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Federal Reserve Bank
of Dallas

l l★K

DALLAS, TEXAS
75265-5906

June 16, 2000
Notice 2000-38

TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Proposed Amendments to Regulation Z
(Truth in Lending)
DETAILS
The Board of Governors of the Federal Reserve System has requested public comment on amendments to Regulation Z, which implements the Truth in Lending Act. Under
Regulation Z, the annual percentage rate (APR) and other cost information must be provided in
direct mail and other applications and solicitations to open card accounts. The amendments
would
•

revise the disclosure requirements for credit and charge card solicitations and
applications;

•

enhance consumers’ ability to notice and understand cost information that generally must be provided in the form of a table;

•

provide additional guidance on the requirement that the table be prominently
located; and

•

provide additional guidance on the level of detail about cost information required
or permitted in the table.

The APR disclosed for purchase transactions would be subject to a type-size requirement, and the requirement that disclosures be “clear and conspicuous” would be more strictly
construed.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

-2-

The Board must receive comments by July 18, 2000. Please address comments to
Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street
and Constitution Avenue, N.W., Washington, DC 20551. Also, you may mail comments electronically to regs.comments@federalreserve.gov. All comments should refer to Docket No. R1070.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 33499–504, Vol. 65, No. 101 of
the Federal Register dated May 24, 2000, is attached.
MORE INFORMATION
For more information, please contact Eugene Coy, Banking Supervision Department,
at (214) 922-6201. For additional copies of this Bank’s notice, contact the Public Affairs
Department at (214) 922-5254 or access District Notices on our web site at
http://www.dallasfed.org/banking/notices/index.html.

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Proposed Rules

Federal Register
Vol. 65, No. 101
Wednesday, May 24, 2000

Avenue and C Street, NW. Comments
may be inspected in room MP–500 in
the Board’s Martin Building between 9
a.m. and 5 p.m., pursuant to the Board’s
Rules Regarding the Availability of
Information, 12 CFR part 261.
FOR FURTHER INFORMATION CONTACT:
Natalie E. Taylor, Counsel, or Jane E.
Ahrens, Senior Counsel, 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 Janice Simms at
(202) 872–4984.
SUPPLEMENTARY INFORMATION:

FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R–1070]

Truth in Lending
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Proposed rule.

The Board is proposing
amendments to Regulation Z, which
implements the Truth in Lending Act, to
revise the disclosure requirements for
credit and charge card solicitations and
applications. The annual percentage rate
(APR) and other cost information must
be provided in direct mail and other
applications and solicitations to open
card accounts. The amendments are
intended to enhance consumers’ ability
to notice and understand cost
information that generally must be
provided in the form of a table. The APR
disclosed for purchase transactions
would be subject to a type size
requirement, and the requirement that
disclosures be ‘‘clear and conspicuous’’
would be more strictly construed.
Additional guidance would be given on
the requirement that the table be
prominently located, and on the level of
detail about cost information required or
permitted in the table.
DATES: Comments must be received on
or before July 18, 2000.
ADDRESSES: Comments, which should
refer to Docket No. R–1070, may be
mailed to Ms. Jennifer J. Johnson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC. 20551 or mailed electronically to
regs.comments@federalreserve.gov.
Comments addressed to Ms. Johnson
may also be delivered to the Board’s
mail room between 8:45 a.m. and 5:15
p.m. weekdays, and to the security
control room at all other times. The mail
room and the security control room,
both in the Board’s Eccles Building, are
accessible from the courtyard entrance
on 20th Street between Constitution
SUMMARY:

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I. Background
The purpose of the Truth in Lending
Act (TILA), 15 U.S.C. 1601 et seq., is to
promote the informed use of consumer
credit by requiring disclosures about its
terms and cost. The Board’s Regulation
Z (12 CFR part 226) implements the act.
The act requires creditors to disclose the
cost of credit as a dollar amount (the
finance charge) and as an annual
percentage rate (the APR). Uniformity in
creditors’ disclosures is intended to
assist consumers in comparison
shopping.
The Fair Credit and Charge Card
Disclosure Act of 1988 (1988 Act)
amended TILA to require that the APR
and certain other terms (primarily
applicable to purchase transactions) be
disclosed in certain direct mail and
other solicitations and applications to
open credit and charge card accounts.
The purpose of the 1988 Act was to
ensure that consumers receive key cost
information about credit and charge
cards early enough to have the
opportunity to comparison shop for
such cards. The 1988 Act generally
requires that card application and
solicitation disclosures be provided in
the form of a table (commonly referred
to as the ‘‘Schumer box’’ after the law’s
chief sponsor) with headings for each
item of information. The terms required
to be in the table include: the name of
the method used for calculating finance
charges on an outstanding balance, any
minimum finance charge per billing
cycle, transaction fee, annual fee, grace
period, and the APR for purchase
transactions. The card issuer also must
disclose any cash advance fee, late
payment fee, or fee for exceeding a
credit limit. These items may be either

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in the required table or clearly and
conspicuously elsewhere. The
applicable disclosures must also be
provided for charge cards that do not
use a periodic rate to compute a finance
charge.
As with all TILA disclosures, the table
is subject to the ‘‘clear and
conspicuous’’ standard. Currently, the
table meets the ‘‘clear and conspicuous’’
standard if the disclosures are in a
‘‘readily understandable form.’’ There
are no type size requirements associated
with this standard. The table is also
required to be in a ‘‘prominent location’’
on or with the application or
solicitation. Under the existing rules,
this requirement is met if the table is
‘‘readily noticeable to the consumer.’’
The table need not be in any particular
location to satisfy the requirement.
Over the years, the pricing of credit
card programs has changed, and the cost
disclosures accompanying card issuers’
solicitations and applications have
become more complex. Multiple APRs
may apply to a single program. There
may be a temporary introductory rate, a
fixed or variable rate for all purchases
after the introductory period expires,
and one or more ‘‘penalty rates’’ that
apply if, for example, the consumer
makes late payments.
As interest rates and other account
features have become more complex,
and disclosures longer, some card
issuers have compensated by using
reduced type sizes for the table instead
of allocating additional space for the
disclosures. In such cases, consumers
may have difficulty in using the table to
readily identify key costs and terms. In
contrast, the promotional materials that
accompany the credit card application
or solicitation may highlight a low
introductory APR in a large, easy to read
type size; oftentimes without the
expiration date in close proximity. The
APR in effect after the introductory rate
expires typically is disclosed much less
prominently—in a smaller type size—
and it may only appear in the disclosure
table and not at all in the promotional
materials. The table may be in a location
that is less likely to capture the
consumer’s attention, for example, on
the reverse side of an application or on
the last page of a multi-page solicitation.
Even with the format requirements,
there is substantial flexibility in the
current regulatory framework. While
some card issuers’ disclosures are fairly

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Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Proposed Rules

straightforward, other card issuers have
created disclosures that are difficult for
consumers to use. Changes to the
current regulatory scheme appear
necessary to ensure that consumers
receive meaningful disclosures on a
more consistent basis, for comparison
shopping.
The 1988 Act authorizes the Board to
require disclosure of additional
information, or to modify the
disclosures required by the statute if the
Board determines that such action is
necessary to carry out the purposes of,
or prevent evasions of the 1988 Act. See
15 U.S.C. 1637(c)(5). This is in addition
to the Board’s authority under section
105(a) of TILA to prescribe regulations
to effectuate the purposes of TILA, to
prevent circumvention or evasion, or to
facilitate compliance. See 15 U.S.C.
1604(a).
II. Summary of Proposed Revisions
The Board is proposing amendments
to Regulation Z in order to effectuate the
purposes of the 1988 Act and promote
more effective disclosure of the costs
and terms in credit and charge card
applications and solicitations.
Under the proposal, the APR for
purchase transactions is subject to a
type-size requirement, to highlight this
information. It would be in at least 18point type and would appear under a
separate heading from other APRs, such
as penalty rates. The requirement that
disclosures be ‘‘clear and conspicuous’’
would be more strictly construed for
purposes of the disclosure table
required for credit and charge card
applications and solicitations. These
disclosures would have to be ‘‘readily
noticeable,’’ as well as in a ‘‘reasonably
understandable form.’’ As to type size,
disclosures in at least 12-point type
would be deemed readily noticeable.
Additional guidance is provided on
satisfying the current requirement that
the table be prominently located. The
Staff Commentary would be revised to
provide that the table is sufficiently
prominent, for example, if it is on the
same page as an application or
solicitation reply form, or on a separate
insert with a reference to the insert on
the application or reply form.
Guidance also would be issued on the
level of detail required or permitted in
the table. This is intended to reduce
clutter and promote the use of more
concise language. For example, the table
must include any increased penalty
APR that will apply upon the
occurrence of one or more specific
events, such as a late payment or an
extension of credit exceeding the credit
limit. The card issuer must also provide
a description of the specific events that

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can trigger an increase. Currently, card
issuers have the option of including this
description inside the table or
elsewhere. In order to simplify the table,
the existing staff interpretations would
be revised so that only the penalty rates
could appear inside the table; the
explanatory information would have to
appear outside the table.
Legislation
During 1999, bills were introduced in
the Congress that also would add new
disclosure requirements for credit card
applications and solicitations. Some
bills would require card issuers that
offer temporary introductory rates to
provide more conspicuous information
in their promotional materials about the
expiration date and the rate that will
apply after that date. The provisions in
these bills would address some of the
same concerns that are the basis for the
Board’s regulatory proposal. In light of
the pending legislation, however, the
scope of the Board’s regulatory proposal
does not address the rates and terms
disclosed in card issuer’s promotional
materials. Such matters may be the
subject of future regulatory proposals
once the Congress acts on the proposed
legislation or otherwise clarifies its
intent.
III. Section-by-Section Analysis
Subpart B—Open-End Credit
Section 226.5—General Disclosure
Requirements
5(a) Form of Disclosures
Section 226.5(a) states the general rule
that TILA disclosures for open-end
credit plans must be made clearly and
conspicuously. Comment 5(a)(1)–1
interprets this standard to require
disclosures to be in a ‘‘reasonably
understandable form.’’ Under the
proposal, this standard would be more
strictly construed for purposes of the
disclosures required under § 226.5a for
credit and charge card applications and
solicitations. Accordingly, comment
5(a)(1)–1 would be revised to reflect this
fact, and include a cross-reference to
proposed comments 5a(a)(2)–1 and 2
concerning the special format and
location rules for § 226.5a disclosures.
Section 226.5a—Credit and Charge Card
Applications and Solicitations
5a(a) General Rules
5a(a)(2) Form of Disclosures
Disclosures required by § 226.5a(a)(2)
must be clear and conspicuous and
prominently located on or with an
application or solicitation, or other
applicable document. Certain of these
disclosures are also required to be in a

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tabular format. A new comment
5a(a)(2)–1 would be added to establish
a stricter standard for satisfying the
‘‘clear and conspicuous’’ standard with
respect to the tabular disclosures.
Proposed comment 5a(a)(2)–2 would
provide additional interpretative
guidance on the location of the table.
Because the proposed interpretations
differ from those currently provided,
they are intended to have prospective
application only.
Currently, information provided in
the table meets the ‘‘clear and
conspicuous’’ requirement if the
disclosures are reasonably
understandable. Although the tabular
format assists consumers by providing
key cost information in a single
location, consumers may have difficulty
using the table due to the amount of
information provided in the table and
the small type size used by some card
issuers to compensate for the amount of
information. To ensure that consumers
receive meaningful disclosures on a
consistent basis, proposed comment
5a(a)(2)–1 would provide that
disclosures are clear and conspicuous if
the disclosures are both reasonably
understandable and readily noticeable.
Comment 5a(a)(2)–1 would also provide
that as to type size, disclosures in at
least 12-point type would be deemed to
be readily noticeable. Disclosures
printed in less than 12-point type would
not automatically violate the standard,
but would be judged on a case-by-case
basis. For example, disclosures in 10- or
11-point type would probably satisfy the
standard, but disclosures in 6-point type
would likely be too small to satisfy the
standard.
Existing comment 5a(a)(2)–1
addresses the requirement that the table
be prominently located. The comment
would be redesignated as comment
5a(a)(2)–2, and would be revised to
address concerns about the location of
tabular disclosures. Currently, some
card issuers locate the table on the
reverse side of an application or reply
form or on the last page of a multi-page
solicitation. Consumers may see the
promotional materials and fill out the
application without being aware that
there is additional cost information
following the application, on the reverse
side of the page or at the end of the
promotional materials. Proposed
comment 5a(a)(2)–2 would provide
additional interpretative guidance; the
table would be deemed to be
prominently located, for example, if it
appears on the same page as the
application or solicitation reply form, or
the first page of any other applicable
document, or on an insert with a

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reference to the insert on the application
or reply form.
5a(b) Required Disclosures
The table required under § 226.5a
provides consumers with key cost
information, grouped together in one
place to facilitate consumers’ use of the
information for comparison shopping.
These disclosures are not intended to be
as detailed as disclosures provided to
consumers at account opening; at the
time the 1988 Act was adopted, the
primary focus was on cost disclosures
for purchase transactions. For example,
the APR and transaction fees for
purchases must be disclosed in the
table, but not the APR for cash
advances.
Because the services and features
offered with credit and charge cards
have evolved in recent years, the
disclosures required by the 1988 Act
may not capture costs commonly
assessed on such cards. For example,
the periodic rate of interest assessed on
a balance transfer (which the card issuer
may characterize as a cash advance) is
not disclosed in the table. The 1988 Act
expressly authorizes the Board to add
disclosures to the table, or modify the
existing requirements. Accordingly, the
Board solicits comment on whether
consumers could be aided in
comparison shopping by having
additional rates and fees disclosed in
the table. In particular, commenters
should address whether the APR and
transaction fees for balance transfers
and the APR for cash advances should
be included in the table; commenters
are requested to specify why the
benefits to consumers from the
additional information would not
outweigh the burden of compliance.
5a(b)(1) Annual Percentage Rate
Section 226.5a(b)(1) requires card
issuers to disclose in the table each
periodic rate that may be used to
compute the finance charge on an
outstanding balance for purchases,
expressed as an APR. This section
would be revised to require the APR for
purchases to be disclosed in the table in
at least 18-point type. The type-size
requirement would not apply to
temporary initial rates that are lower
than the APR that will apply after the
temporary rate expires, or to penalty
rates that may increase upon the
occurrence of one or more specific
events (such as a late payment or an
extension of credit that exceeds the
credit limit).
The use of this larger type size is
intended to highlight the significance of
this information, particularly in light of
the larger type sizes typically used by

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card issuers to promote introductory
rates. Although the tabular format
generally draws consumers’ attention to
the table, under existing rules the APR
information is often obscured due to the
amount of other information provided
in the table and the small type size used
by some card issuers. The APR for
purchase transactions would also be
highlighted by requiring that it be listed
under a separate heading.
In September 1999, the Board
published a proposal that would amend
Regulation Z to authorize creditors to
use electronic communication to deliver
required disclosures. 64 FR 49722
(September 14, 1999). Accordingly,
comment is also requested on any
specific guidance that may be needed
for applying the type size requirements
to disclosures made using electronic
communication.
Comment 226.5a(b)(1)–6 provides that
where there is a temporary initial APR
that is higher than the rate that will
apply after the temporary rate expires,
the card issuer must disclose the higher
initial rate. The comment would be
revised to clarify that in such cases, the
initial rate must be disclosed in at least
18-point type, unless the card issuer
also discloses the permanently
applicable rate in the table, which
would have to be in at least 18-point
type.
Comment 226.5a(b)(1)–7 requires card
issuers to disclose ‘‘penalty rates’’ in the
table, along with a description of the
specific events that can trigger a rate
increase and any index or margin used
to determine the penalty rate. Currently,
card issuers have the option of
including this information inside the
table or elsewhere. To simplify the
table, the comment would be revised so
that only the penalty rates would appear
inside the table and the additional
information would appear outside the
table. Card issuers would be required to
use an asterisk or other means to direct
the consumer to the additional
information.
Appendices G and H to Part 226—OpenEnd and Closed-End Model Forms and
Clauses
Comment App. G and H–1 would be
revised to clarify that there are special
rules for disclosures required under
§ 226.5a for applications and
solicitations for credit and charge cards.
Appendix G to Part 226—Open-End
Model Forms and Clauses
The Board provides three model
forms to aid compliance with the
disclosure requirements of § 226.5a(b).
See Appendix G–10(A)–(C). Under the
proposal, Appendix G–10(A) would be

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33501

revised, and a new sample form G–10(D)
would be added to illustrate an account
with a lower introductory rate and a
penalty rate.
Comment G–5 would be revised to
clarify that there are format and
sequence requirements for certain
§ 226.5a disclosures.
IV. Form of Comment Letters
Comment letters should refer to
Docket No. R–1070, and, when possible,
should use a standard typeface with a
font size of 10 or 12. This will enable
the Board to convert the text to
machine-readable form through
electronic scanning, and will facilitate
automated retrieval of comments for
review. Also, if accompanied by an
original document in paper form,
comments may be submitted on 3 1⁄2
inch computer diskettes in any IBMcompatible DOS- or Windows-based
format.
V. Initial Regulatory Flexibility
Analysis
In accordance with section 3(a) of the
Regulatory Flexibility Act, the Board
has reviewed the proposed amendments
to Regulation Z. Although the proposal
would require creditors to use a specific
type size for the APR; require creditors
to provide supplemental information
about penalty rates outside the table;
and require that the table be located on
the same page as the application or
solicitation reply form, on the first page
of any other applicable document, or on
a separate insert with a reference to the
insert on the application or reply form,
the proposed amendments are not
expected to have any significant impact
on small entities beyond these initial
revisions. A final regulatory flexibility
analysis will be conducted after
consideration of comments received
during the public comment period.
VI. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR 1320 Appendix A.1), the Board
reviewed the rule under the authority
delegated to the Board by the Office of
Management and Budget. The Federal
Reserve may not conduct or sponsor,
and an organization is not required to
respond to, this information collection
unless it displays a currently valid OMB
control number. The OMB control
number is 7100–0199.
The collection of information that is
revised by this rulemaking is found in
12 CFR part 226 and in Appendices F,
G, H, J, K, and L. This information is
mandatory (15 U.S.C. 1601 et seq.) to
evidence compliance with the
requirements of Regulation Z and the

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Truth in Lending Act (TILA). The
respondents/recordkeepers are for-profit
financial institutions, including small
businesses. Institutions are required to
retain records for twenty-four months.
This regulation applies to all types of
creditors, not just state member banks.
However, under Paperwork Reduction
Act regulations, the Federal Reserve
accounts for the burden of the
paperwork associated with the
regulation only for state member banks.
Other agencies account for the
paperwork burden on their respective
constituencies under this regulation.
The proposed revisions would require
creditors to revise disclosures for credit
card solicitations and applications by:
(1) Requiring the use of a specific type
size for the APR, (2) requiring creditors
to provide supplemental information
about penalty rates outside the table,
and (3) requiring that such table be
located on the same page as the
application or solicitation reply form,
on the first page of any other applicable
document, or on a separate insert with
a reference to the insert on the
application or reply form. Although the
proposal adds these requirements, it is
expected that these revisions would not
significantly increase the paperwork
burden of creditors. With respect to
state member banks, it is estimated that
there are 988 respondent/recordkeepers
and an average frequency of 136,294
responses per respondent each year.
Therefore, the current amount of annual
burden is estimated to be 1,863,754
hours. Because these proposed revisions
modify preexisting tables, there is
estimated to be no additional annual
cost burden and no capital or start-up
cost.
Because the records would be
maintained at state member banks and
the notices are not provided to the
Federal Reserve, no issue of
confidentiality under the Freedom of
Information Act arises; however, any
information obtained by the Federal
Reserve may be protected from
disclosure under exemptions (b)(4), (6),
and (8) of the Freedom of Information
Act (5 U.S.C. 522 (b)(4), (6) and (8)). The
disclosures and information about error
allegations are confidential between
creditors and the customer.
The Federal Reserve requests
comments from creditors, especially
state member banks, that will help to
estimate the number and burden of the
various disclosures that would be made
in the first year this proposed regulation

would be effective. Comments are
invited on: (a) The cost of compliance;
(b) ways to enhance the quality, utility,
and clarity of the information to be
disclosed; and (c) ways to minimize the
burden of disclosure on respondents,
including through the use of automated
disclosure techniques or other forms of
information technology. Comments on
the collection of information should be
sent to the Office of Management and
Budget, Paperwork Reduction Project
(7100–0199), Washington, DC 20503,
with copies of such comments sent to
Mary M. West, Federal Reserve Board
Clearance Officer, Division of Research
and Statistics, Mail Stop 97, Board of
Governors of the Federal Reserve
System, Washington, DC 20551.

applicable shall also be disclosed. ∫The
annual percentage rate disclosed
pursuant to this paragraph shall be in at
least 18-point type, except for the
following: a temporary initial rate that is
lower than the rate that will apply after
the temporary rate expires, and a
penalty rate which is one that will apply
upon the occurrence of one or more
specific events.ª
*
*
*
*
*
3. Appendix G to Part 226 would be
amended by:
a. Revising the table of contents at the
beginning of the appendix;
b. Revising Model G–10(A); and
c. Adding new Sample G–10(D).

List of Subjects in 12 CFR Part 226
Advertising, Federal Reserve System,
Mortgages, Reporting and recordkeeping
requirements, Truth in lending.
Text of Proposed Revisions
Certain conventions have been used
to highlight the proposed revisions to
the text of the staff commentary. New
language is shown inside bold-faced
arrows, while language that would be
deleted is set off with bold-faced
brackets.
For the reasons set forth in the
preamble, the Board proposes to amend
Regulation Z, 12 CFR part 226, as set
forth below:
PART 226—TRUTH IN LENDING
(REGULATION Z)
1. The authority citation for part 226
would continue to read as follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604
and 1637(c)(5).

2. Section 226.5a would be amended
by revising paragraph (b)(1)
introductory text.
Subpart B—Open-End Credit
*

*

*

*

*

§ 226.5a Credit and charge card
applications and solicitations.

*

*
*
*
*
(b) Required disclosures. * * *
(1) Annual percentage rate. Each
periodic rate that may be used to
compute the finance charge on an
outstanding balance for purchases,
expressed as an annual percentage rate
(as determined by § 226.14(b)). When
more than one rate applies, the range of
balances to which each rate is

Appendix G to Part 226—Open-End
Model Forms and Clauses
G–1 Balance-Computation Methods
Model Clauses (§§ 226.6 and 226.7)
G–2 Liability for Unauthorized Use
Model Clause (§ 226.12)
G–3 Long-Form Billing-Error Rights
Model Form (§§ 226.6 and 226.9)
G–4 Alternative Billing-Error Rights
Model Form (§ 226.9)
G–5 Rescission Model Form (When
Opening an Account) (§ 226.15)
G–6 Rescission Model Form (For Each
Transaction) (§ 226.15)
G–7 Rescission Model Form (When
Increasing the Credit Limit) (§ 226.15)
G–8 Rescission Model Form (When
Adding a Security Interest) (§ 226.15)
G–9 Rescission Model Form (When
Increasing the Security) (§ 226.15)
G–10 (A)–(B) Applications and
Solicitations Model Forms (Credit
Cards) (§ 226.5a(b))
G–10(C) Applications and Solicitations
Model Form (Charge Cards)
(§ 226.5a(b))
∫ G–10(D) Applications and
Solicitations Sample (Credit Cards)
(§ 226.5a(b)) ª
G–11 Applications and Solicitations
Made Available to General Public
Model Clauses (§ 226.5a(e))
G–12 Charge Card Model Clause (When
Access to Plan Offered by Another)
(§ 226.5a(f))
G–13(A) Change in Insurance Provider
Model Form (Combined Notice)
(§ 226.9(f))
G–13(B) Change in Insurance Provider
Model Form (§ 226.9(f)(2))
G–14A Home Equity Sample
G–14B Home Equity Sample
G–15 Home Equity Model Clauses
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G–10(A)—APPLICATIONS AND SOLICITATIONS MODEL FORM (CREDIT CARDS)
Annual percentage rate ∫(APR)ª for purchases ......................................

∫

%
ª

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Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Proposed Rules

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G–10(A)—APPLICATIONS AND SOLICITATIONS MODEL FORM (CREDIT CARDS)—Continued
∫Other APRsª ...........................................................................................
Variable-rate information ..........................................................................
Grace period for repayment of balances for purchases ..........................

Method of computing the balance for purchases
Annual fees ...............................................................................................
Minimum finance charge ..........................................................................
Transaction fee for purchases ..................................................................
Transaction fee for cash advances: [$
][
% of
]
Late-payment fee: [$
][
% of
]
Over-the-credit-limit fee: $2

∫Penalty rate:
%. See explanation below.*ª
Your annual percentage rate may vary. The rate is determined by
[(explanation).] ∫
. See explanation below.**ª
You have [
days] [until
] [not less than
days] [between
and
days] [
days on average] to repay
your balance [for purchases] before a finance charge on purchases
will be imposed.
[You have no grace period in which to repay your balance for purchases before a finance charge will be imposed.]
[Annual] [Membership] fee: $
[(type of fee): $
per year]
[(type of fee): $
]
$
[$
][
% of
]

per year]

∫*Explanation of penalty.
**Explanation of variable rate.ª

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*

*

∫G–10(D)—APPLICATIONS AND SOLICITATIONS SAMPLE (CREDIT CARDS)
Annual percentage rate (APR) for purchases ..........................................
Other APRs ..............................................................................................
Variable-rate information ..........................................................................
Grace period for repayment of balances for purchases ..........................
Method of computing the balance for purchases .....................................
Annual fees ...............................................................................................
Minimum finance charge ..........................................................................
Transaction fee for cash advances. 3% of the amount advanced.
Late-payment fee: $25.
Over-the-credit-limit fee: $ 25.

2.9% until October 1, 2000 after that, 14.90%.
Penalty rate: 23.90% See explanation below.*
Your annual percentage rate may vary. The rate is determined monthly
by adding 5.9% to the Prime Rate. See explanation below.**
25 days on average.
Average daily balance (excluding new purchases).
No annual fee.
$.50.

* Explanation of penalty.
** The Prime Rate used to determine your APR is the rate published in ________ on the___day of the prior month.ª

4. In Supplement I to Part 226, the
following amendments would be made:
a. Under Section 226.5—General
Disclosure Requirements, under
Paragraph 5(a)(1), paragraph 1.
introductory text would be revised;
b. Under Section 226.5a—Credit and
Charge Card Applications and
Solicitations, under 5a(a)(2) Form of
Disclosures, paragraph 1. through
paragraph 6. would be redesignated as
paragraph 2. through paragraph 7.
respectively, a new paragraph 1. would
be added, and newly designated
paragraph 2. would be revised.
c. Under Section 226.5a—Credit and
Charge Card Applications and
Solicitations, under 5a(b)(1) Annual
Percentage Rate, paragraphs 6. and 7.
would be revised.
d. Under Appendixes G and H—
Open-End and Closed-End Model Forms
and Clauses, a new sentence would be
added after the second sentence in
paragraph 1.
e. Under Appendix G—Open-end
Model Forms and Clauses, paragraph 5.
would be revised.

VerDate 11<MAY>2000

19:51 May 23, 2000

Supplement I to Part 226—Official Staff
Interpretations

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Subpart B—Open-End Credit
Section 226.5—General Disclosure
Requirements
5(a) Form of disclosures.
Paragraph 5(a)(1).
1. Clear and conspicuous. The clear and
conspicuous standard requires that
disclosures be in a reasonably
understandable form. ∫Except where
otherwise provided, the standardª øIt¿ does
not require that disclosures be segregated
from other material or located in any
particular place on the disclosure statement,
or that numerical amounts or percentages be
in any particular type size. ∫(See comments
5a(a)(2)–1 and –2 for special rules concerning
§ 226.5a disclosures.)ª The standard does not
prohibit: * * *

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Section 226.5a—Credit and Charge Card
Applications and Solicitations

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5a(b) Required Disclosures.
5a(b)(1) Annual Percentage Rate.

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6. Introductory rates—premium rates. If the
initial rate is temporary and is higher than
the permanently applicable rate, the card

5a(a) General Rules.
5a(a)(2) Form of Disclosures.

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1. ∫Clear and conspicuous standard. For
purposes of § 226.5a(a)(2) disclosures, ‘‘clear
and conspicuous’’ means in a reasonably
understandable form, and readily noticeable
to the consumer. As to type size, disclosures
in at least 12-point type are deemed to be
readily noticeable for purposes of
§ 226.5a(a)(2).
2. ªProminent location. Certain of the
required disclosures provided on or with an
application or solicitation must be
prominently located. Disclosures are deemed
to be prominently located, for example, if the
disclosures are on the same page as an
application or solicitation reply form, on the
first page of any other applicable document,
or on a separate insert with a reference to the
insert on the application or reply form.
Disclosures in other than a tabular format
need not begin and end on the same page.ª
that is, readily noticeable to the consumer.
There are, however, no requirements that the
disclosures be in any particular location or in
any particular type size or typeface.¿

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Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Proposed Rules

issuer must disclose ∫in the tableª the initial
rate. ∫The initial rate must be in at least 18point type unless the issuer also discloses in
the table the permanently applicable rate.ª
The issuer may disclose in the table the∫
permanently applicableª rate that would
otherwise apply if the issuer also discloses
the time period during which the initial rate
will remain in effect. ∫In that case, the
permanently applicable rate must be in at
least 18-point type.ª
7. Increased penalty rates. If the initial rate
may increase upon the occurrence of one or
more specific events, such as a late payment
or an extension of credit that exceeds the
credit limit, the card issuer must disclose in
the table the initial rate and the increased
penalty rate that may apply. If the penalty
rate is based on an index and an increased
margin, the issuer must also disclose in the
table the index and the margin. The issuer
must also disclose the specific event or
events that may result in imposing the
increased rate, such as ‘‘22% APR, if 60 days
late.’’ If the penalty rate cannot be
determined at the time disclosures are given,
the issuer must provide an explanation of the
specific event or events that may result in
imposing an increased rate. In describing the
specific event or events that may result in an
increased rate, issuers need not be as detailed
as for the disclosures required under
§ 226.6(a)(2). øAlternatively¿ For issuers
using a tabular format, the specific event or
events ∫mustª ømay¿ be located outside of
the table∫ and an asterisk or other means
shall be used to direct the consumer to the
additional information.ª øif the conditions
are noted with an asterisk or other means that
direct the consumer to the explanation.¿ At
its option, the issuer may ∫include in the
explanation of the penalty rateª ødisclose¿
the period for which the increased rate will
remain in effect, such as ‘‘until you make
three timely payments.’’ The issuer need not
disclose an increased rate that is imposed
when credit privileges are permanently
terminated.

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Appendices G and H—Open-End and
Closed-End Model Forms and Clauses
1. Permissible changes. * * * ∫ (But see
comment G–5 for special rules concerning
certain disclosures required under § 226.5a
for credit and charge card applications and
solicitations).ª * * *
Appendix G—Open-End Model Forms and
Clauses

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5. Models G–10(A) through G–10(C) ∫ and
Sample G–10(D) .ª Models G–10(A) and G10(B) illustrate the tabular format for
providing the disclosures required under
§ 226.5a for applications and solicitations for
credit cards other than charge cards. Model
G–10(A) illustrates the permissible
inclusionin the tabular format of all of the
disclosures. Model G–10(B) contains only the
disclosures required to be included in the
table, while the three additional disclosures
are shown outside of the table. The two forms
also illustrate two different levels of detail in
disclosing the grace period, and different
arrangements of the disclosures. Model G–

10(C) illustrates the tabular format disclosure
for charge card applications and solicitations
and reflects all of the disclosures in the table.
∫Sample G–10(D) illustrates an account with
a lower introductory rate and a penalty rate.
Except as otherwise permitted, disclosures
must be substantially similar in sequence and
format to model forms G–10(A), (B), and (C).
The disclosures may, however, be arranged
vertically or horizontally and need not be
highlighted aside from being included in the
table.ª øDisclosures may be arranged in an
order different from that in model forms G–
10(A), (B), and (C); may be arranged
vertically or horizontally; need not be
highlighted aside from being included in the
table; and are not required to be in any
particular type size¿. Various features from
different model forms may be combined; for
example, the shorter grace period disclosure
in model form G–10(B) may be used in any
disclosure. While proper use of the model
forms will be deemed in compliance with the
regulation, card issuers are permitted to use
headings and disclosures other than those in
the forms (with an exception relating to the
use of ‘‘grace period’’) if they are clear and
concise and are substantially similar to the
headings and disclosures contained in model
forms. For further discussion of requirements
relating to form, see the commentary to
§ 226.5a(a)(2).

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By order of the Board of Governors of the
Federal Reserve System, May 17, 2000.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 00–12911 Filed 5–23–00; 8:45 am]
BILLING CODE 6210–11–P


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102