changes in costs incurred as a result of over-the-limit transactions
and other factors relevant to potential costs for year two--it will
experience a 6% decrease in costs during year two (in other words, a
$270,000 reduction in costs for a total of $4.23 million). For
purposes of Sec. 226.52(b)(1)(i), a $30 over-the-limit fee would
represent a reasonable proportion of the total costs incurred by the
card issuer as a result of over-the-limit transactions during year
two.
9. Declined access check fees. i. Costs incurred as a result of
declined access checks. For purposes of Sec. 226.52(b)(1)(i), the
costs incurred by a card issuer as a result of declining payment on
a check that accesses a credit card account include:
A. Costs associated with determining whether to decline payment
on access checks;
B. Costs associated with processing declined access checks and
reconciling the card issuer's systems and accounts to reflect
declined access checks;
C. Costs associated with investigating potential fraud with
respect to declined access checks; and
D. Costs associated with notifying the consumer and the merchant
or other party that accepted the access check that payment on the
check has been declined.
ii. Example. Assume that, during year one, a card issuer
declined 100,000 access checks and incurred $2 million in costs as a
result of those declined checks. The card issuer imposed a fee for
each declined access check but was unable to collect 10% of those
fees (in other words, the card issuer was unable to collect 10,000
fees, leaving a total of 90,000 declined access checks for which the
card issuer did collect or could have collected a fee). For purposes
of Sec. 226.52(b)(1)(i), a $22 declined access check fee would
represent a reasonable proportion of the total costs incurred by the
card issuer as a result of declined access checks during year two.
52(b)(1)(ii) Safe harbors.
1. Multiple violations of same type.
i. Same billing cycle or next six billing cycles. 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. A fee has been imposed for
purposes of Sec. 226.52(b)(1)(ii) even if the card issuer waives or
rebates all or part of the fee.
A. Late payments. For purposes of Sec. 226.52(b)(1)(ii), a late
payment occurs during the billing cycle in which the payment may
first be treated as late consistent with the requirements of 12 CFR
Part 226 and the terms or other requirements of the account.
B. Returned payments. For purposes of Sec. 226.52(b)(1)(ii), a
returned payment occurs during the billing cycle in which the
payment is returned to the card issuer.
C. Transactions that exceed the credit limit. For purposes of
Sec. 226.52(b)(1)(ii), a transaction that exceeds the credit limit
for an account occurs during the billing cycle in which the
transaction occurs or is authorized by the card issuer.
D. Declined access checks. For purposes of Sec.
226.52(b)(1)(ii), a check that accesses a credit card account is
declined during the billing cycle in which the card issuer declines
payment on the check.
ii. Relationship to Sec. Sec. 226.52(b)(2)(ii) and
226.56(j)(1). 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). 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.
iii. Examples. The following examples illustrate the application
of Sec. 226.52(b)(1)(ii)(A) and (b)(1)(ii)(B) with respect to
credit card accounts under an open-end (not home-secured) consumer
credit plan that are not charge card accounts. For purposes of these
examples, assume 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 payment due date for the account is the twenty-fifth day of
the month.
A. Violations of same type (late payments). A required minimum
periodic payment of $50 is due on March 25. On March 26, a late
payment has occurred because no payment has been received.
Accordingly, consistent with Sec. 226.52(b)(1)(ii)(A), the card
issuer imposes a $25 late payment fee on March 26. In order for the
card issuer to impose a $35 late payment fee pursuant to Sec.
226.52(b)(1)(ii)(B), a second late payment must occur during the
April, May, June, July, August, or September billing cycles.
(1) The card issuer does not receive any payment during the
March billing cycle. A required minimum periodic payment of $100 is
due on April 25. On April 20, the card issuer receives a $50
payment. No further payment is received during the April billing
cycle. Accordingly, consistent with Sec. 226.52(b)(1)(ii)(B), the
card issuer may impose a $35 late payment fee on April 26.
Furthermore, the card issuer may impose a $35 late payment fee for
any late payment that occurs during the May, June, July, August,
September, or October billing cycles.
(2) Same facts as in paragraph A. above. On March 30, the card
issuer receives a $50 payment and the required minimum periodic
payments for the April, May, June, July, August, and September
billing cycles are received on or before the payment due date. A
required minimum periodic payment of $60 is due on October 25. On
October 26, a late payment has occurred because the required minimum
periodic payment due on October 25 has not been received. However,
because this late payment did not occur during the six billing
cycles following the March billing cycle, Sec. 226.52(b)(1)(ii)
only permits the card issuer to impose a late payment fee of $25.
B. Violations of different types (late payment and over the
credit limit). The credit limit for an account is $1,000. Consistent
with Sec. 226.56, the consumer has affirmatively consented to the
payment of transactions that exceed the credit limit. A required
minimum periodic payment of $30 is due on August 25. On August 26, a
late payment has occurred because no payment has been received.
[[Page 23026]]
Accordingly, consistent with Sec. 226.52(b)(1)(ii)(A), the card
issuer imposes a $25 late payment fee on August 26. On August 30,
the card issuer receives a $30 payment. On September 10, a
transaction causes the account balance to increase to $1,150, which
exceeds the account's $1,000 credit limit. On September 11, a second
transaction increases the account balance to $1,350. On September
23, the card issuer receives the $50 required minimum periodic
payment due on September 25, which reduces the account balance to
$1,300. On September 30, the card issuer imposes a $25 over-the-
limit fee, consistent with Sec. 226.52(b)(1)(ii)(A). On October 26,
a late payment has occurred because the $60 required minimum
periodic payment due on October 25 has not been received.
Accordingly, consistent with Sec. 226.52(b)(1)(ii)(B), the card
issuer imposes a $35 late payment fee on October 26.
C. Violations of different types (late payment and returned
payment). A required minimum periodic payment of $50 is due on July
25. On July 26, a late payment has occurred because no payment has
been received. Accordingly, consistent with Sec.
226.52(b)(1)(ii)(A), the card issuer imposes a $25 late payment fee
on July 26. On July 30, the card issuer receives a $50 payment. A
required minimum periodic payment of $50 is due on August 25. On
August 24, a $50 payment is received. On August 27, the $50 payment
is returned to the card issuer for insufficient funds. In these
circumstances, Sec. 226.52(b)(2)(ii) permits the card issuer to
impose either a late payment fee or a returned payment fee but not
both because the late payment and the returned payment result from
the same event or transaction. Accordingly, for purposes of Sec.
226.52(b)(1)(ii), the event or transaction constitutes a single
violation. However, if the card issuer imposes a late payment fee,
Sec. 226.52(b)(1)(ii)(B) permits the issuer to impose a fee of $35
because the late payment occurred during the six billing cycles
following the July billing cycle. In contrast, if the card issuer
imposes a returned payment fee, the amount of the fee may be no more
than $25 pursuant to Sec. 226.52(b)(1)(ii)(A).
2. Adjustments based on Consumer Price Index. For purposes of
Sec. 226.52(b)(1)(ii)(A) and (b)(1)(ii)(B), the Board shall
calculate each year price level adjusted amounts using the Consumer
Price Index in effect on June 1 of that year. When the cumulative
change in the adjusted minimum value derived from applying the
annual Consumer Price level to the current amounts in Sec.
226.52(b)(1)(ii)(A) and (b)(1)(ii)(B) has risen by a whole dollar,
those amounts will be increased by $1.00. Similarly, when the
cumulative change in the adjusted minimum value derived from
applying the annual Consumer Price level to the current amounts in
Sec. 226.52(b)(1)(ii)(A) and (b)(1)(ii)(B) has decreased by a whole
dollar, those amounts will be decreased by $1.00. The Board will
publish adjustments to the amounts in Sec. 226.52(b)(1)(ii)(A) and
(b)(1)(ii)(B).
3. Delinquent balance for charge card accounts. Section
226.52(b)(1)(ii)(C) provides that, when a charge card issuer that
requires payment of outstanding balances in full at the end of each
billing cycle has not received the required payment for two or more
consecutive billing cycles, the card issuer may impose a late
payment fee that does not exceed three percent of the delinquent
balance. For purposes of Sec. 226.52(b)(1)(ii)(C), the delinquent
balance is any previously billed amount that remains unpaid at the
time the late payment fee is imposed pursuant to Sec.
226.52(b)(1)(ii)(C). Consistent with Sec. 226.52(b)(2)(ii), a
charge card issuer that imposes a fee pursuant to Sec.
226.52(b)(1)(ii)(C) with respect to a late payment may not impose a
fee pursuant to Sec. 226.52(b)(1)(ii)(B) with respect to the same
late payment. The following examples illustrate the application of
Sec. 226.52(b)(1)(ii)(C):
i. Assume that a charge card issuer requires payment of
outstanding balances in full at the end of each billing cycle and
that the billing cycles for the account begin on the first day of
the month and end on the last day of the month. At the end of the
June billing cycle, the account has a balance of $1,000. On July 5,
the card issuer provides a periodic statement disclosing the $1,000
balance consistent with Sec. 226.7. During the July billing cycle,
the account is used for $300 in transactions, increasing the balance
to $1,300. At the end of the July billing cycle, no payment has been
received and the card issuer imposes a $25 late payment fee
consistent with Sec. 226.52(b)(1)(ii)(A). On August 5, the card
issuer provides a periodic statement disclosing the $1,325 balance
consistent with Sec. 226.7. During the August billing cycle, the
account is used for $200 in transactions, increasing the balance to
$1,525. At the end of the August billing cycle, no payment has been
received. Consistent with Sec. 226.52(b)(1)(ii)(C), the card issuer
may impose a late payment fee of $40, which is 3% of the $1,325
balance that was due at the end of the August billing cycle. Section
226.52(b)(1)(ii)(C) does not permit the card issuer to include the
$200 in transactions that occurred during the August billing cycle.
ii. Same facts as above except that, on August 25, a $100
payment is received. Consistent with Sec. 226.52(b)(1)(ii)(C), the
card issuer may impose a late payment fee of $37, which is 3% of the
unpaid portion of the $1,325 balance that was due at the end of the
August billing cycle ($1,225).
iii. Same facts as in paragraph A. above except that, on August
25, a $200 payment is received. Consistent with Sec.
226.52(b)(1)(ii)(C), the card issuer may impose a late payment fee
of $34, which is 3% of the unpaid portion of the $1,325 balance that
was due at the end of the August billing cycle ($1,125). In the
alternative, the card issuer may impose a late payment fee of $35
consistent with Sec. 226.52(b)(1)(ii)(B). However, Sec.
226.52(b)(2)(ii) prohibits the card issuer from imposing both fees.
52(b)(2) Prohibited fees.
1. Relationship to Sec. 226.52(b)(1). A card issuer does not
comply with Sec. 226.52(b) if it imposes a fee that is inconsistent
with the prohibitions in Sec. 226.52(b)(2). Thus, the prohibitions
in Sec. 226.52(b)(2) apply even if a fee is consistent with Sec.
226.52(b)(1)(i) or (b)(1)(ii). For example, even if a card issuer
has determined for purposes of Sec. 226.52(b)(1)(i) that a $27 fee
represents a reasonable proportion of the total costs incurred by
the card issuer as a result of a particular type of violation, Sec.
226.52(b)(2)(i) prohibits the card issuer from imposing that fee if
the dollar amount associated with the violation is less than $27.
Similarly, even if Sec. 226.52(b)(1)(ii) permits a card issuer to
impose a $25 fee, Sec. 226.52(b)(2)(i) prohibits the card issuer
from imposing that fee if the dollar amount associated with the
violation is less than $25.
52(b)(2)(i) Fees that exceed dollar amount associated with
violation.
1. Late payment fees. For purposes of Sec. 226.52(b)(2)(i), the
dollar amount associated with a late payment is the amount of the
required minimum periodic payment due immediately prior to
assessment of the late payment fee. Thus, Sec. 226.52(b)(2)(i)(A)
prohibits a card issuer from imposing a late payment fee that
exceeds the amount of that required minimum periodic payment. For
example:
i. Assume that a $15 required minimum periodic payment is due on
September 25. The card issuer does not receive any payment on or
before September 25. On September 26, the card issuer imposes a late
payment fee. For purposes of Sec. 226.52(b)(2)(i), the dollar
amount associated with the late payment is the amount of the
required minimum periodic payment due on September 25 ($15). Thus,
under Sec. 226.52(b)(2)(i)(A), the amount of that fee cannot exceed
$15 (even if a higher fee would be permitted under Sec.
226.52(b)(1)).
ii. Same facts as above except that, on September 25, the card
issuer receives a $10 payment. No further payments are received. On
September 26, the card issuer imposes a late payment fee. For
purposes of Sec. 226.52(b)(2)(i), the dollar amount associated with
the late payment is the full amount of the required minimum periodic
payment due on September 25 ($15), rather than the unpaid portion of
that payment ($5). Thus, under Sec. 226.52(b)(2)(i)(A), the amount
of the late payment fee cannot exceed $15 (even if a higher fee
would be permitted under Sec. 226.52(b)(1)).
iii. Assume that a $15 required minimum periodic payment is due
on October 28 and the billing cycle for the account closes on
October 31. The card issuer does not receive any payment on or
before November 3. On November 3, the card issuer determines that
the required minimum periodic payment due on November 28 is $50. On
November 5, the card issuer imposes a late payment fee. For purposes
of Sec. 226.52(b)(2)(i), the dollar amount associated with the late
payment is the amount of the required minimum periodic payment due
on October 28 ($15), rather than the amount of the required minimum
periodic payment due on November 28 ($50). Thus, under Sec.
226.52(b)(2)(i)(A), the amount of that fee cannot exceed $15 (even
if a higher fee would be permitted under Sec. 226.52(b)(1)).
2. Returned payment fees. For purposes of Sec. 226.52(b)(2)(i),
the dollar amount associated with a returned payment is the amount
of the required minimum periodic payment due immediately prior to
the date on which the
[[Page 23027]]
payment is returned to the card issuer. Thus, Sec.
226.52(b)(2)(i)(A) prohibits a card issuer from imposing a returned
payment fee that exceeds the amount of that required minimum
periodic payment. However, if a payment has been returned and is
submitted again for payment by the card issuer, there is no
additional dollar amount associated with a subsequent return of that
payment and Sec. 226.52(b)(2)(i)(B) prohibits the card issuer from
imposing an additional returned payment fee. For example:
i. 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 is the twenty-fifth day of the month. A minimum
payment of $15 is due on March 25. The card issuer receives a check
for $100 on March 23, which is returned to the card issuer for
insufficient funds on March 26. For purposes of Sec.
226.52(b)(2)(i), the dollar amount associated with the returned
payment is the amount of the required minimum periodic payment due
on March 25 ($15). Thus, Sec. 226.52(b)(2)(i)(A) prohibits the card
issuer from imposing a returned payment fee that exceeds $15 (even
if a higher fee would be permitted under Sec. 226.52(b)(1)).
Furthermore, Sec. 226.52(b)(2)(ii) prohibits the card issuer from
assessing both a late payment fee and a returned payment fee in
these circumstances. See comment 52(b)(2)(ii)-1.
ii. Same facts as above except that the card issuer receives the
$100 check on March 31 and the check is returned for insufficient
funds on April 2. The minimum payment due on April 25 is $30. For
purposes of Sec. 226.52(b)(2)(i), the dollar amount associated with
the returned payment is the amount of the required minimum periodic
payment due on March 25 ($15), rather than the amount of the
required minimum periodic payment due on April 25 ($30). Thus, Sec.
226.52(b)(2)(i)(A) prohibits the card issuer from imposing a
returned payment fee that exceeds $15 (even if a higher fee would be
permitted under Sec. 226.52(b)(1)). Furthermore, Sec.
226.52(b)(2)(ii) prohibits the card issuer from assessing both a
late payment fee and a returned payment fee in these circumstances.
See comment 52(b)(2)(ii)-1.
iii. Same facts as paragraph i. above except that, on March 28,
the card issuer presents the $100 check for payment a second time.
On April 1, the check is again returned for insufficient funds.
Section 226.52(b)(2)(i)(B) prohibits the card issuer from imposing a
returned payment fee based on the return of the payment on April 1.
iv. 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 is the twenty-fifth day of the month. A minimum
payment of $15 is due on August 25. The card issuer receives a check
for $15 on August 23, which is not returned. The card issuer
receives a check for $50 on September 5, which is returned to the
card issuer for insufficient funds on September 7. Section
226.52(b)(2)(i)(B) does not prohibit the card issuer from imposing a
returned payment fee in these circumstances. Instead, for purposes
of Sec. 226.52(b)(2)(i), the dollar amount associated with the
returned payment is the amount of the required minimum periodic
payment due on August 25 ($15). Thus, Sec. 226.52(b)(2)(i)(A)
prohibits the card issuer from imposing a returned payment fee that
exceeds $15 (even if a higher fee would be permitted under Sec.
226.52(b)(1)).
3. Over-the-limit fees. For purposes of Sec. 226.52(b)(2)(i),
the dollar amount associated with extensions of credit in excess of
the credit limit for an account is the total amount of credit
extended by the card issuer in excess of the credit limit during the
billing cycle in which the over-the-limit fee is imposed. Thus,
Sec. 226.52(b)(2)(i)(A) prohibits a card issuer from imposing an
over-the-limit fee that exceeds that amount. Nothing in Sec.
226.52(b) permits a card issuer to impose an over-the-limit fee if
imposition of the fee is inconsistent with Sec. 226.56. The
following examples illustrate the application of Sec.
226.52(b)(2)(i)(A) to over-the-limit fees:
i. Assume that the billing cycles for a credit card account with
a credit limit of $5,000 begin on the first day of the month and end
on the last day of the month. Assume also that, consistent with
Sec. 226.56, the consumer has affirmatively consented to the
payment of transactions that exceed the credit limit. On March 1,
the account has a $4,950 balance. On March 6, a $60 transaction is
charged to the account, increasing the balance to $5,010. On March
25, a $5 transaction is charged to the account, increasing the
balance to $5,015. On the last day of the billing cycle (March 31),
the card issuer imposes an over-the-limit fee. For purposes of Sec.
226.52(b)(2)(i), the dollar amount associated with the extensions of
credit in excess of the credit limit is the total amount of credit
extended by the card issuer in excess of the credit limit during the
March billing cycle ($15). Thus, Sec. 226.52(b)(2)(i)(A) prohibits
the card issuer from imposing an over-the-limit fee that exceeds $15
(even if a higher fee would be permitted under Sec. 226.52(b)(1)).
ii. Same facts as above except that, on March 26, the card
issuer receives a payment of $20, reducing the balance below the
credit limit to $4,995. Nevertheless, for purposes of Sec.
226.52(b)(2)(i), the dollar amount associated with the extensions of
credit in excess of the credit limit is the total amount of credit
extended by the card issuer in excess of the credit limit during the
March billing cycle ($15). Thus, consistent with Sec.
226.52(b)(2)(i)(A), the card issuer may impose an over-the-limit fee
of $15.
4. Declined access check fees. For purposes of Sec.
226.52(b)(2)(i), the dollar amount associated with declining payment
on a check that accesses a credit card account is the amount of the
check. Thus, when a check that accesses a credit card account is
declined, Sec. 226.52(b)(2)(i)(A) prohibits a card issuer from
imposing a fee that exceeds the amount of that check. For example,
assume that a check that accesses a credit card account is used as
payment for a $50 transaction, but payment on the check is declined
by the card issuer because the transaction would have exceeded the
credit limit for the account. For purposes of Sec. 226.52(b)(2)(i),
the dollar amount associated with the declined check is the amount
of the check ($50). Thus, Sec. 226.52(b)(2)(i)(A) prohibits the
card issuer from imposing a fee that exceeds $50. However, the
amount of this fee must also comply with Sec. 226.52(b)(1)(i) or
(b)(1)(ii).
5. Inactivity fees. Section 226.52(b)(2)(i)(B)(2) prohibits a
card issuer from imposing a fee with respect to a credit card
account under an open-end (not home-secured) consumer credit plan
based on inactivity on that account (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 when a credit card account under an open-end (not home-
secured) consumer credit plan is not used for at least $2,000 in
purchases over the course of a year. Similarly, Sec.
226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a $50
annual fee on all accounts of a particular type but waiving the fee
on any account that is used for at least $2,000 in purchases over
the course of a year if the card issuer promotes the waiver or
rebate of the annual fee for purposes of Sec. 226.55(e). However,
if the 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 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).
6. Closed account fees. Section 226.52(b)(2)(i)(B)(3) prohibits
a card issuer from imposing a fee based on the closure or
termination of an account. For example, 226.52(b)(2)(i)(B)(3)
prohibits a card issuer from:
i. Imposing a one-time fee to consumers who close their
accounts.
ii. Imposing a periodic fee (such as an annual fee, a monthly
maintenance fee, or a closed account fee) after an account is closed
or terminated if that fee was not imposed prior to closure or
termination. This prohibition applies even if the fee was disclosed
prior to closure or termination. See also comment 55(d)-1.
iii. Increasing a periodic fee (such as an annual fee or a
monthly maintenance fee) after an account is closed or terminated.
However, a card issuer is not prohibited from continuing to impose a
periodic fee that was imposed before the account was closed or
terminated.
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. 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). 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.
[[Page 23028]]
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. 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. 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).
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.
ii. Assume that the required minimum periodic payment due on
March 25 is $30.
A. On March 25, the card issuer receives a check for $50, but
the check is returned for insufficient funds on March 27. 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. 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.
B. Same facts as paragraph ii.A. above except that that card
issuer receives the $50 check on March 27 and the check is returned
for insufficient funds on March 29. 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. 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. If no payment is received on or before the next payment
due date (April 25), Sec. 226.52(b)(2)(ii) does not prohibit the
card issuer from imposing a late payment fee.
iii. Assume that the required minimum periodic payment due on
July 25 is $30. On July 10, the card issuer receives a $50 payment,
which is not returned. On July 20, the card issuer receives a $100
payment, which is returned for insufficient funds on July 24.
Consistent with Sec. 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card
issuer may impose a returned payment fee of $25. Nothing in Sec.
226.52(b)(2)(ii) prohibits the imposition of this fee.
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. 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), to the extent 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).
v. Assume that the credit limit for an 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.
Sec. 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 periodic payment in the
manner requested by the consumer pursuant to Sec. 226.53(b)(1)(ii),
Sec. 226.53(b)(1)(i) requires the card issuer to apply any excess
payments first to the $1,000 purchase balance except during the last
two
[[Page 23029]]
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)(1)(ii).
Thus, Sec. 226.53(b)(1)(i) 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)(i) 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)(i) 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)(1)(ii). 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)(1)(ii) permits the card
issuer to allocate the $800 excess payment in the manner requested
by the consumer.
53(b) Special rules.
1. Deferred interest and similar programs. Section 226.53(b)(1)
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)(1),
``deferred interest'' has the same meaning as in Sec. 226.16(h)(2)
and associated commentary. Section 226.53(b)(1) 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)(1).
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)(1) 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 deferred interest or similar program during
billing cycle. For purposes of Sec. 226.53(b)(1)(i), 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)(1)(ii). 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)(i) 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)(i) 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(a) or (b)(1)(i),
as applicable. 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(a) or (b)(1)(i), as
applicable. Similarly, a card issuer that accepts requests pursuant
to Sec. 226.53(b)(1)(ii) or (b)(2) must allocate amounts paid by a
consumer in excess of the required minimum periodic payment
consistent with Sec. 226.53(a) or (b)(1)(i), as applicable, if the
consumer does not submit a request. Furthermore, a card issuer that
accepts requests pursuant to Sec. 226.53(b)(1)(ii) or (b)(2) must
allocate consistent with Sec. 226.53(a) or (b)(1)(i), as
applicable, 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(b)(1)(ii) or (b)(2). A consumer has made a request for
purposes of Sec. 226.53(b)(1)(ii) or (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 or the period of time that a balance on the account is
secured.
B. The consumer completes and submits to the card issuer 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 or the period of
time that a balance on the account is secured.
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(a) or
(b)(1)(i), as applicable, instead be allocated in a different
manner.
iii. Examples of consumer requests that do not satisfy Sec.
226.53(b)(1)(ii) or (b)(2). A consumer has not made a request for
purposes of Sec. 226.53(b)(1)(ii) or (b)(2) if:
A. The terms and conditions of the account agreement contain
preprinted language stating that by applying to open an account, by
using that account for transactions subject to a deferred interest
or similar program, or by using the account to purchase property in
which the card issuer holds a security interest the consumer
requests that payments be allocated in a particular manner.
B. The card issuer's on-line application contains a preselected
check box indicating that the consumer requests that payments be
allocated in a particular manner and the consumer does not deselect
the box.
C. The payment coupon provided by the card issuer contains
preprinted language or a preselected check box stating that by
submitting a payment the consumer requests that the payment 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, purchasing property in which the card
issuer holds a security interest, making a payment, or receiving
account services or features.
* * * * *
Sec. 226.55--Limitations on Increasing Annual Percentage Rates,
Fees, and Charges
55(a) General rule.
1. Increase in rate, fee, or charge. 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).
Except as specifically provided in Sec. 226.55(b), this prohibition
applies even if the circumstances under which an increase will occur
are disclosed in advance. 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.
i. Account-opening disclosure of non-variable rate for six
months, then variable rate. Assume that, at account opening on
[[Page 23030]]
January 1 of year one, a card issuer discloses that the annual
percentage rate for purchases is a non-variable rate of 15% and will
apply for six months. The card issuer also discloses that, after six
months, the annual percentage rate for purchases will be a variable
rate that is currently 18% and will be adjusted quarterly by adding
a margin of 8 percentage points to a publicly-available index not
under the card issuer's control. Furthermore, the card issuer
discloses that the annual percentage rate for cash advances is the
same variable rate that will apply to purchases after six months.
Finally, the card issuer discloses that, to the extent consistent
with Sec. 226.55 and other applicable law, a non-variable penalty
rate of 30% may apply if the consumer makes a late payment. The
payment due date for the account is the twenty-fifth day of the
month and the required minimum periodic payments are applied to
accrued interest and fees but do not reduce the purchase and cash
advance balances.
A. Change-in-terms rate increase for new transactions after
first year. On January 15 of year one, the consumer uses the account
to make a $2,000 purchase and a $500 cash advance. No other
transactions are made on the account. At the start of each quarter,
the card issuer may adjust the variable rate that applies to the
$500 cash advance consistent with changes in the index (pursuant to
Sec. 226.55(b)(2)). All required minimum periodic payments are
received on or before the payment due date until May of year one,
when the payment due on May 25 is received by the creditor on May
28. At this time, the card issuer is prohibited by Sec. 226.55 from
increasing the rates that apply to the $2,000 purchase, the $500
cash advance, or future purchases and cash advances. Six months
after account opening (July 1), the card issuer may begin to accrue
interest on the $2,000 purchase at the previously-disclosed variable
rate determined using an 8-point margin (pursuant to Sec.
226.55(b)(1)). Because no other increases in rate were disclosed at
account opening, the card issuer may not subsequently increase the
variable rate that applies to the $2,000 purchase and the $500 cash
advance (except due to increases in the index pursuant to Sec.
226.55(b)(2)). On November 16, the card issuer provides a notice
pursuant to Sec. 226.9(c) informing the consumer of a new variable
rate that will apply on January 1 of year two (calculated using the
same index and an increased margin of 12 percentage points). On
December 15, the consumer makes a $100 purchase. On January 1 of
year two, the card issuer may increase the margin used to determine
the variable rate that applies to new purchases to 12 percentage
points (pursuant to Sec. 226.55(b)(3)). However, Sec.
226.55(b)(3)(ii) does not permit the card issuer to apply the
variable rate determined using the 12-point margin to the $2,000
purchase balance. Furthermore, although the $100 purchase occurred
more than 14 days after provision of the Sec. 226.9(c) notice,
Sec. 226.55(b)(3)(iii) does not permit the card issuer to apply the
variable rate determined using the 12-point margin to that purchase
because it occurred during the first year after account opening. On
January 15 of year two, the consumer makes a $300 purchase. The card
issuer may apply the variable rate determined using the 12-point
margin to the $300 purchase.
B. Account becomes more than 60 days delinquent during first
year. Same facts as above except that the required minimum periodic
payment due on May 25 of year one is not received by the card issuer
until July 30 of year one. Because the card issuer received the
required minimum periodic payment more than 60 days after the
payment due date, Sec. 226.55(b)(4) permits the card issuer to
increase the annual percentage rate applicable to the $2,000
purchase, the $500 cash advance, and future purchases and cash
advances. However, Sec. 226.55(b)(4)(i) requires the card issuer to
first comply with the notice requirements in Sec. 226.9(g). Thus,
if the card issuer provided a Sec. 226.9(g) notice on July 25
stating that all rates on the account would be increased to the 30%
penalty rate, the card issuer could apply that rate beginning on
September 8 to all balances and to future transactions.
ii. Account-opening disclosure of non-variable rate for six
months, then increased non-variable rate for six months, then
variable rate; change-in-terms rate increase for new transactions
after first year. Assume that, at account opening on January 1 of
year one, a card issuer discloses that the annual percentage rate
for purchases will increase as follows: A non-variable rate of 5%
for six months; a non-variable rate of 10% for an additional six
months; and thereafter a variable rate that is currently 15% and
will be adjusted monthly by adding a margin of 5 percentage points
to a publicly-available index not under the card issuer's control.
The payment due date for the account is the fifteenth day of the
month and the required minimum periodic payments are applied to
accrued interest and fees but do not reduce the purchase balance. On
January 15 of year one, the consumer uses the account to make a
$1,500 purchase. Six months after account opening (July 1), the card
issuer may begin to accrue interest on the $1,500 purchase at the
previously-disclosed 10% non-variable rate (pursuant to Sec.
226.55(b)(1)). On September 15, the consumer uses the account for a
$700 purchase. On November 16, the card issuer provides a notice
pursuant to Sec. 226.9(c) informing the consumer of a new variable
rate that will apply on January 1 of year two (calculated using the
same index and an increased margin of 8 percentage points). One year
after account opening (January 1 of year two), the card issuer may
begin accruing interest on the $2,200 purchase balance at the
previously-disclosed variable rate determined using a 5-point margin
(pursuant to Sec. 226.55(b)(1)). Section 226.55 does not permit the
card issuer to apply the variable rate determined using the 8-point
margin to the $2,200 purchase balance. Furthermore, Sec. 226.55
does not permit the card issuer to subsequently increase the
variable rate determined using the 5-point margin that applies to
the $2,200 purchase balance (except due to increases in the index
pursuant to Sec. 226.55(b)(2)). The card issuer may, however, apply
the variable rate determined using the 8-point margin to purchases
made on or after January 1 of year two (pursuant to Sec.
226.55(b)(3)).
iii. Change-in-terms rate increase for new transactions after
first year; penalty rate increase after first year. Assume that, at
account opening on January 1 of year one, a card issuer discloses
that the annual percentage rate for purchases is a variable rate
determined by adding a margin of 6 percentage points to a publicly-
available index outside of the card issuer's control. The card
issuer also discloses that, to the extent consistent with Sec.
226.55 and other applicable law, a non-variable penalty rate of 28%
may apply if the consumer makes a late payment. The due date for the
account is the fifteenth of the month. On May 30 of year two, the
account has a purchase balance of $1,000. On May 31, the card issuer
provides a notice pursuant to Sec. 226.9(c) informing the consumer
of a new variable rate that will apply on July 16 for all purchases
made on or after June 15 (calculated by using the same index and an
increased margin of 8 percentage points). On June 14, the consumer
makes a $500 purchase. On June 15, the consumer makes a $200
purchase. On July 1, the card issuer has not received the payment
due on June 15 and provides the consumer with a notice pursuant to
Sec. 226.9(g) stating that the 28% penalty rate will apply as of
August 15 to all transactions made on or after July 16 and that, if
the consumer becomes more than 60 days late, the penalty rate will
apply to all balances on the account. On July 17, the consumer makes
a $300 purchase.
A. Account does not become more than 60 days delinquent. The
payment due on June 15 of year two is received on July 2. On July
16, Sec. 226.55(b)(3)(ii) permits the card issuer to apply the
variable rate determined using the 8-point margin disclosed in the
Sec. 226.9(c) notice to the $200 purchase made on June 15 but does
not permit the card issuer to apply this rate to the $1,500 purchase
balance. On August 15, Sec. 226.55(b)(3)(ii) permits the card
issuer to apply the 28% penalty rate disclosed at account opening
and in the Sec. 226.9(g) notice to the $300 purchase made on July
17 but does not permit the card issuer to apply this rate to the
$1,500 purchase balance (which remains at the variable rate
determined using the 6-point margin) or the $200 purchase (which
remains at the variable rate determined using the 8-point margin).
B. Account becomes more than 60 days delinquent after provision
of Sec. 226.9(g) notice. Same facts as above except the payment due
on June 15 of year two has not been received by August 15. Section
226.55(b)(4) permits the card issuer to apply the 28% penalty rate
to the $1,500 purchase balance and the $200 purchase because it has
not received the June 15 payment within 60 days after the due date.
However, in order to do so, Sec. 226.55(b)(4)(i) requires the card
issuer to first provide an additional notice pursuant to Sec.
226.9(g). This notice must be sent no earlier than August 15, which
is the first day the account became more than 60 days' delinquent.
If the notice is sent on August 15, the card issuer may begin
accruing interest on the $1,500 purchase balance and the $200
purchase at the 28% penalty rate beginning on September 29.
2. Relationship to grace period. Nothing in Sec. 226.55
prohibits a card issuer from assessing interest due to the loss of a
grace
[[Page 23031]]
period to the extent consistent with Sec. 226.5(b)(2)(ii)(B) and
Sec. 226.54. In addition, a card issuer has not reduced an annual
percentage rate on a credit card account for purposes of Sec.
226.55 if the card issuer does not charge interest on a balance or a
portion thereof based on a payment received prior to the expiration
of a grace period. For example, if the annual percentage rate for
purchases on an account is 15% but the card issuer does not charge
any interest on a $500 purchase balance because that balance was
paid in full prior to the expiration of the grace period, the card
issuer has not reduced the 15% purchase rate to 0% for purposes of
Sec. 226.55.
55(b) Exceptions.
1. Exceptions not mutually exclusive. A card issuer generally
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. 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).
* * * * *
3. Application of a lower rate, fee, or charge. Nothing in Sec.
226.55 prohibits a card issuer from lowering 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). However, a card issuer
that does so cannot subsequently increase the rate, fee, or charge
unless permitted by one of the exceptions in Sec. 226.55(b). The
following examples illustrate the application of the rule:
i. Application of lower rate during first year. Assume that a
card issuer discloses at account opening on January 1 of year one
that a non-variable annual percentage rate of 15% will apply to
purchases. The card issuer also discloses that, to the extent
consistent with Sec. 226.55 and other applicable law, a non-
variable penalty rate of 30% may apply if the consumer's required
minimum periodic payment is received after the payment due date,
which is the tenth of the month. The required minimum periodic
payments are applied to accrued interest and fees but do not reduce
the purchase balance.
A. Temporary rate returns to standard rate at expiration. On
September 30 of year one, the account has a purchase balance of
$1,400 at the 15% rate. On October 1, the card issuer provides a
notice pursuant to Sec. 226.9(c) informing the consumer that the
rate for new purchases will decrease to a non-variable rate of 5%
for six months (from October 1 through March 31 of year two) and
that, beginning on April 1 of year two, the rate for purchases will
increase to the 15% non-variable rate disclosed at account opening.
The card issuer does not apply the 5% rate to the $1,400 purchase
balance. On October 14 of year one, the consumer makes a $300
purchase at the 5% rate. On January 15 of year two, the consumer
makes a $150 purchase at the 5% rate. On April 1 of year two, the
card issuer may begin accruing interest on the $300 purchase and the
$150 purchase at 15% as disclosed in the Sec. 226.9(c) notice
(pursuant to Sec. 226.55(b)(1)).
B. Penalty rate increase. Same facts as above except that the
required minimum periodic payment due on November 10 of year one is
not received until November 15. Section 226.55 does not permit the
card issuer to increase any annual percentage rate on the account at
this time. The card issuer may apply the 30% penalty rate to new
transactions beginning on April 1 of year two pursuant to Sec.
226.55(b)(3) by providing a Sec. 226.9(g) notice informing the
consumer of this increase no later than February 14 of year two. The
card issuer may not, however, apply the 30% penalty rate to the
$1,400 purchase balance as of September 30 of year one, the $300
purchase on October 15 of year one, or the $150 purchase on January
15 of year two.
ii. Application of lower rate at end of first year. Assume that,
at account opening on January 1 of year one, a card issuer discloses
that a non-variable annual percentage rate of 15% will apply to
purchases for one year and discloses that, after the first year, the
card issuer will apply 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 December 31
of year one, the account has a purchase balance of $3,000.
A. Notice of extension of existing temporary rate provided
consistent with Sec. 226.55(b)(1)(i). On December 15 of year one,
the card issuer provides a notice pursuant to Sec. 226.9(c)
informing the consumer that the existing 15% rate will continue to
apply until July 1 of year two. The notice further states that, on
July 1 of year two, the variable rate disclosed at account opening
will apply. On July 1 of year two, Sec. 226.55(b)(1) permits the
card issuer to apply that variable rate to any remaining portion of
the $3,000 balance and to new transactions.
B. Notice of new temporary rate provided consistent with Sec.
226.55(b)(1)(i). On December 15 of year one, the card issuer
provides a notice pursuant to Sec. 226.9(c) informing the consumer
of a new variable rate that will apply on January 1 of year two that
is lower than the variable rate disclosed at account opening. The
new variable rate is calculated using the same index and a reduced
margin of 8 percentage points. The notice further states that, on
July 1 of year two, the margin will increase to the margin disclosed
at account opening (10 percentage points). On July 1 of year two,
Sec. 226.55(b)(1) permits the card issuer to increase the margin
used to determine the variable rate that applies to new purchases to
10 percentage points and to apply that rate to any remaining portion
of the $3,000 purchase balance.
C. No notice provided. Same facts as in paragraph ii.B. above
except that the card issuer does not send a notice on December 15 of
year one. Instead, on January 1 of year two, the card issuer lowers
the margin used to determine the variable rate to 8 percentage
points and applies that rate to the $3,000 purchase balance and to
new purchases. Section 226.9 does not require advance notice in
these circumstances. However, unless the account becomes more than
60 days' delinquent, Sec. 226.55 does not permit the card issuer to
subsequently increase the rate that applies to the $3,000 purchase
balance except due to increases in the index (pursuant to Sec.
226.55(b)(2)).
iii. Application of lower rate after first year. Assume that a
card issuer discloses at account opening on January 1 of year one
that a non-variable annual percentage rate of 10% will apply to
purchases for one year, after which that rate will increase to a
non-variable rate of 15%. The card issuer also discloses that, to
the extent consistent with Sec. 226.55 and other applicable law, a
non-variable penalty rate of 30% may apply if the consumer's
required minimum periodic payment is received after the payment due
date, which is the tenth of the month. The required minimum periodic
payments are applied to accrued interest and fees but do not reduce
the purchase balance.
A. Effect of 14-day period. On June 30 of year two, the account
has a purchase balance of $1,000 at the 15% rate. On July 1, the
card issuer provides a notice pursuant to Sec. 226.9(c) informing
the consumer that the rate for new purchases will decrease to a non-
variable rate of 5% 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 non-variable rate of 17%. On
July 15 of year two, the consumer makes a $200 purchase. On July 16,
the consumer makes a $100 purchase. On January 1 of year three, the
card issuer may begin accruing interest on the $100 purchase at 17%
(pursuant to
[[Page 23032]]
Sec. 226.55(b)(1)). However, Sec. 226.55(b)(1)(ii)(B) does not
permit the card issuer to apply the 17% rate to the $200 purchase
because that transaction occurred within 14 days after provision of
the Sec. 226.9(c) notice. Instead, the card issuer may apply the
15% rate that applied to purchases prior to provision of the Sec.
226.9(c) notice. In addition, if the card issuer applied the 5% rate
to the $1,000 purchase balance, Sec. 226.55(b)(ii)(A) would not
permit the card issuer to increase the rate that applies to that
balance on January 1 of year three to a rate that is higher than 15%
that previously applied to the balance.
B. Penalty rate increase. Same facts as above except that the
required minimum periodic payment due on August 25 is received on
August 30. At this time, Sec. 226.55 does not permit the card
issuer to increase the annual percentage rates that apply to the
$1,000 purchase balance, the $200 purchase, or the $100 purchase.
Instead, those rates can only be increased as discussed in paragraph
iii.A. above. However, if the card issuer provides a notice pursuant
to Sec. 226.9(c) or (g) on September 1, Sec. 226.55(b)(3) permits
the card issuer to apply an increased rate (such as the 17% purchase
rate or the 30% penalty rate) to transactions that occur on or after
September 16 beginning on October 16.
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.
* * * * *
55(b)(1) Temporary rate, fee, or charge exception.
1. Relationship to Sec. 226.9(c)(2)(v)(B). A card issuer that
has complied with the disclosure requirements in Sec.
226.9(c)(2)(v)(B) has also complied with the disclosure requirements
in Sec. 226.55(b)(1)(i).
2. Period of six months or longer. A temporary annual percentage
rate, fee, or charge must apply for a specified period of six months
or longer before a card issuer can increase that rate, fee, or
charge pursuant to Sec. 226.55(b)(1). The specified period must
expire no less than six months after the date on which the card
issuer 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, fee, or charge
applies. Section 226.55(b)(1) does not prohibit a card issuer from
limiting the application of a temporary annual percentage rate, fee,
or charge to a particular category of transactions (such as to
balance transfers or to purchases over $100). However, in
circumstances where the card issuer limits application of the
temporary rate, fee, or charge to a single 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):
i. Assume that on January 1 a card issuer offers a consumer a 5%
annual percentage rate on purchases made during the months of
January through June. A 15% rate will apply thereafter. On February
15, a $500 purchase is charged to the account. On June 15, a $200
purchase is charged to the account. On July 1, the card issuer may
begin accruing interest at the 15% rate on the $500 purchase and the
$200 purchase (pursuant to Sec. 226.55(b)(1)).
ii. Same facts as above except that on January 1 the card issuer
offered the 5% rate on purchases beginning in the month of February.
Section 226.55(b)(1) would not permit the card issuer to begin
accruing interest at the 15% rate on the $500 purchase and the $200
purchase until August 1.
iii. Assume that on October 31 of year one the annual percentage
rate for purchases is 17%. On November 1, the card issuer offers the
consumer a 0% rate for six months on purchases made during the
months of November and December. The 17% rate will apply thereafter.
On November 15, a $500 purchase is charged to the account. On
December 15, a $300 purchase is charged to the account. On January
15 of year two, a $150 purchase is charged to the account. Section
226.55(b)(1) would not permit the card issuer to begin accruing
interest at the 17% rate on the $500 purchase and the $300 purchase
until May 1 of year two. However, the card issuer may accrue
interest at the 17% rate on the $150 purchase beginning on January
15 of year two.
iv. Assume that on June 1 of year one a card issuer offers a
consumer a 0% annual percentage rate for six months on the purchase
of an appliance. An 18% rate will apply thereafter. On September 1,
a $5,000 transaction is charged to the account for the purchase of
an appliance. Section 226.55(b)(1) would not permit the card issuer
to begin accruing interest at the 18% rate on the $5,000 transaction
until March 1 of year two.
v. Assume that on May 31 of year one the annual percentage rate
for purchases is 15%. On June 1, the card issuer offers the consumer
a 5% rate for six months on a balance transfer of at least $1,000.
The 15% rate will apply thereafter. On June 15, a $3,000 balance is
transferred to the account. On July 15, a $200 purchase is charged
to the account. Section 226.55(b)(1) would not permit the card
issuer to begin accruing interest at the 15% rate on the $3,000
transferred balance until December 15. However, the card issuer may
accrue interest at the 15% rate on the $200 purchase beginning on
July 15.
vi. Same facts as in paragraph v. above except that the card
issuer offers the 5% rate for six months on all balance transfers of
at least $1,000 during the month of June and a $2,000 balance is
transferred to the account on June 30 (in addition to the $3,000
balance transfer on June 15). Because the 5% rate is not limited to
a particular transaction, Sec. 226.55(b)(1) permits the card issuer
to begin accruing interest on the $3,000 and $2,000 transferred
balances on December 1.
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)).
3. Deferred interest and similar promotional programs. i.
Application of Sec. 226.55. The general prohibition in Sec.
226.55(a) applies to the imposition of accrued interest upon the
expiration of a deferred interest or similar promotional program
under which the consumer is not obligated to pay interest that
accrues on a balance if that balance is paid in full prior to the
expiration of a specified period of time. However, the exception in
Sec. 226.55(b)(1) also applies to these programs, provided that the
specified period is six months or longer and that, prior to the
commencement of the period, the card issuer discloses the length of
the period and the rate at which interest will accrue on the balance
subject to the deferred interest or similar program if that balance
is not paid in full prior to expiration of the period. See comment
9(c)(2)(v)-9. For purposes of Sec. 226.55, ``deferred interest''
has the same meaning as in Sec. 226.16(h)(2) and associated
commentary.
ii. Examples.
A. Deferred interest offer at account opening. Assume that, at
account opening on January 1 of year one, the card issuer discloses
the following with respect to a deferred interest program: ``No
interest on purchases made in January of year one if paid in full by
December 31 of year one. If the balance is not paid in full by that
date, interest will be imposed from the transaction date at a rate
of 20%.'' On January 15 of year one, the consumer makes a purchase
of
[[Page 23033]]
$2,000. No other transactions are made on the account. The terms of
the deferred interest program require the consumer to make minimum
periodic payments with respect to the deferred interest balance, and
the payment due on April 1 is not received until April 10. Section
226.55 does not permit the card issuer to charge to the account
interest that has accrued on the $2,000 purchase at this time.
Furthermore, if the consumer pays the $2,000 purchase in full on or
before December 31 of year one, Sec. 226.55 does not permit the
card issuer to charge to the account any interest that has accrued
on that purchase. If, however, the $2,000 purchase has not been paid
in full by January 1 of year two, Sec. 226.55(b)(1) permits the
card issuer to charge to the account the interest accrued on that
purchase at the 20% rate during year one (to the extent consistent
with other applicable law).
B. Deferred interest offer after account opening. Assume that a
card issuer discloses at account opening on January 1 of year one
that the rate that applies to purchases is a variable annual
percentage rate that is currently 18% and will be adjusted quarterly
by adding a margin of 8 percentage points to a publicly-available
index not under the card issuer's control. The card issuer also
discloses that, to the extent consistent with Sec. 226.55 and other
applicable law, a non-variable penalty rate of 30% may apply if the
consumer's required minimum periodic payment is received after the
payment due date, which is the first of the month. On June 30 of
year two, the consumer uses the account for a $1,000 purchase in
response to an offer of a deferred interest program. Under the terms
of this program, interest on the purchase will accrue at the
variable rate for purchases but the consumer will not be obligated
to pay that interest if the purchase is paid in full by December 31
of year three. The terms of the deferred interest program require
the consumer to make minimum periodic payments with respect to the
deferred interest balance, and the payment due on September 1 of
year two is not received until September 6. Section 226.55 does not
permit the card issuer to charge to the account interest that has
accrued on the $1,000 purchase at this time. Furthermore, if the
consumer pays the $1,000 purchase in full on or before December 31
of year three, Sec. 226.55 does not permit the card issuer to
charge to the account any interest that has accrued on that
purchase. On December 31 of year three, the $1,000 purchase has been
paid in full. Under these circumstances, the card issuer may not
charge any interest accrued on the $1,000 purchase.
C. Application of Sec. 226.55(b)(4) to deferred interest
programs. Same facts as in paragraph ii.B. above except that, on
November 2 of year two, the card issuer has not received the
required minimum periodic payments due on September 1, October 1, or
November 1 of year two and sends a Sec. 226.9(c) or (g) notice
stating that interest accrued on the $1,000 purchase since June 30
of year two will be charged to the account on December 17 of year
two and thereafter interest will be charged on the $1,000 purchase
consistent with the variable rate for purchases. On December 17 of
year two, Sec. 226.55(b)(4) permits the card issuer to charge to
the account interest accrued on the $1,000 purchase since June 30 of
year two and Sec. 226.55(b)(3) permits the card issuer to begin
charging interest on the $1,000 purchase consistent with the
variable rate for purchases. However, if the card issuer receives
the required minimum periodic payments due on January 1, February 1,
March 1, April 1, May 1, and June 1 of year three, Sec.
226.55(b)(4)(ii) requires the card issuer to cease charging the
account for interest on the $1,000 purchase no later than the first
day of the next billing cycle. See comment 55(b)(4)-3.iii. However,
Sec. 226.55(b)(4)(ii) does not require the card issuer to waive or
credit the account for interest accrued on the $1,000 purchase since
June 30 of year two. If the $1,000 purchase is paid in full on
December 31 of year three, the card issuer is not permitted to
charge to the account interest accrued on the $1,000 purchase after
June 1 of year three.
4. Contingent or discretionary increases. Section 226.55(b)(1)
permits a card issuer to increase a temporary annual percentage
rate, fee, or charge 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, fee, or charge 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:
i. Assume that a card issuer discloses at account opening on
January 1 of year one that a non-variable annual percentage rate of
15% applies to purchases but that all rates on an account may be
increased to a non-variable penalty rate of 30% if a consumer's
required minimum periodic payment is received after the payment due
date, which is the fifteenth of the month. On March 1, the account
has a $2,000 purchase balance. The payment due on March 15 is not
received until March 20. Section 226.55 does not permit the card
issuer to apply the 30% penalty rate to the $2,000 purchase balance.
However, pursuant to Sec. 226.55(b)(3), the card issuer could
provide a Sec. 226.9(c) or (g) notice on or before November 16
informing the consumer that, on January 1 of year two, the 30% rate
(or a different rate) will apply to new transactions.
ii. Assume that a card issuer discloses at account opening on
January 1 of year one that a non-variable annual percentage rate of
5% applies to transferred balances but that this rate will increase
to a non-variable rate of 18% if the consumer does not use the
account for at least $200 in purchases each billing cycle. On July
1, the consumer transfers a balance of $4,000 to the account. During
the October billing cycle, the consumer uses the account for $150 in
purchases. Section 226.55 does not permit the card issuer to apply
the 18% rate to the $4,000 transferred balance or the $150 in
purchases. However, pursuant to Sec. 226.55(b)(3), the card issuer
could provide a Sec. 226.9(c) or (g) notice on or before November
16 informing the consumer that, on January 1 of year two, the 18%
rate (or a different rate) will apply to new transactions.
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).
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.
* * * * *
55(b)(3) Advance notice exception.
* * * * *
6. Delayed implementation of increase. Section 226.55(b)(3)(iii)
does not prohibit a card issuer from notifying a consumer of an
increase in an annual percentage rate, fee, or charge consistent
with Sec. 226.9(b), (c), or (g). However, Sec. 226.55(b)(3)(iii)
does prohibit application of an increased rate, fee, or charge
during the first year after the account is opened, while the account
is closed, or while the card issuer does not permit the consumer to
use the account for new transactions. If Sec. 226.9(b), (c), or (g)
permits a card issuer to apply an increased rate, fee, or charge on
a particular date and the account is closed on that date or the card
issuer does not permit the consumer to use the account for new
transactions on that date, the card issuer may delay application of
the increased rate, fee, or charge until the first day of the
following billing cycle without
[[Page 23034]]
relinquishing the ability to apply that rate, fee, or charge
(assuming the increase is otherwise consistent with Sec. 226.55).
See examples in comment 55(b)-2.iii. However, if the account is
closed or the card issuer does not permit the consumer to use the
account for new transactions on the first day of the following
billing cycle, then the card issuer must provide a new notice of the
increased rate, fee, or charge consistent with Sec. 226.9(b), (c),
or (g).
7. Date on which account may first be used by consumer to engage
in transactions. 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. An account
is considered open for purposes of Sec. 226.55(b)(3)(iii) on any
date that the card issuer may consider the account open for purposes
of Sec. 226.52(a)(1). See comment 52(a)(1)-4.
* * * * *
55(c) Treatment of protected balances.
55(c)(1) Definition of protected balance.
1. Example of protected balance. Assume that, on March 15 of
year two, an account has a purchase balance of $1,000 at a non-
variable annual percentage rate of 12% and that, on March 16, the
card issuer sends a notice pursuant to Sec. 226.9(c) informing the
consumer that the annual percentage rate for new purchases will
increase to a non-variable rate of 15% on May 1. The fourteenth day
after provision of the notice is March 29. On March 29, the consumer
makes a $100 purchase. On March 30, the consumer makes a $150
purchase. On May 1, Sec. 226.55(b)(3)(ii) permits the card issuer
to begin accruing interest at 15% on the $150 purchase made on March
30 but does not permit the card issuer to apply that 15% rate to the
$1,100 purchase balance as of March 29. Accordingly, the protected
balance for purposes of Sec. 226.55(c) is the $1,100 purchase
balance as of March 29. The $150 purchase made on March 30 is not
part of the protected balance.
2. First year after account opening. Section 226.55(c) applies
to amounts owed for a category of transactions to which an increased
annual percentage rate or an increased fee or charge cannot be
applied after the rate, fee, or charge for that category of
transactions has been increased pursuant to Sec. 226.55(b)(3).
Because Sec. 226.55(b)(3)(iii) 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 account opening, Sec. 226.55(c) does
not apply to balances during the first year after account opening.
3. Increased fees and charges. Except as provided in Sec.
226.55(b)(3)(iii), 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. To the extent consistent with Sec.
226.55(b)(3)(iii), 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. For example, after the first year
following account opening, a card issuer generally may add or
increase an annual or a monthly maintenance fee for an 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). 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, 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.
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.
* * * * *
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 temporarily or permanently cease or terminate any
portion of the waiver or rebate on that account 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 generally 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 generally 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). However, a card issuer does
not promote a waiver or rebate for purposes of Sec. 226.55(e) if
the advertisement or communication relates to an inquiry or dispute
about a specific charge or to interest, fees, or charges that have
already been waived or rebated.
i. Examples of promotional communications. The following are
examples of circumstances in which a card issuer is 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, unless the disclosure relates to interest, fees, or
charges that have already been waived.
B. A card issuer discloses the waiver or rebate on radio or
television or through electronic advertisements (such as on the
Internet), unless the disclosure relates to interest, fees, or
charges that have already been waived or rebated.
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, unless the disclosure relates to an inquiry or dispute
about a specific charge or to interest, fees, or charges that have
already been waived or rebated.
ii. Examples of non-promotional communications. 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
[[Page 23035]]
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. Sec. 226.12 or 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, as defined in Sec.
226.5(b)(2)(ii)(3).
E. A card issuer provides a 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).
* * * * *
Sec. 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 Sec. 226.58(b)(7). For example, the
basic credit contract may not specify rates, fees and other
information that constitutes pricing information as defined in Sec.
226.58(b)(7); 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.
2. Provisions contained in separate documents included. A credit
card agreement is defined as 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. An agreement therefore may consist of several documents that,
taken together, define the legal obligation between the issuer and
consumer. For example, provisions that mandate arbitration or allow
an issuer to unilaterally alter the terms of the card issuer's or
consumer's obligation are part of the agreement even if they are
provided to the consumer in a document separate from the basic
credit contract.
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
Sec. 226.58(b)(7), 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.
2. Non-substantive changes. Changes that generally would not be
considered substantive include, for example: (i) Correction of
typographical errors that do not affect the meaning of any terms of
the agreement; (ii) changes to the card issuer's corporate name,
logo, or tagline; (iii) changes to the format of the agreement, such
as conversion to a booklet from a full-sheet format, changes in
font, or changes in margins; (iv) changes to the name of the credit
card to which the program applies; (v) reordering sections of the
agreement without affecting the meaning of any terms of the
agreement; (vi) adding, removing, or modifying a table of contents
or index; and (vii) changes to titles, headings, section numbers, or
captions.
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.
2. Use of third-party service providers. An institution that is
the card issuer as defined in Sec. 226.58(b)(4) has a legal
obligation to comply with the requirements of Sec. 226.58. However,
a card issuer generally may use a third-party service provider to
satisfy its obligations under Sec. 226.58, provided that the issuer
acts in accordance with regulatory guidance regarding use of third-
party service providers and other applicable regulatory guidance. In
some cases, an issuer may wish to arrange for the institution with
which it partners to issue credit cards to fulfill the requirements
of Sec. 226.58 on the issuer's behalf. For example, Retailer and
Bank work together to issue credit cards. Under the Sec.
226.58(b)(4) definition, Bank is the issuer of these credit cards
for purposes of Sec. 226.58. However, Retailer services the credit
card accounts, including mailing account opening materials and
periodic statements to cardholders. While Bank is responsible for
ensuring compliance with Sec. 226.58, Bank may arrange for Retailer
(or another appropriate third-party service provider) to submit
credit card agreements to the Board under Sec. 226.58 on Bank's
behalf. Bank must comply with regulatory guidance regarding use of
third-party service providers and other applicable regulatory
guidance.
3. Partner institution Web sites. As explained in comments
58(d)-2 and 58(e)-3, if an issuer provides cardholders with access
to specific information about their individual accounts, such as
balance information or copies of statements, through a third-party
Web site, the issuer is deemed to maintain that Web site for
purposes of Sec. 226.58. Such a Web site is deemed to be maintained
by the issuer for purposes of Sec. 226.58 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. A partner institution's Web site
is an example of a third-party Web site that may be deemed to be
maintained by the issuer for purposes of Sec. 226.58. For example,
Retailer and Bank work together to issue credit cards. Under the
Sec. 226.58(b)(4) definition, Bank is the issuer of these credit
cards for purposes of Sec. 226.58. Bank does not have a Web site.
However, cardholders can access information about their individual
accounts, such as balance information and copies of statements,
through a Web site maintained by Retailer. Retailer designs the Web
site and owns and maintains the information technology
infrastructure that supports the Web site. The Web site is branded
and held out to the public as belonging to Retailer. Because
cardholders can access information about their individual accounts
through this Web site, the Web site is deemed to be maintained by
Bank for purposes of Sec. 226.58. Bank therefore may comply with
Sec. 226.58(d) by ensuring that agreements offered to the public
are posted on Retailer's Web site in accordance with Sec.
226.58(d). Bank may comply with Sec. 226.58(e) by ensuring that
cardholders can request copies of their individual agreements
through Retailer's Web site in accordance with Sec. 226.58(e)(1).
Bank need not create and maintain a Web site branded and held out to
the public as belonging to Bank in order to comply with Sec. Sec.
226.58(d) and (e) as long as Bank ensures that Retailer's Web site
complies with these sections.
[[Page 23036]]
In addition, Sec. 226.58(d)(1) provides that, with respect to
an agreement offered solely for accounts under one or more private
label credit card plans, an issuer may comply with Sec. 226.58(d)
by posting the agreement on the publicly available Web site of at
least one of the merchants at which credit cards issued under each
private label credit card plan with 10,000 or more open accounts may
be used. This rule is not conditioned on cardholders' ability to
access account-specific information through the merchant's Web site.
58(b)(5) Offers.
1. Cards offered to limited groups. A card issuer is deemed to
offer a credit card agreement to the public even if the issuer
solicits, or accepts applications from, only a limited group of
persons. For example, a card issuer may market affinity cards to
students and alumni of a particular educational institution, or may
solicit only high-net-worth individuals for a particular card; in
these cases, the agreement would be considered to be offered to the
public. Similarly, agreements for credit cards issued by a credit
union are considered to be offered to the public even though such
cards are available only to credit union members.
2. Individualized agreements. A card issuer is deemed to offer a
credit card agreement to the public even if the terms of the
agreement are changed immediately upon opening of an account to
terms not offered to the public.
58(b)(6) Open account.
1. Open account clarified. The definition of open account
includes a credit card account under an open-end (not home-secured)
consumer credit plan if either: (i) The cardholder can obtain
extensions of credit on the account; or (ii) there is an outstanding
balance on the account that has not been charged off. Under this
definition, an account that meets either of these criteria is
considered to be open even if the account is inactive. Similarly, if
an account has been closed for new activity (for example, due to
default by the cardholder), but the cardholder is still making
payments to pay off the outstanding balance, the account is
considered open.
58(b)(8) Private label credit card account and private label
credit card plan.
1. Private label credit card account. The term private label
credit card account means a credit card account under an open-end
(not home-secured) consumer credit plan with a credit card that can
be used to make purchases only at a single merchant or an affiliated
group of merchants. This term applies to any such credit card
account, regardless of whether it is issued by the merchant or its
affiliate or by an unaffiliated third party.
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 Sec. 226.58(b)(8).
3. Affiliated group of merchants. The term ``affiliated group of
merchants'' means two or more affiliated merchants or other persons
that are related by common ownership or common corporate control.
For example, the term would include franchisees that are subject to
a common set of corporate policies or practices under the terms of
their franchise licenses. The term also applies to two or more
merchants or other persons that agree among each other, by contract
or otherwise, to accept a credit card bearing the same name, mark,
or logo (other than the mark, logo, or brand of a payment network),
for the purchase of goods or services solely at such merchants or
persons. For example, several local clothing retailers jointly agree
to issue credit cards called the ``Main Street Fashion Card'' that
can be used to make purchases only at those retailers. For purposes
of this section, these retailers would be considered an affiliated
group of merchants.
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 Sec. 226.58(b)(8)--
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
Sec. 226.58(b)(8). The open accounts with credit cards usable only
at Merchant A do not constitute three separate private label credit
card plans under Sec. 226.58(b)(8), even though the accounts are
subject to different terms.
58(c) Submission of agreements to Board.
* * * * *
58(c)(3) Amended agreements.
1. No requirement to resubmit agreements not amended. Under
Sec. 226.58(c)(3), 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. For example, a
credit card issuer begins offering an agreement in October and
submits the agreement to the Board the following January 31, as
required by Sec. 226.58(c)(1). As of March 31, the card issuer has
not amended the agreement and is still offering the agreement to the
public. The card issuer is not required to submit anything to the
Board regarding that agreement by April 30.
2. Submission of amended agreements. 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.
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
[[Page 23037]]
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.
4. Change-in-terms notices not permissible. Section 226.58(c)(3)
requires that if an agreement previously submitted to the Board is
amended, the card issuer must submit the entire revised agreement to
the Board. A card issuer may not fulfill this requirement by
submitting a change-in-terms or similar notice covering only the
terms that have changed. In addition, amendments must be integrated
into the text of the agreement (or the addenda described in Sec.
226.58(c)(8)), not provided as separate riders. For example, a card
issuer changes the purchase APR associated with an agreement the
issuer has previously submitted to the Board. The purchase APR for
that agreement was included in the addendum of pricing information,
as required by Sec. 226.58(c)(8). The card issuer may not submit a
change-in-terms or similar notice reflecting the change in APR,
either alone or accompanied by the original text of the agreement
and original pricing information addendum. Instead, the card issuer
must revise the pricing information addendum to reflect the change
in APR and submit to the Board the entire text of the agreement and
the entire revised addendum, even though no changes have been made
to the provisions of the agreement and only one item on the pricing
information addendum has changed.
* * * * *
58(d) Posting of agreements offered to the public.
1. Requirement applies only to agreements submitted to the
Board. Card issuers are only required to post and maintain on their
publicly available Web site the credit card agreements that the card
issuer must submit to the Board under Sec. 226.58(c). If, for
example, a card issuer is not required to submit any agreements to
the Board because the card issuer qualifies for the de minimis
exception under Sec. 226.58(c)(5), the card issuer is not required
to post and maintain any agreements on its Web site under Sec.
226.58(d). Similarly, if a card issuer is not required to submit a
specific agreement to the Board, such as an agreement that qualifies
for the private label exception under Sec. 226.58(c)(6), the card
issuer is not required to post and maintain that agreement under
Sec. 226.58(d) (either on the card issuer's publicly available Web
site or on the publicly available Web sites of merchants at which
private label credit cards can be used). (The card issuer in both of
these cases is still required to provide each individual cardholder
with access to his or her specific credit card agreement under Sec.
226.58(e) by posting and maintaining the agreement on the card
issuer's Web site or by providing a copy of the agreement upon the
cardholder's request.)
2. Card issuers that do not otherwise maintain Web sites. Unlike
Sec. 226.58(e), Sec. 226.58(d) does not include a special rule for
card issuers that do not otherwise maintain a Web site. If a card
issuer is required to submit one or more agreements to the Board
under Sec. 226.58(c), that card issuer must post those agreements
on a publicly available Web site it maintains (or, with respect to
an agreement for a private label credit card, on the publicly
available Web site of at least one of the merchants at which the
card may be used, as provided in Sec. 226.58(d)(1)).
If an issuer provides cardholders with access to specific
information about their individual accounts, such as balance
information or copies of statements, through a third-party Web site,
the issuer is considered to maintain that Web site for purposes of
Sec. 226.58. Such a third-party Web site is deemed to be maintained
by the issuer for purposes of Sec. 226.58(d) 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. Therefore, issuers that
provide cardholders with access to account-specific information
through a third-party Web site can comply with Sec. 226.58(d) by
ensuring that the agreements the issuer submits to the Board are
posted on the third-party Web site in accordance with Sec.
226.58(d). (In contrast, the Sec. 226.58(d)(1) rule regarding
agreements for private label credit cards is not conditioned on
cardholders' ability to access account-specific information through
the merchant's Web site.)
3. Private label credit card plans. Section 226.58(d) provides
that, with respect to an agreement offered solely for accounts under
one or more private label credit card plans, a card issuer may
comply by posting and maintaining the agreement on the Web site of
at least one of the merchants at which the cards issued under each
private label credit card plan with 10,000 or more open accounts may
be used. For example, a card issuer has 100,000 open private label
credit card accounts. Of these, 75,000 open accounts have credit
cards usable only at Merchant A and 25,000 open accounts have credit
cards usable only at Merchant B and Merchant B's affiliates,
Merchants C and D. The card issuer offers to the public a single
credit card agreement that is offered for both of these types of
accounts and is not offered for any other type of account.
The card issuer is required to submit the agreement to the Board
under Sec. 226.58(c)(1). (The card issuer has more than 10,000 open
accounts, so the Sec. 226.58(c)(5) de minimis exception does not
apply. The agreement is offered solely for two different private
label credit card plans (i.e., one plan consisting of the accounts
with credit cards usable at Merchant A and one plan consisting of
the accounts with credit cards usable at Merchant B and its
affiliates, Merchants C and D), but both of these plans have more
than 10,000 open accounts, so the Sec. 226.58(c)(6) private label
credit card exception does not apply. Finally, the agreement is not
offered solely in connection with a product test by the card issuer,
so the Sec. 226.58(c)(7) product test exception does not apply.)
Because the card issuer is required to submit the agreement to
the Board under Sec. 226.58(c)(1), the card issuer is required to
post and maintain the agreement on the card issuer's publicly
available Web site under Sec. 226.58(d). However, because the
agreement is offered solely for accounts under one or more private
label credit card plans, the card issuer may comply with Sec.
226.58(d) in either of two ways. First, the card issuer may comply
by posting and maintaining the agreement on the card issuer's own
publicly available Web site. Alternatively, the card issuer may
comply by posting and maintaining the agreement on the publicly
available Web site of Merchant A and the publicly available Web site
of at least one of Merchants B, C and D. It would not be sufficient
for the card issuer to post the agreement on Merchant A's Web site
alone because Sec. 226.58(d) requires the card issuer to post the
agreement on the publicly available Web site of ``at least one of
the merchants at which cards issued under each private label credit
card plan may be used'' (emphasis added).
In contrast, assume that a card issuer has 100,000 open private
label credit card accounts. Of these, 5,000 open accounts have
credit cards usable only at Merchant A and 95,000 open accounts have
credit cards usable only at Merchant B and Merchant B's affiliates,
Merchants C and D. The card issuer offers to the public a single
credit card agreement that is offered for both of these types of
accounts and is not offered for any other type of account.
The card issuer is required to submit the agreement to the Board
under Sec. 226.58(c)(1). (The card issuer has more than 10,000 open
accounts, so the Sec. 226.58(c)(5) de minimis exception does not
apply. The agreement is offered solely for two different private
label credit card plans (i.e., one plan consisting of the accounts
with credit cards usable at Merchant A and one plan consisting of
the accounts with credit cards usable at Merchant B and its
affiliates, Merchants C and D), but one of these plans has more than
10,000 open accounts, so the Sec. 226.58(c)(6) private label credit
card exception does not apply. Finally, the agreement is not offered
solely in connection with a product test by the card issuer, so the
Sec. 226.58(c)(7) product test exception does not apply.)
Because the card issuer is required to submit the agreement to
the Board under Sec. 226.58(c)(1), the card issuer is required to
post and maintain the agreement on the card issuer's publicly
available Web site under Sec. 226.58(d). However, because the
agreement is offered solely for accounts under one or more private
label credit card plans, the card issuer may comply with Sec.
226.58(d) in either of two ways. First, the card issuer may comply
by posting and maintaining the agreement on the card issuer's own
publicly available Web site. Alternatively, the card issuer may
comply by posting and maintaining the agreement on the publicly
available Web site of at least one of Merchants B, C and D. The card
issuer is not required to post and maintain the agreement on the
publicly available Web site of Merchant A because the card issuer's
private label credit card plan consisting of accounts
[[Page 23038]]
with cards usable only at Merchant A has fewer than 10,000 open
accounts.
58(e) Agreements for all open accounts.
1. Requirement applies to all open accounts. The requirement to
provide access to credit card agreements under Sec. 226.58(e)
applies to all open credit card accounts, regardless of whether such
agreements are required to be submitted to the Board pursuant to
Sec. 226.58(c) (or posted on the card issuer's Web site pursuant to
Sec. 226.58(d)). For example, a card issuer that is not required to
submit agreements to the Board because it qualifies for the de
minimis exception under Sec. 226.58(c)(5)) would still be required
to provide cardholders with access to their specific agreements
under Sec. 226.58(e). Similarly, an agreement that is no longer
offered to the public would not be required to be submitted to the
Board under Sec. 226.58(c), but would still need to be provided to
the cardholder to whom it applies under Sec. 226.58(e).
2. Readily available telephone line. Section 226.58(e) provides
that card issuers that provide copies of cardholder agreements upon
request must provide the cardholder with the ability to request a
copy of their agreement by calling a readily available telephone
line. To satisfy the readily available standard, the financial
institution must provide enough telephone lines so that consumers
get a reasonably prompt response. The institution need only provide
telephone service during normal business hours. Within its primary
service area, an institution must provide a local or toll-free
telephone number. It need not provide a toll-free number or accept
collect long-distance calls from outside the area where it normally
conducts business.
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. 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).
4. Deadline for providing requested agreements clarified.
Sections 226.58(e)(1)(ii) and (e)(2) require that credit card
agreements provided upon request must be sent to the cardholder or
otherwise made available to the cardholder in electronic or paper
form no later than 30 days after the cardholder's request is
received. For example, if a card issuer chooses to respond to a
cardholder's request by mailing a paper copy of the cardholder's
agreement, the card issuer must mail the agreement no later than 30
days after receipt of the cardholder's request. Alternatively, if a
card issuer chooses to respond to a cardholder's request by posting
the cardholder's agreement on the card issuer's Web site, the card
issuer must post the agreement on its Web site no later than 30 days
after receipt of the cardholder's request. Section 226.58(e)(3)(v)
provides that a card issuer may provide cardholder agreements in
either electronic or paper form regardless of the form of the
cardholder's request.
Sec. 226.59--Reevaluation of Rate Increases
59(a) General rule.
59(a)(1) Evaluation of increased rate.
1. Types of rate increases covered. Section 226.59(a) applies
both to increases in annual percentage rates imposed on a consumer's
account based on that consumer's credit risk or other circumstances
specific to that consumer and to increases in annual percentage
rates imposed based on factors that are not specific to the
consumer, such as changes in market conditions or the issuer's cost
of funds.
2. Rate increases actually imposed. Under Sec. 226.59(a), a
card issuer must review changes in factors only if the increased
rate is actually imposed on the consumer's account. For example, if
a card issuer increases the penalty rate for a credit card account
under an open-end (not home-secured) consumer credit plan and the
consumer's account has no balances that are currently subject to the
penalty rate, the card issuer is required to provide a notice
pursuant to Sec. 226.9(c) of the change in terms, but the
requirements of Sec. 226.59 do not apply. However, if the
consumer's account later becomes subject to the penalty rate, the
card issuer is required to provide a notice pursuant to Sec.
226.9(g) and the requirements of Sec. 226.59 begin to apply upon
imposition of the penalty rate. Similarly, if a card issuer raises
the cash advance rate applicable to a consumer's account but the
consumer engages in no cash advance transactions to which that
increased rate is applied, the card issuer is required to provide a
notice pursuant to Sec. 226.9(c) of the change in terms, but the
requirements of Sec. 226.59 do not apply. If the consumer
subsequently engages in a cash advance transaction, the requirements
of Sec. 226.59 begin to apply at that time.
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 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. The increase that
must be evaluated for purposes of Sec. 226.59 is the increase from
a non-variable rate of 12% to a variable rate of 12.5%.
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. The increase
[[Page 23039]]
that must be evaluated for purposes of Sec. 226.59 is the increase
from a variable rate of 12.5% to a non-variable rate of 15%.
4. 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 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.
5. Amount of rate decrease. i. General. 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.
ii. Change in type of rate. If the rate increase subject to
Sec. 226.59 involves a change from a variable rate to a non-
variable rate or from a non-variable rate to a variable rate, Sec.
226.59 does not require that the issuer reinstate the same type of
rate that applied prior to the change. However, the amount of any
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).
* * * * *
59(d) Factors.
* * * * *
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: (i) 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 (ii) 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 or other increased rate to the account as a result
of the consumer's payment history or other factors specific to the
consumer, Sec. 226.59 permits the card issuer to continue to impose
the penalty or other increased 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%.
59(f) Termination of obligation to review factors.
1. Revocation of temporary rates. i. In general. If an annual
percentage rate is increased due to revocation of a temporary rate,
Sec. 226.59(a) requires that the card issuer periodically review
the increased rate. In contrast, if the rate increase results from
the expiration of a temporary rate previously disclosed in
accordance with Sec. 226.9(c)(2)(v)(B), the review requirements in
Sec. 226.59(a) do not apply. If a temporary rate is revoked such
that the requirements of Sec. 226.59(a) apply, Sec. 226.59(f)
permits an issuer to terminate the review of the rate increase if
and when the applicable rate is the same as the rate that would have
applied if the increase had not occurred.
ii. Examples. 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%. The card issuer offers the consumer a 10% rate on
purchases made between February 1, 2012 and August 1, 2013 and
discloses pursuant to Sec. 226.9(c)(2)(v)(B) that on August 1, 2013
the rate on purchases will revert to the original 15% rate. The
consumer makes a payment that is five days late in July 2012.
A. 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 15%, effective on September 1, 2012.
The card issuer must review that rate increase under Sec. 226.59(a)
at least once each six months during the period from September 1,
2012 to August 1, 2013, unless and until the card issuer reduces the
rate to 10%. The card issuer performs reviews of the rate increase
on January 1, 2013 and July 1, 2013. Based on those reviews, the
rate applicable to purchases remains at 15%. Beginning on August 1,
2013, the card issuer is not required to continue periodically
reviewing the rate increase, because if the temporary rate had
expired in accordance with its previously disclosed terms, the 15%
rate would have applied to purchase balances as of August 1, 2013
even if the rate increase had not occurred on September 1, 2012.
B. Same facts as above except that the review conducted on July
1, 2013 indicates that a reduction to the original temporary rate of
10% is appropriate. Section 226.59(a)(2)(i) requires that the rate
be reduced no later than 45 days after completion of the review, or
no later than August 15, 2013. Because the temporary rate would have
expired prior to the date on which the rate decrease is required to
take effect, the card issuer may, at its option, reduce the rate to
10% for any portion of the period from July 1, 2013, to August 1,
2013, or may continue to impose the 15% rate for that entire period.
The card issuer is not required to conduct further reviews of the
15% rate on purchases.
C. Same facts as above except that on September 1, 2012 the card
issuer increases the rate applicable to new purchases to the penalty
rate on the consumer's account, which is 25%. 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 those reviews,
the rate applicable to purchases remains at 25%. The card issuer's
obligation to review the rate increase continues to apply after
August 1, 2013, because the 25% penalty rate exceeds the 15% rate
that would have applied if the temporary rate expired in accordance
with its previously disclosed terms. The card issuer's obligation to
review the rate terminates if and when the annual percentage rate
applicable to purchases is reduced to the 15% rate.
[[Page 23040]]
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.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, April 8, 2011.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 2011-8843 Filed 4-22-11; 8:45 am]
BILLING CODE 6210-01-P