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Tuesday,
June 29, 2010

Part II

Federal Reserve
System

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12 CFR Part 226
Truth in Lending; Final Rule

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Federal Register / Vol. 75, No. 124 / Tuesday, June 29, 2010 / Rules and Regulations

FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R–1384]

Truth in Lending

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AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
SUMMARY: The Board is amending
Regulation Z, which implements the
Truth in Lending Act, and the staff
commentary to the regulation in order to
implement provisions of the Credit Card
Accountability Responsibility and
Disclosure Act of 2009 that go into effect
on August 22, 2010. In particular, the
final rule requires that penalty fees
imposed by card issuers be reasonable
and proportional to the violation of the
account terms. The final rule also
requires credit card issuers to reevaluate
at least every six months annual
percentage rates increased on or after
January 1, 2009. The final rule also
requires that notices of rate increases for
credit card accounts disclose the
principal reasons for the increase.
DATES: Effective Date. The rule is
effective August 22, 2010.
Mandatory compliance dates. The
mandatory compliance date for the
amendments to §§ 226.9, 226.52, and
226.59, and the amendments to Model
Forms G–20 and G–22 in Appendix G to
Part 226, is August 22, 2010. The
amendments to the change-in-terms
disclosures in Model Forms G–18(F)
and G–18(G) also have a mandatory
compliance date of August 22, 2010.
The mandatory compliance date for the
amendments to the penalty fee
disclosures in §§ 226.5a, 226.6, 226.7,
and 226.56, and in Model Forms G–
10(B), G–10(C), G–10(E), G–17(B), G–
17(C), G–18(B), G–18(D), G–18(F), G–
18(G), G–21, G–25(A), and G–25(B) in
Appendix G to Part 226, is December 1,
2010.
FOR FURTHER INFORMATION CONTACT:
Stephen Shin, Attorney, or Amy
Henderson or Benjamin K. Olson,
Senior Attorneys, 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
This final rule represents the third
stage of the Board’s implementation of
the Credit Card Accountability

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Responsibility and Disclosure Act of
2009 (Credit Card Act), which was
signed into law on May 22, 2009. Public
Law 111–24, 123 Stat. 1734 (2009). The
Credit Card Act primarily amends the
Truth in Lending Act (TILA) and
establishes 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 become effective
in three stages. First, provisions
generally requiring that consumers
receive 45 days’ advance notice of
interest rate increases and significant
changes in terms (new TILA Section
127(i)) and provisions regarding the
amount of time that consumers have to
make payments (revised TILA Section
163) became effective on August 20,
2009 (90 days after enactment of the
Credit Card Act). A majority of the
requirements under the Credit Card Act
for which the Board has rulemaking
authority, including, among other
things, provisions regarding interest rate
increases (revised TILA Section 171),
over-the-limit transactions (new TILA
Section 127(k)), and student cards (new
TILA Sections 127(c)(8), 127(p), and
140(f)) became effective on February 22,
2010 (9 months after enactment).
Finally, two provisions of the Credit
Card Act addressing the reasonableness
and proportionality of penalty fees and
charges (new TILA Section 149) and reevaluation by creditors of rate increases
(new TILA Section 148) become
effective on August 22, 2010 (15 months
after enactment). The Credit Card Act
also requires the Board to conduct
several studies and to make several
reports to Congress, and sets forth
differing time periods in which these
studies and reports must be completed.
Implementation of Credit Card Act
The Board has implemented 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 Regulation
Z Interim Final Rule). On February 22,
2010, the Board published a final rule
adopting in final form the requirements
of the July 2009 Regulation Z 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
Regulation Z Rule).

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On March 15, 2010, the Board
published a proposed rule in the
Federal Register to implement the
provisions of the Credit Card Act that
become effective on August 22, 2010.
See 75 FR 12334 (March 2010
Regulation Z Proposal). The comment
period on the March 2010 Regulation Z
Proposal closed on April 14, 2010.1 In
response to the proposal, the Board
received more than 22,000 comments
from consumers, consumer groups,
other government agencies, credit card
issuers, industry trade associations, and
others. As discussed in more detail
elsewhere in this supplementary
information, the Board has considered
these comments in adopting this final
rule.
II. Summary of Major Revisions
A. Reasonable and Proportional Penalty
Fees
Statutory requirements. The Credit
Card Act provides that ‘‘[t]he amount of
any penalty fee or charge that a card
issuer may impose with respect to a
credit card account under an open end
consumer credit plan in connection
with any omission with respect to, or
violation of, the cardholder agreement,
including any late payment fee, overthe-limit fee, or any other penalty fee or
charge, shall be reasonable and
proportional to such omission or
violation.’’ The Credit Card Act further
directs the Board to issue rules that
‘‘establish standards for assessing
whether the amount of any penalty fee
or charge * * * is reasonable and
proportional to the omission or
violation to which the fee or charge
relates.’’
In issuing these rules, the Credit Card
Act requires the Board to consider: (1)
The cost incurred by the creditor from
an omission or violation; (2) the
deterrence of omissions or violations by
the cardholder; (3) the conduct of the
cardholder; and (4) such other factors as
the Board may deem necessary or
appropriate. The Credit Card Act
authorizes the Board to establish
‘‘different standards for different types
of fees and charges, as appropriate.’’
Finally, the Act authorizes the Board to
‘‘provide an amount for any penalty fee
or charge * * * that is presumed to be
reasonable and proportional to the
omission or violation to which the fee
or charge relates.’’
Cost incurred as a result of violations.
The final rule permits a credit card
issuer to charge a penalty fee for a
particular type of violation (such as a
1 The comment period on the Paperwork
Reduction Act analysis set forth in the March 2010
Regulation Z Proposal closed on May 14, 2010.

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Federal Register / Vol. 75, No. 124 / Tuesday, June 29, 2010 / Rules and Regulations
late payment) if it has determined that
the amount of the fee represents a
reasonable proportion of the costs
incurred by the issuer as a result of that
type of violation. Thus, the final rule
permits issuers to use penalty fees to
pass on the costs incurred as a result of
violations while ensuring that those
costs are spread evenly among
consumers so that no individual
consumer bears an unreasonable or
disproportionate share.
The final rule provides guidance
regarding the types of costs incurred by
card issuers as a result of violations. For
example, with respect to late payments,
the final rule states that the costs
incurred by a card issuer include
collection costs, such as the cost of
notifying consumers of delinquencies
and resolving those delinquencies
(including the establishment of workout
and temporary hardship arrangements).
Notably, the final rule also states that,
although higher rates of loss may be
associated with particular violations,
those losses and related costs (such as
the cost of holding reserves against
losses) are excluded from the cost
analysis. In order to ensure that penalty
fees are based on relatively current cost
information, the final rule requires card
issuers to re-evaluate their costs at least
annually.
Deterrence of violations. The Credit
Card Act requires the Board to consider
the deterrence of violations by the
cardholder. As an alternative to basing
penalty fees on costs, the Board’s
proposed rule would have permitted
card issuers to base the amount of a
penalty fee on a determination that the
amount was reasonably necessary to
deter that a particular type of violation.
However, based on the comments and
further analysis, the Board has
determined that the proposed approach
would not effectuate the purposes of the
Credit Card Act. Instead, as discussed
below, the Board has revised the safe
harbors to better deter violations by
generally allowing card issuers to
impose higher fees for repeated
violations during a particular period.
Consumer conduct. The Credit Card
Act requires the Board to consider the
conduct of the cardholder. The final
rule does not require that each penalty
fee be based on an assessment of the
individual consumer conduct associated
with the violation. Instead, the final rule
takes consumer conduct into account in
three ways. First, as discussed below,
the Board has adopted safe harbors that
generally allow card issuers to impose
higher penalty fees when a consumer
repeatedly engages in the same type of
conduct during a particular period.

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Second, the final rule prohibits
issuers from imposing penalty fees that
exceed the dollar amount associated
with the violation. For example, under
the final rule, a consumer who exceeds
the credit limit by $5 cannot be charged
an over-the-limit fee of more than $5.
Similarly, a consumer who is late
making a $20 minimum payment cannot
be charged a late payment fee of more
than $20.
Third, the final rule prohibits issuers
from imposing multiple penalty fees
based on a single event or transaction.
For example, the final rule prohibits
issuers from charging a late payment fee
and a returned payment fee based on a
single payment.
Safe harbors. Consistent with the safe
harbor authority granted by the Credit
Card Act, the final rule generally
permits—as an alternative to the cost
analysis discussed above—issuers to
impose a $25 penalty fee for the first
violation and a $35 fee for any
additional violation of the same type
during the next six billing cycles. For
example, if a consumer paid late during
the January billing cycle, a $25 late
payment fee could be imposed. If one of
the next six payments is late (i.e., the
payments due during the February
through July billing cycles), a $35 late
payment fee could be imposed. As
discussed in detail below, the Board
believes that these amounts are
generally consistent with the statutory
factors of cost, deterrence, and
consumer conduct. These amounts will
be adjusted annually to the extent that
changes in the Consumer Price Index
would result in an increase or decrease
of $1.2
Although the safe harbors discussed
above apply to charge card accounts, the
final rule provides an additional safe
harbor when a charge card account
becomes seriously delinquent.3
Specifically, the final rule provides that,
when a charge card issuer has not
received the required payment for two
or more consecutive billing cycles, it
may impose a late payment fee that does
2 Notwithstanding these safe harbors, card issuers
will be prohibited from imposing a fee that exceeds
the dollar amount associated with the violation. For
example, if a consumer does not make a $20
minimum payment by the due date, the late
payment fee cannot exceed $20, even though the
safe harbors would otherwise permit imposition of
a higher fee.
3 For purposes of Regulation Z, a charge card is
a credit card on an account for which no periodic
rate is used to compute a finance charge. See
§ 226.2(a)(15)(iii). Charge cards are typically
products where outstanding balances cannot be
carried over from one billing cycle to the next and
are payable in full when the periodic statement is
received or at the end of each billing cycle. See
§§ 226.5a(b)(7), 226.7(b)(12)(v)(A).

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not exceed 3% of the delinquent
balance.
B. Reevaluation of Rate Increases
Statutory requirements. The Credit
Card Act requires card issuers that
increase an annual percentage rate
applicable to a credit card account,
based on the credit risk of the consumer,
market conditions, or other factors, to
periodically consider changes in such
factors and determine whether to reduce
the annual percentage rate. Card issuers
are required to perform this review no
less frequently than once every six
months, and must maintain reasonable
methodologies for this evaluation. The
Credit Card Act requires card issuers to
reduce the annual percentage rate that
was previously increased if a reduction
is ‘‘indicated’’ by the review. However,
the statute expressly provides that no
specific amount of reduction in the rate
is required. This provision is effective
August 22, 2010 but requires that
creditors review accounts on which an
annual percentage rate has been
increased since January 1, 2009.
General rule. Consistent with the
Credit Card Act, the final rule applies to
card issuers that increase an annual
percentage rate applicable to a credit
card account, based on the credit risk of
the consumer, market conditions, or
other factors. For any rate increase
imposed on or after January 1, 2009,
card issuers are required to review the
account no less frequently than once
each six months and, if appropriate
based on that review, reduce the annual
percentage rate. The requirement to
reevaluate rate increases applies both to
increases in annual percentage rates
based on consumer-specific factors,
such as changes in the consumer’s
creditworthiness, 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.
If based on its review a card issuer is
required to reduce the rate applicable to
an account, the final rule requires that
the rate be reduced within 45 days after
completion of the evaluation.
Factors relevant to reevaluation of
rate increases. The final rule generally
permits a card issuer to review either
the same factors on which the rate
increase was originally based, or to
review the factors that the card issuer
currently considers when determining
the annual percentage rates applicable
to similar new credit card accounts. The
Board believes that it is appropriate to
permit card issuers to review the factors
they currently consider in advancing
credit to new consumers, because a
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existing cardholders receiving the
benefit of any reduced rate that they
would receive if applying for a new
credit card with the card issuer.
The final rule contains a special
provision for rate increases imposed
between January 1, 2009 and February
21, 2010. For rates increased during this
period, the final rule requires an issuer
to conduct its first two reviews by using
the factors that the issuer currently
considers when determining the annual
percentage rates applicable to similar
new credit card accounts, unless the
rate increase was based solely upon
consumer-specific factors, such as a
decline in the consumer’s credit risk or
the consumer’s delinquency or default.
Termination of obligation to
reevaluate rate increases. The final rule
requires that a card issuer continue to
review a consumer’s account each six
months unless the rate is reduced to the
rate in effect prior to the increase.
Accordingly, in some circumstances, the
final rule requires card issuers to
reevaluate rate increases each six
months for an indefinite period. The
proposed rule solicited comment on
whether the obligation to review the rate
applicable to a consumer’s account
should terminate after some specific
time period elapses following the initial
increase, as well as on whether there is
significant benefit to consumers from
requiring card issuers to continue
reevaluating rate increases even after an
extended period of time.
Based on the comments and further
analysis, the Board declines to adopt a
specific time limit on the obligation to
reevaluate rate increases. The Credit
Card Act does not expressly create such
a time limit, and it may be beneficial to
a consumer to have his or her rate
reevaluated when market conditions
change or the consumer’s
creditworthiness improves, even if a
number of years have elapsed since the
rate increase giving rise to the review
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III. Statutory Authority
General Rulemaking Authority
Section 2 of the Credit Card Act states
that the Board ‘‘may issue such rules
and publish such model forms as it
considers necessary to carry out this Act
and the amendments made by this Act.’’
In addition, the provisions of the Credit
Card Act implemented by this rule
direct the Board to issue implementing
regulations. See Credit Card Act Section
101(c) (new TILA Section 148) and
Section 102(b) (new TILA Section 149).
Furthermore, these provisions of the
Credit Card Act amend TILA, which
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regulations to carry out its purposes and
specifically authorizes the Board, among
other things, to do the following:
• Issue regulations that contain such
classifications, differentiations, or other
provisions, or that provide for such
adjustments and exceptions for any
class of transactions, that in the Board’s
judgment are necessary or proper to
effectuate the purposes of TILA,
facilitate compliance with the act, or
prevent circumvention or evasion. 15
U.S.C. 1604(a).
• Exempt from all or part of TILA any
class of transactions if the Board
determines that TILA coverage does not
provide a meaningful benefit to
consumers in the form of useful
information or protection. The Board
must consider factors identified in the
act and publish its rationale at the time
it proposes an exemption for comment.
15 U.S.C. 1604(f).
• Add or modify information required
to be disclosed with credit and charge
card applications or solicitations if the
Board determines the action is
necessary to carry out the purposes of,
or prevent evasions of, the application
and solicitation disclosure rules. 15
U.S.C. 1637(c)(5).
• Require disclosures in
advertisements of open-end plans. 15
U.S.C. 1663.
For the reasons discussed in this
notice, the Board is using its specific
authority under TILA and the Credit
Card Act, in concurrence with other
TILA provisions, to effectuate the
purposes of TILA, to prevent the
circumvention or evasion of TILA, and
to facilitate compliance with TILA.
Authority To Issue Final Rule With an
Effective Date of August 22, 2010
Because the provisions of the Credit
Card Act implemented by this final rule
are effective on August 22, 2010,4 this
final rule is also effective on August 22,
2010. In order to provide an adequate
transition period, 12 U.S.C. 4802(b)(1)
generally requires that new regulations
and amendments take effect no earlier
than the first day of the calendar quarter
which begins on or after the date on
which the regulations are published in
final form. The date on which the
Board’s final rule is published in the
Federal Register depends on a number
of variables that are outside the Board’s
control, including the number and size
of other notices submitted to the
Federal Register prior to the Board’s
rule.5 If this final rule is not published
4 See

new TILA Sections 148(d) and 149(b).
Board notes that, although the
Administrative Procedure Act (5 U.S.C. 551 et seq.)
generally requires that rules be published not less
5 The

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in the Federal Register on or before July
1, 2010, the effective date for purposes
of 12 U.S.C. 4802(b)(1) would be
October 1, 2010. However, the Board
has determined that—under those
circumstances—the statutory effective
date of August 22, 2010 establishes good
cause for making this final rule effective
prior to October 1. See 12 U.S.C.
4802(b)(1)(A) (providing an exception to
the general requirement when ‘‘the
agency determines, for good cause
published with the regulation, that the
regulation should become effective
before such time’’). Furthermore, 12
U.S.C. 4802(b)(1)(C) provides an
exception to the general requirement
when ‘‘the regulation is required to take
effect on a date other than the date
determined under [12 U.S.C. 4802(b)(1)]
pursuant to any other Act of Congress.’’
Finally, TILA Section 105(d) provides
that any regulation of the Board (or any
amendment or interpretation thereof)
requiring any disclosure which differs
from the disclosures previously required
by Chapters 1, 4, or 5 of TILA (or by any
regulation of the Board promulgated
thereunder) shall have an effective date
no earlier than ‘‘that October 1 which
follows by at least six months the date
of promulgation.’’ However, even
assuming that TILA Section 105(d)
applies to this final rule, the Board
believes that the specific provisions in
new TILA Sections 148 and 149
governing effective dates override the
general provision in TILA Section
105(d).
IV. Section-by-Section Analysis
Section 226.5a Credit and Charge Card
Applications and Solicitations
Section 226.6 Account-Opening
Disclosures
Sections 226.5a(a)(2)(iv) and
226.6(b)(1)(i) address the use of bold
text in, respectively, the application and
solicitation table and the accountopening table. Under the February 2010
Regulation Z Rule, these provisions
require that any fee or percentage
amounts for late payment, returned
payment, and over-the-limit fees be
disclosed in bold text. However, these
provisions also state that bold text shall
not be used for any maximum limits on
than 30 days before their effective date, it also
provides an exception when ‘‘otherwise provided by
the agency for good cause found and published
with the rule.’’ 15 U.S.C. 553(d)(3). Although the
Board is issuing this final rule more than 30 days
before August 22, 2010, it is possible that—for the
reasons discussed above—the rule may not be
published in the Federal Register more than 30
days before that date. Accordingly, to the extent
applicable, the Board finds that good cause exists
to publish the final rule less than 30 days before
the effective date.

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fee amounts unless the fee varies by
state.
As discussed in detail below with
respect to the amendments to the model
forms in Appendix G–10 and G–17,
disclosure of a maximum limit (or ‘‘up
to’’ amount) may be necessary to
accurately describe penalty fees that are
consistent with the new substantive
restrictions in § 226.52(b). While the
Board previously restricted the use of
bold text for maximum fee limits in
order to focus consumers’ attention on
the fee or percentage amounts, the
Board believes that—because the
maximum limit may be the only amount
disclosed for penalty fees—it is
important to highlight that amount.
Accordingly, the Board is amending
§§ 226.5a(a)(2)(iv) and 226.6(b)(1)(i) to
require the use of bold text when
disclosing maximum limits on fees. For
consistency and to facilitate
compliance, these amendments would
apply to maximum limits for all fees
required to be disclosed in the §§ 226.5a
and 226.6 tables (including maximum
limits for cash advance and balance
transfer fees). The Board is also making
conforming amendments to comment
5a(a)(2)–5.ii.
Section 226.7 Periodic Statement
Section 226.7(b)(11)(i)(B) currently
requires card issuers to disclose the
amount of any late payment fee and any
increased rate that may be imposed on
the account as a result of a late payment.
If a range of late payment fees may be
assessed, the card issuer may state the
range of fees, or the highest fee and at
the issuer’s option with the highest fee
an indication that the fee imposed could
be lower. Comment 7(b)(11)–4 clarifies
that disclosing a late payment fee as ‘‘up
to $29’’ complies with this requirement.
Model language is provided in Samples
G–18(B), G–18(D), G–18(F), and G–
18(G).
As discussed in greater detail below
with respect to the amendments to
Appendix G, an ‘‘up to’’ disclosure may
be necessary to accurately describe a
late payment fee that is consistent with
the substantive restrictions in
§ 226.52(b). Accordingly, the Board is
amending § 226.7(b)(11)(i)(B) to clarify
that, in these circumstances, it is no
longer optional to disclose an indication
that the late payment fee may be lower
than the disclosed amount.
However, the Board notes that,
consistent with § 226.52(b), a card issuer
could disclose a range of late payment
fees in certain circumstances. As
discussed in detail below,
§ 226.52(b)(2)(i) prohibits a card issuer
from imposing a late payment fee that
exceeds the amount of the delinquent

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required minimum periodic payment.
However, while credit card minimum
payments are generally a percentage of
the outstanding balance (plus, in some
cases, accrued interest and fees), many
card issuers include a specific minimum
amount in their minimum payment
formulas. For example, a formula might
state that the required minimum
periodic payment will be the greater of
2% of the outstanding balance or $25.
In these circumstances, the card issuer
could disclose the late payment fee as
a range from $25 to $35, which is the
maximum fee amount under the safe
harbors in § 226.52(b)(1)(ii)(A)–(B).

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In addition to these substantive
requirements, TILA Section 148 also
requires creditors to disclose the reasons
for an annual percentage rate increase
applicable to a credit card under an
open-end consumer credit plan in the
notice required to be provided 45 days
in advance of that increase. The Board
is implementing the notice requirements
in § 226.9(c) and (g), which are
discussed in this section. As discussed
in the February 2010 Regulation Z Rule,
card issuers are required to provide 45
days’ advance notice of rate increases
due to a change in contractual terms
pursuant to § 226.9(c)(2) and of rate
increases due to delinquency, default, or
Section 226.9 Subsequent Disclosure
as a penalty not due to a change in
Requirements
contractual terms of the consumer’s
9(c) Change in Terms
account pursuant to § 226.9(g). The
additional notice requirements included
9(c)(2) Rules Affecting Open-End (Not
in new TILA Section 148 are the same
Home-Secured) Plans
regardless of whether the rate increase
9(g) Increases in Rates Due to
is due to a change in contractual terms
Delinquency or Default or as a Penalty
or the exercise of a penalty pricing
provision already in the contract;
Notice of Reasons for Rate Increase
therefore for ease of reference the notice
The Credit Card Act added new TILA
requirements under § 226.9(c)(2) and (g)
Section 148, which requires creditors
are discussed in a single section of this
that increase an annual percentage rate
supplementary information.
applicable to a credit card account
Consistent with the approach that the
under an open-end consumer credit
Board has taken in implementing other
plan, based on factors including the
provisions of the Credit Card Act that
credit risk of the consumer, market
apply to credit card accounts under an
conditions, or other factors, to consider
open-end consumer credit plan, the
changes in such factors in subsequently changes to § 226.9(c)(2) and (g) apply to
determining whether to reduce the
‘‘credit card accounts under an open-end
annual percentage rate. New TILA
(not home-secured) consumer credit
Section 148 requires creditors to
plan’’ as defined in § 226.2(a)(15).
maintain reasonable methodologies for
Therefore, home-equity lines of credit
assessing these factors. The statute also
accessed by credit cards and overdraft
sets forth a timing requirement for this
lines of credit accessed by a debit card
review. Specifically, creditors are
are not subject to the new requirements
required to review, no less frequently
to disclose the reasons for a rate
than once every six months, accounts
increase implemented in § 226.9(c)(2)
for which the annual percentage rate has and (g).
been increased to assess whether these
Section 226.9(c)(2)(iv) sets forth the
factors have changed. New TILA Section content requirements for significant
148 is effective August 22, 2010 but
changes in account terms, including rate
requires that creditors review accounts
increases that are due to a change in the
on which the annual percentage rate has contractual terms of the consumer’s
been increased since January 1, 2009.6
account. In the March 2010 Regulation
New TILA Section 148 requires
Z Proposal, the Board proposed to add
creditors to reduce the annual
a new § 226.9(c)(2)(iv)(A)(8) to require a
percentage rate that was previously
card issuer to disclose no more than
increased if a reduction is ‘‘indicated’’ by four principal reasons for the rate
the review. However, new TILA Section increase for a credit card account under
148(c) expressly provides that no
an open-end (not home-secured)
specific amount of reduction in the rate
consumer credit plan, listed in their
is required. The Board is implementing
order of importance, in order to
the substantive requirements of new
implement the notice requirements of
TILA Section 148 in a new § 226.59,
new TILA Section 148. Proposed
discussed elsewhere in this
comment 9(c)(2)(iv)–11 set forth
supplementary information.
additional guidance on the disclosure.
Specifically, proposed comment
6 As discussed in the supplementary information
9(c)(2)(iv)–11 stated that there is no
to § 226.59, the rule requires that rate increases
minimum number of reasons that are
imposed between January 1, 2009 and August 21,
required to be disclosed under
2010 first be reviewed prior to February 22, 2011
(six months after the effective date of new § 226.59). § 226.9(c)(2)(iv)(A)(8), but that the

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reasons disclosed are required to relate
to and accurately describe the principal
factors actually considered by the credit
card issuer.
Proposed comment 9(c)(2)(iv)–11
would have permitted a card issuer to
describe the reasons for the increase in
general terms, by disclosing for example
that a rate increase is due to ‘‘a decline
in your creditworthiness’’ or ‘‘a decline
in your credit score,’’ if the rate increase
is triggered by a decrease of 100 points
in a consumer’s credit score. Similarly,
the comment noted that 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.’’ Finally, the
proposed comment noted that in some
circumstances, it may be appropriate for
a card issuer to combine the disclosure
of several reasons in one statement.
Consumer groups and a federal
agency urged the Board to require more
specificity in the disclosure of reasons
for a rate increase. These commenters
indicated that more specificity would
assist consumers in determining
whether they could take action to
improve the rates applicable to their
credit card accounts. Several of these
commenters stated that the Board
should require the same level of
specificity as is required in adverse
action notices under the Equal Credit
Opportunity Act, as implemented in
Regulation B, and the Fair Credit
Reporting Act (FCRA). 15 U.S.C. 1691 et
seq., 12 CFR part 202, and 15 U.S.C.
1681 et seq. In addition, one city
consumer protection agency urged the
Board to require more detailed
information if the rate increase results
from a decline in the consumer’s credit
score. In this case, the commenter stated
that the Board should require issuers to
disclose the consumer’s current credit
score as well as the previous score on
record with the issuer.
Industry commenters generally
supported the Board’s approach. Several
commenters noted, however, that there
would be significant burden associated
with updating their systems in order to
provide the disclosure of reasons for the
increase and questioned whether the
disclosure was necessary. Two credit
union commenters asked the Board not
to limit the disclosure to four reasons,
while one other industry commenter
stated that limiting the number of
reasons in this manner was appropriate
and should be retained.
The Board is adopting new
§ 226.9(c)(2)(iv)(A)(8) and new comment
9(c)(2)(iv)–11 generally as proposed.
The Board continues to believe that this
approach strikes the appropriate balance
between providing consumers with

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useful information regarding the reasons
for a rate increase while limiting
‘‘information overload’’ and unnecessary
burden. Under the final rule, a
consumer will be informed whether the
rate increase is due to changes in his or
her creditworthiness or behavior on the
account, which the consumer may be
able to take actions to mitigate, or
whether the increase is due to more
general factors such as changes in
market conditions. The Board believes
that consumers may find more detailed
information confusing, and that,
accordingly, the benefit to consumers of
more detailed information would not
outweigh the operational burden
associated with providing such
additional information.
The Board acknowledges that there
may be a distinction between rate
increases based on changes in a
consumer’s creditworthiness and
portfolio-wide rate increases based on
broader factors such as market
conditions or the issuer’s cost of funds.
For individual rate increases, a
consumer may be better able to take
action to mitigate the change than for
market-based rate increases. The Board
has amended comment 9(c)(2)(iv)–11, as
adopted, to clarify that the notice must
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. Accordingly, the notice
required by § 226.9(c)(2)(iv)(A)(8) will
inform consumers of any specific onaccount behavior in which they have
engaged that gave rise to the rate
increase. The notice required by
§ 226.9(c)(2)(iv)(A)(8) will also inform
consumers if the rate increase resulted
from a decline in their creditworthiness.
The Board notes that, in many cases,
consumers also will receive other
notices under federal law that are more
specifically intended to educate
consumers about the relationship
between their consumer reports and the
terms of credit they receive. In
particular, the Federal Trade
Commission and Board’s rules
implementing section 615(h) of the
FCRA require issuers to provide a riskbased pricing notice if a consumer’s
annual percentage rate on purchases is
increased based in whole or in part on
information in a consumer report. See
15 U.S.C. 1681m, 12 CFR part 222, and
16 CFR part 640. The risk-based pricing
notice must inform the consumer that
the rate is being increased based on
information in a consumer report. In
addition, a consumer who receives a
risk-based pricing notice is entitled to

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obtain a free consumer report in order
to check for errors. Accordingly, the
Board believes that a more specific
disclosure under § 226.9(c)(2) is
unnecessary.
As discussed above, proposed
comment 9(c)(2)(iv)–11 set forth several
examples of how the reasons for a rate
increase must be disclosed. The
examples described a rate increase
triggered by a decrease of 100 points in
a consumer’s credit score and a rate
increase triggered by a 10% increase in
an issuer’s cost of funds. Two credit
union commenters urged the Board to
clarify that the examples in proposed
comment 9(c)(2)(iv)–11 were not
intended as guidance on acceptable
reasons for rate increases. The Board
notes that § 226.9(c)(2)(iv)(A)(8) and the
associated commentary do not set forth,
and are not intended to impose, any
substantive limitations on when a rate
increase may occur. The examples
included in comment 9(c)(2)(iv)–11 are
included for illustrative purposes only
and are being adopted as proposed.
The Board proposed to add a new
§ 226.9(g)(3)(i)(A)(6), which mirrored
proposed § 226.9(c)(2)(iv)(A)(8), for rate
increases due to delinquency, default, or
as a penalty not due to a change in
contractual terms of the consumer’s
account. Proposed § 226.9(g)(3)(i)(A)(6)
required a card issuer to disclose no
more than four reasons for the rate
increase, listed in their order of
importance, for a credit card account
under an open-end (not home-secured)
consumer credit plan. Proposed
comment 9(g)–7 cross-referenced
comment 9(c)(2)(iv)–11 for guidance on
disclosure of the reasons for a rate
increase. For the reasons discussed
above, § 226.9(g)(3)(i)(A)(6) and
comment 9(g)–7 are adopted as
proposed.
The Board also proposed to amend
Samples G–18(F), G–18(G), G–20, and
G–22 to incorporate examples of
disclosures of the reasons for a rate
increase as required by
§ 226.9(c)(2)(iv)(A)(8) and (g)(3)(i)(A)(6).
One issuer commented in support of the
proposed amendments to these model
forms, which are adopted as proposed.
In addition, the Board has made one
technical change to comment
9(c)(2)(iv)–8, for consistency with
changes to Sample G–21 that are
discussed elsewhere in this Federal
Register notice.
Finally, the Board is amending
§ 226.9(c)(2)(iv)(C) and (g)(3)(i)(B) for
clarity and to eliminate redundancy
with new § 226.9(c)(2)(iv)(A)(8) and
(g)(3)(i)(A)(6). As adopted in the
February 2010 Regulation Z Rule,
§ 226.9(c)(2)(iv)(C) and (g)(3)(i)(B)

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required a creditor to include a
statement of the reasons for the rate
increase in any notice disclosing a rate
increase based on a delinquency of more
than 60 days. New § 226.9(c)(2)(iv)(A)(8)
and (g)(3)(i)(A)(6) require all § 226.9(c)
and (g) notices disclosing rate increases
applicable to credit card accounts under
an open-end (not home-secured)
consumer credit plan to state the
principal reasons for rate increases.
Accordingly, the requirement to state
the reasons for rate increases under
§ 226.9(c)(2)(iv)(C) and (g)(3)(i)(B) has
been deleted as unnecessary, because
such notice is now required under
§ 226.9(c)(2)(iv)(A)(8) and (g)(3)(i)(A)(6).
Other Amendments to § 226.9(c)(2)
For the reasons discussed in the
supplementary information to
§ 226.52(b), the Board is amending
§ 226.9(c)(2)(iv)(B) to clarify that the
right to reject does not apply to an
increase in a fee as a result of a
reevaluation of a determination made
under § 226.52(b)(1)(i) or an adjustment
to the safe harbors in § 226.52(b)(1)(ii) to
reflect changes in the Consumer Price
Index.
For the reasons discussed in the
supplementary information to
§ 226.59(f), the Board also is adopting a
new comment 9(c)(2)(v)–12 that clarifies
the relationship between
§ 226.9(c)(2)(v)(B) and § 226.59 in the
circumstances where a rate is increased
due to loss of a temporary rate but is
subsequently decreased pursuant to the
review required by § 226.59.

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Section 226.52 Limitations on Fees
52(b) Limitations on Penalty Fees
Most credit card issuers will assess a
penalty fee if a consumer engages in
activity that violates the terms of the
cardholder agreement or other
requirements imposed by the issuer
with respect to the account. For
example, most agreements provide that
a fee will be assessed if the required
minimum periodic payment is not
received on or before the payment due
date or if a payment is returned for
insufficient funds or for other reasons.
Similarly, some agreements provide that
a fee will be assessed if amounts are
charged to the account that exceed the
account’s credit limit.7 These fees have
increased significantly over the past
fifteen years. A 2006 report by the
Government Accountability Office
7 The Board notes that some card issuers have
recently announced that they will cease imposing
fees for exceeding the credit limit. In addition,
§ 226.56 prohibits card issuers from imposing such
fees unless the consumer has consented to the
issuer’s payment of transactions that exceed the
credit limit.

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(GAO) found that late payment and
over-the-limit fees increased from an
average of approximately $13 in 1995 to
an average of approximately $30 in
2005.8 The GAO also found that, over
the same period, the percentage of
issuer revenue derived from penalty fees
increased to approximately 10%.9
According to data obtained by the
Board from Mintel Comperemedia, the
average late payment fee has increased
to approximately $38 as of March 2010,
while the average over-the-limit fee has
increased to approximately $36.10 In
addition, a July 2009 review of credit
card application disclosures by the Pew
Charitable Trusts found that the median
late payment and over-the-limit fees
charged by the twelve largest bank card
issuers were $39.11
However, it appears that smaller
credit card issuers generally charge
significantly lower late payment and
over-the-limit fees. For example, the
Board understands that some
community bank issuers charge late
payment and over-the-limit fees that
average between $17 and $25. In
addition, the Board understands that
many credit unions charge late payment
and over-the-limit fees of $20 on
average.12 Similarly, the Pew Credit
Card Report found that the median late
payment and over-the-limit fees charged
8 U.S. Government Accountability Office, Credit
Cards: Increased Complexity in Rates and Fees
Heightens Need for More Effective Disclosures to
Consumers (Sept. 2006) (GAO Credit Card Report)
at 5, 18–22, 33, 72 (available at http://www.gao.gov/
new.items/d06929.pdf).
9 See GAO Credit Card Report at 72–73.
10 The Mintel data, which is derived from a
representative sample of credit card solicitations,
indicates that the average late payment fee was
approximately $37 in January 2007 and increased
to approximately $38 by March 2010. During the
same period, the average over-the-limit fee
increased from approximately $35 to approximately
$36. In addition, the average returned payment fee
during this period increased from approximately
$30 to approximately $37.
11 See The Pew Charitable Trusts, Still Waiting:
‘‘Unfair or Deceptive’’ Credit Card Practices
Continue as Americans Wait for New Reforms to
Take Effect (Oct. 2009) (Pew Credit Card Report) at
3, 12–13, 31–33 (available at http://
www.pewtrusts.org/uploadedFiles/
wwwpewtrustsorg/Reports/Credit_Cards/
Pew_Credit_Cards_Oct09_Final.pdf). As noted in
the Pew Credit Card Report, the largest bank card
issuers generally tier late payment fees based on the
account balance (with a median fee of $39 applying
when the account balance is $250 or more).
Similarly, some bank card issuers tier over-the-limit
fees (with the median fee of $39 applying when the
account balance is $1,000 or more). In both cases,
the balance necessary to trigger the highest penalty
fee is significantly less than the average outstanding
balance on active credit card accounts. See id. at
12–13, 31.
12 Data submitted during the comment period by
a trade association representing federal and state
credit unions supported the Board’s understanding
with respect to credit union penalty fees.

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37531

by the twelve largest credit union card
issuers were $20.13
The Credit Card Act creates a new
TILA Section 149. Section 149(a)
provides that ‘‘[t]he amount of any
penalty fee or charge that a card issuer
may impose with respect to a credit card
account under an open end consumer
credit plan in connection with any
omission with respect to, or violation of,
the cardholder agreement, including any
late payment fee, over-the-limit fee, or
any other penalty fee or charge, shall be
reasonable and proportional to such
omission or violation.’’ Section 149(b)
further provides that the Board, in
consultation with the other federal
banking agencies14 and the National
Credit Union Administration (NCUA),
shall issue rules that ‘‘establish
standards for assessing whether the
amount of any penalty fee or charge
* * * is reasonable and proportional to
the omission or violation to which the
fee or charge relates.’’
In issuing these rules, new TILA
Section 149(c) requires the Board to
consider: (1) The cost incurred by the
creditor from such omission or
violation; (2) the deterrence of such
omission or violation by the cardholder;
(3) the conduct of the cardholder; and
(4) such other factors as the Board may
deem necessary or appropriate. Section
149(d) authorizes the Board to establish
‘‘different standards for different types
of fees and charges, as appropriate.’’
Finally, Section 149(e) authorizes the
Board—in consultation with the other
federal banking agencies and the
NCUA—to ‘‘provide an amount for any
penalty fee or charge * * * that is
presumed to be reasonable and
proportional to the omission or
violation to which the fee or charge
relates.’’
As discussed below, the Board is
implementing new TILA Section 149 in
§ 226.52(b). In developing § 226.52(b),
the Board consulted with the other
federal banking agencies and the NCUA.
Reasonable and Proportional Standard
and Consideration of Statutory Factors
As noted above, the Board is
responsible for establishing standards
for assessing whether a credit card
penalty fee is reasonable and
proportional to the violation for which
it is imposed. New TILA Section 149
does not define ‘‘reasonable and
proportional,’’ nor is the Board aware of
any generally accepted definition for
those terms when used in conjunction
13 See

Pew Credit Card Report at 3, 31–33.
Office of the Comptroller of the Currency
(OCC), the Federal Deposit Insurance Corporation
(FDIC), and the Office of Thrift Supervision (OTS).
14 The

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with one another. As a separate legal
term, ‘‘reasonable’’ has been defined as
‘‘fair, proper, or moderate.’’ 15 Congress
often uses a reasonableness standard to
provide agencies or courts with broad
discretion in implementing or
interpreting a statutory requirement.16
The term ‘‘proportional’’ is seldom used
by Congress and does not have a
generally-accepted legal definition.
However, it is commonly defined as
meaning ‘‘corresponding in size, degree,
or intensity’’ or as ‘‘having the same or
a constant ratio.’’ 17 Thus, it appears that
Congress intended the words
‘‘reasonable and proportional’’ in new
TILA Section 149(a) to require that there
be a reasonable and generally consistent
relationship between the dollar amounts
of credit card penalty fees and the
violations for which those fees are
imposed, while providing the Board
with substantial discretion in
implementing that requirement.
However, in Section 149(c), Congress
also set forth certain factors that the
Board is required to consider when
establishing standards for determining
whether penalty fees are reasonable and
proportional. Although Section 149(c)
only requires consideration of these
factors, the Board believes that they are
indicative of Congressional intent with
respect to the implementation of Section
149(a) and therefore provide useful
measures for determining whether
penalty fees are ‘‘reasonable and
proportional.’’ Accordingly, when
implementing the reasonable and
proportional requirement, the Board has
been guided by these factors.18
15 E.g., Black’s Law Dictionary at 1272 (7th ed.
1999); see also id. (‘‘It is extremely difficult to state
what lawyers mean when they speak of
‘reasonableness.’ ’’ (quoting John Salmond,
Jurisprudence 183 n.(u) (Glanville L. Williams ed.,
10th ed. 1947)).
16 See, e.g., 42 U.S.C. 12112(b)(5) (defining the
term ‘‘discriminate’’ to include ‘‘not making
reasonable accommodations to the known physical
or mental limitations of an otherwise qualified
individual with a disability who is an applicant or
employee’’); 28 U.S.C. 2412(b) (‘‘Unless expressly
prohibited by statute, a court may award reasonable
fees and expenses of attorneys * * * to the
prevailing party in any civil action brought by or
against the United States or any agency.’’); 43 U.S.C.
1734(a) (‘‘Notwithstanding any other provision of
law, the Secretary may establish reasonable filing
and service fees and reasonable charges, and
commissions with respect to applications and other
documents relating to the public lands and may
change and abolish such fees, charges, and
commissions.’’).
17 E.g., Merriam-Webster’s Collegiate Dictionary at
936 (10th ed. 1995).
18 Several commenters asserted that Section 149
requires the Board to base the standards for penalty
fees on one or more of the factors listed in Section
149(c). In particular, several industry commenters
argued that proposed § 226.52(b)(1) was
inconsistent with Section 149 insofar as it required
issuers to choose between basing penalty fees on
costs or deterrence, noting that Section 149(c) uses

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In addition, pursuant to its authority
under Section 149(c)(4) to consider
‘‘such other factors as the Board may
deem necessary or appropriate,’’ the
Board has considered the need for
general regulations that can be
consistently applied by card issuers and
enforced by the federal banking
agencies, the NCUA, and the Federal
Trade Commission. The Board has also
considered the need for regulations that
result in fees that can be effectively
disclosed to consumers in solicitations,
account-opening disclosures, and
elsewhere. Finally, the Board has
considered other relevant factors, as
discussed below.
Section 226.52(b) reflects the Board’s
careful consideration of the statutory
factors. However, when those factors
were in conflict, the Board found it
necessary to give more weight to a
particular factor or factors. For example,
as discussed below with respect to
§ 226.52(b)(2)(i), the Board has
determined that—if a fee based on the
card issuer’s costs would be
disproportionate to the consumer
conduct that caused the violation—it is
consistent with the intent of Section 149
to give greater weight to the consumer
conduct factor. The Board has made
these determinations pursuant to the
authority granted by new TILA Section
149 and existing TILA Section 105(a).
Cost Incurred as a Result of Violations
New TILA Section 149(c)(1) requires
the Board to consider the costs incurred
by the creditor from the violation. The
Board believes that, for purposes of new
TILA Section 149(a), the dollar amount
of a penalty fee is generally reasonable
and proportional to a violation if it
represents a reasonable proportion of
the total costs incurred by the issuer as
a result of all violations of the same
type. Accordingly, the Board has
adopted this standard in
§ 226.52(b)(1)(i). This application of
Section 149 appears to be consistent
with Congress’ intent insofar as it
permits card issuers to use penalty fees
to pass on the costs incurred as a result
of violations, while also ensuring that
those costs are spread evenly among
consumers and that no individual
consumer bears an unreasonable or
the conjunctive ‘‘and’’ rather than the disjunctive
‘‘or’’ when listing the factors. Such arguments
misread Section 149(c), which—as noted above—
only requires the Board to consider the listed
factors. Thus, while these factors provide valuable
guidance, the Board does not believe that Congress
intended to limit the Board’s discretion in the
manner suggested by these commenters.
Furthermore, as discussed below, there are
circumstances where—in the Board’s view—the
statutory factors point to conflicting results, leaving
it to the Board to resolve those conflicts.

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disproportionate share.19 As discussed
below, the Board has also adopted safe
harbor amounts in § 226.52(b)(1)(ii) that
the Board believes will be generally
sufficient to cover issuers’ costs.
The Board notes that § 226.52(b)(1)(i)
does not require that a penalty fee be
reasonable and proportional to the costs
incurred as a result of a specific
violation on a specific account. Such a
requirement would force card issuers to
wait until after a violation has been
resolved to determine the associated
costs. In addition to being inefficient
and overly burdensome for card issuers,
this type of requirement would be
difficult for regulators to enforce and
would result in fees that could not be
disclosed to consumers in advance. The
Board does not believe that Congress
intended this result. Instead, as
discussed in greater detail below,
§ 226.52(b)(1)(i) requires card issuers to
determine that their penalty fees
represent a reasonable proportion of the
total costs incurred by the issuer as a
result of the type of violation (for
example, late payments).
Deterrence of Violations
New TILA Section 149(c)(2) requires
the Board to consider the deterrence of
violations by the cardholder. Under
proposed § 226.52(b)(1)(ii), a penalty fee
would have been deemed reasonable
and proportional to a violation if the
card issuer had determined that the
dollar amount of the fee was reasonably
necessary to deter that type of violation
using an empirically derived,
demonstrably and statistically sound
model that reasonably estimated the
effect of the amount of the fee on the
frequency of violations. This proposed
standard was intended to encourage
issuers to develop an empirical basis for
the relationship between penalty fee
amounts and deterrence and to prevent
consumers from being charged fees that
unreasonably exceeded—or were out of
proportion to—their deterrent effect.20
19 One commenter argued that the Board’s
‘‘reasonable proportion’’ standard does not satisfy
the requirement in Section 149(a) that penalty fees
be ‘‘reasonable and proportional.’’ (Emphasis
added.) Specifically, the commenter argued that,
while a fee that represents a reasonable proportion
of an issuer’s costs might be proportional, it was not
necessarily reasonable. The Board disagrees. By
listing costs incurred from a violation as one of the
factors in Section 149(c), Congress indicated that a
penalty fee based on such costs will generally be
reasonable for purposes of Section 149(a).
Furthermore, the limitations in § 226.52(b)(2)
impose additional reasonableness requirements on
penalty fees that are based on costs.
20 Like § 226.52(b)(1)(i), proposed
§ 226.52(b)(1)(ii) would not have required that
penalty fees be calibrated to deter individual
consumers from engaging in specific violations. The
Board noted that this type of requirement would be
unworkable because the amount necessary to deter

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However, commenters generally
expressed strong reservations regarding
the deterrence standard in proposed
§ 226.52(b)(1)(ii). Some industry
commenters argued that, in order to
develop the data necessary to comply
with the proposed standard, the Board
would have to permit card issuers to
test—after the statutory effective date of
August 22, 2010—the deterrent effect of
fee amounts that would otherwise be
inconsistent with § 226.52(b).21 Other
industry commenters urged the Board to
adopt a less stringent standard, stating
that it would be impossible for card
issuers—particularly smaller
institutions with limited resources—to
develop the data and models necessary
to satisfy proposed § 226.52(b)(1)(i). In
contrast, consumer groups and a
municipal consumer protection agency
expressed concern that the proposed
standard was not sufficiently stringent
and would allow card issuers to use
marginal changes in the frequency of
violations to justify unreasonably high
fee amounts.22
Based on its review of the comments
and its own reevaluation of the
proposed deterrence standard, the Board
has determined that the standard in
proposed § 226.52(b)(1)(ii) would not
provide card issuers with a meaningful
ability to base penalty fees on
deterrence. Furthermore, the Board is
concerned that adopting a less stringent
standard could lead to penalty fees that
are substantially higher than current
levels, which would undermine the
purpose of new TILA Section 149.
a particular consumer from, for example, paying
late may depend on the individual characteristics
of that consumer (such as the consumer’s
disposable income or other obligations) and other
highly specific factors. Imposing such a
requirement would create compliance, enforcement,
and disclosure difficulties similar to those
discussed above with respect to costs.
21 Notably, some of these commenters stated that,
even if such testing were permitted, they would not
test high fee amounts on their consumers because
of the risks involved. One industry commenter
submitted the results of models based on issuer data
estimating the deterrent effect of different penalty
fee amounts. However, because the Board does not
have access to the data and assumptions used to
produce these results, the Board is unable to
determine whether these models satisfy the
proposed standard.
22 Some consumer groups argued that deterrence
was not an appropriate consideration because, for
example, a penalty fee is unlikely to have a
deterrent effect in circumstances where consumers
cannot avoid the violation of the account terms. The
Board acknowledged this possibility in the
proposal. However, the Board also noted that
deterrence is a required factor for the Board to
consider under new TILA Section 149(c) and that
there is evidence indicating that, as a general
matter, penalty fees may deter future violations of
the account terms. See Agarwal et al., Learning in
the Credit Card Market (Feb. 8, 2008) (available at
http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1091623&download=yes).

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Accordingly, the Board has not adopted
proposed § 226.52(b)(1)(ii).
Instead, the Board has revised the safe
harbors in proposed § 226.52(b)(3) to
better address concerns regarding
deterrence and adopted those safe
harbors in § 226.52(b)(1)(ii).
Specifically, § 226.52(b)(1)(ii) would
permit card issuers to impose a $25 fee
for the first violation of a particular type
and a $35 fee for each additional
violation of the same type during the
next six billing cycles. For example, if
a consumer pays late for the first time
in January, § 226.52(b)(1)(ii) would limit
the late payment fee to $25. If the
consumer pays late again during
February, March, April, May, June, or
July, the card issuer would be permitted
to impose a $35 late payment fee.
However, if after paying late in January
the consumer makes the next six
payments on time, the fee for the next
late payment would be limited to $25.
The Board believes that § 226.52(b)(1)(ii)
is consistent with new TILA 149(c)(2)
insofar as—after a violation has
occurred—the amount of the fee
increases to deter additional violations
of the same type during the next six
billing cycles.
Although the application and
solicitation disclosures in § 226.5a and
the account opening disclosures in
§ 226.6 provide consumers with
advance notice of the amount of credit
card penalty fees,23 the Board is
concerned that some consumers may
discount these disclosures because they
overestimate their ability to avoid
paying late and engaging in other
conduct that violates the terms or other
requirements of the account. However,
as noted in the proposal, there is some
evidence that the experience of
incurring a late payment fee makes
consumers less likely to pay late for a
period of time.24 Accordingly, although
upfront disclosure of a penalty fee may
be sufficient to deter some consumers
from engaging in certain conduct, other
consumers may be deterred by the
imposition of the fee itself. For these
23 In addition, § 226.7(b)(11) requires card issuers
to disclose on each periodic statement the amount
of the late payment fee that will be imposed if
payment is not received by the due date.
24 For example, one study of four million credit
card statements found that a consumer who incurs
a late payment fee is 40% less likely to incur a late
payment fee during the next month, although this
effect depreciates approximately 10% each month.
See Agarwal, Learning in the Credit Card Market.
Although this study indicates that the imposition of
a penalty fee may cease to have a deterrent effect
on future violations after four months, the Board
has concluded—as discussed in greater detail
below—that imposing an increased fee for
additional violations of the same type during the
next six billing cycles is consistent with the intent
of the Credit Card Act.

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37533

consumers, the Board believes that
imposition of a higher fee when
multiple violations occur will have a
significant deterrent effect on future
violations. In addition, as discussed
below, the Board believes that multiple
violations during a relatively short
period can be associated with increased
costs and credit risk and reflect a more
serious form of consumer conduct than
a single violation.
In the proposal, the Board solicited
comment on this tiered approach to the
safe harbor, which was supported by
some industry commenters as being
consistent with the statutory factors of
cost, deterrence, and consumer conduct.
However, consumer groups and some
industry commenters opposed a tiered
safe harbor on the grounds that it would
be overly complex. Although the Board
agrees that, for these reasons, it would
not be appropriate to establish
numerous fee amounts, it does not
appear that the two-tiered safe harbor in
§ 226.52(b)(1)(ii) is overly complex.25
Consumer Conduct
New TILA Section 149(c)(3) requires
the Board to consider the conduct of the
cardholder. As discussed above, the
Board does not believe that Congress
intended to require that each penalty fee
be based on an assessment of the
individual characteristics of the
violation. Thus, § 226.52(b) does not
require card issuers to examine the
conduct of the individual consumer
before imposing a penalty fee.26 Instead,
§ 226.52(b) ensures that penalty fees
will reflect consumer conduct in a
number of ways.
As an initial matter, to the extent
certain consumer conduct that violates
the terms or other requirements of an
account has the effect of increasing the
costs incurred by the card issuer, fees
imposed pursuant to § 226.52(b)(1)(i)
will reflect that conduct because the
issuer is permitted to recover those
costs. Furthermore, as discussed above,
the safe harbors in § 226.52(b)(1)(ii)
address consumer conduct by allowing
issuers to impose higher penalty fees on
consumers who violate the terms or
other requirements of an account
25 The Board also solicited comment on whether
penalty fees should be imposed in increments based
on the consumer’s conduct. For example, the Board
suggested that card issuers could be permitted to
impose a late payment fee of $5 each day after the
payment due date until the required payment is
received. However, the Board has not adopted this
cumulative approach in the final rule because of
concerns about complexity and the need to
establish an upper limit for the total fee.
26 Although some industry commenters argued
that consumer conduct should serve as an
independent basis for penalty fees, none suggested
a specific method of basing the dollar amount of a
penalty fee on consumer conduct.

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multiple times, while limiting the
amount of the penalty fee for a
consumer who engages in a single
violation and does not repeat that
conduct for the next six billing cycles.
The Board notes that, based on data
submitted by a large credit card issuer,
consumers who pay late multiple times
over a six-month period generally
present a significantly greater credit risk
than consumers who pay late a single
time. Although this data also indicates
that consumers who pay late two or
more times over longer periods (such as
twelve or twenty-four months) are
significantly more risky than consumers
who pay late a single time, the Board
believes that, when evaluating the
conduct of consumers who have
violated the terms or other requirements
of an account, it is consistent with other
provisions of the Credit Card Act to
distinguish between those who repeat
that conduct during the next six billing
cycles and those who do not.
Specifically, new TILA Section
171(b)(4) provides that, if the annual
percentage rate that applies to a
consumer’s existing balance is increased
because the account is more than 60
days delinquent, the increase must be
terminated if the consumer makes the
next six payments on time. See
§ 226.55(b)(4). Furthermore, as
discussed below with respect to
§ 226.59, new TILA Section 148
provides that, when an annual
percentage rate is increased based on
the credit risk of the consumer or other
factors, the card issuer must review the
account at least once every six months
to assess whether those factors have
changed (including whether the
consumer’s credit risk has declined).
In addition, § 226.52(b)(2)(i) takes
consumer conduct into account by
prohibiting issuers from imposing
penalty fees that exceed the dollar
amount associated with the violation.
The Board believes that, in enacting
new TILA Section 149, Congress
intended the amount of a penalty fee to
bear a reasonable relationship to the
magnitude of the violation. For
example, a consumer who exceeds the
credit limit by $5 should not be
penalized to the same degree as a
consumer who exceeds the limit by
$500. Accordingly, under
§ 226.52(b)(2)(i), a consumer who
exceeds the credit limit by $5 could not
be charged an over-the-limit fee of more
than $5.
Finally, § 226.52(b)(2)(ii) prohibits
issuers from imposing multiple penalty
fees based on a single event or
transaction. The Board believes that
imposing multiple fees in these
circumstances would be unreasonable

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and disproportionate to the conduct of
the consumer because the same conduct
may result in a single or multiple
violations, depending on circumstances
that may not be in the control of the
consumer. For example,
§ 226.52(b)(2)(ii) would prohibit issuers
from charging a late payment fee and a
returned payment fee based on a single
payment.
52(b)(1) General Rule
Section 226.52(b) provides that a card
issuer must not impose a fee for
violating the terms or other
requirements of a credit card account
under an open-end (not home-secured)
consumer credit plan unless the dollar
amount of the fee is consistent with
§ 226.52(b)(1) and (b)(2). Section
226.52(b)(1) states that, subject to the
limitations in § 226.52(b)(2), a card
issuer may impose a fee for violating the
terms or other requirements of an
account if the dollar amount of the fee
is consistent with either the cost
analysis in § 226.52(b)(1)(i) or the safe
harbors in § 226.52(b)(1)(ii). These
alternatives are discussed in detail
below.
Proposed comment 52(b)–1 clarified
that, for purposes of § 226.52(b), a fee is
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. This comment provided the
following examples of fees that are
subject to the limitations in—or
prohibited by—§ 226.52(b): (1) 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; (2)
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; (3) any fee or charge
for an over-the-limit transaction as
defined in § 226.56(a), to the extent the
imposition of such a fee or charge is
permitted by § 226.56; 27 (4) any fee or
27 Some industry commenters argued that overthe-limit fees should be exempt from § 226.52(b)
because, once a consumer has consented to the
payment of transactions that exceed the credit limit
consistent with new TILA Section 127(k) and
§ 226.56, the fee for exceeding the limit is a fee for
a service affirmatively requested by the consumer
rather than a fee for violating the terms or other
requirements of the account. On the other hand, a
municipal consumer protection agency requested
that the Board ban over-the-limit fees in all
circumstances, arguing that such fees are never
reasonable because the issuer controls whether to
allow the account to exceed the credit limit. As
noted in the proposal, it appears that Congress
intended new TILA Section 149 to apply to over-

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charge for a transaction that the card
issuer declines to authorize; and (5) 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 amount of
transactions or a particular type of
transaction) or the closure or
termination of an account.28
Proposed comment 52(b)–1 also
provided the following examples of fees
to which § 226.52(b) does not apply: (1)
Balance transfer fees; (2) cash advance
fees; (3) foreign transaction fees; (4)
annual fees and other fees for the
issuance or availability of credit
described in § 226.5a(b)(2), except to the
extent that such fees are based on
account inactivity; (4) fees for insurance
described in § 226.4(b)(7) or debt
cancellation or debt suspension
coverage described in § 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 terms or other requirements of an
account; (5) fees for making an
expedited payment (to the extent
permitted by § 226.10(e)); (6) fees for
optional services (such as travel
insurance); and (7) fees for reissuing a
lost or stolen card.
The examples in comment 52(b)–1 are
adopted as proposed, although the
Board has made non-substantive
revisions and added fees imposed for
the-limit fees. See new TILA § 149(a) (listing overthe-limit fees as an example of a penalty fee or
charge). Furthermore, the Board has previously
determined that the Credit Card Act’s restrictions
on fees for over-the-limit transactions apply
regardless of whether the card issuer characterizes
the fee as a fee for a service or a fee for a violation
of the account terms. See comment 56(j)–1. Thus,
the Board believes it would be inconsistent with
Congress’ intent to exempt over-the-limit fees from
the application of Section 149. Similarly, because
Section 127(k) specifically addresses the
circumstances in which an over-the-limit fee may
be charged, the Board believes that it would be
inconsistent with Congress’ intent to ban such fees
entirely.
28 As discussed below, § 226.52(b)(2)(i)(B) would
prohibit the imposition of fees for declined
transactions, fees based on account inactivity, and
fees based on the closure or termination of an
account. Several industry commenters objected to
the treatment of inactivity and account closure fees
as penalty fees for purposes of Section 149, arguing
that a consumer who does not use an account for
transactions or who closes an account generally has
not violated an express term of the cardholder
agreement. However, the Board believes that it
would be inconsistent with the purpose of Section
149 to permit card issuers to exempt a fee from
§ 226.52(b) by placing the requirement on which
that fee is based outside the account agreement. For
example, if a card issuer charges a fee when a
consumer fails to use an account for transactions,
the card issuer is requiring consumers to use the
account for transactions, even if that requirement
does not appear in the cardholder agreement.
Accordingly, § 226.52(b) applies to fees imposed for
violating the terms or other requirements of a credit
card account.

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Federal Register / Vol. 75, No. 124 / Tuesday, June 29, 2010 / Rules and Regulations
declined access checks as an additional
example of a fee subject to § 226.52(b).
Consumer group commenters noted that
many card issuers cancel redeemable
rewards points or similar benefits if a
consumer pays late or otherwise violates
the account terms and that, in those
circumstances, some issuers require
consumers to pay a fee to reinstate those
rewards or benefits. These commenters
requested that the Board treat both the
cancellation and the reinstatement fee
as penalty fees subject to new TILA
Section 149. In contrast, one industry
commenter requested that the Board
clarify that any loss of a benefit as a
result of a violation is not a fee for
purposes of Section 149.
As discussed above, new TILA
Section 149 applies to ‘‘any penalty fee
or charge’’ imposed in connection with
a violation. As a general matter, the
Board believes that the loss of rewards
points or other benefits as a result of a
violation is not a ‘‘fee or charge’’ and
therefore is not subject to Section 149.
Furthermore, because a consumer can
choose not to pay the reinstatement fee
if the consumer decides that the rewards
or benefits are not sufficiently valuable,
the Board does not believe it would be
appropriate to treat that fee as a penalty
fee. However, as discussed in detail
below with respect to inactivity fees,
there are circumstances in which the
loss of a benefit as a result of a violation
cannot be meaningfully distinguished
from the imposition of a penalty fee. See
comment 52(b)(2)(i)–5. Accordingly,
although losses of rewards points or
other benefits are generally not subject
to § 226.52(b), the Board does not
believe that such losses can be
categorically excluded. Instead, whether
the loss of a benefit as a result of a
violation of the terms or other
requirements is subject to § 226.52(b)
depends on the relevant facts and
circumstances.
Proposed comment 52(b)–1 also
clarified that § 226.52(b) does not apply
to 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.
Currently, many credit card issuers
apply an increased annual percentage
rate (or penalty rate) based on certain
violations of the account terms.
Application of this increased rate can
result in increased interest charges.
However, the Board does not believe
that Congress intended the words ‘‘any
penalty fee or charge’’ in new TILA
Section 149(a) to apply to penalty rate
increases.
In the proposal, the Board noted that,
elsewhere in the Credit Card Act,
Congress expressly referred to increases

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in annual percentage rates when it
intended to address them.29 In fact, the
Credit Card Act contains several
provisions that specifically limit the
ability of card issuers to apply penalty
rates. Revised TILA Section 171
prohibits application of penalty rates to
existing credit card balances unless the
account is more than 60 days
delinquent. See revised TILA Section
171(b)(4); see also § 226.55(b)(4).
Furthermore, if an account becomes
more than 60 days delinquent and a
penalty rate is applied to an existing
balance, the card issuer must terminate
the penalty rate if it receives the
required minimum payments on time
for the next six months. See revised
TILA Section 171(b)(4)(B);
§ 226.55(b)(4)(ii). With respect to new
transactions, new TILA Section 172(a)
generally prohibits card issuers from
applying penalty rates during the first
year after account opening. See also
§ 226.55(b)(3)(iii). Subsequently, the
card issuer must provide 45 days
advance notice before applying a
penalty rate to new transactions. See
new TILA Section 127(i); § 226.9(g).
Finally, beginning on August 22, 2010,
once a penalty rate is in effect, the card
issuer generally must review the
account at least once every six months
thereafter and reduce the rate if
appropriate. See new TILA Section 148;
§ 226.59. These protections—in
combination with the lack of any
express reference to penalty rate
increases in new TILA Section 149—
indicate that Congress did not intend to
apply the ‘‘reasonable and proportional’’
standard to increases in annual
percentage rates.30
Comments from individual
consumers, consumer groups, state
attorneys general, and state and
municipal consumer protection agencies
disagreed with the Board’s
interpretation. Some of these
commenters argued that the Board was
not giving effect to the reference in
Section 149 to a penalty ‘‘charge’’ (as
29 For example, revised TILA Section 171(a) and
(b) and new TILA Section 172 explicitly distinguish
between annual percentage rates, fees, and finance
charges.
30 The Board also noted that prior versions of the
Credit Card Act contained language that would
have limited the amount of penalty rate increases,
but that language was removed prior to enactment.
See S. 414 § 103 (introduced Feb. 11, 2009)
(proposing to create a new TILA Section 127(o)
requiring that ‘‘[t]he amount of any fee or charge
that a card issuer may impose in connection with
any omission with respect to, or violation of, the
cardholder agreement, including any late payment
fee, over the limit fee, increase in the applicable
annual percentage rate, or any similar fee or charge,
shall be reasonably related to the cost to the card
issuer of such omission or violation’’) (emphasis
added) (available at http://thomas.loc.gov).

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37535

opposed to a penalty ‘‘fee’’). However, as
discussed above, the Board has
expressly stated in comment 52(b)–1
that § 226.52(b) applies to ‘‘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.’’
Comment 52(b)–1 (emphasis added).
Thus, the Board has given effect to the
words ‘‘any penalty fee or charge’’ in
Section 149.
These commenters further argued
that, even if new TILA Section 149 does
not expressly apply to penalty rate
increases, the Board should use its
authority under TILA Section 105(a) to
apply § 226.52(b) to such rate increases
because doing so would effectuate the
purposes of the Credit Card Act.
However, the Board does not believe
that this would be an appropriate use of
its authority because, for the reasons
discussed above, Congress has provided
other protections that specifically apply
to penalty rate increases.31
Proposed comment 52(b)–2 clarified
that a card issuer may round any fee
that complies with § 226.52(b) to the
nearest whole dollar. For example, if
§ 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 permissible late payment fee were
$21.49, the card issuer is not 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. The Board did not
receive any significant comment on this
aspect of the proposal, which is adopted
as proposed.
Finally, a state and a municipal
consumer protection agency expressed
concern that providing card issuers with
the flexibility to choose between
different methods for calculating
penalty fees would lead issuers to
switch back and forth between methods
in order to charge the highest possible
fee in all circumstances. As a general
matter, the Board believes that card
issuers should be permitted to choose
31 One commenter argued that the Board should
apply Section 149 to prohibit the assessment of
deferred interest when a consumer pays late during
a deferred interest period. For the reasons discussed
above with respect to the assessment of additional
interest charges as a result of a penalty rate
increase, the Board believes that it would not be
appropriate to apply Section 149 to the assessment
of deferred interest. However, the Board notes that,
effective February 22, 2010, card issuers were
generally prohibited from assessing deferred
interest as a result of a late payment. See comment
55(b)(1)–3.

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sroberts on DSKD5P82C1PROD with RULES

between basing the amount of a penalty
fee on a cost analysis that is consistent
with § 226.52(b)(1)(i) or on the safe
harbors in § 226.52(b)(1)(ii) because
both methods result in fees that are
consistent with new TILA Section 149.
Accordingly, the Board has adopted
comment 52(b)(1)–1, which clarifies that
a card issuer may impose a fee for one
type of violation pursuant to
§ 226.52(b)(1)(i) and may impose a fee
for a different type of violation pursuant
to § 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 § 226.52(b)(1)(i) but impose
returned payment and over-the-limit
fees of $25 or $35 pursuant to the safe
harbors in § 226.52(b)(1)(ii).
In addition, the Board believes that
card issuers should be permitted to shift
from charging fees based on a cost
analysis consistent with § 226.52(b)(1)(i)
to charging fees that are consistent with
the safe harbors in § 226.52(b)(1)(ii) (and
vice versa). However, because the
applicability of the safe harbors in
§ 226.52(b)(1)(ii)(A) and (B) depends on
whether the consumer has engaged in
multiple violations of the same type
during the specified period, it would be
inconsistent with the intent of
§ 226.52(b)(1)(ii) to permit a card issuer
to charge the higher safe harbor amount
in § 226.52(b)(1)(ii)(B) without having
previously charged the lower amount in
§ 226.52(b)(1)(ii)(A). Accordingly,
comment 52(b)(1)–1 clarifies that this
practice is inconsistent with
§ 226.52(b)(1) and provides an
illustrative example.
Finally, the Board has incorporated
into this comment the guidance
proposed in comment 52(b)(3)–1, which
clarified that a card issuer that complies
with the safe harbors 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
§ 226.52(b)(1)(i). However, this guidance
also clarifies that § 226.52(b)(1) does not
permit a card issuer to impose a fee that
is inconsistent with the prohibitions in
§ 226.52(b)(2). For example, if
§ 226.52(b)(2)(i) prohibits the card issuer
from imposing a late payment fee that
exceeds $15, the safe harbors in
§ 226.52(b)(1)(ii) do not permit the card
issuer to impose a higher late payment
fee.
52(b)(1)(i) Fees Based on Costs
Section 226.52(b)(1)(i) permits a card
issuer to impose a fee for violating the
terms or other requirements of an
account if the card issuer has
determined that the dollar amount of
the fee represents a reasonable

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proportion of the total costs incurred by
the card issuer as a result of that type
of violation. As discussed above,
§ 226.52(b)(1)(i) does not require card
issuers to make individualized
determinations with respect to the costs
incurred as a result of each violation.
Instead, card issuers would be required
to make these determinations with
respect to the type of violation (for
example, late payments), rather than a
specific violation or an individual
consumer.
Because a card issuer is in the best
position to determine the costs it incurs
as a result of violations, the Board
believes that, as a general matter, it is
appropriate to make card issuers
responsible for determining that their
fees comply with § 226.52(b)(1)(i). As
discussed below, to reduce the burden
of making these determinations,
§ 226.52(b)(1)(ii) contains safe harbors
that are intended to generally reflect
issuers’ costs. However, a card issuer
that chooses to base its penalty fees on
its own determination (rather than on
the safe harbors) must be able to
demonstrate to the regulator responsible
for enforcing compliance with TILA and
Regulation Z that its determination is
consistent with § 226.52(b)(1)(i).32
Industry commenters generally
supported proposed § 226.52(b)(1)(i),
while consumer group commenters
expressed a general concern that—by
allowing card issuers with higher costs
to collect higher fees—the proposed rule
could have the unintended consequence
of rewarding the issuers that are least
efficient in managing their costs. The
Board understands this concern.
However, because Regulation Z requires
card issuers to disclose the amounts of
their penalty fees in the application and
solicitation table (§ 226.5a(b)(9), (10),
and (12)) and in the account-opening
table (§ 226.6(b)(2)(viii), (ix), and (xi)) as
well as the amount of their late payment
fee on each periodic statement
(§ 226.7(b)(11)(B)), the Board believes
that—for competitive and other
reasons—card issuers will have
incentives to manage their costs
efficiently. Accordingly, § 226.52(b)(1)(i)
is adopted as proposed.
32 Consumer groups objected to this approach,
arguing that—in order to prevent manipulation of
the cost determinations required by
§ 226.52(b)(1)(i)—card issuers should be required to
submit all data supporting those determinations to
the Board for publication on an anonymous basis.
The Board believes that such a requirement would
be inefficient and overly burdensome and is not
necessary to effectuate the purpose of Section 149.
An issuer’s principal regulator is most familiar with
its operations and is in the best position to evaluate
its cost analysis under § 226.52(b)(1)(i).

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A. Reevaluation of Cost Determinations
Proposed § 226.52(b)(1) would have
required card issuers that base their
penalty fees on costs to reevaluate their
cost determination at least once every
twelve months. If as a result of the
reevaluation the card issuer determined
that a lower fee represented a reasonable
proportion of the total costs incurred by
the card issuer as a result of that type
of violation, the proposed rule would
have required the card issuer to begin
imposing the lower fee within 30 days
after completing the reevaluation. If as
a result of the reevaluation the card
issuer determined that a higher fee
represented a reasonable proportion of
the total costs incurred by the card
issuer as a result of that type of
violation, the proposed rule clarified
that the card issuer cannot begin
imposing the higher fee until it has
complied with the notice requirements
in § 226.9.
This reevaluation requirement was
intended to ensure that card issuers
impose penalty fees based on relatively
current cost information. However,
because the Board did not wish to
encourage frequent changes in penalty
fees, it solicited comment on whether
twelve months was an appropriate
interval for the reevaluation. Generally,
consumer groups supported the
proposal while industry commenters
requested less frequent reevaluation,
citing the cost of reviewing their
analyses annually and revising
disclosures and account agreements.
Based on its review of the comments
and further analysis, the Board believes
that an annual reevaluation requirement
is appropriate. Although the Board
understands that there will be costs
involved in preparing a § 226.52(b)(1)(i)
analysis, an issuer that determines that
those costs outweigh the benefits of
utilizing § 226.52(b)(1)(i) can instead
comply with the safe harbors in
§ 226.52(b)(1)(ii).
However, because the Board
understands that it may take some card
issuers more than 30 days to implement
a fee reduction, the Board has revised
the reevaluation requirement to provide
issuers with 45 days to do so. This
period parallels the amount of time
issuers are required to delay imposition
of an increased fee under § 226.9.
Furthermore, because it would be
inconsistent with the intent of
§ 226.52(b)(1)(i) to prohibit issuers from
increasing a fee to reflect increased
costs, the Board has revised
§ 226.9(c)(2)(iv)(B) to provide that the
right to reject an increase in a fee does
not apply in these circumstances.

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Federal Register / Vol. 75, No. 124 / Tuesday, June 29, 2010 / Rules and Regulations
B. Factors Relevant to Cost
Determination
Proposed comment 52(b)(1)(i)–1
would have clarified that a card issuer
is not required to base its fees on the
costs incurred as a result of a specific
violation. Instead, for purposes of
§ 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. As proposed, the factors
relevant to this determination included:
(1) The number of violations of a
particular type experienced by the card
issuer during a prior period; and (2) the
costs incurred by the card issuer during
that period as a result of those
violations. In addition, a card issuer was
permitted, at its option, to base its fees
on a reasonable estimate of changes in
the number of violations of that type
and the resulting costs during an
upcoming period. For example, under
the proposal, a card issuer could satisfy
§ 226.52(b)(1)(i) by determining that its
late payment fee represented a
reasonable proportion of the total costs
incurred by the card issuer as a result
of late payments based on the number
of delinquencies it experienced in the
past twelve months, the costs incurred
as a result of those delinquencies, and
a reasonable estimate about changes in
delinquency rates and the costs incurred
as a result of delinquencies during a
subsequent period of time (such as the
next twelve months).
The Board has revised several aspects
of comment 52(b)(1)(i)–1 based on the
comments and further analysis. First,
the Board has clarified that card issuers
must evaluate their costs based on a
prior period of reasonable length (such
as a period of twelve months). The
Board believes that this clarification is
necessary to ensure that any cost
analysis is based on a period that
accurately reflects the number of
violations an issuer typically
experiences and the costs incurred as a
result of those violations.
One public interest group expressed a
general concern that card issuers could
manipulate estimates regarding future
changes in the frequency of violations
and the resulting costs. However,
because the burden is on the card issuer
to demonstrate that its estimates have a
reasonable basis, the Board believes that
any manipulation will be detected.
Industry commenters requested that
the cost analysis reflect the fact that not
all violations result in the collection of
a penalty fee. These commenters noted
that a penalty fee might not be collected

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because, for example, the account has
charged off or because the card issuer
has waived the fee as a courtesy to the
consumer or as part of a workout or
temporary hardship arrangement. The
Board agrees that—to the extent a card
issuer is unable to collect a penalty fee
(for example, because the account has
been charged off or discharged in
bankruptcy)—that fee should not be
considered when determining the
amount needed to cover an issuer’s
costs.33 However, the Board draws a
distinction between fees the card issuer
is unable to collect and those the card
issuer chooses not to collect (such as
fees the card issuer waives). Although
the waiver of penalty fees is beneficial
to consumers whose fees are waived,
those waivers should not result in
higher fees for other consumers. Several
industry commenters warned that card
issuers may be less willing to offer
workout or temporary hardship
arrangements if the cost analysis cannot
be adjusted to reflect fees waived
pursuant to such arrangements;
however, the Board believes the effect
on workout and temporary hardship
arrangements is unlikely to be
substantial because those arrangements
are generally used by card issuers to
prevent the entire account balance from
becoming a loss.34
33 The Board notes that this treatment is not
inconsistent with its determination that—as
discussed below—losses are not costs for purposes
of the cost analysis, which is discussed below. Card
issuers are not permitted to include losses in the
costs incurred as a result of violations. However,
when dividing those costs among the violations, the
Board believes that card issuers should be
permitted to exclude violations that resulted in fees
the card issuer cannot collect. For example, assume
that a card issuer experiences 5 million late
payments and $100 million in costs as a result of
those late payments (not including losses). Dividing
the $100 million in costs by the 5 million late
payments results in a $20 late payment fee.
However, if the card issuer cannot collect 25% of
the late payment fees it imposes, the card issuer
will be unable to recover 25% of the costs incurred
as a result of late payments. Accordingly, the $100
million in costs should be divided by the 3.75
million delinquencies for which the card issuer
could have collected a fee, which results in a late
payment fee of approximately $27.
34 The Board notes that this approach is
consistent with the conclusions reached by the
United Kingdom’s Office of Fair Trading in its
statement of the principles that credit card issuers
must follow in setting default charges. See Office of
Fair Trading (United Kingdom), Calculating Fair
Default Charges in Credit Card Contracts: A
Statement of the OFT’s Position (April 2006) (OFT
Credit Card Statement) at 25–26 (available at
http://www.oft.gov.uk/shared_oft/reports/
financial_products/oft842.pdf). The Board is aware
that a recent opinion by the Supreme Court of the
United Kingdom has called into question aspects of
the OFT’s legal authority to regulate prices paid by
consumers for banking services. See Office of Fair
Trading v. Abbey Nat’l Plc and Others (Nov. 25,
2009) (available at http://
www.supremecourt.gov.uk/decided-cases/docs/
UKSC_2009_0070_Judgment.pdf). However, this

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Accordingly, the Board has revised
comment 52(b)(1)(i)–1 to clarify that,
when determining the appropriate fee
amount under § 226.52(b)(1)(i), a card
issuer may, at its option, consider the
number of fees imposed during the
relevant period that it reasonably
estimates it will be unable to collect. In
addition, the Board has adopted a new
comment 52(b)(1)(i)–5, which clarifies
that, for purposes of § 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 or discharged in
bankruptcy and fees that the card issuer
is required to waive in order to comply
with a legal requirement—such as the
Servicemembers Civil Relief Act
(SCRA), 50 U.S.C. app. 501 et seq.,
which limits the charges a card issuer
may impose on an account while the
accountholder is in active military
service. See 50 U.S.C. app. 527.
However, the comment also clarifies
that fees that the card issuer chooses not
to impose or chooses not to collect (such
as fees that the card issuer chooses to
waive) are not relevant for purposes of
this determination.
Finally, in response to industry
comments, the Board has revised
comment 52(b)(1)(i)–1 to clarify that a
card issuer may make a single cost
determination pursuant to
§ 226.52(b)(1)(i) for all of its credit card
portfolios or may make separate
determinations for each portfolio. The
Board believes that it is appropriate to
provide this flexibility because
violations may be more or less frequent
and may result in greater or lesser costs
depending on the composition of the
portfolio. For example, a card issuer
with a retail credit card portfolio and a
general purpose credit card portfolio
might experience more frequent
violations or greater costs on one
portfolio than on the other. Although
the Board does not believe it is
necessary to specifically define the term
‘‘credit card portfolio,’’ the Board notes
that, for purposes of § 226.52(b)(1)(i),
this term is generally intended to
opinion does not appear to affect the OFT’s
authority to regulate default charges, which was the
basis for the Credit Card Statement. See OFT Credit
Card Statement at 10–17. And regardless, this
question does not affect the Board’s legal authority
(and mandate) to regulate credit card penalty fees
under new TILA Section 149. As discussed in
greater detail below, the Board also believes that—
notwithstanding important distinctions between the
laws of the United States and the United
Kingdom—the OFT’s findings warrant
consideration along with other relevant
information. However, the Board does not find the
OFT’s analysis to be dispositive on any particular
point.

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encompass a broader range of credit
card accounts than the term ‘‘type of
credit card plan,’’ which is used in the
commentary to § 226.59(d). The Board
understands that, for example, a general
purpose credit card portfolio may
contain several different types of credit
card plans (such as plans that provide
rewards and plans that do not).
However, the Board acknowledges that
there may be circumstances in which a
credit card portfolio contains only one
type of credit card plan (such as certain
retail credit card portfolios).

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C. Exclusion of Losses From Cost
Analysis
Proposed comment 52(b)(1)(i)–2
clarified that, although higher rates of
loss may be associated with particular
violations of the terms or other
requirements of an account, those losses
and associated costs (such as the cost of
holding reserves against losses) are
excluded from the § 226.52(b)(1)(i) cost
analysis. In the proposal, the Board
observed that, although an account
generally cannot become a loss without
first becoming delinquent,
delinquencies and associated losses may
be caused by a variety of factors (such
unemployment, illness, and divorce).
The Board also stated that, based on
available data, it appeared that most
violations did not actually result in
losses.35 Finally, the Board expressed
concern that—if card issuers were
permitted to begin recovering losses and
associated costs through penalty fees
rather than upfront rates—transparency
in credit card pricing would be reduced
because, as discussed above, some
consumers overestimate their ability to
avoid violations and therefore may
discount upfront penalty fee
disclosures.
A Federal agency, a municipal
consumer protection agency, and
35 Specifically, data submitted to the Board
during the comment period for the January 2009
FTC Act Rule indicated that more than 93% of
accounts that were over the credit limit or
delinquent twice in a twelve month period did not
charge off during the subsequent twelve months.
See Federal Reserve Board Docket No. R–1314:
Exhibit 5, Table 1a to Comment from Oliver I.
Ireland, Morrison Foerster LLP (Aug 7, 2008) (Argus
Analysis) (presenting results of analysis by Argus
Information & Advisory Services, LLC of historical
data for consumer credit card accounts believed to
represent approximately 70% of all outstanding
consumer credit card balances). Furthermore,
because collections generally continue after the
account has been charged off, an account that has
been charged off is not necessarily a total loss
(although the Board understands that recoveries
after an account has been charged off are generally
a small fraction of the account balance). The
January 2009 FTC Act Rule was issued jointly with
the OTS and NCUA under the Federal Trade
Commission Act to protect consumers from unfair
acts or practices with respect to consumer credit
card accounts. See 74 FR 5498 (Jan. 29, 2009).

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consumer groups supported the
proposed exclusion of losses and
associated costs from the cost analysis.
However, industry commenters
challenged several aspects of the
Board’s rationale.
First, while industry commenters
generally conceded that most violations
do not result in losses, they argued that
the cost associated with those that do is
extremely high. They further argued
that, if card issuers are not permitted to
recover losses through penalty fees,
those losses will cause issuers to reduce
credit availability or will be reflected in
the upfront annual percentage rates and
annual fees charged to consumers who
do not pay late. The Board does not
dispute that losses impose substantial
costs on card issuers. However, the
Board understands that, historically,
most card issuers have not priced for the
risk of loss through penalty fees;
instead, issuers have generally priced
for risk through upfront annual
percentage rates and penalty rate
increases.36 Although the Credit Card
Act has restricted card issuers’ ability to
impose penalty rate increases on
existing balances, the Board believes
that these restrictions were based, in
part, on an understanding that pricing
for risk using upfront rates rather than
penalty rate increases will promote
transparency and protect consumers
from unanticipated increases in the cost
of credit.37 Thus, the Board believes that
it would be inconsistent with the
purpose of the Credit Card Act to permit
card issuers to begin recovering losses
and associated costs through penalty
fees rather than through upfront rates.38
Furthermore, issuers generally
acknowledged that—if losses were
included in the cost analysis—
36 The Board notes that industry commenters
generally agreed with or did not dispute the Board’s
understanding. However, some industry
commenters suggested that some issuers may
currently use penalty fees to recover losses. Also,
the Board recognizes that charge card accounts
generally impose an annual fee but not interest
charges because the balance must be paid in full
each billing cycle. As discussed below, the Board
had adopted a safe harbor in § 226.52(b)(1)(ii)(C)
that specifically addresses charge cards.
37 The relevant provisions of the Credit Card Act
(which are codified in TILA §§ 171 and 172) appear
to be based on similar limitations imposed by the
Board in the January 2009 FTC Act Rule. In that
final rule, the Board reasoned that pricing for risk
using upfront rates rather than penalty rate
increases would promote transparency and protect
consumers from unanticipated increases in the cost
of credit. See 74 FR 5521–5528.
38 The Board notes that the OFT reached a similar
conclusion with respect to losses. See OFT Credit
Card Statement at 1, 19–22, 25. The Board reiterates
that it does not find the OFT’s analysis to be
dispositive. However, notwithstanding the
important distinctions between the laws of the
United States and the United Kingdom, the Board
believes this analysis warrants consideration.

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§ 226.52(b)(1)(i) would permit the
imposition of penalty fees that are
dramatically higher than those imposed
today, a result which appears directly
contrary to the intent of Section 149.39
Finally, some industry commenters
argued that Congress intended to
include losses in the cost analysis. One
commenter noted that the reference in
new TILA Section 149(c)(1) to ‘‘costs
incurred by the creditor from [an]
omission or violation’’ does not
expressly exclude losses and that
definitions of ‘‘cost’’ typically include
‘‘loss.’’ 40 However, as discussed above,
the factors in Section 149(c) are
considerations to be taken into account
by the Board when establishing
standards, not the standards themselves.
Furthermore, the Board notes that
Section 149(c)(1) refers to ‘‘costs
incurred by the creditor from [an]
omission or violation,’’ which could be
construed to mean that it is appropriate
to exclude losses where—as here—card
issuers do not incur losses as a result of
the overwhelming majority of
violations.41
For the reasons discussed above,
comment 52(b)(1)(i)–2 is adopted as
proposed, with two revisions. First,
several industry commenters suggested
that, even if losses were generally
excluded from the cost analysis, card
issuers should be permitted to include
the cost of funding delinquent balances
before the account becomes a loss.
However, as a general matter, the Board
does not believe that such costs can be
meaningfully distinguished from losses.
Accordingly, comment 52(b)(1)(i)–2 has
39 Although some industry commenters suggested
that only a portion of losses be included in the cost
analysis, they did not provide any meaningful way
to distinguish between types of losses (nor is the
Board aware of any).
40 See e.g., Merriam-Webster’s Collegiate
Dictionary at 262 (10th ed. 1995) (defining cost as,
among other things, ‘‘loss or penalty incurred esp.
in gaining something’’).
41 Another commenter referred to language in a
report issued by the Senate Committee on Banking,
Housing, and Urban Affairs stating the Committee’s
understanding that ‘‘the Federal Reserve Board, in
determining reasonable relation to cost, will take
into account a number of factors, including * * *
credit risk associated with both portfolio and the
individual. * * * ’’ See S. Rep. No. 111–16, at 7
(2009). However, this report refers to a prior version
of the Credit Card Act, which would have required
that fees be based solely on costs. See id. at 10
(‘‘This section requires that penalty fees assessed to
cardholders be reasonably related to the cost
incurred by the card issuer.’’) In contrast, under the
final version of the legislation, costs are one of the
several considerations. See new TILA Section
149(c). Nevertheless, the Board notes that it has
taken credit risk into consideration when
implementing Section 149. Specifically, the Board
believes that the safe harbors in § 226.52(b)(1)(ii)
address concerns that accounts that experience
multiple violations over a particular period pose a
greater credit risk than accounts that experience a
single violation over the same period.

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been revised to clarify that the cost of
funding delinquent accounts is
considered a loss and is therefore
excluded from the cost analysis.
Second, several industry commenters
suggested that all risk management costs
should be included in the cost analysis,
including the cost of underwriting new
accounts in order to determine the
likelihood that credit extended to an
applicant will result in a loss. However,
while the Board agrees that, for
example, costs associated with
managing risk on delinquent accounts
should be included in the cost analysis,
the Board also believes that upfront
underwriting costs cannot be
categorized as costs incurred by the card
issuer from or as a result of violations.
Accordingly, the Board has revised
comment 52(b)(1)(i)–2 to clarify that a
card issuer may not include in the cost
analysis 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, the comment also
clarifies that, once a violation of the
account terms or other requirements has
occurred, the costs associated with
preventing additional violations for a
reasonable period of time may be
included in the cost analysis.

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D. Additional Guidance and Examples
Proposed comment 52(b)(1)(i)–3
clarified that, 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 § 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 for purposes of
§ 226.52(b)(1)(i) that the amount
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 for delinquent
accounts, the card issuer must
determine that the amount charged to
the card issuer by the affiliate for such
services represents a reasonable
proportion of the costs incurred by the
affiliate as a result of late payments. The
Board did not receive significant
comment on this aspect of the proposal,

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which is adopted as proposed (with
non-substantive clarifications).
Proposed comment 52(b)(1)–1
clarified that the fact that a card issuer’s
penalty fees are comparable to fees
assessed by other card issuers is not
sufficient to satisfy the requirements of
§ 226.52(b)(1)(i). Instead, a card issuer
must make its own determinations
whether the amounts of its fees
represent a reasonable proportion of the
total costs incurred by the issuer.
Consumer groups generally supported
this clarification. Some industry
commenters argued that card issuers
should be permitted to rely on general
industry cost data or any other reliable
information for purposes of
§ 226.52(b)(1)(i). However, the Board
believes that this would be inconsistent
with new TILA Section 149(c)(1), which
refers to the ‘‘costs incurred by the
creditor from [an] omission or
violation.’’ Accordingly, this comment
has been revised for clarity and
redesignated as comment 52(b)(1)(i)–4
for organizational reasons but otherwise
adopted as proposed.
Proposed comment 52(b)(1)(i)–4
clarified the application of
§ 226.52(b)(1)(i) to late payment fees. In
addition to providing illustrative
examples, the comment stated that, for
purposes of § 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). Although
industry commenters requested that the
Board specify that a variety of costs are
costs incurred as a result of late
payments, those costs generally appear
to be addressed by the commentary
discussed above.
Consumer group commenters
requested that the Board exclude from
the cost analysis any collection costs
unless the issuer has actually begun
collection activity. However, this
approach would require examining
individual violations, which—for the
reasons discussed above—the Board
generally does not believe to be
warranted.
Consumer group commenters also
requested that the Board exclude from
the cost analysis time spent by a
customer service representative
speaking with a consumer who has been
charged a fee. However, the Board
believes that this is a cost incurred by
the card issuer as a result of a violation.
Accordingly, this comment has been
redesignated as comment 52(b)(1)(i)–6

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for organizational purposes and adopted
as proposed, except for the provision of
an additional illustrative example.
Proposed comment 52(b)(1)(i)–5
clarified the application of
§ 226.52(b)(1)(i) to returned payment
fees. The comment stated that, for
purposes of § 226.52(b)(1)(i), the costs
incurred by a card issuer as a result of
returned payments include the costs
associated with processing returned
payments and reconciling the card
issuer’s systems and accounts to reflect
returned payments as well as the costs
associated with notifying the consumer
of the returned payment and arranging
for a new payment. The comment also
provided illustrative examples. An
industry commenter noted that, in some
cases, payments are intentionally made
with checks written on accounts with
insufficient funds in order to
fraudulently increase the available
credit or to fraudulently create a credit
balance that will be refunded to the
accountholder. Accordingly, the Board
has revised this comment to clarify that
the costs associated with investigating
potential fraud with respect to returned
payments are costs incurred by the
issuer as a result of returned payments.
The Board did not receive any other
significant comment on this aspect of
the proposal. Accordingly, this
comment has been redesignated as
comment 52(b)(1)(i)–7 for organizational
purposes and adopted as proposed,
except for the provision of an additional
illustrative example.
Proposed comment 52(b)(1)(i)–6
clarified the application of
§ 226.52(b)(1)(i) to over-the-limit fees. In
addition to providing illustrative
examples, the comment stated that, for
purposes of § 226.52(b)(1)(i), the costs
incurred by a card issuer as a result of
over-the-limit transactions include the
costs associated with determining
whether to authorize over-the-limit
transactions and the 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.
Consumer group commenters argued
that any costs associated with the card
issuer’s authorization system should be
excluded from the cost analysis because
card issuers need this system for their
general business operations. However,
the Board does not believe it is possible
to meaningfully distinguish between the
cost of authorizing and declining
transactions.
Consumer groups also argued that any
costs incurred by the card issuer
obtaining the affirmative consent of
consumers to the payment of over-thelimit transactions consistent with

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§ 226.56 are not costs incurred by a card
issuer as a result of over-the-limit
transactions. The Board agrees and has
revised the proposed comment
accordingly. The Board has also added
an additional illustrative example.
Otherwise, this comment has been
redesignated as comment 52(b)(1)(i)–8
for organizational purposes and adopted
as proposed.
The Board has adopted a new
comment 52(b)(1)(i)–9 clarifying the
application of § 226.52(b)(1)(i) to fees
charged when the card issuer declines
payment on checks that access a credit
card account. In addition to providing
an illustrative example, the comment
clarifies that the costs incurred by a card
issuer as a result of a declined access
check include costs associated with
determining whether to decline access
checks, costs associated with processing
declined access checks and reconciling
the card issuer’s systems and accounts
to reflect declined access checks, costs
associated with investigating potential
fraud with respect to declined access
checks, and costs associated with
notifying the consumer and the
merchant that accepted the access check
that the check has been declined.
Finally, the Board notes that
consumer group commenters requested
that all overhead costs be excluded from
the cost analysis. Although the Board
agrees that not all overhead costs are
costs incurred as a result of a violation,
it would not be feasible to develop a
meaningful definition of ‘‘overhead’’ for
purposes of this regulation. Instead, the
Board believes that the determination of
whether certain costs are incurred as a
result of violations of the account terms
or other requirements should be made
based on all the relevant facts and
circumstances.
52(b)(1)(ii) Safe Harbors
As discussed above, new TILA
Section 149(e) authorizes the Board to
provide amounts for penalty fees that
are presumed to be reasonable and
proportional to the violation. The Board
acknowledges that specific safe harbor
amounts cannot perfectly reflect the
factors listed in new TILA Section
149(c) insofar as the costs incurred as a
result of violations, the amount
necessary to deter violations, and the
consumer conduct associated with
violations will vary depending on the
issuer, the consumer, the type of
violation, and other circumstances.
However, as discussed above, it would
not be feasible to implement new TILA
Section 149 based on individualized
determinations. Instead, the Board
believes that establishing generally
applicable safe harbors will facilitate

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compliance by issuers and increase
consistency and predictability for
consumers.
Commenters generally supported the
adoption of safe harbors. Some industry
commenters noted that safe harbors
were necessary for smaller institutions
that may lack the resources to perform
the cost analysis required by
§ 226.52(b)(1)(i). However, comments
from credit unions, small banks, a state
consumer protection agency, and a
municipal consumer protection agency
expressed concern that, while larger
issuers with the resources to conduct a
cost analysis would be able to choose
between relying on that analysis or on
the safe harbors, smaller issuers would
be forced to use the safe harbors, which
would create inconsistency and
bifurcate the market. However, some
risk of inconsistency is inevitable
because new TILA 149 does not
authorize the Board to establish a single
fee amount that must be used by all
issuers. Furthermore, as discussed
below, the Board does not believe that
smaller issuers will be significantly
disadvantaged by the safe harbor
amounts in § 226.52(b)(1)(ii) because
those amounts are generally consistent
with the fees currently charged by
smaller issuers.
Some industry commenters argued
that, in order to promote consistency
and reduce compliance burden, the
Board should apply the safe harbors to
all of the requirements in § 226.52(b).
Specifically, these commenters argued
that an issuer that complies with the
safe harbors should not be required to
comply with the limitations in
§ 226.52(b)(2) on fees that exceed the
dollar amount associated with the
violation and on the imposition of
multiple fees based on a single event or
occurrence. However, as discussed
below, the Board believes that the
limitations in § 226.52(b)(2) provide
important protections for consumers
and will not be overly burdensome for
card issuers.
Accordingly, for the reasons
discussed below, § 226.52(b)(1)(ii) states
that, except as provided in
§ 226.52(b)(2), a card issuer may impose
a fee for violating the terms or other
requirements of an account if the dollar
amount of the fee generally does not
exceed one of two amounts. For the first
violation of a particular type, the card
issuer may impose a fee of $25. For a
subsequent violation of the same type
during the next six billing cycles (for
example, a second late payment), the
card issuer may impose a fee of $35.
Both amounts may be adjusted annually
by the Board to reflect changes in the
Consumer Price Index. Finally, for the

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reasons discussed below, when a charge
card issuer has not received the required
payment for two or more consecutive
billing cycles, the issuer may impose a
fee that does not exceed 3% of the
delinquent balance.
52(b)(1)(ii)(A)–(B) First and
Subsequent Violations
The Board believes that, as a general
matter, the safe harbor amounts in
§ 226.52(b)(1)(ii)(A) and (B) are
reasonable and proportional to
violations of the terms and other
requirements of an account. As
discussed below, these amounts are
based on the statutory factors listed in
new TILA Section 149(c) and on the
Board’s analysis of the data and other
information discussed in the proposal
and submitted by commenters.
Specifically, the safe harbor amount in
§ 226.52(b)(1)(ii)(A) is generally
intended to represent a reasonable
proportion of the costs incurred by most
card issuers as a result of a single
violation of the terms or other
requirements of an account. In contrast,
the higher safe harbor amount in
§ 226.52(b)(1)(ii)(B) is intended to
represent the increased costs incurred as
a result of additional violations of the
same type during the next six billing
cycles as well as to address the
consumer conduct that leads to such
violations and to deter subsequent
violations.
A. Safe Harbor Amounts
1. Penalty Fees for Credit Card Accounts
As an initial matter, the Board
considered the dollar amounts of
penalty fees currently charged by credit
card issuers. Although credit card
penalty fees appear to be approximately
$36 to $38 on average, many smaller
card issuers (such as credit unions and
community banks) charge penalty fees
of $20 to $25. As discussed above, the
Board understands that—rather than
basing penalty fees solely on costs and
deterrence—most card issuers currently
consider a number of additional factors,
including the need to maintain or
increase overall revenue. Nevertheless,
the Board noted in the proposal that the
discrepancy between the fees charged
by large and small issuers suggested
that—although violations of the terms or
other requirements of an account likely
impact different types of card issuers to
different degrees—fees that are
substantially lower than the current
average may be sufficient to cover the
costs incurred as a result of those
violations and to deter such violations.
The Board requested that commenters
submit relevant information that would

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assist the Board in establishing a safe
harbor amount or amounts for credit
card penalty fees. In particular, the
Board asked commenters to provide, for
each type of violation of the terms or
other requirements of a credit card
account, data regarding the costs
incurred as a result of that type of
violation (itemized by the type of cost).
In addition, commenters were asked to
provide, if known, the dollar amounts
reasonably necessary to deter violations
and the methods used to determine
those amounts.
In response, commenters suggested a
wide variety of safe harbor amounts but
relatively few provided any data
supporting those suggestions. Consumer
groups, a state consumer protection
agency, and a municipal consumer
protection agency suggested amounts
ranging from $10 to $20 based on state
laws (which are discussed in detail
below) and the fees charged by credit
unions and community banks. Credit
unions, community banks, and a state
attorney general suggested fees of $20 to
$25. However, large issuers argued that
comparisons with the fees charged by
credit unions and community banks
were not valid because smaller
institutions have a less risky customer
base and therefore incur fewer costs as
a result of violations. Most large issuers
declined to suggest a specific safe
harbor amount, but those that did
generally suggested amounts between
$29 and $34 (although two large issuers
suggested fees as high as $40 or $50).
The Board did not receive any data
regarding the costs incurred as a result
of—or the amounts necessary to deter—
returned payments, over-the-limit
transactions, or declined access checks.
However, the Board did receive a
comment providing the results of a
study of the costs associated with late
payments on credit card accounts issued
by ten of the largest credit card issuers.
According to the comment, issuers
participating in the study were asked to
identify operating expenses associated
with handling late payments and
delinquent accounts and with
recovering those costs via late fee
assessments. The comment stated that,
based on this information, a late
payment costs the participating issuers
$28.40 on average.42 The comment also
provided a second figure of $32.45,
42 The comment emphasized that—because
$28.40 is the average cost—a safe harbor based on
that amount would force many issuers to perform
their own cost analysis under § 226.52(b)(1)(i) or
incur losses. One large issuer commented that
smaller institutions would have higher costs as a
result of violations because they lack economies of
scale. However, comments from small institutions
stated that their current fees of $20 to $25 were
sufficient to cover their costs.

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which was represented as an adjusted
cost estimate based on the number of
assessed fees that are not recovered by
the issuer.
Although these figures are generally
useful in understanding the costs
incurred by large issuers as a result of
violations, the Board has significant
concerns about aspects of this study. As
an initial matter, the Board is unable to
determine whether the cost information
collected from the participants was
accurate or consistent from issuer to
issuer. Although the comment states
that the cost methodologies used by the
participants were reasonable, the
participants presumably do not track
their costs in a uniform fashion.
Furthermore, it appears that some of the
costs included in the study are not—in
the view of the Board—costs incurred as
a result of violations for purposes of
§ 226.52(b)(1)(i). In particular, although
the comment states that losses were
excluded from the study, it also states
that the cost of funding balances that
were eventually charged off was
included. The Board believes that most
or all of these funding costs should be
categorized as losses for purposes of
§ 226.52(b)(1)(i). Finally, although it is
not clear precisely how the study
determined the amount of assessed fees
that were not recovered for purposes of
the $32.45 figure, it does appear that
this amount included fees that the
participating issuers chose to waive,
which—as discussed above—the Board
has excluded from the cost analysis. For
all of these reasons, the Board believes
that this study significantly overstates
the fee amounts necessary to cover the
costs incurred by large issuers as a
result of violations, although the exact
extent of the overstatement is unclear.
The same commenter also submitted
the results of applying two deterrence
modeling methods to data gathered from
all leading credit card issuers in the
United States. According to the
commenter, these models estimated that
fees of $28 or less have relatively little
deterrent effect on late payments but
that higher fees are a statistically
significant contributor to sustaining
lower levels of delinquent behavior.
Although the Board does not have
access to the data underlying these
results, the significance of the $28 figure
appears to be questionable based on the
information provided. In addition, the
Board is concerned that the results
submitted by this commenter could—if
accepted at face value—be used to
justify late payment fees in excess of
$100, which would be contrary to the
intent of new TILA Section 149. While
the Board questions the assumptions
used to arrive at these results, they give

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37541

additional support to some of the
concerns that—as discussed above—
prompted the Board to remove
deterrence as an independent basis for
setting penalty fee amounts.
Nevertheless, the Board does accept
that—as generally illustrated by these
models—increases in the amount of
penalty fees can affect the frequency of
violations.43
2. Penalty Fees for Other Types of
Accounts
The Board has also considered the
dollar amounts of penalty fees charged
with respect to deposit accounts and
consumer credit accounts other than
credit cards. As a general matter, these
fees appear to be significantly lower
than average credit card penalty fees,
which further supports the conclusion
that lower credit card penalty fees may
adequately reflect the cost of violations
and deter future violations. For
example, according to a January 2008
report by the GAO, the average overdraft
and insufficient funds fee charged by
depository institutions was just over $26
per item in 2007.44 Notably, the GAO
also reported that large institutions on
average charged between $4 and $5
more for overdraft and insufficient
funds fees compared to smaller
institutions.45 Similarly, the Board
understands that, for many home-equity
lines of credit, the late payment fee,
returned payment fee, and over-thelimit fee is $25 (although in some cases
those fees may be set by state law).
43 This commenter also submitted the results of
an online survey of consumers who were asked
what fee amounts would or would not deter them
from paying late. According to the commenter, the
survey indicated that a fee of $30 to $34 was
necessary to deter the majority of participants and
that a fee of $50 to $54 was necessary to deter 80%
of participants. Although surveys of this type are
sometimes used to gauge the prices consumers may
be willing to pay for retail products, the Board
understands that their accuracy is limited even in
that context. Furthermore, the Board is not aware
of this type of survey being used to measure the
deterrent effect of fees. Accordingly, the Board does
not believe that it would be appropriate to give
significant weight to the results of this survey.
44 See Bank Fees: Federal Banking Regulators
Could Better Ensure That Consumers Have
Required Disclosure Documents Prior to Opening
Checking or Savings Accounts, GAO Report 08–281,
at 14 (January 2008) (GAO Bank Fees Report); see
also ‘‘Consumer Overdraft Fees Increase During
Recession: First-Time Phenomenon,’’ Press release,
Moebs $ervices (July 15, 2009) (Moebs 2009 Pricing
Survey Press Release) (available at: http://
www.moebs.com/AboutUs/Pressreleases/tabid/58/
ctl/Details/mid/380/ItemID/65/Default.aspx)
(reporting an average overdraft fee of $26).
45 See GAO Bank Fees Report at 16. Another
recent survey suggests that the cost difference in
overdraft fees between small and large institutions
may be larger than reported by the GAO. See Moebs
2009 Pricing Survey Press Release (reporting that
banks with more than $50 billion in assets charged
on average $35 per overdrawn check compared to
$26 for all institutions).

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However, for most closed-end mortgage
loans and some home-equity lines of
credit and automobile installment loans,
the late payment fee is 5% of the
overdue payment. This information was
discussed in the proposal but was not
the subject of significant comment.
3. State and Local Laws Regulating
Penalty Fees
The Board has also considered state
and local laws regulating penalty fees.
As above, except in the case of late
payment fees that are a percentage of the
overdue amount, it appears that state
and local laws that specifically address
penalty fees generally limit those fees to
amounts that are significantly lower
than the current average for credit card
penalty fees. For example, California
law does not permit credit and charge
card late payment fees unless the
account is at least five days’ past due
and then limits the fee to an amount
between $7 and $15, depending on the
number of days the account is past due
and whether the account was previously
past due.46 In addition, California law
does not permit over-the-limit fees
unless the credit limit is exceeded by
the lesser of $500 or 20% of the limit
and then restricts the fee to $10.47
Massachusetts law limits delinquency
charges for all open-end credit plans to
the lesser of $10 or 10% of the
outstanding balance and permits such
fees only when the account is more than
15 days past due.48 Maine law generally
limits delinquency charges for
consumer credit transactions and openend credit plans to the lesser of $10 or
5% of the unpaid amount.49 Finally, the
Board understands some state and local
laws governing late payment fees for
utilities permit only fixed fee amounts
(ranging between $5 and $25), while
others limit the fee to a percentage of
the amount past due (ranging from 1%
to 10%) or some combination of the two
(for example, the greater of $20 or 5%
of the amount past due).
Consumer groups and a municipal
consumer protection agency urged the
Board to consider these types of statutes
when setting safe harbor amounts.
Industry commenters generally did not
address these provisions. However,
industry commenters did note that the
Internal Revenue Service imposes

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46 See

Cal. Fin. Code § 4001(a)(1)–(2).
id. § 4001(a)(3).
48 See Mass. Ann. Laws ch. 140 § 114B.
49 See Me. Rev. Stat. Ann. tit. 9–A, § 2–502(1); see
also Minn. Stat. §§ 48.185(d), 53C.08(1)(c), and
604.113(2)(a) (generally limiting late payment fees
on open-end credit plans to the greater of $5 or 5%
of the amount past due if the account is more than
10 days past due and limiting returned-payment
and over-the-limit fees to $30).
47 See

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penalty fees that are a percentage of the
amount owed by the taxpayer. Industry
commenters also noted that some state
and local governments impose
substantial penalty fees for speeding
and other traffic infractions.
4. Safe Harbor Established by the United
Kingdom
The Board has also considered the
safe harbor threshold for credit card
default charges established by the
United Kingdom’s Office of Fair Trading
(OFT) in 2006. As a general matter, the
OFT concluded that—under the laws
and regulations of the United
Kingdom—provisions in credit card
agreements authorizing default charges
‘‘are open to challenge on grounds of
unfairness if they have the object of
raising more in revenue than is
reasonably expected to be necessary to
recover certain limited administrative
costs incurred by the credit card
issuer.’’ 50 In order to ‘‘help encourage a
swift change in market practice,’’ the
OFT stated that it would regard charges
set below a monetary threshold of £12
as ‘‘either not unfair, or insufficiently
detrimental to the economic interests of
consumers in all the circumstances to
warrant regulatory intervention at this
time.’’ 51 The OFT explained that, in
establishing its threshold, it took into
account ‘‘information * * * on the
banks’ recoverable costs includ[ing] not
only direct costs but also indirect costs
that have to be allocated on the basis of
judgment.’’ 52 The OFT did not,
however, disclose this cost information,
nor does it appear that the OFT
considered the need to deter violations
of the account terms or the relationship
between the amount of the fee and the
conduct of the cardholder (which the
Board is required to do). Based on
average annual exchange rates, £12 has
been equivalent to approximately $18 to
$24 (based on annual averages) since the
OFT announced its monetary threshold
in April 2006.
The Board is aware that—as noted by
many industry commenters—a different
regulator in the United Kingdom
announced in March 2010 that it would
not impose restrictions on rate increases
similar to those in the Credit Card Act.53
These commenters also noted numerous
other differences between the laws of
50 OFT

Credit Card Statement at 1.
Credit Card Statement at 27–28.
52 OFT Credit Card Statement at 29.
53 See Dep’t for Business Innovation & Skills, A
Better Deal for Consumers: Review of the Regulation
of Credit and Store Cards: Gov’t Response to
Consultation (Mar. 2010) 33–35 (available at
http://www.bis.gov.uk/assets/biscore/corporate/
docs/c/10–768-consumer-credit-card-consultationresponse.pdf).
51 OFT

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the United Kingdom and those of the
United States. The Board recognizes
these distinctions and does not find the
OFT Credit Card Statement to be
dispositive on any particular point.
Indeed, the safe harbors established by
the Board are substantially different
than the safe harbor established by the
OFT. Nevertheless, the Board believes
that the OFT’s findings with respect to
credit card penalty fees warrant
consideration, along with other factors.
5. Conclusion
Although it is not possible based on
the available information to set safe
harbor amounts that precisely reflect the
costs incurred by a widely diverse group
of card issuers and that deter the
optimal number of consumers from
future violations, the Board believes
that, for the reasons discussed above,
the safe harbor amounts in
§ 226.52(b)(1)(ii)(A) and (B) are
generally sufficient to cover issuers’
costs and to deter future violations.
Based on the comments, the $25 safe
harbor in § 226.52(b)(1)(ii)(A) for the
first violation is sufficient to cover the
costs incurred by most small issuers as
a result of violations. Furthermore, the
Board did not receive any information
indicating that this amount would not
be sufficient to cover the costs incurred
by large issuers as a result of returned
payments, transactions that exceed the
credit limit, and declined access checks.
With respect to late payments, the Board
believes that large issuers generally
incur fewer collection and other costs
on accounts that experience a single late
payment and then pay on time for the
next six billing cycles than on accounts
that experience multiple late payments
during that period. Even if $25 is not
sufficient to offset all of the costs
incurred by some large issuers as a
result of a single late payment, those
issuers will be able to recoup any
unrecovered costs through upfront
annual percentage rates and other
pricing strategies.
When an account experiences
additional violations during the six
billing cycles following the initial
violation, the Board believes that the
$35 safe harbor in § 226.52(b)(1)(ii)(B)
will generally be sufficient to cover any
increase in the costs incurred by the
card issuer and will have a reasonable
deterrent effect on additional violations.
Furthermore, the Board believes that
allowing the imposition of an increased
fee in these circumstances appropriately
distinguishes between consumers who
engage in conduct that results in a
single violation during a period and
consumers who repeatedly engage in
such conduct during the same period.

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Indeed, data submitted on behalf of a
large credit card issuer indicates that
consumers who pay late multiple times
over six months generally are
significantly more likely to charge off
than consumers who only pay late once
during the same period.
Comment 52(b)(1)(ii)–1 provides
guidance regarding the application of
the safe harbors in § 226.52(b)(1)(ii)(A)
and (B). In addition to providing several
illustrative examples, the comment
clarifies that, for purposes of
§ 226.52(b)(1)(ii), a $35 fee may be
imposed pursuant to § 226.52(b)(1)(ii)(B)
if, during the six billing cycles following
the billing cycle in which a violation
occurred, another violation of the same
type occurs. The comment further
clarifies the billing cycle in which
various types of violations occur for
purposes of § 226.52(b)(1)(ii). For late
payments, the violation 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. For returned payments,
the violation occurs during the billing
cycle in which the payment is returned
to the card issuer. For transactions that
exceed the credit limit, the violation
occurs during the billing cycle in which
the transaction occurs or is authorized
by the card issuer. Finally, a check that
accesses a credit card account is
declined during the billing cycle in the
card issuer declines payment on the
check.
This comment also clarifies the
relationship between the safe harbors in
§ 226.52(b)(1)(ii)(A) and (B) and the
substantive limitations in
§§ 226.52(b)(2)(ii) and 226.56(j)(1)(i).
Specifically, it clarifies that, if multiple
violations are based on the same event
or transaction such that § 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 § 226.52(b)(1)(ii).
Furthermore, the comment clarifies that,
consistent with the limitations in
§ 226.56(j)(1)(i) on imposing more than
one over-the-limit fee during a billing
cycle, no more than one violation for
exceeding an account’s credit limit can
occur during a single billing cycle for
purposes of § 226.52(b)(1)(ii).
B. Consumer Price Index Adjustments
Section 226.52(b)(1)(i) provides for
annual adjustments to the safe harbor
amounts in § 226.52(b)(1)(ii)(A) and (B)
to reflect changes in the Consumer Price
Index. Comment 52(b)(1)(ii)–2 states
that the Board will calculate each year
a price level adjusted safe harbor fee
using the Consumer Price Index in effect

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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 safe harbor fee amount has risen
by a whole dollar, the safe harbor fee
amount 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 safe harbor fee
amount has decreased by a whole
dollar, the safe harbor fee amount will
be decreased by $1.00. The comment
also states that the Board will publish
adjustments to the safe harbor fee.54
The proposed rule provided for
annual adjustments based on the
Consumer Price Index in § 226.52(b)(3)
and comment 53(b)(3)–2. Consumer
group commenters generally opposed
such adjustments, arguing that changes
in the Consumer Price Index will not
necessarily correspond with changes in
the costs incurred by issuers as a result
of violations or the amount necessary to
deter violations. These commenters
argued that the Board should instead
adjust the safe harbor amounts as
appropriate through rulemaking. The
Board believes that this approach would
be inefficient. While the Consumer Price
Index is not a perfect substitute, the
Board believes that changes in the
Consumer Price Index will be
sufficiently similar to changes in
issuers’ costs and the deterrent effect of
the safe harbor amounts that additional
rulemaking generally will not be
necessary.
Industry commenters did not object to
adjustments based on the Consumer
Price Index but requested that such
adjustments be exempted from the right
to reject in § 226.9(h). The Board agrees
that, to the extent that a change in the
amount of a penalty fee results from a
change in the Consumer Price Index, the
right to reject should not apply. The
Board has revised § 226.9(c)(2)(iv)(B)
accordingly.
C. Proposed Safe Harbor of 5% of Dollar
Amount Associated With Violation
As an alternative to the proposed safe
harbor amount, proposed § 226.52(b)(3)
would have permitted card issuers to
impose a penalty fee that did not exceed
5% of the dollar amount associated with
the violation (up to a specific dollar
amount). This approach was based on
certain state laws that—as discussed
above—permit penalty fees to be the
54 The approach set forth in this comment is
similar to § 226.5a(b)(3), which sets a $1.00
threshold for disclosure of the minimum interest
charge but provides that the threshold will be
adjusted periodically to reflect changes in the
Consumer Price Index.

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greater of a dollar amount or a
percentage of the amount past due. The
Board intended that the specific safe
harbor amount would be imposed for
most violations but that card issuers
could use the 5% safe harbor to impose
a higher fee when the dollar amount
associated with the violation was large,
although that fee could not exceed a
specified upper limit.55
However, industry commenters
opposed the 5% safe harbor on the
grounds that it made fee amounts
difficult to predict and disclose, which
would be confusing for consumers.
These commenters also argued that this
safe harbor was not useful because the
dollar amount associated with a
violation would have to be extremely
high for 5% of that amount to exceed a
reasonable safe harbor amount. Based
on these comments and the revisions to
the safe harbor discussed above, the
Board agrees that the 5% safe harbor
would not be sufficiently useful to
justify the added complexity of
including it in the final rule.
52(b)(1)(ii)(C) Charge Cards
For purposes of Regulation Z, a charge
card is a credit card on an account for
which no periodic rate is used to
compute a finance charge. See
§ 226.2(a)(15)(iii). Charge cards are
typically products where outstanding
balances cannot be carried over from
one billing cycle to the next and are
payable in full when the periodic
statement is received or at the end of
each billing cycle. See §§ 226.5a(b)(7),
226.7(b)(12)(v)(A). In the proposal, the
Board acknowledged that—in contrast
to conventional credit card accounts—
issuers do not use annual percentage
rates to manage the risk of loss on
charge card accounts. For that reason,
the Board solicited comment on
whether any adjustments to proposed
§ 226.52(b) were necessary with respect
to charge card accounts.
In response, one industry commenter
stated that, for charge card accounts,
late payment fees play an important role
in deterring further delinquency by
encouraging consumers to pay
delinquent balances. Because charge
card issuers cannot use rate increases
for this purpose, this commenter urged
the Board to exempt charge cards from
§ 226.52(b) entirely.
55 For example, if the specific safe harbor amount
were $25, the safe harbor would not have permitted
a card issuer to impose a fee that exceeded $25
unless the dollar amount associated with the
violation was more than $500. In addition, if the
upper limit were $40, a card issuer could not have
imposed a fee that exceeded $40 under the
proposed safe harbor even if the dollar amount
associated with the violation was more than $800.

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The Board does not believe that it
would be consistent with the purpose of
new TILA Section 149 to exempt charge
cards entirely. However, the Board does
believe that additional flexibility is
appropriate to permit charge card
issuers to deter consumers that become
seriously delinquent from remaining
delinquent. While the Credit Card Act
generally prohibits the application of
increased rates to existing credit card
balances, it provides an exception when
an account becomes more than 60 days
delinquent. See TILA Section 171(b)(4);
§ 226.55(b)(4). This exception appears to
recognize that it is appropriate to
provide card issuers with more
flexibility when an account becomes
seriously delinquent. Because charge
card issuers do not apply an annual
percentage rate to the account balance
and therefore cannot respond to serious
delinquencies by increasing that rate,
the Board believes that it is appropriate
to provide additional flexibility for
charge cards with respect to late
payment fees. The Board is concerned
that, without such flexibility, charge
card issuers may not be able to
effectively manage risk, which could
affect the cost and availability of charge
card accounts.
Accordingly, § 226.52(b)(1)(ii)(C)
provides that, when a card issuer has
not received the required payment for
two or more consecutive billing cycles
for a charge card account that requires
payment of outstanding balances in full
at the end of each billing cycle, the card
issuer may impose a late payment fee
that does not exceed three percent of the
delinquent balance. Like § 226.55(b)(4),
§ 226.52(b)(1)(ii)(C) measures
delinquency from the date on which the
required payment is due. However,
because charge card payments are
generally due upon receipt of the
periodic statement but no later than the
end of the billing cycle during which
the statement is received,
§ 226.52(b)(1)(ii)(C) applies when the
required payment has not been received
for two or more consecutive billing
cycles (rather than 60 days from the
payment due date). In these
circumstances, the delinquency is
unlikely to be inadvertent because the
consumer will have received multiple
periodic statements disclosing the
amount due. The Board believes that
§ 226.52(b)(1)(ii)(C) generally provides
charge card issuers with flexibility in
managing seriously delinquent accounts
that is similar to that provided in new
TILA Section 171(b)(4) and
§ 226.55(b)(4) for traditional credit card
accounts.
However, the Board believes that,
even in these circumstances, it is

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necessary to place limits on the late
payment fee in order to ensure that the
amount of the fee is reasonable and
proportional to the violation. As
discussed above, the Board has not
adopted the proposed safe harbor that
would have permitted all card issuers to
impose penalty fees that did not exceed
5% of the dollar amount associated with
the violation. However, the Board
believes that a similar approach is
appropriate with respect to charge cards
that are seriously delinquent. Although
a late payment fee equal to 5% of the
delinquent amount generally would not
have been meaningful for conventional
credit cards because the required
payments for such accounts are
typically a small percentage of the
account balance, charge cards typically
require payment of the full balance each
billing cycle. Thus, for charge card
accounts, a fee that equals a percentage
of the delinquent amount would be
meaningful. However, the Board is
concerned that a late payment fee that
equals 5% of the delinquent balance
would exceed the amount necessary for
charge card issuers to effectively
manage accounts that becomes seriously
delinquent. Accordingly, because the
Board understands that a late payment
fee of 3% of the delinquent amount is
currently sufficient for this purpose, the
Board has adopted that standard in
§ 226.52(b)(1)(ii)(C).
Comment 52(b)(1)(ii)–3 clarifies that,
for purposes of § 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 § 226.52(b)(1)(ii)(C). For
example, 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
§ 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
§ 226.52(b)(1)(ii)(A). On August 5, the
card issuer provides a periodic
statement disclosing the $1,325 balance
consistent with § 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

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been received. Consistent with
§ 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. However, § 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.
Comment 52(b)(1)(ii)–3 also clarifies
that, consistent with § 226.52(b)(2)(ii), a
charge card issuer that imposes a fee
pursuant to § 226.52(b)(1)(ii)(C) with
respect to a late payment may not
impose a fee pursuant to
§ 226.52(b)(1)(ii)(B) with respect to the
same late payment. Thus, in the
example discussed above, the charge
card issuer would be prohibited from
imposing the $40 fee pursuant to
§ 226.52(b)(1)(ii)(C) and a $35 fee
pursuant to § 226.52(b)(1)(ii)(B) based
on the consumer’s failure to pay the
$1,325 balance by the end of the August
billing cycle.
52(b)(2) Prohibited Fees
Section 226.52(b)(2) prohibits credit
card penalty fees that the Board believes
to be inconsistent with new TILA
Section 149. In particular, these
prohibitions are intended to ensure
that—consistent with new TILA Section
149(c)(3)—penalty fees are generally
reasonable and proportional to the
conduct of the cardholder.
52(b)(2)(i) Fees That Exceed Dollar
Amount Associated With Violation
Section 226.52(b)(2)(i)(A) prohibits
fees based on violations of the terms or
other requirements of an account that
exceed the dollar amount associated
with the violation. In the proposal, the
Board stated that this prohibition would
be consistent with Congress’ intent to
prohibit penalty fees that are not
reasonable and proportional to the
violation. Specifically, the Board
observed that penalty fees that exceed
the dollar amount associated with the
violation do not appear to be
proportional to the consumer conduct
that resulted in the violation. For
example, the Board stated its belief that
Congress did not intend to permit
issuers to impose a $35 over-the-limit
fee when a consumer has exceeded the
credit limit by $5.
Comments from individual
consumers, consumer groups, and a
state attorney general supported the
proposed limitation, although some
consumer groups suggested that a more
stringent limitation—such as 50% of the
dollar amount associated with the
violation—was warranted for violations
involving substantial dollar amounts.

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These commenters noted that, if the
dollar amount associated with a
violation was $100, § 226.52(b)(2)(i)(A)
would permit a card issuer to impose a
penalty fee of $100. However, the
proposed limitation was intended to
address fees imposed for violations
involving relatively small dollar
amounts. To the extent that a violation
involves a dollar amount that exceeds
the applicable safe harbor in
§ 226.52(b)(1)(ii), § 226.52(b)(1) would
prevent card issuers from imposing
unreasonable and disproportionate fees
by requiring that a fee that exceeds the
applicable safe harbor represent a
reasonable proportion of the issuer’s
costs.
Industry commenters opposed this
aspect of the proposed rule on the
grounds that, when the dollar amount
associated with a violation is small, it
could limit the penalty fee to an amount
that is neither sufficient to cover the
issuer’s costs nor to deter future
violations. The Board acknowledges that
a card issuer could incur costs as a
result of a violation that exceed the
dollar amount associated with that
violation. However, as noted in the
proposal, the Board does not believe
this will be the case for most violations.
Furthermore, to the extent card issuers
cannot recover all of their costs when a
violation involves a small dollar
amount, this limitation will encourage
them either to undertake efforts to
reduce the costs incurred as a result of
violations that involve small dollar
amounts or to build those costs into
upfront rates, which will result in
greater transparency for consumers
regarding the cost of using their credit
card accounts.
Furthermore, the Board believes that
violations involving small dollar
amounts are more likely to be
inadvertent and therefore the need for
deterrence is less pronounced. In
addition, the Board believes that
consumers are unlikely to change their
behavior in reliance on this limitation.
Penalty fees will still have a deterrent
effect when violations involve small
dollar amounts because a card issuer
will be permitted to impose a fee that
equals the dollar amount associated
with the violation (so long as that fee is
otherwise consistent with § 226.52(b)).
See examples in comment 52(b)(2)(i)–1
through –3.
Industry commenters also argued that
the proposed rule would require card
issuers to charge individualized penalty
fees because the amount of the fee is
tied to the dollar amount associated
with the particular violation. However,
unlike individualized consideration of
cost, deterrence, or consumer conduct,

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§ 226.52(b)(2)(i)(A) requires a
mathematical determination that issuers
should generally be able to program
their systems to perform automatically.
Thus, although § 226.52(b)(2)(i)(A) may
require card issuers to incur substantial
programming costs at the outset, the
Board does not believe that—once this
programming is complete—compliance
with § 226.52(b)(2)(i)(A) will be overly
burdensome. For these reasons, the
Board has adopted § 226.52(b)(2)(i)(A)
as proposed.
As discussed below,
§ 226.52(b)(2)(i)(B) and the commentary
to § 226.52(b)(2)(i) provide guidance
regarding the dollar amounts associated
with specific violations. Consistent with
the intent of § 226.52(b)(2)(i), the Board
generally defines the dollar amount
associated with a violation in terms of
the consumer conduct that resulted in
the violation, rather than the cost to the
issuer or the need for deterrence.
A. Dollar Amount Associated With Late
Payments
As proposed, comment 52(b)(2)(i)–1
clarified that that the dollar amount
associated with a late payment is the
amount of the required minimum
periodic payment that was not received
on or before the payment due date.
Thus, for example, a card issuer would
be prohibited from charging a late
payment fee of $39 based on a
consumer’s failure to make a $15
required minimum periodic payment by
the payment due date. Instead, the
maximum late payment fee permitted
under § 226.52(b)(2)(i)(A) would be $15.
Consumer group commenters
supported the proposed comment. In
contrast, industry commenters argued
that the dollar amount associated with
a late payment is the outstanding
balance on the account because that is
the amount the issuer stands to lose if
the delinquency continues and the
account eventually becomes a loss.
However, as discussed above, relatively
few delinquencies result in losses.
Furthermore, the violation giving rise to
a late payment fee is the consumer’s
failure to make the required minimum
periodic payment by the applicable
payment due date. Accordingly, the
Board continues to believe that, for
purposes of § 226.52(b)(2)(i), the dollar
amount associated with a late payment
is the amount of the required minimum
periodic payment on which the late
payment fee is based.
Industry commenters also requested
clarification regarding the application of
proposed comment 52(b)(2)(i)–1 in
circumstances where a payment that is
less than the required minimum
periodic payment is received on or prior

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37545

to the payment due date. The Board has
revised the proposed comment in order
to clarify that, in these circumstances,
the dollar amount associated with the
late payment is the full amount of the
required minimum periodic payment,
rather than the unpaid portion. An
illustrative example is provided in
comment 52(b)(2)(i)–1.ii.
One industry commenter requested
that issuers be provided with flexibility
to base the late payment fee on either
the required minimum payment for the
billing cycle in which the late payment
fee is imposed or the required minimum
periodic payment for the prior cycle.
The Board is concerned that this
approach could enable issuers to
maximize the amount of the late
payment fee by delaying imposition of
the fee until a new billing cycle has
begun and a larger minimum payment is
due.56 The Board does not believe this
outcome would be consistent with the
purpose of new TILA Section 149 and
§ 226.52(b)(2)(i). However, the Board
understands that, because of the
requirement in § 226.5(b)(2)(ii)(A) that
credit card periodic statements be
mailed or delivered at least 21 days
prior to the payment due date, issuers
must set payment due dates near the
end of the billing cycle. As a result,
there may circumstances where a late
payment fee is not imposed until after
a new billing cycle has begun.
Accordingly, the Board has revised
comment 52(b)(2)(i)–1 to clarify that, in
such cases, the card issuer must base the
late payment fee on the required
minimum periodic payment due
immediately prior to assessment of the
late payment fee. An illustrative
example is provided in comment
52(b)(2)(i)–1.iii.
B. Dollar Amount Associated With
Returned Payments
Proposed comment 52(b)(2)(i)–2
clarified that, for purposes of
§ 226.52(b)(2)(i)(A), the dollar amount
associated with a returned payment is
the amount of the required minimum
periodic payment due during the billing
56 For 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
required minimum periodic payment is due on the
twenty-eighth day of each month. A $15 minimum
payment is due on September 28. If, on September
29, no payment has been received, the card issuer
could have an incentive to wait until the October
billing cycle has begun and the minimum payment
for the October cycle has been calculated.
Because—under the minimum payment formulas
used by some issuers—the minimum payment for
the October cycle would include the $15 payment
for the September cycle as well as the amount due
for October, a late payment fee based on the October
minimum payment would be higher than a fee
based on the September payment.

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cycle in which the payment is returned
to the card issuer. Consumer group
commenters supported the proposed
comment. In contrast, industry
commenters stated that the dollar
amount associated with a returned
payment should be the amount of the
returned payment. The Board
considered this approach in the
proposed rule. However, the Board was
concerned that some returned payments
may substantially exceed the amount of
the required minimum periodic
payment, which would result in
§ 226.52(b)(2)(i)(A) permitting a
returned payment fee that substantially
exceeds the late payment fee. For
example, if the required minimum
periodic payment is $20 and the
consumer makes a $100 payment that is
returned, this application of
§ 226.52(b)(2)(i)(A) would have limited
the late payment fee to $20 but
permitted a $100 returned payment fee.
In addition to being anomalous, this
result would be inconsistent with the
intent of new TILA Section 149.
Accordingly, the Board continues to
believe that the better approach is to
define the dollar amount associated
with a returned payment as the required
minimum periodic payment due when
the payment is returned.
In the proposal, the Board recognized
that there may be circumstances in
which a payment that is received
shortly after a payment due date is not
returned until the following billing
cycle. In those circumstances, proposed
comment 52(b)(2)(i)–2 clarified that the
issuer was permitted to base the
returned payment fee on the minimum
payment due during the billing cycle in
which the fee was imposed. For
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 is
the twenty-fifth day of the month. A
minimum payment of $20 is due on
March 25. The card issuer receives a
check for $100 on March 31, which is
returned to the card issuer for
insufficient funds on April 2. The
minimum payment due on April 25 is
$30. Proposed comment 226.52(b)(2)(i)–
2 clarified that, for purposes of
§ 226.52(b)(2)(i), the dollar amount
associated with the returned payment
was the minimum payment for the April
billing cycle ($30), rather than the
minimum payment for the March cycle
($20).
However, one industry commenter
noted that the Board’s proposed
approach could result in consumer
confusion because—as illustrated in the
prior example—consumers could
receive significantly different returned

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payment fees depending on whether the
payment was returned on the last day of
a billing cycle or on the first day of the
next billing cycle. Furthermore, the
Board’s proposed guidance regarding
the dollar amount associated with
returned payment fees is inconsistent
with the final guidance in comment
226.52(b)(2)(i)–1, which ties the amount
of the late payment fee to the required
minimum payment due immediately
prior to assessment of the fee.
Accordingly, consistent with comment
226.52(b)(2)(i)–1, the Board has revised
comment 226.52(b)(2)(i)–2 to clarify
that, for purposes of § 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 payment is returned to the
card issuer.
Proposed comment 52(b)(2)(i)–2 also
clarified that, if a payment has been
returned and is submitted again for
payment by the card issuer, there is no
separate or additional dollar amount
associated with a subsequent return of
that payment. Thus, § 226.52(b)(2)(i)(B)
would prohibit a card issuer from
imposing an additional returned
payment fee in these circumstances. The
Board stated that it would be
inconsistent with the consumer conduct
factor in new TILA Section 149(c)(3) to
permit a card issuer to generate
additional returned payment fees by
resubmitting a returned payment
because resubmission does not involve
any additional conduct by the
consumer.57 Commenters generally
supported this aspect of the proposal,
which is adopted as proposed.
Industry commenters requested
guidance regarding a variety of other
circumstances involving returned
payments. Accordingly, the Board has
revised comment 52(b)(2)(i)–2 to
provide additional examples illustrating
the application of § 226.52(b)(2)(i).
C. Dollar Amount Associated With
Extensions of Credit in Excess of Credit
Limit
Proposed comment 52(b)(2)(i)–3
clarified that the dollar amount
associated with extensions of credit in
excess of the credit limit is the total
amount of credit extended by the card
issuer in excess of that limit as of the
57 Although this concern could also be addressed
under the prohibition on multiple fees based on a
single event or transaction in § 226.52(b)(2)(ii), that
provision permits issuers to comply by imposing no
more than one penalty fee per billing cycle. Thus,
if imposition of an additional returned payment fee
were not prohibited under § 226.52(b)(2)(i), the card
issuer could impose that fee by resubmitting a
payment that is returned late in a billing cycle
immediately after the start of the next cycle.

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date on which the over-the-limit fee is
imposed. The comment further clarified
that, although § 226.56(j)(1)(i) prohibits
a card issuer from imposing more than
one over-the-limit fee per billing cycle,
the card issuer may choose the date
during the billing cycle on which to
impose an over-the-limit fee.58
A consumer group commenter
expressed concern that permitting
issuers to choose the date on which an
over-the-limit fee is imposed would lead
to manipulation. In contrast, an industry
commenter requested that card issuers
be provided with the flexibility to
impose an over-the-limit fee at the end
of a billing cycle based on the amount
the account was over the credit limit on
any day during that cycle. The Board
understands that, for operational
reasons, some issuers may prefer to wait
until the end of the billing cycle to
impose an over-the-limit fee.
Furthermore, the Board believes that, in
these circumstances, it is consistent
with the intent of § 226.52(b)(2)(i) to
permit the card issuer to base the
amount of the over-the-limit fee on the
total amount by which the account
balance exceed the credit limit during
the billing cycle (subject to the
limitations in § 226.52(b)(1)). The Board
has revised comment 52(b)(2)(i)–3
accordingly.
D. Dollar Amounts Associated With
Other Types of Violations
Section 226.52(b)(2)(i)(B) prohibits
the imposition of penalty fees in
circumstances where there is no dollar
amount associated with the violation.
As discussed below, proposed
§ 226.52(b)(2)(i)(B) listed specific
circumstances in which a fee would be
prohibited because there was no dollar
amount associated with the violation.
1. Declined Transaction Fees
Proposed § 226.52(b)(2)(i)(B)(1)
specifically prohibited a card issuer
from imposing a fee based on a
transaction that the issuer declined to
authorize. Although the imposition of
fees based on declined transactions does
not appear to be widespread at present,
the Board believes that—given the
restrictions on the imposition of overthe-limit fees in §§ 226.52(b) and
58 The Board considered whether the dollar
amount associated with extensions of credit in
excess of the credit limit should be the total amount
of credit extended by the card issuer in excess of
that limit as of the last day of the billing cycle.
However, in the February 2010 Regulation Z Rule,
the Board determined with respect to § 226.56(j)(1)
that this approach could delay the generation and
mailing of the periodic statement, thereby impeding
issuers’ ability to comply with the 21-day
requirement for mailing statements in advance of
the payment due date.

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226.56—it is important to address this
issue in this rulemaking. A card issuer
may decline to authorize a transaction
because, for example, the transaction
would have exceeded the credit limit for
the account. Unlike over-the-limit
transactions, however, declined
transactions do not result in an
extension of credit. Thus, there does not
appear to be any dollar amount
associated with a declined transaction.
In addition, it does not appear that the
imposition of a fee for a declined
transaction can be justified based on the
costs incurred by the card issuer. Unlike
returned payments, it is not necessary
for a card issuer to incur costs
reconciling its systems or arranging for
a new payment when a transaction is
declined. Furthermore, the Board
understands that card issuers generally
use a single automated system for
determining whether transactions
should be authorized or declined. Thus,
to the extent that card issuers incur
costs designing and administering such
systems, they are permitted to recover
those costs through over-the-limit fees.
Comments from a federal agency,
individual consumers, consumer
groups, and a municipal consumer
protection agency supported the
proposed prohibition on declined
transaction fees. As one commenter
noted, permitting a card issuer to
impose a declined transaction fee would
undermine the limitations in new TILA
Section 127(k) and § 226.56 by allowing
a card issuer to charge a consumer who
has declined to authorize the payment
of transactions that exceed the credit
limit a fee when such transactions are
declined.
Some industry commenters opposed
§ 226.52(b)(2)(i)(B)(1), arguing that card
issuers incur some costs every time a
credit card purchase is submitted for
authorization. However, as discussed
above, these costs are not unique to
declined transactions. Furthermore, one
industry commenter conceded that
these costs were minimal. Accordingly,
§ 226.52(b)(2)(i)(B)(1) is adopted as
proposed.
Several industry commenters
requested clarification regarding the
dollar amount associated with returning
or declining payment of a check that
accesses a credit card account because,
for example, the transaction would have
exceeded the account’s credit limit, the
account had charged off, or another
valid reason.59 Although the imposition
59 The Board understands that, in these
circumstances, an access check may described as
‘‘returned’’ or ‘‘declined.’’ For clarity and
consistency, the Board has used the term ‘‘declined
access check.’’ However, no substantive distinction
is intended.

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of a fee for a declined access check is
similar in some respects to the
imposition of a fee for a transaction that
the issuer declines to authorize, the
Board understands that, unlike other
declined transactions, card issuers incur
significant costs as a direct result of
declining payment on an access check,
including the cost of communicating
with the merchant or other party that
received the check from the consumer.
Accordingly, comment 52(b)(2)(i)–4
clarifies that, for purposes of
§ 226.52(b)(2)(i), the dollar amount
associated with a declined access check
is the amount of the check. Thus,
§ 226.52(b)(2)(i)(A) prohibits a card
issuer from imposing a fee for a
declined access check that exceeds the
amount of that check. For example,
assume that an access check 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
§ 226.52(b)(2)(i), the dollar amount
associated with the declined access
check is the amount of the check ($50).
Thus, § 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 the cost
standard in § 226.52(b)(1)(i) or the safe
harbors in § 226.52(b)(1)(ii).
2. Inactivity and Closed Account Fees
Proposed § 226.52(b)(2)(i)(B)(2) and
(3) specifically prohibited card issuers
from imposing a penalty fee based on,
respectively, account inactivity and the
closure or termination of an account.
The Board believes that these
prohibitions are warranted because
there does not appear to be any dollar
amount associated with this consumer
conduct.
As with the prohibition on declined
transaction fees, proposed
§ 226.52(b)(2)(i)(B)(2) and (3) were
supported by a federal agency,
individual consumers, consumer
groups, and a municipal consumer
protection agency but opposed by
industry commenters. Industry
commenters argued that card issuers
receive less revenue from accounts that
are not used for a significant number of
transactions or are inactive or closed
and that these fees cover the cost of
administering such accounts (such as
providing periodic statements and other
required disclosures). However, because
card issuers incur these costs with
respect to all accounts, the Board does
not believe that they constitute a dollar
amount associated with a violation.
Furthermore, to the extent that an
inactive or closed account has a balance,

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these costs may be recovered through
application of an annual percentage
rate.60 Accordingly,
§ 226.52(b)(2)(i)(B)(2) and (3) are
adopted as proposed.
In response to requests from
commenters, the Board has adopted
comments 52(b)(2)(i)–5 and –6, which
clarify the application of
§ 226.52(b)(2)(i)(B)(2) and (3). Comment
52(b)(2)(i)–5 clarifies that
§ 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). For example,
§ 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.
Consumer groups and individual
consumers requested that the Board
clarify that a card issuer cannot
circumvent this prohibition by, for
example, 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. In
contrast, industry commenters argued
that such arrangements should be
permitted because they are no different
than ‘‘cash back’’ rewards and other
incentives provided to encourage
consumers to use their accounts. Unlike
other types of incentives, however, this
arrangement is inconsistent with the
intent of § 226.52(b)(2)(i)(B)(2) because
only consumers who do not engage in
the requisite level of account activity are
ultimately responsible for the fee. Thus,
in these circumstances, there is no
meaningful distinction between the
annual fee and an inactivity fee.
Accordingly, comment 52(b)(2)(i)–5
clarifies that this type of arrangement is
prohibited. The Board notes that this
guidance should not be construed as
prohibiting ‘‘cash back’’ rewards or
similar incentives commonly offered by
card issuers to encourage account usage.
The Board has also adopted comment
52(b)(2)(i)–6, which clarifies the
application of § 226.52(b)(2)(i)(B)(3).
Specifically, this comment clarifies that
§ 226.52(b)(2)(i)(B)(3) prohibits card
issuers from imposing a one-time fee on
a consumer who closes his or her
60 Industry commenters also argued that inactivity
and closed account fees should not be treated as
penalty fees because the consumer has not violated
the terms of the cardholder agreement by failing to
use the account for a certain amount of transactions
or by closing the account. However, as discussed
above with respect to comment 52(b)–1, the Board
believes that these fees are properly subject to
§ 226.52(b) because they are fees imposed for
violating other requirements of the account.

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account or from imposing a periodic
fee—such as an annual fee, a monthly
maintenance fee, or a closed account
fee—after an account is closed if that fee
was not imposed prior to the closure or
termination (even if the fee was
disclosed prior to closure or
termination). The comment further
clarifies that card issuers are prohibited
from increasing a periodic fee after an
account is closed or terminated but may
continue to impose a periodic fee that
was imposed before closure or
termination.
52(b)(2)(ii) Multiple Fees Based On a
Single Event or Transaction
As proposed, § 226.52(b)(2)(ii)
prohibited card issuers from imposing
more than one penalty fee based on a
single event or transaction, although
issuers were permitted to comply with
this requirement by imposing no more
than one penalty fee during a billing
cycle. The Board believes that imposing
multiple fees based on a single event or
transaction is unreasonable and
disproportionate to the conduct of the
consumer because the same conduct
may result in a single violation or
multiple violations, depending on how
the card issuer categorizes the conduct
or on circumstances that may not be in
the control of the consumer. For
example, if a consumer submits a
payment that is returned for insufficient
funds or for other reasons, the consumer
should not be charged both a returned
payment fee and a late payment fee.
Similarly, in these circumstances, it
does not appear that multiple fees are
reasonably necessary to deter the single
event or transaction.
Individual consumers, consumer
groups, and a state attorney general
supported this aspect of the proposal, as
did one credit union. However, industry
commenters generally opposed this
limitation, arguing that it would prevent
full recovery of costs, undermine
deterrence, and create operational
difficulties. As discussed in the
proposal, the Board understands that a
card issuer may incur greater costs as a
result of an event or transaction that
causes multiple violations than an event
or transaction that causes a single
violation. Using the example above,
assume that the card issuer incurs costs
as a result of the late payment and costs
as a result of the returned payment. If
the card issuer imposes a late payment
fee, § 226.52(b)(2)(ii) prohibits the issuer
from recovering the costs incurred as a
result of the returned payment by also
charging a returned payment fee.
However, the Board believes that
§ 226.52(b)(2)(ii) will only apply in a
relatively limited number of

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circumstances. Furthermore, as
discussed above with respect to
§ 226.52(b)(2)(i), any costs that are not
recovered as a result of the application
of § 226.52(b)(2)(ii) can instead be
recovered through upfront rates or other
pricing strategies.
Furthermore, because
§ 226.52(b)(2)(ii) generally addresses
circumstances in which a single act or
omission by a consumer results in
multiple violations, the Board believes
that imposition of a single fee will
generally be sufficient to deter such
consumer conduct in the future. Finally,
in order to reduce the operational
burden on card issuers of determining
whether multiple violations are caused
by a single event or transaction,
§ 226.52(b)(2)(ii) permits a card issuer to
comply by charging no more than one
penalty fee per billing cycle. The Board
believes that this approach generally
provides at least the same degree of
protection for consumers as prohibiting
multiple fees based on a single event or
transaction because fees imposed in
different billing cycles will generally be
caused by different events or
transactions. Accordingly,
§ 226.52(b)(2)(ii) is adopted as proposed.
Comment 52(b)(2)(ii)–1 provides
additional examples of circumstances
where multiple penalty fees would be
prohibited, as well as examples of
circumstances where multiple fees
would be permitted. For example,
assume that the required minimum
periodic payment due on March 25 is
$20. On March 25, the card issuer
receives a check for $50, but the check
is returned for insufficient funds on
March 27. The comment clarifies that,
consistent with §§ 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,
the comment also clarifies that
§ 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.
The comment provides another
example based on the same facts, except
that the card issuer receives the $50
check on March 27 and the check is
returned for insufficient funds on March
29. The comment clarifies that, as
above, § 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. Industry
commenters objected to this example,
arguing that—because the payment was
late before it was returned—the
violations were not based on the same
event or transaction. However, as
discussed above, § 226.52(b)(2)(ii) is
intended to prevent the imposition of

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multiple fees based on a single act or
omission by a consumer. In light of this
purpose, the Board believes it would be
anomalous for a consumer whose
payment is received on the payment due
date and then returned to be charged a
single fee, while a consumer whose
payment is received the following day
and then returned to be charged two
fees.
Industry commenters also requested
that the Board clarify the application of
§ 226.52(b)(2)(ii) in a number of
additional scenarios. Accordingly, the
Board has revised comment 52(b)(2)(ii)–
1 to provide additional illustrative
examples. Otherwise, the comment is
adopted as proposed.
Section 226.56 Requirements for Overthe-Limit Transactions
Section 226.56(e)(1)(i) provides that,
in the notice informing consumers that
their affirmative consent (or opt-in) is
required for the card issuer to pay overthe-limit transactions, the issuer must
disclose the dollar amount of any fees
or charges assessed by the issuer on a
consumer’s account for an over-the-limit
transaction. Model language is provided
in Model Forms G–25(A) and G–25(B).
Comment 56(e)–1 states that, if the
amount of an over-the-limit fee may
vary, such as based on the amount of the
over-the-limit transaction, the card
issuer may indicate that the consumer
may be assessed a fee ‘‘up to’’ the
maximum fee. For the reasons discussed
below with respect to Model Forms G–
25(A) and G–25(B), the Board has
amended comment 56(e)–1 to refer to
those model forms for guidance on how
to disclose the amount of the over-thelimit fee consistent with the substantive
restrictions in proposed § 226.52(b).
In addition, because § 226.52(b)
imposes additional substantive
limitations on over-the-limit fees, the
Board has adopted a new comment
56(j)–6, which provides a crossreference to § 226.52(b). The Board did
not receive any significant comment on
these aspects of the proposal.
Section 226.59 Reevaluation of Rate
Increases
As discussed in the supplementary
information to § 226.9(c)(2) and (g), the
Credit Card Act added new TILA
Section 148, which requires creditors
that increase an annual percentage rate
applicable to a credit card account
under an open-end consumer credit
plan, based on factors including the
credit risk of the consumer, market
conditions, or other factors, to consider
changes in such factors in subsequently
determining whether to reduce the
annual percentage rate. Creditors are

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required to maintain reasonable
methodologies for assessing these
factors. The statute also sets forth a
timing requirement for this review.
Specifically, at least once every six
months, creditors are required to review
accounts as to which the annual
percentage rate has been increased to
assess whether these factors have
changed. New TILA Section 148 is
effective August 22, 2010 but requires
that creditors review accounts on which
an annual percentage rate has been
increased since January 1, 2009.
New TILA Section 148 requires
creditors to reduce the annual
percentage rate that was previously
increased if a reduction is ‘‘indicated’’ by
the review. However, new TILA Section
148(c) expressly provides that no
specific amount of reduction in the rate
is required. The Board is implementing
the substantive requirements of new
TILA Section 148 in new § 226.59.
As discussed above, in addition to
these substantive requirements, TILA
Section 148 also requires creditors to
disclose the reasons for an annual
percentage rate increase applicable to a
credit card under an open-end
consumer credit plan in the notice
required to be provided 45 days in
advance of that increase. The Board is
implementing the notice requirements
of new TILA Section 148 in § 226.9(c)(2)
and (g), which are discussed in the
supplementary information to § 226.9.
The Board proposed to apply § 226.59
to ‘‘credit card accounts under an openend (not home-secured) consumer credit
plan’’ as defined in § 226.2(a)(15),
consistent with the approach the Board
has taken to other provisions of the
Credit Card Act that apply to credit card
accounts. The Board received no
comments on this aspect of the proposal
and therefore § 226.59 as adopted
applies to credit card accounts under an
open-end (not home-secured) consumer
credit plan. Therefore, home-equity
lines of credit accessed by credit cards
and overdraft lines of credit accessed by
a debit card are not subject to the new
substantive requirements regarding
reevaluation of rate increases.
59(a)

General Rule

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59(a)(1)

Evaluation of Increased Rate

Section 226.59(a) of the March 2010
Regulation Z Proposal set forth the
general rule regarding the reevaluation
of rate increases. Proposed § 226.59(a)(1)
generally mirrored the statutory
language of TILA Section 148 and stated
that if a card issuer increases an annual
percentage rate that applies to a credit
card account under an open-end (not
home-secured) consumer credit plan,

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based on the credit risk of the consumer,
market conditions, or other factors, or
increased such a rate on or after January
1, 2009, the card issuer must review
changes in such factors and, if
appropriate based on its review of such
factors, reduce the annual percentage
rate applicable to the account.
As discussed below, in other portions
of proposed § 226.59 the Board set forth
more specific guidance on the factors
that must be considered when
conducting the review required under
§ 226.59(a)(1), as well as on the policies
and procedures that an issuer must
maintain for conducting this evaluation.
The Board received a number of
comments on these specific aspects of
the proposal, but no significant
comment on the general rule set forth in
§ 226.59(a)(1). Accordingly, the Board is
adopting § 226.59(a)(1) generally as
proposed, with two technical revisions
for clarity. As adopted, § 226.59(a)(1)(i)
expressly cross-references the guidance
regarding factors set forth in paragraph
§ 226.59(d). In addition, the Board has
made one technical amendment to the
title of the paragraph.
Proposed § 226.59(a)(1) would have
limited the obligation to reevaluate rate
increases to those increases for which
45 days’ advance notice is required
under § 226.9(c)(2) or (g). This
limitation was proposed using the
Board’s authority under TILA Section
105(a) to provide for adjustments and
exceptions for any class of transactions
as necessary to effectuate the purposes
of TILA. 15 U.S.C. 1604(a). In the
proposal, the Board noted that this
limitation is consistent with the
approach Congress adopted in new
TILA Section 171(b), which sets forth
the exceptions to the 45-day notice
requirement for rate increases and
significant changes in terms. Several
industry commenters stated that this
limitation was appropriate and should
be retained in the final rule, while the
Board received no comments opposing
this aspect of the proposal.
The Board believes that Congress did
not intend for card issuers to have to
reevaluate rate increases in those
circumstances where no advance notice
is required, for example, rate increases
due to fluctuations in the index for a
properly-disclosed variable rate plan or
rate increases due to the expiration of a
properly-disclosed introductory or
promotional rate. The Board also notes
that creditors do not consider factors in
connection with the expiration of a
promotional rate or an increase in a
variable rate due to fluctuations in the
index on which that rate is based. Thus,
the Board continues to believe that
coverage of such rate increases by

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37549

§ 226.59 would be inconsistent with the
purposes of new TILA Section 148.
Therefore, the requirements of § 226.59
do not apply to rate increases for which
45 days’ advance notice is not required.
The proposal included several
comments intended to clarify the scope
of proposed § 226.59(a)(1). Proposed
comment 59(a)–1 clarified that
§ 226.59(a) applies both to increases in
annual percentage rates imposed on a
consumer’s account based on
circumstances specific to that consumer,
such as changes in the consumer’s
creditworthiness, and to increases in
annual percentage rates applied to the
account due to factors such as changes
in market conditions or the issuer’s cost
of funds. The Board noted that this is
consistent with the intent of TILA
Section 148, which is broad in scope
and specifically notes ‘‘market
conditions’’ as a factor for which rate
increases need to be reevaluated. The
Board received no comments on
proposed comment 59(a)–1.
Accordingly, the Board is adopting
proposed comment 59(a)–1 as new
comment 59(a)(1)–1. The Board has
revised comment 59(a)(1)–1 from the
proposal to clarify the applicability of
§ 226.59(a) to increases in annual
percentage rates imposed due to factors
that are not specific to the consumer.
The comment as adopted states in part
that § 226.59(a) applies to increases in
annual percentage rates imposed based
on factors that are not specific to the
consumer, and includes changes in
market conditions or the issuer’s cost of
funds as examples of such factors that
are not consumer-specific. This list of
examples is not intended to be
exhaustive and there may be other
factors that are not consumer-specific on
which rate increases that would trigger
the requirements of § 226.59 could be
based.
Proposed comment 59(a)–2 clarified
that a card issuer must review changes
in factors under § 226.59(a) only if the
increased rate is actually imposed on
the consumer’s account. For example,
the proposed comment provided that if
a card issuer increases the penalty rate
applicable to a consumer’s credit card
but 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
§ 226.9(c)(2) of the change in terms, but
the requirements of § 226.59 do not
apply. If the consumer’s actions later
trigger application of the penalty rate,
the card issuer must provide 45 days’
advance notice pursuant to § 226.9(g)
and must, upon imposition of the
penalty rate, begin to periodically
review and consider factors to

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determine whether a rate reduction is
appropriate under § 226.59. The Board
noted that, until an increased rate is
imposed on the consumer’s account, the
consumer incurs no costs associated
with that increased rate. In addition, the
Credit Card Act and Regulation Z
contain additional protections for
consumers against prospective rate
increases, including the general
prohibition on increasing the rate
applicable to an outstanding balance set
forth in § 226.55 and the 45-day advance
notice requirements in § 226.9(c)(2) and
(g). Finally, once an increased rate is
imposed on the consumer’s account, the
card issuer would then be subject to the
requirements of § 226.59. The Board
received no significant comment on
proposed comment 59(a)–2, which is
adopted as comment 59(a)(1)–2.
Proposed comment 59(a)–3 clarified
how § 226.59(a) applies to certain rate
increases imposed prior to the effective
date of the rule. Section 226.59(a) and
new TILA Section 148 require that card
issuers reevaluate rate increases that
occurred between January 1, 2009 and
August 21, 2010. Proposed comment
59(a)–3 stated that for increases in
annual percentage rates on or after
January 1, 2009 and prior to August 22,
2010, § 226.59(a) requires a card issuer
to review changes in factors 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 § 226.9(c)(2) or (g). The
requirements of § 226.9(c)(2) and (g),
which were first effective on August 20,
2009 and modified by the February 2010
Regulation Z Rule were not applicable
during the entire period from January 1,
2009 to August 21, 2010. Therefore, the
relevant test for purposes of proposed
§ 226.59(a)(1) and comment 59(a)–3 is
whether the rate increase is or was of a
type for which 45 days’ advance notice
pursuant to § 226.9(c)(2) or (g) would
currently be required.
Proposed comment 59(a)–3 further
illustrated this requirement by stating,
for example, that the requirements of
§ 226.59 would not apply to a rate
increase due to an increase in the index
by which a properly-disclosed variable
rate is determined in accordance with
§ 226.9(c)(2)(v)(C) or if the increase
occurs upon expiration of a specified
period of time and disclosures
complying with § 226.9(c)(2)(v)(B) have
been provided. The Board received no
comments on proposed comment 59(a)–
3, which is adopted as comment
59(a)(1)–3.
In the March 2010 Regulation Z
Proposal, the Board proposed comment
59(b)–1, which noted, consistent with
TILA Section 148, that even in

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circumstances where a rate reduction is
required, § 226.59 does not require that
a card issuer decrease the rate to the
annual percentage rate that was in effect
prior to the rate increase giving rise to
the obligation to periodically review the
consumer’s account. The comment
stated that the amount of the rate
decrease that is required must be
determined based upon the issuer’s
reasonable policies and procedures.
Proposed comment 59(b)–1 set forth an
illustrative example, which assumes
that 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 then makes
all of the payments required on the
account on time for the six months
following the rate increase. The
proposed comment noted that the card
issuer is not required to decrease the
consumer’s rate to the 15.99% that
applied prior to the rate increase, but
that the card issuer’s policies and
procedures for performing the review
required by § 226.59(a) must be
reasonable and should take into account
any reduction in the consumer’s credit
risk based upon the consumer’s timely
payments.
The Board believes that this proposed
comment, which primarily focuses on
the amount of a required rate decrease,
is more properly placed in the
commentary to § 226.59(a)(1), which is
the paragraph establishing the
obligation to reduce the rate.
Accordingly, the Board is adopting
proposed comment 59(b)–1 as comment
59(a)(1)–4, with several technical
changes for clarity. The example set
forth in the comment has also been
amended for consistency with
§ 226.59(d)’s guidance on the factors
required to be considered in the review.
Section 226.59(d) is discussed below in
more detail.
Regarding the scope of § 226.59, one
issuer asked the Board to clarify
whether the reevaluation requirements
in § 226.59 apply only to increases in
purchase rates or to rates applicable to
all types of balances, such as cash
advances, balance transfers, or balances
subject to penalty rates. The Board
believes that it was clear in the
proposal, and continues to be clear in
the final rule, that § 226.59 generally
applies to all types of interest rate
increases, not just penalty rate
increases. The rule refers broadly to ‘‘an
increase in an annual percentage rate
that applies to a credit card account
under an open-end (not home-secured)
consumer credit plan,’’ not only to
increases in purchase annual percentage

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rates. Accordingly, examples in the
commentary to § 226.59 refer to cash
advance rates, penalty rates, balance
transfer rates, and temporary rates, in
addition to purchase rates.
Another issuer asked the Board to
expressly clarify that the obligation to
reevaluate rate increases pursuant to
§ 226.59 does not apply to accounts for
which variable rate floors were removed
in order to comply with § 226.55(b)(2).
The Board believes that no clarification
is necessary in the regulation or
commentary. The removal of a variable
rate floor can only result in a decrease
in the interest rate imposed on a
consumer’s account and therefore
would not be a rate increase for
purposes of § 226.59.
Finally, one industry trade association
urged the Board to limit the scope of
§ 226.59 to require reviews only of those
rate increases that occurred between
January 1, 2009 and February 22, 2010,
when the majority of the substantive
protections in the Credit Card Act
became effective. The Board believes
that this interpretation would be
inconsistent with new TILA Section
148, which imposes an ongoing review
requirement when a creditor increases
the annual percentage rate applicable to
a credit card account. If Congress had
intended to limit the review
requirement to those rate increases that
occurred prior to February 22, 2010, the
Board believes that it would have so
provided.
59(a)(2) Rate Reductions
Proposed § 226.59(a)(2) addressed the
timing requirements for rate reductions
required under § 226.59. Proposed
§ 226.59(a)(2) stated that if a card issuer
is required to reduce the rate applicable
to an account pursuant to § 226.59(a)(1),
the card issuer must reduce the rate not
later than 30 days after completion of
the evaluation. The Board solicited
comment on the operational issues
associated with reducing the rate
applicable to a consumer’s account and
whether a different timing standard for
how promptly rate changes must be
implemented should apply.
A number of issuers and industry
trade associations urged the Board to
give issuers additional time to
implement rate decreases, for
operational reasons. Several
commenters specifically noted that the
30 day time period would require
issuers to make mid-cycle changes,
which may be difficult and costly
depending on the issuer’s processing
platforms. Several commenters
suggested that the time period for
implementing a rate reduction should
be 60 days or two billing cycles after

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completion of the evaluation. Other
commenters indicated that the
appropriate time period is 90 days.
Finally, several other commenters stated
that a 45-day time period would be
appropriate. These commenters also
noted that a 45-day time period would
be consistent with the time period for
advance notice of rate increases under
§ 226.9(c) and (g).
Section 226.59(a)(2)(i) of the final rule
provides that if a card issuer is required
to reduce the rate applicable to an
account pursuant to § 226.59(a)(1), the
card issuer must reduce the rate not
later than 45 days after completion of
the evaluation. The Board believes that
intent of new TILA Section 148 is to
ensure that the rates on consumers’
accounts are reduced promptly when
the card issuer’s review of factors
indicates that a rate reduction is
required. Therefore, the Board believes
that a longer time period, such as 60
days or 90 days, would not best
effectuate the intent of the statute. The
Board believes that § 226.59(a)(2)(i), as
adopted, strikes the appropriate balance
between burden on issuers and benefit
to consumers. The 45-day time period
may enable issuers to avoid
operationally difficult mid-cycle
changes, while ensuring that consumers
promptly receive the benefit of any rate
reduction required by § 226.59.
The March 2010 Regulation Z
Proposal did not specify to which
balances a rate reduction required by
§ 226.59(a) must apply. Several
commenters requested that the Board
provide express guidance regarding the
applicability of any required rate
reduction, in particular as to whether
the reduction is required to apply to
existing balances or only to new
transactions. One industry commenter
stated that issuers should be required to
apply the reduced rate only to the
outstanding balances that were subject
to the rate increase reevaluation rather
than to all outstanding balances.
Another industry commenter urged the
Board to provide flexibility for issuers to
apply the reduced rate to: (1) New
transactions only; (2) outstanding
balances that were subject to the rate
increase reevaluation; or (3) new
transactions and outstanding balances
that were subject to the rate increase
reevaluation. This commenter noted
that it would be operationally
burdensome if issuers were required to
reduce the rate applicable to all
outstanding balances that were subject
to the rate increase. Finally, one issuer
stated that creditors should be permitted
to implement rate decreases through
other means, such as through balance
transfer or consolidation offers, which

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would reduce the consumer’s cost of
borrowing without changing the annual
percentage rate.
The Board is adopting new
§ 226.59(a)(2)(ii) to clarify to which
balances a rate reduction pursuant to
§ 226.59(a)(1) must apply. Section
226.59(a)(2)(ii) states that any reduction
in an annual percentage rate required
pursuant to § 226.59(a)(1) shall apply to:
(1) Any outstanding balances to which
the increased rate described in
§ 226.59(a)(1) has been applied; and (2)
new transactions that occur after the
effective date of the rate reduction that
would otherwise have been subject to
the increased rate. The Board believes
the most appropriate reading of new
TILA Section 148 is that it is intended
to require rate reductions on
outstanding balances that were subject
to the rate increase, as well as on new
transactions. TILA Section 148
expressly requires issuers to reevaluate
rate increases that have occurred since
January 1, 2009. The Board believes that
a rule that permitted issuers to apply
reduced rates only to new transactions
would not effectuate this ‘‘look back’’
provision, because it would permit rate
increases that occurred after January 1,
2009 to remain in effect for the life of
any balance already subject to the
increased rate. Prior to February 22,
2010, card issuers were permitted to
increase rates applicable to outstanding
balances as well as new transactions,
which is no longer permitted under
§ 226.55 except in limited
circumstances. It would be an
anomalous result for the ‘‘look back’’
provision to permit creditors to
maintain increased rates on existing
balances given that the Credit Card Act
prospectively limited the circumstances
in which a rate increase can be applied
to an outstanding balance. Accordingly,
the Board believes that the inclusion of
the ‘‘look back’’ provision in TILA
Section 148 suggests that Congress
intended for any rate reductions apply
to outstanding balances that were
subject to the rate increase.
Similarly, the Board believes that for
rates increased on or after February 22,
2010, the most appropriate reading of
new TILA Section 148 is that it requires
an issuer to apply any required rate
decrease both to any outstanding
balances that were subject to the
increased rate and to any new
transactions that would have been
subject to the increased rate. New TILA
Section 148 does not distinguish
between rate increases imposed prior to
February 22, 2010, which could have
applied both to outstanding balances
and new transactions, and rate increases
imposed after February 22, 2010, which

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in most cases may apply only to new
transactions. The Board believes,
therefore, that one uniform rule
regarding the applicability of rate
decreases is appropriate and consistent
with the intent of TILA Section 148. A
rule that required rate reductions only
on new transactions would in effect
permit an increased rate to apply to
balances subject to the increased rate
until they are paid in full. The Board
does not believe that this outcome
would be consistent with the intent of
TILA Section 148.
However, the Board does not believe
that the statute requires an issuer to
decrease the rates applicable to balances
that were not subject to the rate increase
giving rise to the review obligation
under § 226.59(a). The requirement to
reevaluate the rates applicable to a
consumer’s account is only triggered
when a rate increase occurs. If Congress
had intended for all issuers to
periodically review the rates applicable
to consumer credit card accounts,
regardless of whether a rate increase
occurred, it could have so provided.
Given that the review requirement only
applies if there is a rate increase, the
Board believes the best interpretation of
the statute is that any required
reduction in rate need only apply to the
balances that were subject to that
increased rate. Therefore, the final rule
does not require that the rate reduction
apply to all outstanding balances, but
just to those outstanding balances that
were subject to the increased rate.
For example, assume that a consumer
opens a new credit card account under
an open-end (not home-secured)
consumer credit plan on January 1 of
year one. The rate on purchases is 18%.
The consumer makes a $1,000 purchase
on June 1 of year one. On January 1 of
year two, after providing 45 days’
advance notice in accordance with
§ 226.9(c), the card issuer raises the rate
applicable to new purchase transactions
to 20%. The consumer makes a $300
purchase on May 1 of year two, which
is subject to the 20% rate. On July 1 of
year two, the issuer conducts a review
of the account in accordance with
§ 226.59(a) and, based on that review,
decreases the rate on purchases from
20% to 17% effective as of August 15
of year two. The consumer makes a $500
purchase on September 1 of year two.
Section 226.59(a)(2)(ii) requires the
issuer to apply the 17% rate to the $300
purchase and the $500 purchase. The
issuer is not required to apply the 17%
rate to the $1,000 purchase, which may
remain subject to the original 18% rate.
The Board believes that permitting
issuers to reduce the interest charges
imposed on a consumer’s account

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through other means, such as balance
transfer or other promotional offers,
without reducing the annual percentage
rate would be inconsistent with the
statute, which requires a creditor to
consider factors in ‘‘determining
whether to reduce the annual
percentage rate’’ applicable to a
consumer’s account. Furthermore, the
Board believes that permitting issuers to
reduce the interest charges imposed on
a consumer’s account in such a manner
would lack transparency and would
make it difficult for an issuer’s regulator
to assess whether that issuer is in
compliance with the rule. For example,
it would be difficult to ascertain
whether a given promotional rate offer
is as beneficial to a consumer as a rate
reduction would be, given that it would
depend on facts, circumstances, and
account usage patterns specific to that
consumer.
Section 226.59(a)(2)(ii) requires, in
part, that any reduction in rate required
pursuant to § 226.59(a)(1) must apply to
new transactions that occur after the
effective date of the rate reduction, if
those transactions would otherwise
have been subject to the increased rate
described in § 226.59(a)(1). The Board is
adopting a new comment 59(a)(2)(ii)–1
to clarify to which new transactions any
rate reduction required by § 226.59(a)
must apply. A credit card account may
have multiple types of balances, for
example, purchases, cash advances, and
balance transfers, to which different
rates apply. The comment sets forth an
illustrative example that assumes a new
credit card account opened on January
1 of year one has a rate applicable to
purchases of 15% and a rate applicable
to cash advances and balance transfers
of 20%. Effective March 1 of year two,
consistent with the limitations in
§ 226.55 and upon giving notice
required by § 226.9(c)(2), the card issuer
raises the rate applicable to new
purchases to 18% based on market
conditions. The only transaction in
which the consumer engages in year two
is a $1,000 purchase made on July 1.
The rate for cash advances remains at
20%. Based on a subsequent review
required by § 226.59(a)(1), the card
issuer determines that the rate on
purchases must be reduced to 16%.
Section 226.59(a)(2)(ii) requires that the
16% rate be applied to the $1,000
purchase made on July 1 and to all new
purchases. The rate for new cash
advances and balance transfers may
remain at 20%, because there was no
rate increase applicable to those types of
transactions and, therefore, the
requirements of § 226.59(a) do not
apply.

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59(b) Policies and Procedures
Proposed § 226.59(b) provided,
consistent with new TILA Section 148,
that a card issuer must have reasonable
written policies and procedures in place
to review the factors described in
§ 226.59. The proposal did not prescribe
specific policies and procedures that
issuers must use in order to conduct this
analysis. The Board stated that requiring
such policies and procedures to be
reasonable would ensure that issuers
undertake due consideration of these
factors in order to determine whether a
rate reduction is required on a
consumer’s account. However, the
proposal solicited comment on whether
more guidance was necessary regarding
whether a card issuer’s policies and
procedures are ‘‘reasonable.’’
Consumer groups and a Federal
agency stated that the proposal did not
set forth sufficiently specific guidance
regarding whether an issuer’s policies
and procedures are reasonable. These
commenters suggested that the Board’s
rules should provide more rigorous
compliance standards regarding the
methodologies that issuers must use to
reevaluate rate increases. In particular,
these commenters urged the Board to
require issuers to use an ‘‘empirically
derived, demonstrably and statistically
sound model’’ or to identify other
specific reasonable methodologies to be
used in conducting the reevaluation of
rate increases. Consumer groups noted
that the statutory provision requires
issuers to ‘‘maintain reasonable
methodologies for assessing the factors’’
used in the reevaluation, and
accordingly that the statute prohibits
unreasonable methodologies. One
consumer group supported the
requirement that policies and
procedures be written, but stated that
the policies and procedures should
specify how factors are measured and
weighted.
Two state attorneys general also
commented on this aspect of the
proposal. One expressed concern that
the Board’s proposed rules would
permit banks to perform perfunctory
reviews, manipulate the factors used in
the reevaluation to justify rate increases,
and otherwise deny rate reductions even
when there has been a decline in
consumer credit risk. This commenter
stated that the final rules should
expressly require banks to reduce
interest rates when justified by the
consumer’s credit risk, and stated that a
review that does not result in interest
rate reductions when consumers’ credit
profiles improve and bank costs decline
cannot be considered ‘‘reasonable.’’ The
second state attorney general expressed

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concern that the flexible reevaluation
standard set forth in the proposal would
result in very few interest rate increases
being reversed. This commenter urged
the Board to adopt clear and transparent
reevaluation standards and to rigorously
supervise card issuers for compliance
with § 226.59.
Several trade associations
representing community banks and
credit unions indicated that additional
guidance regarding the requirement to
have reasonable policies and procedures
would be helpful to institutions
complying with the rule. These
commenters urged the Board to publish
such guidance for additional public
comment.
Other commenters supported the
flexible approach in the proposal. One
public interest group stated that
requiring issuers to maintain written
policies and procedures will likely
result in greater accountability for
financial institutions and more
equitable repricing of accounts. Several
issuers stated that no additional
guidance is necessary regarding
‘‘reasonable’’ policies and procedures
and opposed a more prescriptive
approach. One of these commenters
noted that the concept of ‘‘reasonable
policies and procedures’’ is well
established in Regulation Z and that
issuers do not require additional
guidance.
The Board is adopting § 226.59(b)
generally as proposed, with one
nonsubstantive change for clarity. The
Board continues to believe that more
prescriptive rules regarding reasonable
policies and procedures could unduly
burden creditors and raise safety and
soundness concerns for financial
institutions. Because the particular
factors that are the most predictive of
the credit risk of a particular consumer
or portfolio of consumers may change
over time, the appropriate manner in
which to weigh those factors may also
change. Moreover, the appropriate
manner in which to consider or review
underwriting factors can vary greatly
among institutions. For example,
underwriting standards—and thus the
appropriate policies and procedures to
use when reviewing rate increases—for
private label or retail credit cards will
differ from the standards used for
general purpose credit card accounts.
The Board agrees with commenters
that TILA Section 148 requires issuers
to perform a meaningful review of rate
increases and to decrease rates when
appropriate. The Board further agrees
with consumer groups that new TILA
Section 148 requires that an issuer use
reasonable methodologies, and
accordingly would not permit an issuer

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to use methodologies for the review of
rate increases that are unreasonable.
However, the Board believes that the
requirement that an issuer’s policies and
procedures be reasonable effectuates
this portion of the statute. This
requirement will ensure that, although
issuers have flexibility to design their
own reasonable policies and
procedures, they must conduct a
meaningful review of factors and reduce
the rate in an appropriate manner when
required.
The Board is not requiring issuers to
utilize a ‘‘empirically derived,
demonstrably and statistically sound
model’’ for the reevaluation of rate
increases. Regulation Z does require the
use of such models in other contexts,
such as when an issuer uses an estimate
of income under § 226.51 as an
alternative to obtaining this information
directly from a consumer. As noted in
the supplementary information to the
February 2010 Regulation Z Rule, the
Board is aware of various models that
have been developed to estimate a
consumer’s income or assets. In the case
of estimating a consumer’s income, a
third party could develop a model that
would meet the ‘‘empirically derived,
demonstrably and statistically sound’’
standard that could be used by all, or a
large number of, issuers. However, given
the issuer and product-specific nature of
underwriting, the Board believes that it
would not be possible to develop and
use a single model for evaluating factors
that would be appropriate for all issuers.
Accordingly, each issuer would have to
develop and test its own model, which
would create significant burden,
especially for small issuers.
In addition, unlike a model for
estimating a consumer’s income, which
is designed to estimate a single piece of
objective data, it is unclear how an
‘‘empirically derived, demonstrably and
statistically sound model’’ would
operate in the context of the
reevaluation of rate increases. The
Board believes that to make such a
standard feasible, the rule would have
to be far more prescriptive regarding
permissible assumptions for the model.
For the reasons discussed above, the
Board is not adopting a prescriptive rule
about how an issuer must weigh the
factors it considers; for the same
reasons, the Board also declines to
adopt a prescriptive rule about how an
issuer may construct its underwriting
models. Furthermore, as discussed in
the supplementary information to
§ 226.52(b) in the context of the
proposed deterrence method for
determining permissible penalty fees,
developing a model for an individual
issuer would require testing and

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periodic verification. In the course of
gathering the data necessary to test or
periodically verify its model, an issuer
may at times need to test a model that
is not ‘‘empirically derived,
demonstrably and statistically sound,’’
which would create the anomalous
result that issuers would need to test
policies and procedures that are not
permitted under the rule.
In addition to the general requirement
that an issuer have reasonable policies
and procedures, other portions of the
final rule address specific practices to
further ensure that issuers conduct a
meaningful review of rate increases and
appropriately implement any required
rate decreases. For example, as
discussed above, § 226.59(a)(2)(ii) of the
final rule expressly requires that a rate
reduction be applied both to
outstanding balances that were subject
to the increased rate and new
transactions that would have been
subject to the increased rate. In
addition, as discussed below,
§ 226.59(d) of the final rule requires an
issuer to consider either: (1) The factors
on which it originally based the rate
increase; or (2) the factors that the card
issuer currently uses when determining
the annual percentage rates applicable
to similar new credit card accounts. As
discussed below, the Board believes that
this will ensure that an issuer may not
selectively choose to evaluate only those
factors that would continue to justify a
rate increase for existing consumers.
Several consumer group commenters
and one state attorney general urged the
Board to establish a data collection
requirement for § 226.59. These
commenters stated that banks should be
required to publicly disclose their
review policies and procedures and
issue periodic reports on the total
number of accounts reviewed, the total
number of accounts on which the rate
was reduced, and the starting and
ending rates of accounts reviewed. The
Board believes that such a requirement
would be inefficient and overly
burdensome and is not necessary to
effectuate the purposes of Section 148.
In addition, the Board has concerns that
public reporting of underwriting factors
would require issuers to disclose
proprietary information, particularly
given that public reporting is not an
express requirement of TILA Section
148. An issuer’s principal regulator is
most familiar with its operations and is
in the best position to evaluate its
policies and procedures under
§ 226.59(b).
59(c) Timing
Proposed § 226.59(c) clarified the
timing requirements for the reevaluation

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of rate increases pursuant to § 226.59(a).
Consistent with new TILA Section
148(b)(2), proposed § 226.59(c) required
a card issuer that is subject to
§ 226.59(a) to review changes in factors
in accordance with § 226.59(a) and (d)
not less frequently than once every six
months after the initial rate increase.
Proposed comment 59(c)–1 would
clarify that an issuer has flexibility in
determining exactly when to engage in
this review for its accounts. Specifically,
proposed comment 59(c)–1 stated that
an issuer may review all of its accounts
at the same time once every six months,
may review each account once each six
months on a rolling basis based on the
date on which the rate was increased for
that account, or may otherwise review
each account not less frequently than
once every six months. The
supplementary information to the
March 2010 Regulation Z Proposal
stated that as long as the consideration
of factors required for each account
subject to § 226.59 is performed at least
once every six months, the Board
believes that it is appropriate to provide
flexibility to card issuers to decide upon
a schedule for reviewing their accounts.
Section 226.59(c) is adopted as
proposed, with one nonsubstantive
change for clarity. The Board received
only two comments on this aspect of the
proposal; one issuer stated that the rule
should require a review once every six
billing cycles rather than once every six
months, while another issuer stated that
the final rule should require reviews
annually rather than biannually.
Consistent with the proposal, the final
rule requires an issuer to conduct the
review described in § 226.59(a) not less
frequently than once every six months
after the rate increase. New TILA
Section 148(b)(2) is clear that the review
is required ‘‘not less frequently than
once every 6 months.’’ A requirement
that the review occur not less frequently
than once every six billing cycles would
mean, for consumers whose billing
cycles are two or three months long, that
the review only occurs once every 12 or
18 months. The Board does not believe
this is consistent with Congress’s intent.
The Board received no comments on
comment 59(c)–1, which also is adopted
as proposed.
Proposed comment 59(c)–2 set forth
an example of the timing requirements
in § 226.59(c). The proposed example
assumed that a card issuer increases the
rates applicable to one half of its credit
card accounts on June 1, 2010, and
increases the rates applicable to the
other half of its credit card accounts on
September 1, 2010. The proposed
comment stated that the card issuer may
review the rate increases for all of its

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credit card accounts on or before
December 1, 2010, and at least every six
months thereafter. In the alternative, the
card issuer may first review the rate
increases for the accounts that were
repriced on June 1, 2010 on or before
December 1, 2010, and may first review
the rate increases for the accounts that
were repriced on September 1, 2010 on
or before March 1, 2011.
The Board received only one
comment on proposed comment
59(c)–2. The commenter noted that the
dates used in the example in proposed
comment 59(c)–2 were inconsistent
with comment 59(c)–3, which is
discussed below. Comment 59(c)–2 is
adopted as proposed, except that the
dates in the example have been adjusted
to correct this technical error.
Proposed comment 59(c)–3 clarified
the timing requirement for increases in
annual percentage rates applicable to a
credit card account under an open-end
(not home-secured) consumer credit
plan on or after January 1, 2009 and
prior to August 22, 2010. Proposed
comment 59(c)–3 stated that § 226.59(c)
requires that the first review for such
rate increases be conducted prior to
February 22, 2011.
Consumer groups and a state attorney
general stated that issuers should be
required to conduct their first review of
rate increases on August 22. These
commenters expressed particular
concern regarding rate increases
imposed between January 1, 2009 and
February 22, 2010, the date when the
majority of the substantive protections
contained in the Credit Card Act went
into effect. A federal agency stated that
the Board should provide an
implementation period of no more than
three months from issuance of final
rules. In contrast, industry commenters
supported proposed comment 59(c)–3,
noting that the guidance in the comment
is necessary to give creditors the time to
develop and implement review policies
and procedures based on the final rule
prior to conducting their first
reevaluations.
The Board is adopting comment
59(c)–3 as proposed. The Board believes
that it will take issuers several months
to develop and implement their policies
and procedures for conducting reviews
of rate increases. Accordingly, the Board
believes that requiring issuers to
complete their first review under
§ 226.59 on August 22, 2010 would be
overly burdensome. For issuers with
large or complex credit card portfolios,
a requirement that the first review be
completed on August 22, 2010 could in
effect require those issuers to have
implemented procedures to comply
with this final rule before it is issued.

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The Board also believes that this
clarification is consistent with the
general timing standard under new
TILA Section 148, which requires that
rate increases generally be reevaluated
at least once every six months.
Accordingly, the Board believes that six
months from the effective date of TILA
Section 148, or February 22, 2011, is the
appropriate date by which the initial
review of rate increases that occurred
prior to the effective date of the final
rule must take place.
59(d) Factors
Proposed 226.59(d) provided
clarification on the factors that a credit
card issuer must consider when
performing the evaluation of a
consumer’s account under § 226.59(a).
Proposed § 226.59(d) provided that a
card issuer is not required to base its
review under § 226.59(a) on the same
factors on which a rate increase was
based. Rather, the proposal would have
permitted a card issuer to review either
the same factors on which the rate
increase was originally based, or to
review the factors that it currently uses
when determining the annual
percentage rates applicable to its
consumers’ credit card accounts.
The Board explained in the
supplementary information to the
proposal that it believes it is appropriate
to permit card issuers to review the
factors they currently consider in
advancing credit to new consumers,
because a review of these factors may
result in the consumer receiving any
reduced rate that he or she would
receive if applying for a new credit card
with the same card issuer. The Board
also noted that competition for new
consumers is an incentive that may lead
an issuer to lower its rates, and if the
rates on existing consumers’ accounts
are assessed using the same factors used
for new consumers, existing customers
of a card issuer may also benefit from
competition in the market.
Proposed § 226.59(d) did not mandate
any specific factors that card issuers
must consider. Similarly, proposed
§ 226.59(d) would not have prohibited
the consideration of other factors. The
Board noted that a prescriptive rule that
sets forth certain factors or excludes
other factors could inadvertently harm
consumers, in part by constraining card
issuers’ ability to design or utilize new
underwriting models and products that
could potentially benefit consumers.
Industry commenters strongly
supported the approach in § 226.59(d)
that would permit a card issuer to either
consider the factors on which the rate
increase was based or the issuer’s
current factors. These commenters

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stated that proposed § 226.59(d)
provides appropriate flexibility and
urged the Board to avoid mandating the
consideration of outdated factors that
are no longer relevant. Issuers noted that
they already have an incentive to
provide the best rates they can justify to
their existing cardholders, because if
they do not the cardholder may elect to
use a different credit card or source of
financing. Issuers also indicated that the
costs associated with developing and
maintaining systems to track and apply
factors used in the past to existing
reviews would be extremely
burdensome.
Several industry commenters urged
the Board to clarify that § 226.59(d)
permits issuers to review the current
factors that apply to similarly situated
existing cardholders, not just new
consumers. One commenter indicated,
for example, that an issuer may have
one scorecard that it uses for new
applicants and another scorecard that it
uses for account reviews. This
commenter suggested that an issuer
should be permitted to use the account
review scorecard when conducting the
review under § 226.59. Other industry
commenters stated that a card issuer
that considers the factors it uses for new
accounts in conducting the review
under § 226.59 should be permitted to
take into account an existing
cardholder’s payment and performance
history on the account, even if the issuer
is not able to consider that data when
evaluating an application for a new
account.
Consumer groups indicated that
proposed § 226.59(d) did not adequately
limit an issuer’s discretion to
manipulate and ‘‘cherry pick’’ factors.
Consumer groups stated that it is not
objectionable to permit an issuer to
evaluate old accounts consistently with
the manner in which it evaluates new
applicants, but that the rule should
clarify that issuers do not have the
discretion to selectively consider only
those factors that would justify
maintaining a rate increase. In addition,
one city consumer protection agency
stated that issuers should be required to
take into account all appropriate factors,
rather than just factors that are favorable
to the issuer.
Consumer groups also urged the
Board to adopt more specific guidance
identifying factors that are permitted to
be used and prohibited from being used
in the evaluation. These commenters
stated that the rule should expressly
distinguish between rate increases
imposed on an individual consumer and
rate increases applied on a portfoliowide basis. Consumer groups stated that
appropriate factors for consideration for

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portfolio-wide rate increases include: (1)
Cost of funds, to the extent not reflected
in a variable rate; and (2) the issuer’s
loss rate for that product. Consumer
groups indicated that impermissible
factors for portfolio-wide rate increases
should include: (1) Loss rates for other
products; (2) revenue maximization; and
(3) the inability to charge increased rates
or fees resulting from legal reforms.
Consumer groups stated that the only
permissible factor for rate increases
imposed on an individual consumer’s
account should be empirically-tested
risk factors related to the ability to
repay. In addition, one state consumer
protection agency stated that, for rate
increases based on changes in a
consumer’s creditworthiness, issuers
should be required to evaluate the
consumer’s credit score, recent payment
history, and other factors that indicate
whether a consumer’s creditworthiness
has improved.
Section 226.59(d)(1) of the final rule
sets forth the general rule and states
that, except as provided in
§ 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 under an open-end (not homesecured) consumer credit plan. The
Board believes that this rule strikes the
appropriate balance between providing
flexibility for changing underwriting
standards and ensuring that consumers
receive the benefit of meaningful
reviews of rate increases on their
accounts. The Board believes that
requiring a card issuer to consider the
factors that it considers when setting the
rates applicable to similar new accounts
addresses concerns regarding issuers
selectively identifying those factors that
would permit them to maintain
increased rates on existing accounts. In
addition, the Board believes that this
rule will permit consumers to benefit
from competition among issuers in the
market for new customers. Accordingly,
the final rule would not permit an issuer
that complies with § 226.59 by
considering its current factors to use a
separate set of factors for existing
accounts than it does for new accounts.
Proposed comment 59(d)–3 provided
additional clarification on how an issuer
should identify the factors to consider
when evaluating whether a rate
reduction is required. Proposed
comment 59(d)–3 stated that if a card
issuer evaluates different factors in
determining the applicable annual
percentage rates for different types of

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credit card plans, it must review those
factors that it considers in determining
annual percentage rates for the
consumer’s type of credit card plan.
Proposed comment 59(d)–3 also set
forth several examples to illustrate what
constitute ‘‘types’’ of credit card plans.
For example, the proposed comment
noted that a card issuer may review
different factors in determining the
annual percentage rate that applies to
credit card plans for which the
consumer pays an annual fee and
receives rewards points than it reviews
in determining the rates for credit card
plans with no annual fee and no
rewards points. Similarly, the comment
noted that a card issuer may review
different factors in determining the
annual percentage rate that applies to
private label credit cards than it reviews
in determining the rates applicable to
credit cards that can be used at a wider
variety of merchants. However, the
proposed comment stated that a card
issuer must review the same factors for
credit card accounts with similar
features that are offered for similar
purposes and may not consider different
factors for each of its individual credit
card accounts.
One consumer group commenter
supported proposed comment 59(d)–3.
Three industry commenters urged the
Board to withdraw the proposed
comment. These commenters noted that
issuers may offer many different
varieties of private label credit card
programs and general purpose credit
card programs and that they should be
permitted to review different factors
with respect to each type of program.
One of these commenters specifically
asked the Board to confirm that a
private label card issuer with multiple
card portfolios may comply with the
reevaluation requirements based on the
terms and conditions of each portfolio
independently.
The Board is adopting proposed
comment 59(d)–3 generally as proposed,
with several technical and wording
changes for clarity. The Board continues
to believe that this clarification is
appropriate to ensure that a credit card
issuer considers factors for new
accounts that are similar to the existing
credit card accounts subject to § 226.59,
rather than factors for a dissimilar
product that may be underwritten based
on different information. However, the
Board has included an additional
example stating that a card issuer may
review different factors in determining
the annual percentage rate that applies
to private label credit cards usable only
at Merchant A than it may review for
private label credit cards usable only at
Merchant B. The Board believes that

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this additional example is appropriate
to give guidance to issuers that offer
several different private label credit card
plans with different merchants.
The Board also is adopting a new
comment 59(d)–4 to clarify a card
issuer’s obligations for existing accounts
that are not similar to any new accounts
offered by the issuer. The comment
notes that in some circumstances, a card
issuer that complies with § 226.59(a) by
reviewing the factors that it currently
considers in determining the annual
percentage rates applicable to similar
new accounts may not be able to
identify a class of new accounts that are
similar to the existing accounts on
which a rate increase has been imposed.
For example, consumers may have
existing credit card accounts under an
open-end (not home-secured) consumer
credit plan but the card issuer may no
longer offer a product to new consumers
with similar characteristics, such as the
availability of rewards, size of credit
line, or other features. Similarly, some
consumers’ accounts may have been
closed and therefore cannot be used for
new transactions, while all new
accounts can be used for new
transactions. In those circumstances, the
comment notes that the card issuer must
nonetheless perform a review of the rate
increase on the existing customers’
accounts. A card issuer does not comply
with § 226.59 by maintaining an
increased rate without performing such
an evaluation. In such circumstances,
§ 226.59(d)(1)(ii) requires that the card
issuer compare the existing accounts to
the most closely comparable new
accounts that it offers.
The Board understands that, for
existing accounts, issuers may possess
information about the consumer’s
payment history or performance that
they would not have for all applicants
for new credit. For example, a consumer
may have made a late payment on a
credit card account with the issuer, but
the delinquency may not have been
reported to a consumer reporting
agency, for example because the
payment was less than 30 days late. The
Board is adopting a new comment
59(d)–5 to clarify that a card issuer that
complies with § 226.59(a) by reviewing
the factors that it currently considers in
determining the rates applicable to
similar new accounts may consider the
consumer’s payment or other account
behavior on the existing account only to
the same extent and in the same manner
that the issuer considers such
information when one of its current
cardholders applies for a new account
with the card issuer. For example, the
comment notes that a card issuer might
obtain consumer reports for all of its

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applicants. The consumer reports
contain certain information regarding
the applicant’s past performance on
existing credit card accounts. However,
the card issuer may have additional
information about an existing
cardholder’s payment history or account
usage that does not appear in the
consumer report and that, accordingly,
it would not generally have for all new
applicants. For example, a consumer
may have made a payment that is five
days late on his or her account with the
card issuer, but this information does
not appear on the consumer report. The
card issuer may consider this additional
information in performing its review
under § 226.59(a), but only to the extent
and in the manner that it considers such
information when a current cardholder
applies for a new account with the
issuer.
Consistent with the approach in the
proposal, the final rule does not
mandate or prohibit the consideration of
any specific factors. The Board
continues to believe that a prescriptive
rule would unduly burden issuers,
could create safety and soundness
issues, and could inadvertently harm
consumers, by limiting card issuers’
ability to design or utilize new
underwriting models and products that
could benefit consumers. For issuers
that consider the factors they currently
use in setting the rates that apply to new
accounts, the Board believes that
competition for new accounts will
create an incentive for issuers to keep
rates as low as possible.
In addition to commenting on the
Board’s general approach to identifying
factors relevant to the review under
§ 226.59, several commenters urged the
Board to adopt special provisions for
certain types or classes of rate increases.
First, consumer groups and one state
attorney general urged the Board to
adopt a more stringent approach for rate
increases imposed between January 1,
2009 and February 22, 2010. Consumer
groups noted their concern about these
rate increases, which were imposed
before many of the substantive
protections in the Credit Card Act
became effective. Consumer groups
stated that, for portfolio-wide rate
increases made between January 1, 2009
and February 22, 2010, the rule should
include a presumption that the rate
must be reduced unless the issuer can
demonstrate that the same economic
conditions that gave rise to the rate
increase still apply. For accounts on
which the rate was increased due to an
individual consumer’s risk profile,
consumer groups stated that the rate
should be reduced to the original rate if
the consumer’s credit score exceeds a

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certain threshold. The state attorney
general urged the Board to require
issuers to reduce rates that were
increased between January 1, 2009 and
February 22, 2010, if the review
pursuant to § 226.59 indicates that the
cardholder has not violated the account
terms and has not experienced a decline
in creditworthiness.
In contrast, one issuer commented
that the review requirement should be
applied only to accounts where the rate
was increased between January 1, 2009
and February 22, 2010. This issuer
stated that the protections of the Credit
Card Act render review of accounts on
which a rate increase was imposed after
February 22, 2010 unnecessary, because
a consumer can stop using his or her
card for new transactions if the
increased rate does not reflect market
conditions or the consumer’s
creditworthiness. In contrast, one other
issuer urged the Board to limit the
review requirement to rate increases
that occurred after February 22, 2010.
The Board agrees with consumer
group commenters that a more
prescriptive approach is appropriate for
some rate increases imposed prior to the
February 22, 2010 effective date of the
Credit Card Act’s substantive limitations
on repricing. Accordingly, new
§ 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 § 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.
The Board understands that many
card issuers raised rates across their
credit card portfolios 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 of these rate increases that
occurred prior to February 22, 2010
resulted from issuers adjusting their
pricing practices to take into account
the limitations that the Credit Card Act
imposed on rate increases on existing
balances. The Board is 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

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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 believes that it
is appropriate 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 consumerspecific factors. The Board believes that
this will permit existing cardholders
whose rates were raised based on
general factors, including adjustments to
reflect the new limitations on repricing
contained in the Credit Card Act, to
benefit from competition in the market
for new customers. The Board further
believes that this rule will help to
ensure that a meaningful review is
conducted for accounts repriced during
the period from January 1, 2009 to
February 21, 2010, and that rate
increases are not maintained on such
accounts if new consumers with
comparable characteristics would
qualify for an account with a lower rate
or rates.
This 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 § 226.59 and only for
rate increases imposed between January
1, 2009 and February 21, 2010. The
Board believes that it is generally
consistent with new TILA Section 148
to permit a card issuer to evaluate the
same factors on which it originally
based the rate increase that triggered the
review requirement under § 226.59.
Therefore, the Board is not requiring
card issuers to indefinitely review rate
increases imposed between January 1,
2009 and February 21, 2010 that are not
based solely on consumer-specific
factors by comparing the account to
similar new credit card accounts.
However, the Board believes, for the
reasons described above, that it is
appropriate, for the first two review
periods, to require issuers to consider
the factors that they use when setting
the rates applicable to similar new
accounts.
For rate increases that were based
solely on consumer behavior or other
consumer-specific factors, the final rule
applies one uniform standard to rate
increases imposed since January 1, 2009
and does not distinguish between rate
increases imposed prior to or after

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February 22, 2010. The Board does not
believe that the concerns articulated
above regarding portfolio-wide rate
increases apply when the rate increase
was based solely upon the consumer’s
specific behavior on the account or
consumer-specific factors such as
creditworthiness. 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 believes that a
consideration of the consumer-specific
factors that the issuer considered when
imposing the rate increase would result
in a meaningful review and, where
appropriate, rate decreases. In addition,
this approach is consistent with new
TILA Section 148, which applies the
same review obligations to all rate
increases imposed after January 1, 2009.
The statute does not distinguish
between rate increases that occurred
prior to February 22, 2010 and rate
increases that occurred after the
majority of the substantive protections
in the Credit Card Act took effect.
Accordingly, the Board believes that
absent the special concerns raised by
portfolio-wide rate increases described
above, it is not appropriate to impose
either more or less stringent
requirements to rate increases based on
the date on which they were imposed.
Second, several commenters stated
that the Board should adopt special
provisions for rate increases that were
imposed as a penalty for violations of
the account terms. One consumer group
commenter and one state attorney
general urged the Board to adopt special
rules regarding the removal of penalty
rate increases. These commenters
indicated that the Board should require
issuers to reduce any penalty interest
rate to a non-penalty rate if the account
has experienced no violations of terms
for a period of six months. Two issuers
commented that the reevaluation
requirement should not apply to
accounts that are subject to delinquency
pricing for prospective purchases if
those accounts receive the benefit of a
cure after a certain specified number of
on-time payments.
The final rule does not mandate that
issuers reduce a penalty rate to a nonpenalty rate if there have been no
violations of account terms for six
months. The Board notes that
§ 226.55(b)(4) specifically addresses a
consumer’s right to cure the application
of an increased rate, by making the first
six minimum payments on time after
the effective date of the increase, only
for rate increases that are the result of
a delinquency of more than 60 days.
The Board acknowledged in the
supplementary information to the

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March 2010 Regulation Z Proposal that
it may appear to be an anomalous result
that a consumer whose rate is increased
based on a payment received five days
late cannot automatically cure the
application of the increased rate by
making six timely minimum payments,
while a consumer whose account is
more than 60 days delinquent has that
right under § 226.55(b)(4).
However, the Board continues to
believe that this is the appropriate
reading of TILA Sections 148 and
171(b)(4), for two reasons. First, a rate
increase based on a consumer making a
payment that is five days late can only
apply to new transactions. Therefore, a
consumer has the ability to mitigate the
impact of the rate increase by reducing
the number of new transactions in
which he or she engages. In contrast, a
creditor may increase the rate on both
existing balances and new transactions
when a consumer makes a payment that
is more than 60 days late. Second, new
TILA Section 171(b)(4) expressly
provides the cure right implemented in
§ 226.55(b)(4) only for payments that are
more than 60 days late. Congress could
have, but did not, adopt an analogous
cure provision for delinquencies of less
than 60 days. The Board believes that
for other violations of the account terms,
Congress intended for the review of
factors in TILA Section 148 to be the
means by which rate decreases, when
appropriate, are required.
Similarly, the Board is not adopting
an exception to the review requirements
of § 226.59 for an issuer that provides a
cure after a specified number of on-time
payments or a specified number of
months without a violation of the
account terms. The Board understands
that many issuers do provide such cure
periods, even though it is not generally
required for penalty rates triggered by
delinquencies of less than 60 days or
other contractual defaults. While the
Board encourages card issuers to offer or
continue offering such cure periods,
which have a benefit to consumers, the
Board believes that it would be
inconsistent with TILA Section 148 to
provide an exception to § 226.59 in
those circumstances. The Board is
concerned that providing such an
exception would permit issuers to
maintain penalty rates on the accounts
of consumers whose creditworthiness
improves, but who occasionally commit
minor violations of the account terms,
such as a payment that is one day late
or a small over-the-limit transaction,
when in some cases those consumers
might be eligible for a rate decrease if
the issuer reviewed the account in
accordance with § 226.59(a).

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Proposed comment 59(d)–1 clarified
the requirements of § 226.59(d) in the
circumstances where a creditor has
recently changed the factors that it
evaluates in determining annual
percentage rates applicable to its credit
card accounts. Proposed comment
59(d)–1 noted that a creditor that
complies with § 226.59(a) by reviewing
the factors it currently considers in
determining the annual percentage rates
applicable to its credit card accounts
may change those factors from time to
time. The proposed comment clarified
that when a creditor changes the factors
it considers in determining the annual
percentage rates applicable to its credit
card accounts from time to time, it may
comply with § 226.59(a) for a brief
transition period by reviewing the set of
factors it considered immediately prior
to the change in factors, or may consider
the new factors. The Board noted in the
supplementary information to the
March 2010 Regulation Z Proposal that
this provision is intended to permit a
card issuer to consider its prior set of
factors only for a brief period after it
changes the factors it uses to determine
the rates applicable to new accounts, for
operational reasons.
The proposed comment set forth an
example in which a creditor changes the
factors it uses to determine the rates
applicable to new credit card accounts
on January 1, 2011. The creditor reviews
the rates applicable to its existing
accounts that have been subject to a rate
increase pursuant to § 226.59(a) on
January 25, 2011. The proposed
comment stated that the creditor
complies with § 226.59(a) by reviewing,
at its option, either the factors that it
considered on December 31, 2010 when
determining the rates applicable to its
new credit card accounts or the factors
that it considers as of January 25, 2011.
In the proposal, the Board solicited
comment on whether the rule should
establish an express safe harbor
regarding what constitutes ‘‘a brief
transition period’’ following a change in
factors. Issuers who commented on the
proposal suggested safe harbors of 60 or
90 days, to provide issuers with
adequate time to revise their written
policies and procedures and implement
the new policy, while conducting
ongoing rate evaluations.
The Board believes that a transition
period of 60 days following a change in
factors is appropriate and has revised
comment 59(d)–1 to expressly state that,
for purposes of compliance with
§ 226.59(d), a transition period of 60
days from the change of factors
constitutes a brief transition period. The
Board believes that it is important that
the transition period be brief, to ensure

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that consumers’ accounts are evaluated
by using up-to-date factors. The Board is
otherwise adopting comment 59(d)–1 as
proposed, with several technical
changes to conform to the requirement
in § 226.59(d) that an issuer that
considers its current factors must
consider the factors applicable to
similar new accounts. In addition, the
dates used in the example in comment
59(d)–1 have been adjusted for
consistency with comment 59(c)–3.
Proposed comment 59(d)–2 clarified
that the review of factors need not result
in existing accounts being subject to the
same rates and rate structure as a
creditor imposes on new accounts, even
if a creditor evaluates the same factors
for both types of accounts. For example,
the proposed comment noted that a
creditor may offer variable rates on new
accounts that are computed by adding a
margin that depends on various factors
to the value of the LIBOR index. The
account that the creditor is required to
review pursuant to § 226.59(a) may have
variable rates that were determined by
adding a different margin, depending on
different factors, to a prime rate. In
performing the review required by
§ 226.59(a), a creditor may review the
factors it uses to determine the rates
applicable to its new accounts. If a rate
reduction is required, however, the
proposed comment stated that the
creditor need not base the variable rate
for the existing account on the LIBOR
index but may continue to use the prime
rate. The amount of the rate on the
existing account after the reduction,
however, as determined by adding the
prime rate and margin, must be
comparable to the rate, as determined by
adding the margin and LIBOR, charged
on a new account (except for any
promotional rate) for which the factors
are comparable. The Board received no
significant comments on proposed
comment 59(d)–2, which is adopted
generally as proposed, with several
technical amendments for clarity. In
addition, for consistency with the
requirements of § 226.55(b)(2), the
reference to the prime rate has been
changed to refer to a published prime
rate. See comment 55(b)(2)–2 for
additional guidance on when an index
is deemed to be outside the card issuer’s
control.

circumstances, § 226.55(b)(4)(ii) requires
a card issuer to reduce the annual
percentage rate to the rate that applied
prior to the increase if the consumer
makes the first six consecutive required
minimum periodic payments on time
after the effective date of the increase.
Proposed § 226.59(e) provided that a
card issuer is not required to review
factors in accordance with § 226.59(a)
prior to the sixth payment due date
following the effective date of the rate
increase when the rate increase results
from a consumer’s account becoming
more than 60 days delinquent. At that
time, if the rate has not been decreased
based on the consumer making six
consecutive timely minimum payments,
proposed § 226.59(e) required an issuer
to begin performing a review of factors
for subsequent six-month periods.
Three issuers stated that the review
requirement should not apply to rate
increases imposed due to the
consumer’s failure to make a minimum
payment within 60 days of the due date
for that payment. These issuers
suggested that new TILA Section
171(b)(4)(B), as implemented in
§ 226.55(b)(4)(ii), is the exclusive
mechanism provided by Congress for
obtaining a rate decrease if the increase
is based on a default of more than 60
days. Consumer groups, on the other
hand, supported proposed § 226.59(e)
and the requirement that if the
consumer fails to qualify for the cure
under § 226.55(b)(4)(ii) by making six
months of on-time payments, the
reevaluation requirements in § 226.59
begin to apply.
The Board is adopting § 226.59(e)
generally as proposed, with several
technical changes for clarity. The Board
believes that it is appropriate that a
creditor review a consumer’s account
under § 226.59(a) after the statutory cure
right expires if the consumer’s rate has
not been reduced. A consumer’s credit
risk or other factors might change after
the cure period expires, warranting a
rate reduction at that time. The Board
further notes that it would create an
anomalous result if new TILA Section
148 provided less protection in respect
of a rate increase applicable to both
existing balances and new transactions
than for rate increases that are
applicable only to new transactions.

59(e) Rate Increases Subject to
§ 226.55(b)(4)
Proposed § 226.59(e) set forth a
special timing rule for card issuers that
increase a rate pursuant to § 226.55(b)(4)
based on the card issuer not receiving
the consumer’s required minimum
periodic payment within 60 days after
the due date for that payment. In such

59(f) Termination of Obligation To
Review Factors
TILA Section 148 does not expressly
state when the obligation to review
factors and determine whether to reduce
the annual percentage rate applicable to
a consumer’s credit card account
terminates. Proposed § 226.59(f)(1) and
(f)(2) provided that the obligation to

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review factors under § 226.59(a) ceases
to apply if the issuer reduces the annual
percentage rate to a rate equal to or less
than the rate applicable immediately
prior to the increase, or, if the rate
applicable immediately prior to the
increase was a variable rate, to a rate
equal to or less than a variable rate
determined by the same index and
margin that applied prior the increase.
Commenters generally supported this
aspect of the proposal. Accordingly,
§ 226.59(f)(1) and (f)(2) are adopted as
proposed.
In the supplementary information to
the March 2010 Regulation Z Proposal,
the Board noted that proposed § 226.59
could require card issuers to review the
annual percentage rates applicable to
certain credit card accounts for an
extended period of time. Under the
proposed rule, an issuer would be
required to continue to review a
consumer’s account each six months
unless and until the rate is reduced to
the rate in effect prior to the increase.
In some circumstances, this could mean
that the review required by § 226.59(a)
would need to occur each six months
for an indefinite period. The Board
solicited comment on whether the
obligation to review the rate applicable
to a consumer’s account should
terminate after some specific time
period elapses following the initial
increase, for example after five years.
The Board also solicited comment on
whether there is significant benefit to
consumers from requiring card issuers
to continue reviewing factors under
§ 226.59 even after an extended period
of time.
Many issuers and several industry
trade associations commented on
proposed § 226.59(f). Industry
commenters stated that the Board
should not require that rate increases be
reviewed indefinitely, and indicated
that requiring periodic reviews for an
indefinite period would increase the
cost and complexity associated with
compliance and compliance
examinations. Industry commenters also
indicated that the consumer benefit of
requiring rate reviews to continue
indefinitely is questionable, particularly
given that the costs associated with
ongoing reviews would be passed on to
consumers in the form of higher fees
and rates and more closed accounts.
Most issuers requested a specific time
limit for the review process. The time
periods suggested by commenters
ranged from one year to five years after
the rate increase. Most issuers
advocated a review period of two or
three years. Other industry commenters
stated that the obligation to review the
account should terminate on the date

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when the account is at the same pricing
offered to new accounts with
comparable risk profiles.
Consumer groups, on the other hand,
urged the Board not to limit the review
obligation under § 226.59 to five years
or any other time frame. These
commenters noted that accounts are
constantly reviewed as a matter of
business practice to determine whether
to increase a consumer’s rate. These
commenters also noted that changes in
economic conditions or a consumer’s
creditworthiness can occur over an
extended period, in some cases greater
than five years, and that the Credit Card
Act intended for consumers’ accounts to
be reevaluated when such factors
change regardless of how much time has
elapsed since the initial rate increase.
The Board is not adopting a specific
time limit for the review obligation
under § 226.59. New TILA Section 148
does not expressly create such a time
limit. The Board believes that creating
such a time limit is not appropriate,
because in some cases it may be
beneficial to a consumer to have his or
her rate reevaluated when market
conditions change or the consumer’s
creditworthiness improves, even if a
number of years have elapsed since the
rate increase initially giving rise to the
review requirement. The Board also
believes 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
§ 226.59.
The Board also believes that it is
inappropriate for the review
requirement to automatically terminate
when the account is at the same pricing
offered to new accounts with
comparable risk profiles. Issuers that
perform the review under § 226.59(a) by
considering the factors they use to
determine the rates applicable to new
accounts under § 226.59(d) will
generally be required to adjust the rate
based on the review so that it is
comparable to the rate offered to
similarly situated new consumers.
Therefore, if § 226.59(f) permitted the
review requirement to terminate when
the account is at the same pricing
offered to new accounts with
comparable risk profiles, a consumer
would only receive one six-month
review before the requirement
terminated. The Board does not believe
that this is consistent with the intent of
new TILA Section 148, which
contemplates ongoing reviews.
The Board acknowledges that this
may create seemingly anomalous

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results. For example, in year one
Consumer A may open a credit card
account with a rate applicable to
purchases of 10%. Due to a change in
market conditions, that consumer’s rate
may be increased in year three to 15%,
to the extent permitted by § 226.55. A
similarly situated consumer, Consumer
B, who applies for credit in year three
may also receive a rate on purchases of
15%. The issuer would be required to
perform periodic reviews of the rate
increase on Consumer A’s account.
However, Consumer B’s account, which
also has a 15% rate on purchases, would
not be subject to the review
requirement. However, the Board
believes that this is consistent with new
TILA Section 148, which requires that
periodic reviews be conducted only if
there is a rate increase. Consumer A
applied for an account with a 10% rate,
so the rate of 15% represents an
increase over the initial terms to which
the consumer agreed, notwithstanding
the fact that Consumer A would receive
a 15% rate if applying for a new credit
card with the issuer. Consumer B, on
the other hand, applied for and received
a card with a rate of 15%.
One issuer asked the Board for
clarification regarding the applicability
of § 226.59(f) to promotional rates that
are increased due to a consumer’s
violation of the account terms. This
commenter stated that if a promotional
rate has been increased to a penalty
rate 61 and the promotional period has
subsequently expired, a card issuer
should be required to review the penalty
rate increase only until the rate is
reduced to the standard rate that would
have applied upon expiration of the
promotion. Other commenters asked the
Board more generally to exempt the loss
of promotional rates due to violations of
the account terms from the requirements
of § 226.59. Some of these commenters
noted particular concern regarding loss
of long-term promotional rates between
January 1, 2009 and February 22, 2010,
which occurred before the limitations in
§ 226.55 on the loss of a promotional
rate became effective.
The final rule does not exempt the
loss of a promotional rate from the
requirements of § 226.59. The Board
believes that such an exemption would
be inappropriate, for several reasons.
First, new TILA Section 148 covers all
rate increases, including those due to
changes in the consumer’s
creditworthiness or other factors. The
Board believes that a loss of a
promotional rate due to a violation of
the contract terms is properly
61 See § 226.55 for limitations on the revocation
of promotional rates.

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characterized as a rate increase based on
the consumer’s creditworthiness or
other factors relevant to that individual
consumer and therefore is covered by
the statute. In addition, it would be
difficult to distinguish by regulation
between promotional rates and other
types of stepped-rate arrangements. For
example, an issuer might offer a
consumer a 5% rate on purchases for 18
months, after which the rate on
purchases will increase to 15%. In
contrast, an issuer might offer a
consumer a 10% rate on purchases for
year one, a 15% rate for year two, and
a 20% rate thereafter. It is difficult to
identify a principled rationale for
distinguishing between these scenarios,
and the Board believes that it is
appropriate for a review requirement to
apply whenever a temporary reduced
rate is increased due to a consumer’s
violation of the contract terms.
The Board also believes that coverage
of the loss of a promotional rate is
consistent with the purposes of new
TILA Section 148. In the case of a longterm promotional rate lasting several
years, a consumer might commit a
minor violation of the account terms,
such as a payment that is one day late
or a transaction that exceeds the credit
limit by a small amount, resulting in the
revocation of that promotional rate to
the extent permitted by § 226.55.
However, the consumer’s
creditworthiness might improve over
the course of the remaining promotional
period, such that it is appropriate to
reinstate the promotional rate or
otherwise decrease the rate applicable to
the consumer’s account for the
remainder of the promotional period.
However, the Board does believe that
it is appropriate to clarify the duration
of the review requirement for temporary
rates that have expired. Accordingly, the
Board is adopting new comment 59(f)–
1.i to clarify when the review
requirement terminates under
§ 226.59(f). New comment 59(f)–1.i
states that if an annual percentage rate
is increased due to revocation of a
temporary rate, § 226.59(a) requires that
the card issuer periodically review the
increased rate. The comment clarifies
that in contrast, if the rate increase
results from the expiration of a
temporary rate previously disclosed in
accordance with § 226.9(c)(2)(v)(B), the
review requirements in § 226.59(a) do
not apply. If a temporary rate is revoked
such that the requirements of § 226.59(a)
apply, § 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.

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Comment 59(f)–1.ii sets forth several
illustrative examples.
The Board also is adopting a new
comment 9(c)(2)(v)–12 to clarify the
relationship between § 226.9(c)(2)(v)(B)
and § 226.59 when a temporary rate has
been revoked but subsequently is
reinstated based on an issuer’s review.
The comment notes that § 226.59
requires a card issuer to review rate
increases imposed due to the revocation
of a temporary rate. In some
circumstances, § 226.59 may require an
issuer to reinstate a reduced temporary
rate based on that review. If, based on
a review required by § 226.59, a creditor
reinstates a temporary rate that had been
revoked, the comment states that a 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 § 226.9(c)(2)(v)(B) prior to
the original commencement of the
temporary rate. The comment sets forth
an illustrative example.
The Board believes that a card issuer
that has provided disclosures of a
temporary rate pursuant to
§ 226.9(c)(2)(v)(B) prior to
commencement of the promotion has
already notified the consumer of the
length of the promotional period and
the rate that will apply at the end of the
promotional period. Accordingly, the
Board does not believe that an
additional notice is necessary.
59(g) Acquired Accounts
Proposed § 226.59(g) addressed
existing credit card accounts acquired
by a card issuer. Proposed § 226.59(g)(1)
set forth the general rule that, except as
provided in § 226.59(g)(2), the
obligation to review changes in factors
in § 226.59(a) applies even to such
acquired accounts. Consistent with the
rule in § 226.59(d), the proposal for
acquired accounts permitted a card
issuer to review either the factors that
the original issuer considered when
imposing the rate increase or the factors
that the acquiring card issuer currently
considers in determining the annual
percentage rates applicable to its credit
card accounts. The Board noted that in
some cases, a card issuer may not know
whether accounts that it acquired were
subject to a rate increase by the prior
issuer. In these cases, the proposal
permitted a card issuer complying with
§ 226.59(g)(1) to review factors in
accordance with § 226.59(a) for all of its
acquired accounts rather than seeking to
identify just those accounts to which a
rate increase was applied.
Proposed § 226.59(g)(2) set forth an
alternate means for compliance with
§ 226.59 for acquired accounts.

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Proposed § 226.59(g)(2) applied if a card
issuer reviews all of the credit card
accounts it acquires, as soon as
reasonably practicable after the
acquisition of such accounts, in
accordance with the factors that it
currently uses in determining the rates
applicable to its credit card accounts.
Following the card issuer’s initial
review of its acquired accounts,
proposed § 226.59(g)(2)(i) provided that
the card issuer generally must review
changes in factors for those acquired
accounts in accordance with § 226.59(a)
only for rate increases imposed as a
result of that review. Similarly,
proposed § 226.59(g)(2)(ii) provided that
the card issuer generally is not required
to review changes in factors in
accordance with § 226.59(a) for any rate
increases made prior to the card issuer’s
acquisition of such accounts.
Consumer groups supported the
coverage of acquired accounts in
§ 226.59(g)(1), but opposed the alternate
means of compliance set forth in
proposed § 226.59(g)(2). These
commenters stated that an issuer should
be able to obtain information regarding
past rate increases when it acquires a
portfolio of accounts. These commenters
believe that the rule should encourage
the retention of information about rate
increases rather than creating an
alternative means of compliance.
One issuer opposed the coverage of
acquired accounts in § 226.59(g)(1). This
commenter stated that imposing
requirements to reevaluate the rates on
acquired accounts could have the
unintended consequence of chilling the
market for portfolio acquisitions. The
commenter noted that disclosure of the
information necessary to enable an
acquiring issuer to conduct
reevaluations of rate increases in
accordance with § 226.59 could require
the selling issuer to reveal proprietary
information to a competitor. This
commenter stated that the alternative
means of compliance in proposed
§ 226.59(g)(2) is not sufficient to address
the issue, because it could result in rate
decrease after acquisition. The issuer
urged the Board to clarify that accounts
acquired from an unaffiliated issuer may
be treated like new accounts and rates
do not need to be evaluated unless and
until the acquiring issuer increases the
rate.
Other industry commenters supported
the alternative means of compliance in
proposed § 226.59(g)(2). These
commenters stated that it is unlikely
that issuers will have sufficient
information about the selling issuer’s
pricing practices to perform the
evaluation based on the factors used by
the seller. These commenters noted that

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in many cases, accounts are being sold
because of problems with the selling
issuer’s underwriting. In addition to
being burdensome, these commenters
stated that compelling the acquirer to
rely on the same factors used by the
seller could have the anomalous result
of requiring the acquirer to rely on
flawed underwriting models or factors.
In addition to the general rule for the
alternate means of compliance set forth
in § 226.59(g)(2)(i) and (g)(2)(ii), the
Board proposed a new § 226.59(g)(2)(iii),
which stated that if as a result of the
card issuer’s review, an account is
subject to, or continues to be subject to,
an increased rate as a penalty or due to
the consumer’s delinquency or default,
the requirements to review the account
under § 226.59(a) would apply. The
Board noted that penalty rates are often
much higher than the standard rates that
apply to consumers’ credit card
accounts and that the imposition of a
penalty rate for an extended period of
time can be very costly to a consumer.
Accordingly, the requirements to review
accounts under proposed § 226.59(a)
applied if a card issuer imposes, or
continues to impose, a penalty rate on
an acquired account. Proposed comment
59(g)(2)–2 set forth an example of the
application of § 226.59(g)(2)(iii) when a
penalty rate is imposed on an acquired
account. The Board received no
comments on this aspect of the
proposal.
The Board is adopting § 226.59(g)
generally as proposed, with several
technical and wording changes to
conform to the requirements of
§ 226.59(a) and for clarity. Section
226.59(g)(1) has been revised from the
proposal to state that, except as
provided in § 226.59(g)(2), § 226.59
applies to credit card accounts that have
been acquired by the card issuer from
another card issuer. Accordingly, an
issuer that complies with § 226.59(g)(1)
is subject to the guidance regarding
factors in § 226.59(d). Section
226.59(g)(1) clarifies, consistent with
the proposal, that a card issuer that
complies with § 226.59 by reviewing the
factors described in paragraph (d)(1)(i)
must review the factors considered by
the card issuer from which it acquired
the accounts in connection with the rate
increase. However, consistent with
§ 226.59(d)(1)(ii), an issuer may, in the
alternative, consider the factors that the
issuer currently considers when
determining the rates applicable to
similar new credit card accounts. The
Board continues to believe that
permitting an issuer to reevaluate
acquired accounts using its own factors
is appropriate because a card issuer may

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not have full information regarding rate
increases imposed by the prior issuer.
The Board notes that the special rule
for certain rate increases imposed
between January 1, 2009 and February
21, 2010, which is set forth in
§ 226.59(d)(2), generally applies to
acquired accounts. Accordingly, the
Board is adopting a new comment
59(g)(1)–1 to clarify the application of
§ 226.59(d)(2) to acquired accounts. The
comment states that if a card issuer
acquires accounts on which a rate
increase was imposed between January
1, 2009 and February 21, 2010 that was
not based solely upon consumerspecific factors, the acquiring card
issuer must consider the factors that it
currently considers when determining
the annual percentage rates applicable
to similar new credit card accounts, if
it conducts either or both of the first two
reviews of such accounts that are
required after August 22, 2010 under
§ 226.59(a).
For example, assume that card issuer
A increased the rates applicable to all of
its credit card accounts from 15% to
20%, not due to consumer-specific
factors, on June 1, 2009. Assume further
that card issuer B acquired card issuer
A’s portfolio of accounts on January 1,
2010. When conducting the first two
reviews of such accounts after August
22, 2010, card issuer B must consider
the factors that it currently considers
when determining the annual
percentage rates applicable to similar
new credit card accounts.
In the alternative, assume that card
issuer A increased the rates applicable
to all of its credit card accounts under
an open-end (not home-secured)
consumer credit plan, not due to
consumer-specific factors, on June 1,
2009. Assume that card issuer A
conducts the first two reviews of such
accounts in accordance with § 226.59(a)
and (d)(2) on January 1, 2011 and July
1, 2011 but, based on those reviews, is
not required to decrease the rate.
Assume that card issuer B acquires card
issuer A’s portfolio of accounts on
August 1, 2011. Because the first two
reviews of the acquired accounts were
completed by card issuer A,
§ 226.59(d)(2) does not apply to
subsequent rate reevaluations
conducted by card issuer B.
The final rule retains the alternative
means of compliance for acquired
accounts in § 226.59(g)(2). The Board
believes that this alternative means of
compliance is more appropriate than an
exception for acquired accounts,
because coverage of acquired accounts
is consistent with the purposes of new
TILA Section 148. If a card issuer
reviews all of the accounts that it

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acquires in accordance with the factors
that it currently uses in determining the
rates applicable to its new credit card
accounts, this will ensure that acquired
accounts are subject to the same rates
that would apply if the consumer
opened a new credit card account with
the acquiring issuer. The Board believes
that this will promote fair pricing of
acquired accounts. If the card issuer
raises the rate applicable to a
consumer’s account as a result of that
review, it will have full information
about the rate that applied prior to that
increase and therefore the requirements
of § 226.59(a) would apply with regard
to that rate increase.
The Board notes that any rate
increases the acquiring card issuer
makes as a result of its review pursuant
to § 226.59(g)(2) are subject to the
substantive and notice requirements
regarding rate increases in §§ 226.9 and
226.55. Consistent with the proposal,
§ 226.59(g)(2) of the final rule contains
an express cross-reference to those
sections.
Proposed comments 59(g)(2)–1 and
59(g)(2)–2 set forth examples of the
alternative means of compliance in
§ 226.59(g)(2). The Board received no
significant comment on these examples,
which are adopted generally as
proposed, with several technical
changes to conform to the requirements
of § 226.59(a) of the final rule.
In the proposal, the Board solicited
comment on whether additional
guidance is necessary regarding the
requirement in § 226.59(g)(2) that the
review of acquired accounts occur ‘‘as
soon as reasonably practicable’’ after the
acquisition of those accounts. One
issuer commented that ‘‘as soon as
reasonably practicable’’ should permit
for a transition period of up to one year.
This issuer stated that acquired
accounts often have differences in
systems, must be migrated to new
vendors and processors, and must be
adapted to the acquiring issuer’s
underwriting policies. One other issuer
stated that the time in which the
acquirer must conduct a reevaluation
should be measured from the date of
conversion to the acquiring issuer’s
platform, not the date of acquisition.
The Board understands that
converting newly acquired accounts to
the acquiring issuer’s platform may be a
time-consuming process, for the reasons
noted by commenters. However, the
Board believes that for consistency with
new TILA Section 148, issuers using the
alternate means of compliance must
conduct their initial review no later
than six months after the acquisition of
a new portfolio. If this were not the
case, the alternative means of

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compliance could in effect delay the
review of a consumer’s account for
longer than the period established by
statute. Accordingly, § 226.59(g)(2) of
the final rule requires that an issuer
using the alternative means of
compliance review the accounts it
acquires not later than six months after
their acquisition.
59(h)

Exceptions

March 2010 Regulation Z Proposal
The Board proposed two exceptions
to the requirements of § 226.59, using its
authority under TILA Section 105(a),
which were set forth in proposed
§ 226.59(h). The first proposed
exception applied to rate increases
imposed when the requirement to
reduce rates pursuant to the
Servicemembers Civil Relief Act
(SCRA), 50 U.S.C. app. 501 et seq.,
ceases to apply. Specifically, 50 U.S.C.
app. 527(a)(1) provides that ‘‘[a]n
obligation or liability bearing interest at
a rate in excess of 6 percent per year
that is incurred by a servicemember, or
the servicemember and the
servicemember’s spouse jointly, before
the servicemember enters military
service shall not bear interest at a rate
in excess of 6 percent. * * * ’’ With
respect to credit card accounts, this
restriction applies during the period of
military service. See 50 U.S.C. app.
527(a)(1)(B).62 Proposed § 226.59(h)(1)
stated that the requirements of § 226.59
do not apply to increases in an annual
percentage rate that was previously
decreased pursuant to 50 U.S.C. app.
527, provided that such a rate increase
is made in accordance with
§ 226.55(b)(6). Section 226.55(b)(6)
provides that the rate may be increased
when the SCRA ceases to apply, but that
the increased rate may not exceed the
rate that applied prior to the decrease.
The second proposed exception
applied to charged off accounts.
Proposed § 226.59(h)(2) provided that
the requirements of § 226.59 do not
apply to accounts that the card issuer
has charged off in accordance with loanloss provisions. For safety and
soundness reasons, card issuers charge
off accounts that have serious
delinquencies, typically of 180 days or
six months. For such accounts, full
payment is generally due immediately.
Commenters that addressed proposed
§ 226.59(h), including several issuers
and a consumer group, supported these
exceptions. Accordingly, the Board is
62 50 U.S.C. app. 527(a)(1)(B) applies to
obligations or liabilities that do not consist of a
mortgage, trust deed, or other security in the nature
of a mortgage.

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adopting § 226.59(h)(1) and (h)(2) as
proposed.
Other Exceptions
Industry commenters suggested that
the Board adopt several additional
exceptions to the reevaluation
requirements of § 226.59. For example,
one commenter urged the Board to
adopt an exception from the review
requirements for accounts with zero
balances, even if there is subsequent use
of the account. A second commenter
requested an exception for rate increases
that were not applied to outstanding
balances or where the cardholder was
given a right to opt out of the increase.
A third comment letter stated that the
final rule should include an exception
for rate increases that were made for
market conditions if a subsequent rate
increase has been imposed on the
account due to a violation of the
account terms by the consumer.
The Board does not believe that these
exceptions would be appropriate. The
Board notes that new TILA Section 148
is intended to have a broad scope and
to require periodic reviews of all types
of rate increases, regardless of whether
those increases can apply only to new
transactions or to existing balances.
Furthermore, the Board believes that
TILA Section 148 requires that periodic
reviews occur even if a consumer’s
account is subject to multiple or
successive rate increases. In this case,
the Board notes that an issuer could
comply with § 226.59(a) and (d) by
performing combined reviews of the
increased rate or rates based on the
factors it considers when determining
the rates applicable to its new credit
card accounts (subject to the timing rule
in § 226.59(c)).
Appendix G—Open-End Model Forms
and Clauses
For consistency with the substantive
limitations in proposed § 226.52(b), the
Board has amended the model language
in Appendix G for the disclosure of late
payment fees, over-the-limit fees, and
returned payment fees.
Samples G–10(B) & G–10(C)—
Applications and Solicitations Samples
(Credit Cards) (§ 226.5a(b))

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Sample G–10(E)—Applications and
Solicitations Sample (Charge Cards)
(§ 226.5a(b))
Samples G–17(B) & G–17(C)—AccountOpening Samples (§ 226.6(b)(2))
Sections 226.5a and 226.6 require
creditors to disclose late payment fees,
over-the-limit fees, and returned
payment fees in, respectively, the
application and solicitation disclosures

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and the account-opening disclosures.
See §§ 226.5a(b)(9), (b)(10), (b)(12);
§§ 226.6(b)(2)(viii), (b)(2)(ix), (b)(2)(xi).
Model language is provided in Samples
G–10(B), G–10(C), and G–10(E) and in
G–17(B) and G–17(C). The model
language generally reflects current fee
practices by disclosing specific amounts
for over-the-limit and returned payment
fees, while disclosing a lower late
payment fee if the account balance is
less than or equal to a specified amount
($1,000 in the model forms) and a
higher fee if the account balance is more
than that amount.63
As discussed above, § 226.52(b)
establishes new substantive restrictions
on the amount of credit card penalty
fees, including late payment fees, overthe-limit fees, and returned payment
fees. Accordingly, for consistency with
§ 226.52(b), the Board has amended the
model language in Samples G–10(B) and
G–10(C) and in G–17(B) and G–17(C) to
disclose late payment fees, over-thelimit fees, and returned payment fees as
‘‘up to $35.’’ In this model language, $35
represents the maximum fee under the
safe harbors in § 226.52(b)(1)(ii)(A)–(B).
Card issuers that set their fees based on
a cost analysis pursuant to
§ 226.52(b)(1)(i) would instead disclose
the dollar amount that represents a
reasonable proportion of the total costs
incurred by the issuer as a result of the
type of violation. However, consistent
with the safe harbor for charge cards in
§ 226.52(b)(1)(ii)(C), the Board has
amended G–10(E) to disclose the late
payment fee as: ‘‘Up to $35. If you do
not pay for two consecutive billing
cycles, your fee will be $35 or 3% of the
past due amount, whichever is greater.’’
The Board recognizes that, because
the maximum safe harbor fee in
§ 226.52(b)(1)(ii)(B) only applies when a
violation occurs again during the six
billing cycles following the initial
violation, this disclosure overstates the
amount of the penalty fee that will be
imposed for the initial violation. For
example, an issuer utilizing the safe
harbors in § 226.52(b)(1)(ii)(A)–(B)
would disclose its late payment fee as
‘‘up to $35,’’ even though
§ 226.52(b)(1)(i)(A) would only permit
the card issuer to impose a $25 fee for
the first late payment. Nevertheless, a
consumer who incorrectly assumes that
a $35 penalty fee will be imposed for all
violations will not be harmed if—when
a violation actually occurs—a lower
penalty fee is imposed. Furthermore,
disclosing the highest possible penalty
63 Specifically, the model language in Samples G–
10(B), G–10(C), G–17(B), and G–17(C) disclosed the
late payment fee as follows: ‘‘$29 if balance is less
than or equal to $1,000; $35 if balance is more than
$1,000.’’

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fee under the safe harbors in
§ 226.52(b)(1)(ii)(A)–(B) may deter some
consumers from violating the terms or
other requirements of an account, which
would be consistent with new TILA
Section 149(c)(2).
Commenters generally supported this
approach, although some expressed
concern that consumers would receive
incomplete information about how
penalty fees are calculated. The Board
shares this concern. However, it is
unclear whether providing additional
detail would increase the possibility of
consumer confusion without
substantially improving the accuracy of
the model disclosures. Nevertheless, the
Board notes that an ‘‘up to’’ disclosure is
not the only means of accurately
disclosing penalty fees in a manner that
is substantially similar to the applicable
tables in G–10 or G–17 of appendix G.
For example, as discussed above with
respect to § 226.7, penalty fees may be
accurately disclosed as a range under
certain circumstances. Specifically,
disclosing the late payment fee as a
range from $25 to $35 would be accurate
if the issuer utilizes the safe harbors in
§ 226.52(b)(1)(ii)(A)–(B) and the issuer’s
minimum payment formula set a
minimum payment amount of $25 or
higher. Furthermore, because the dollar
amount associated with a returned
payment for purposes of § 226.52(b)(2)(i)
is also the relevant minimum payment,
the same range could also accurately
describe the returned payment fee in
these circumstances. Similarly, a card
issuer that complies with the safe
harbors in § 226.52(b)(1)(ii)(A)–(B)
could accurately disclose its over-thelimit fee as a range from $25 to $35 if
the issuer chooses not to impose an
over-the-limit fee when the total amount
of credit extended in excess of the credit
limit is less than $25. In addition, a card
issuer could use the same range to
accurately describe a declined access
check fee if the issuer chose not to
impose a fee unless the amount of the
access check is $25 or higher.
The Board also notes that, for
purposes of §§ 226.5a and 226.6, a card
issuer is not precluded from disclosing
both the $25 and $35 safe harbor
amounts in § 226.52(b)(1)(ii)(A)–(B),
provided the disclosure accurately
describes the circumstances under
which each amount may be imposed.
Furthermore, as noted above, the Board
previously adopted model language
disclosing a lower late payment fee if
the account balance is less than or equal
to a specified amount and a higher fee
if the account balance is more than that
amount. This model language reflected
the Board’s understanding of fee
practices prior to enactment of the

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Credit Card Act in general and new
TILA § 149 in particular. The Board has
not included similar model language in
this final rule because it is unclear
whether card issuers will continue to
impose different penalty fee amounts
based on the account balance. However,
a card issuer that does so consistent
with the limitations in § 226.52(b) may
disclose the amounts in the applicable
tables consistent with §§ 226.5a and
226.6.
Samples G–18(B), G–18(D), G–18(F),
and G–18(G)—Periodic Statement Forms
(§ 226.7(b))
As noted above, § 226.7(b)(11)(i)(B)
requires card issuers to disclose the
amount of any late payment fee and any
increased rate that may be imposed on
the account as a result of a late payment.
Currently, the model language in
Sample G–18(B) states: ‘‘Late Payment
Warning: If we do not receive your
minimum payment by the date listed
above, you may have to pay a $35 late
fee and your APRs may be increased up
to the Penalty APR of 28.99%.’’ This
language is restated in Samples G–
18(D), G–18(F), and G–18(G). Consistent
with the amendments to Samples G–
10(B), G–10(C), G–17(B), and G–17(C),
the Board is amending the late payment
warning in Samples G–18(B), G–18(D),
G–18(F), and G–18(G) to read as follows:
‘‘If we do not receive your minimum
payment by the date listed above, you
may have to pay a late fee of up to $35
and your APRs may be increased up to
the Penalty APR of 28.99%.’’ 64
Sample G–21—Change-in-Terms
Sample (Increase in Fees) (§ 226.9(c)(2))
The Board is amending the model
language in Sample G–21 disclosing a
change in a late payment fee for
consistency with the amendments to
Samples G–10(B), G–10(C), G–17(B),
and G–17(C).

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Model Form G–25(A)—Consent Form
for Over-the-Limit Transactions
(§ 226.56)
Model Form G–25(B)—Revocation
Notice for Periodic Statement Regarding
Over-the-Limit Transactions (§ 226.56)
As noted above, § 226.56(e)(1)(i)
provides that, in the notice informing
consumers that they must affirmatively
consent (or opt in) to the card issuer’s
payment of over-the-limit transactions,
the card issuer must disclose the dollar
amount of any fees or charges assessed
by the issuer on a consumer’s account
64 The Board notes that no model language is
required for charge card accounts because
§ 226.7(b)(11) does not apply to such accounts. See
§ 226.7(b)(11)(ii)(A).

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for an over-the-limit transaction. Model
language is provided in Model Forms
G–25(A) and G–25(B). For consistency
with § 226.52(b) and the amendments to
Samples G–10(B), G–10(C), G–17(B),
and G–17(C) discussed above, the Board
is revising Model Forms G–25(A) and
G–25(B) to disclose the amount of the
over-the-limit fee as ‘‘up to $35.’’
V. Mandatory Compliance Dates
A. General mandatory compliance
date. The consumer protections in new
TILA Sections 148 and 149 go into effect
on August 22, 2010. See new TILA
Section 148(d); new TILA Section
149(b). Accordingly, the final rule is
effective August 22, 2010. In addition,
the mandatory compliance date for the
amendments to §§ 226.9, 226.52, and
226.59 and the amendments to Model
Forms G–20 and G–22 is August 22,
2010. The amendments to the changein-terms disclosures in Model Forms G–
18(F) and G–18(G) also have a
mandatory compliance date of August
22, 2010. These amendments implement
the statutory requirements in new TILA
Sections 148 and 149.
B. Prospective application of new
rules. The 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
relevant mandatory compliance date.
C. Special mandatory compliance
date for amendments to penalty fee
disclosures. The mandatory compliance
date for the amendments to the penalty
fee disclosures in §§ 226.5a, 226.6,
226.7, and 226.56 and in Model Forms
G–10(B), G–10(C), G–10(E), G–17(B), G–
17(C), G–18(B), G–18(D), G–18(F), G–
18(G), G–21, G–25(A), and G–25(B) is
December 1, 2010. Although card
issuers may not charge late payment
fees, returned payment fees, or over-thelimit fees that are inconsistent with
§ 226.52(b) after August 22, 2010, the
Board understands that it may not be
possible for some card issuers to revise
the disclosures for such fees prior to
August 22. Accordingly, the Board has
established a mandatory compliance
date of December 1, 2010 for the
amendments to the penalty fee
disclosure requirements.
Until December 1, 2010, a card issuer
complies with §§ 226.5a, 226.6, 226.7,
and 226.56 if it discloses an amount for
a late payment fee, returned payment
fee, over-the-limit fee, or other penalty
fee that exceeds the amount permitted
by § 226.52(b). For example, a card
issuer that imposed a late payment fee
of $39 prior to August 22, 2010 may
continue to disclose the amount of its
late payment fee as $39 until December

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1, 2010, even if—consistent with the
safe harbors in § 226.52(b)(1)(ii)—the
card issuer does not actually impose a
fee that exceeds $35. However, the card
issuer may begin to disclose the amount
of the late payment fee as ‘‘up to $35’’
or otherwise comply with the
amendments to §§ 226.5a, 226.6, 226.7,
and 226.56 prior to December 1, 2010.
Additional guidance and examples as to
how a creditor must comply with the
final rule are provided below.
The Board recognizes that, for a
period of time, some consumers may
receive disclosures containing fee
amounts that are inconsistent with
§ 226.52(b). However, a consumer who
is told, for example, that a $39 penalty
fee will be imposed for late payments
will not be harmed if—when he or she
pays late—a lower penalty fee is
imposed.
D. Tabular summaries that
accompany applications or solicitations
(§ 226.5a). Credit and charge card
applications provided or made available
to consumers on or after December 1,
2010 must comply with the final rule.
For example, if a direct-mail application
or solicitation is mailed to a consumer
on November 30, 2010, it is not required
to comply with the new requirements,
even if the consumer does not receive it
until December 7, 2010. If a direct-mail
application or solicitation is mailed to
consumers on or after December 1, 2010,
however, it must comply with the final
rule. If a card issuer makes an
application or solicitation available to
the general public, such as ‘‘take-one’’
applications, any new applications or
solicitations issued by the card issuer on
or after December 1, 2010 must comply
with the new rule. However, if a card
issuer issues an application or
solicitation by making it available to the
public prior to December 1, 2010, for
example by restocking an in-store
display of ‘‘take-one’’ applications on
November 15, 2010, those applications
need not comply with the new rule,
even if a consumer may pick up one of
the applications from the display on or
after December 1, 2010. Any ‘‘take-one’’
applications that the card issuer uses to
restock the display on or after December
1, 2010, however, must comply with the
final rule.
E. Account-opening disclosures
(§ 226.6). Account-opening disclosures
furnished on or after December 1, 2010
must comply with the final rule. 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 November 30, 2010, but the
account-opening disclosures are not

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mailed until December 2, 2010, 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 date on which the
consumer receives the disclosures.
Thus, if a creditor mails the accountopening disclosures on November 30,
2010, even if the consumer receives
those disclosures on December 7, 2010,
the disclosures are not required to
comply with the final rule.
F. Periodic statements (§ 226.7).
Periodic statements mailed or delivered
on or after December 1, 2010 must
comply with the final rule’s revised
penalty fee disclosures. For example, if
a card issuer mails a periodic statement
to the consumer on November 30, 2010,
that statement is not required to comply
with the final rule’s revised penalty fee
disclosures, even if the consumer does
not receive the statement until
December 7, 2010. However, as
discussed below, if the periodic
statement contains a notice of a rate
increase, the requirements of
§ 226.9(c)(2)(iv)(A)(8) and (g)(3)(i)(A)(6)
of the final rule apply to that notice if
the periodic statement is mailed on or
after August 22, 2010.
G. Subsequent disclosure
requirements (§ 226.9).
Notice of rate increases (§ 226.9(c)
and (g)). Sections 226.9(c)(2)(iv)(A)(8)
and (g)(3)(i)(A)(6) of the final rule
require that notices disclosing rate
increases for credit card accounts under
an open-end (not home-secured)
consumer credit plan state no more than
four principal reasons for the increase.
The requirements of
§ 226.9(c)(2)(iv)(A)(8) and (g)(3)(i)(A)(6)
apply to notices of rate increases mailed
or delivered on or after August 22, 2010.
Changes necessary to comply with
final rule (§ 226.9(c)). The Board
understands that, in order to comply
with §§ 226.52(b) and 226.59 by August
22, 2010, card issuers may have to make
changes to the account terms set forth in
a consumer’s credit card agreement or
similar legal documents. Card issuers
should notify consumers of such
changes as soon as reasonably
practicable. However, the Board
understands that, given the amount of
time between issuance of this final rule
and the statutory effective date, it may
not be possible for some card issuers to
comply with the provision in
§ 226.9(c)(2) stating that any required
notice must be provided 45 days in
advance of a change that is effective
August 22. In these circumstances, the
card issuer must comply with the
applicable substantive provisions set
forth in §§ 226.52(b) and 226.59 on

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August 22, even if the terms of the
account have not been amended
consistent with § 226.9(c)(2). Otherwise,
the notice requirements in § 226.9(c)(2)
could permit card issuers to continue to
engage in practices that are inconsistent
with §§ 226.52(b) and 226.59 after
August 22, which would not be
consistent with Congress’ intent.
For example, in order to comply with
§ 226.52(b), card issuers may have to
change the terms governing the
imposition of fees for violating those
terms or other requirements of the
account. If the change involves a
reduction in the amount of the fee,
§ 226.9(c)(2)(v)(A) provides that no
notice is required under § 226.9(c)
(although, as discussed below, notice
may be required under § 226.9(e)).
However, if a change does not involve
a reduction in a fee and a card issuer
provides a notice of the change on July
10, 2010, § 226.9(c)(2) technically
prohibits the issuer from applying those
changes to the account until August 24,
2010. In these circumstances,
notwithstanding the 45-day notice
requirement in § 226.9(c)(2), the card
issuer cannot impose a penalty fee that
is inconsistent with § 226.52(b) on or
after August 22, 2010.
For these reasons, if § 226.9(c)(2)
requires a card issuer to provide notice
of a change that is necessary to comply
with this final rule, the card issuer is
not required to provide that notice 45
days before the effective date of the
change. Furthermore, because it would
not be appropriate to permit consumers
to reject a change that is necessary to
comply with this final rule, card issuers
are not required to provide consumers
with the right to reject pursuant to
§ 226.9(h) in these circumstances.
Additional guidance regarding changes
necessary to comply with § 226.52(b) is
provided below.
Renewal notices (§ 226.9(e)). As
amended by the February 2010
Regulation Z Rule, § 226.9(e), in part,
requires card issuers to provide a notice
at least 30 days prior to renewal of a
credit or charge card if the card issuer
has changed or amended any term of a
cardholder’s account required to be
disclosed under § 226.6(b)(1) and (b)(2)
that has not previously been disclosed
to the cardholder. The Board is aware
that as creditors implement changes to
their systems and pricing structures to
comply with §§ 226.52(b) and 226.59,
they may make changes to terms
required to be disclosed under
§ 226.6(b)(1) and (b)(2) for which
advance notice is not required under
§ 226.9(c)(2) or (g). For example, a
creditor may decrease its penalty fees to
comply with § 226.52(b) or may change

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its contractual provisions regarding
penalty pricing in order to facilitate
compliance with § 226.59. To the extent
that these changes result in the
reduction of finance or other charges,
§ 226.9(c)(2)(v)(A) provides that advance
notice is not required. However, such
changes may give rise to the
requirement to provide disclosures
under § 226.9(e) prior to the scheduled
renewal of the card.
The Board understands that an
issuer’s credit or charge card accounts
may renew on a rolling basis, and that,
given the short compliance period for
this final rule, providing the notice
under § 226.9(e) 30 days in advance of
renewal may pose significant
operational issues for issuers that are
making changes to comply or facilitate
compliance with new §§ 226.52(b) or
§§ 226.59. Accordingly, for a brief
transition period after the effective date
of this final rule, a card issuer that
makes changes to terms required to be
disclosed under 226.6(b)(1) and (b)(2)
that are not otherwise required to be
disclosed in advance under § 226.9(c) or
(g) in order to comply or facilitate
compliance with § 226.52(b) or § 226.59
may provide the notice under § 226.9(e)
as soon as reasonably practicable after
such changes become effective. The
Board understands that in some cases
this will mean that a consumer will
receive the notice required under
§ 226.9(e) less than 30 days before, or
even shortly after, the renewal of the
account.
This transition guidance is intended
to apply only in those circumstances
where the renewal notice is required
because of changes to terms required to
be disclosed under § 226.6(b)(1) or (b)(2)
that have not previously been disclosed
to the consumer. If the card issuer
imposes an annual or other periodic fee
for renewal, § 226.9(e) requires that the
renewal notice be mailed or delivered at
least 30 days or one billing cycle,
whichever is less, before the mailing or
delivery of the periodic statement on
which any renewal fee is initially
charged to the account.
The Board understands that some
card issuers may both (1) impose an
annual or other periodic fee for renewal
and (2) make changes to terms required
to be disclosed under § 226.6(b)(1) or
(b)(2), in order to comply or facilitate
compliance with §§ 226.52(b) or 226.59,
that have not previously been disclosed
to the consumer. In these circumstances,
the notice required by § 226.9(e) must be
mailed or delivered at least 30 days or
one billing cycle, whichever is less,
before the mailing or delivery of the
periodic statement on which any
renewal fee is initially charged to the

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account. The Board understands that,
for a brief transition period, it may be
operationally difficult or impossible for
issuers to disclose changes to terms that
were made to comply or facilitate
compliance with §§ 226.52(b) or 226.59
in such a § 226.9(e) notice. In these
circumstances, a card issuer may
disclose the changes made to comply
with or facilitate compliance with
§§ 226.52(b) or 226.59 in the next
§ 226.9(e) notice that it provides for a
subsequent renewal of the account.
H. Limitations on credit card penalty
fees (§ 226.52(b)).
Generally. The effective date for new
TILA Section 149 is August 22, 2010.
Accordingly, card issuers must comply
with § 226.52(b) beginning on August
22, 2010. However, unlike new TILA
Section 148 (which expressly applies to
rate increases that occurred prior to its
statutory effective date), nothing in new
TILA Section 149 indicates that
Congress intended the ‘‘reasonable and
proportional’’ standard to apply
retroactively. Accordingly, § 226.52(b)
does not apply to fees imposed prior to
August 22, 2010. Furthermore, the
Board notes that this final rule should
not be construed as suggesting that
penalty fees imposed prior to August 22,
2010 were unreasonable.
Fees based on costs (§ 226.52(b)(1)(i)).
A card issuer that begins imposing
penalty fees pursuant to § 226.52(b)(1)(i)
on August 22, 2010 must have
previously determined that the dollar
amount of the fee represents a
reasonable proportion of the total costs
incurred by the card issuer as a result
of that type of violation.
Safe harbors (§ 226.52(b)(1)(ii)). The
Board understands that some card
issuers will not be able to perform the
cost analysis required by
§ 226.52(b)(1)(i) prior to August 22, 2010
and will therefore be required to comply
with the safe harbors in § 226.52(b)(1)(ii)
for a period of time. In these
circumstances, the card issuer may
impose penalty fees that are consistent
with the safe harbors in § 226.52(b)(1)(ii)
beginning on August 22, 2010, even if
corresponding amendments to the terms
of the account have not yet been made
consistent with the advance notice
requirements in § 226.9(c)(2) (as
applicable). Furthermore, because it
would not be appropriate to permit
consumers to reject changes to account
terms that are consistent with the safe
harbors in § 226.52(b)(1)(ii), card issuers
are not required to provide consumers
with the right to reject pursuant to
§ 226.9(h) in these circumstances.
If a card issuer utilizes the safe
harbors in § 226.52(b)(1)(ii), the first
penalty fee imposed on or after August

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22, 2010 generally must comply with
the $25 safe harbor in
§ 226.52(b)(1)(ii)(A). For example, if the
required minimum periodic payment
due on August 25 is late, the amount of
the late payment fee cannot exceed $25,
even if the payment due on July 25 was
also late. As discussed above, the safe
harbors in § 226.52(b)(1)(ii)(A)–(B) are
designed to balance the statutory factors
of cost, deterrence, and consumer
conduct by limiting the fee for an initial
violation to $25 while permitting an
increased fee of $35 for additional
violations of the same type during the
next six billing cycles. Thus, it would be
inconsistent with this purpose to permit
a card issuer to impose a $35 penalty fee
after August 22 based on a violation that
occurred prior to August 22.
However, the safe harbor in
§ 226.52(b)(1)(ii)(C) is intended to
permit charge card issuers to effectively
manage seriously delinquent accounts.
Thus, § 226.52(b)(1)(ii)(C) applies once
the required payment for a charge card
account has not been received for two
or more consecutive billing cycles, even
if the delinquency began prior to August
22, 2010. For example, 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. If the required
payment due at the end of the July 2010
billing cycle has not been received by
the end of the August 2010 billing cycle,
§ 226.52(b)(1)(ii)(C) permits the charge
card issuer to impose a late payment fee
that does not exceed 3% of the
delinquent balance.
Closed account fees
(§ 226.52(b)(2)(i)(B)(3)). 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.
Comment 226.52(b)(2)(i)–6 clarifies that
§ 226.52(b)(2)(i)(B)(3) does not prohibit
a card issuer from continuing to impose
a periodic fee that was imposed before
the account was closed or terminated.
Similarly, to the extent that a
permissible periodic fee was charged on
a closed account prior to August 22,
2010, § 226.52(b)(2)(i)(B)(3) does not
prohibit a card issuer from continuing to
impose that fee with respect to that
account after August 22 (although the
card issuer is not permitted to increase
the amount of the fee).
The Board notes that, effective
February 22, 2010, § 226.55(d)(1)
prohibited card issuers from imposing a
periodic fee based solely on the balance
on a closed account (such as a closed
account fee) if that fee was not charged
before the account was closed. See

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comment 55(d)–1. In other words,
beginning on February 22, card issuers
were no longer permitted to begin
charging a periodic fee when an account
with a balance was closed.
Accordingly, § 226.52(b)(2)(i)(B)(3)
does not, for example, prohibit a card
issuer that imposed a $10 monthly
closed account fee on a specific account
prior to August 22 from continuing to
charge that $10 monthly fee after August
22. However, consistent with
§ 226.55(d)(1), the card issuer must have
begun charging the $10 monthly fee to
the account prior to February 22.
Multiple fees based on a single event
or transaction (§ 226.52(b)(2)(ii)).
Beginning on August 22, 2010,
§ 226.52(b)(2)(ii) prohibits card issuers
from imposing more than one penalty
fee based on a single event or
transaction. However, § 226.52(b)(2)(ii)
permits card issuers to comply with this
prohibition by imposing no more than
one penalty fee during a billing cycle. A
card issuer that uses this method to
comply with § 226.52(b)(2)(ii) is not
required to determine whether multiple
penalty fees were imposed during a
billing cycle that begins prior to August
22, 2010.
I. Requirements for over-the-limit
transactions (§ 226.56). Notices
provided pursuant to § 226.56 on or
after December 1, 2010 must comply
with the final rule. For example, if a
creditor mails an opt-in notice to a
consumer on November 30, 2010, that
notice is not required to comply with
the final rule, even if the consumer does
not receive the notice until December 7,
2010. However, if a card issuer mails an
opt-in notice to a consumer on
December 1, that notice must comply
with the final rule.
J. Reevaluation of rate increases
(§ 226.59). Section 226.59 generally
requires that rate increases be reviewed
in accordance with that section no less
frequently than once every six months.
As discussed in comment 59(c)–3, the
review of annual percentage rates
increased on or after January 1, 2009
and prior to August 22, 2010 must be
completed prior to February 22, 2011.
For annual percentage rates increased
on or after August 22, 2010, any review
required by § 226.59 must be completed
within six months of the effective date
of the increase.
VI. Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) requires an
agency to perform an initial and final
regulatory flexibility analysis on the
impact a rule is expected to have on
small entities.

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The Board received no significant
comments addressing the initial
regulatory flexibility analysis.
Therefore, based on its analysis and for
the reasons stated below, the Board has
concluded that this final rule will have
a significant economic impact on a
substantial number of small entities.
Accordingly, the Board has prepared the
following final regulatory flexibility
analysis pursuant to section 604 of the
RFA.
1. Statement of the need for, and
objectives of, the final rule. The final
rule implements new substantive
requirements and updates to disclosure
provisions in the Credit Card Act, which
establishes fair and transparent
practices relating to the extension of
open-end consumer credit plans. The
supplementary information above
describes in detail the reasons,
objectives, and legal basis for each
component of the final rule.
2. Summary of the significant issues
raised by public comment in response to
the Board’s initial analysis, the Board’s
assessment of such issues, and a
statement of any changes made as a
result of such comments. As discussed
above, the Board’s initial regulatory
flexibility analysis reached the
preliminary conclusion that the
proposed rule would have a significant
economic impact on a substantial
number of small entities. See 75 FR
12354–12355 (Mar. 15, 2010). The Board
received no comments specifically
addressing this analysis.
3. Small entities affected by the final
rule. All creditors that offer credit card
accounts under open-end (not homesecured) consumer credit plans are
subject to the final rule. The Board is
relying on the analysis in the January
2009 FTC Act Rule, in which the Board,
the OTS, and the NCUA estimated that
approximately 3,500 small entities offer
credit card accounts. See 74 FR 5549–
5550 (January 29, 2009). The Board
acknowledges, however, that the total
number of small entities likely to be
affected by the final rule is unknown, in
part because the estimate in the January
2009 FTC Act Rule does not include
card issuers that are not banks, savings
associations, or credit unions.
4. Recordkeeping, reporting, and
compliance requirements. The final rule
does not impose any new recordkeeping
or reporting requirements. The final
rule, however, imposes new compliance
requirements. The compliance
requirements of this final rule are
described above in IV. Section-bySection Analysis. The Board notes that
the precise costs to small entities to
conform their open-end credit
disclosures to the final rule and the

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costs of updating their systems to
comply with the rule are difficult to
predict. These costs depend on a
number of factors that are unknown to
the Board, including, among other
things, the specifications of the current
systems used by such entities to prepare
and provide disclosures and administer
credit card accounts, the complexity of
the terms of the credit card products
that they offer, and the range of such
product offerings.
Provisions Regarding Consumer Credit
Card Accounts
This subsection summarizes several of
the amendments to Regulation Z and
their likely impact on small entities that
offer open-end credit. More information
regarding these and other changes can
be found in IV. Section-by-Section
Analysis.
Sections 226.5a and 226.6 require
creditors to disclose late payment fees,
over-the-limit fees, and returned
payment fees in, respectively, the
application and solicitation disclosures
and the account-opening disclosures.
For consistency with § 226.52(b)
(discussed below), the final rule amends
§§ 226.5a(a)(2)(iv) and 226.6(b)(1)(i) to
require creditors (including creditors
that are small entities) to use bold text
when disclosing maximum limits on
fees in the application and solicitation
table and the account-opening table,
respectively. Creditors that are small
entities are already required to provide
this information so the Board does not
anticipate any significant additional
burden on small entities by requiring
the use of bold text. In order to reduce
the burden on small entities, the Board
has provided model forms which can be
used to comply with the final rule.
Section 226.7(b)(11)(i)(B) generally
requires card issuers (including issuers
that are small entities) to disclose the
amount of any late payment fee and any
increased rate that may be imposed on
the account as a result of a late payment.
Previously, if a range of late payment
fees could be assessed,
§ 226.7(b)(11)(i)(B) permitted card
issuers to disclose the highest fee and,
at the card issuer’s option, an indication
that the fee imposed could be lower
(such as a disclosure that the late
payment fee is ‘‘up to $35’’). For
consistency with § 226.52(b) (discussed
below), the final rule amends
§ 226.7(b)(11)(i)(B) to clarify that it is no
longer optional to disclose an indication
that the late payment fee may be lower
than the disclosed amount. However,
§ 226.7(b)(11)(i)(B) already requires card
issuers to disclose late payment fee
information on the periodic statement
so the Board does not anticipate any

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significant additional burden on small
entities. The Board also seeks to reduce
the burden on small entities by
providing model forms which can be
used to ease compliance with the final
rule.
Under the final rule,
§§ 226.9(c)(2)(iv)(A)(8) and
226.9(g)(3)(i)(A)(6) generally require
card issuers (including issuers that are
small entities) to disclose no more than
four reasons for an annual percentage
rate increase in the notice required to be
provided 45 days in advance of that
increase. Although §§ 226.9(c) and (g)
already require card issuers to provide
45 days’ notice prior to an annual
percentage rate increase,
§§ 226.9(c)(2)(iv)(A)(8) and
226.9(g)(3)(i)(A)(6) may require some
small entities to establish processes and
alter their systems in order to comply
with the provision. The cost of such
change will depend on the size of the
institution and the composition of its
portfolio. In order to reduce the burden
on small entities, the Board has
provided model forms which can be
used to comply with the final rule.
The final rule amends § 226.52 by
creating a new § 226.52(b), which
generally limits the dollar amount of
penalty fees imposed by card issuers
(including issuers that are small
entities). Specifically, credit card
penalty fees must be based on an
analysis of the costs incurred by the
issuer as a result of violations of the
terms or other requirements of an
account or on one of the safe harbors
established by the final rule. In
addition, § 226.52(b) prohibits penalty
fees that exceed the dollar amount
associated with the violation and certain
types of penalty fees without an
associated dollar amount. As discussed
above, compliance with § 226.52(b) will
require card issuers that are small
entities to conform certain penalty fee
disclosures already required under
§§ 226.5a, 226.6, and 226.7.65
The final rule creates a new § 226.59,
which generally requires card issuers
(including issuers that are small
entities) to reevaluate an increased
annual percentage rate no less than
every six months. In addition, § 226.59
requires card issuers (including issuers
that are small entities) to reduce the
annual percentage rate, if appropriate
based on such reevaluation. Section
226.59 will require some small entities
65 In addition, compliance with § 226.52(b) will
require card issuers that are small entities to revise
the disclosure of over-the-limit fees in the notice
provided pursuant to 226.56. In order to assist card
issuers in complying with the final rule, the Board
has revised the model language for these
disclosures.

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to establish processes and alter their
systems in order to comply with the
provision. The cost of such change will
depend on the size of the institution and
the composition of its portfolio. In
addition, this provision will reduce
revenue that some small entities derive
from finance charges.
Accordingly, the Board believes that,
in the aggregate, the provisions of its
final rule will have a significant
economic impact on a substantial
number of small entities.
5. Other federal rules. The Board has
not identified any federal rules that
duplicate, overlap, or conflict with the
Board’s revisions to Regulation Z.
6. Significant alternatives to the final
revisions. The provisions of the final
rule implement the statutory
requirements of the Credit Card Act that
go into effect on August 22, 2010. The
Board sought to avoid imposing
additional burden, while effectuating
the statute in a manner that is beneficial
to consumers. In particular, in order to
reduce the burden of revising penalty
fee disclosures, the Board has
established a mandatory compliance
date of December 1, 2010 for the
amendments to §§ 226.5a, 226.6, 226.7,
and 226.56. The Board did not receive
any comment on any significant
alternatives, consistent with the Credit
Card Act, which would minimize
impact of the final rule on small
entities.
VII. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C.
3506; 5 CFR part 1320 appendix A.1),
the Board reviewed the final rule under
the authority delegated to the Board by
the Office of Management and Budget
(OMB). The collection of information
that is required by this final rule is
found in 12 CFR part 226. The Federal
Reserve may not conduct or sponsor,
and an organization is not required to
respond to, this information collection
unless the information collection
displays a currently valid OMB control
number. The OMB control number is
7100–0199.66
This information collection is
required to provide benefits for
consumers and is mandatory (15 U.S.C.
1601 et seq.). The respondents/
recordkeepers are creditors and other
entities subject to Regulation Z,
including for-profit financial
institutions. TILA and Regulation Z are
intended to ensure effective disclosure
66 In 2009, the information collection was retitled—Reporting, Recordkeeping and Disclosure
Requirements associated with Regulation Z (Truth
in Lending) and Regulation AA (Unfair or Deceptive
Acts or Practices).

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of the costs and terms of credit to
consumers. For open-end credit,
creditors are required, among other
things, to disclose information about the
initial costs and terms and to provide
periodic statements of account activity,
notices of changes in terms, and
statements of rights concerning billing
error procedures. Regulation Z requires
specific types of disclosures for credit
and charge card accounts and homeequity plans. TILA and Regulation Z
also contain rules concerning credit
advertising. Creditors are required to
retain evidence of compliance for
twenty-four months (§ 226.25), but
Regulation Z does not specify the types
of records that must be retained.
Under the PRA, the Federal Reserve
accounts for the paperwork burden
associated with Regulation Z for the
state member banks and other creditors
supervised by the Federal Reserve that
engage in lending covered by Regulation
Z and, therefore, are respondents under
the PRA. Appendix I of Regulation Z
defines the Federal Reserve-regulated
institutions as: state member banks,
branches and agencies of foreign banks
(other than federal branches, federal
agencies, and insured state branches of
foreign banks), commercial lending
companies owned or controlled by
foreign banks, and organizations
operating under section 25 or 25A of the
Federal Reserve Act. Other federal
agencies account for the paperwork
burden on other entities subject to
Regulation Z. To ease the burden and
cost of complying with Regulation Z
(particularly for small entities), the
Federal Reserve provides model forms,
which are appended to the regulation.
As discussed in I. Background, a
notice of proposed rulemaking (NPR)
was published in the Federal Register
on March 15, 2010 (75 FR 12334). The
comment period for the Board’s
preliminary PRA analysis expired on
May 14, 2010. No comments specifically
addressing the paperwork burden
estimates were received; therefore, the
estimates will remain unchanged as
published in the NPR.
Under sections §§ 226.5a(a)(2)(iv) and
226.6(b)(1)(i), the use of bold text is
required when disclosing maximum
limits on fees in the application and
solicitation table and the accountopening table, respectively. The Board
anticipates that creditors will
incorporate, with little change, the
formatting change with the disclosures
already required under
§§ 226.5a(a)(2)(iv) and 226.6(b)(1)(i). In
an effort to reduce burden, the Board
has amended Appendix G–18 to provide
guidance on complying with the final
rule.

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Under § 226.7(b)(11)(i)(B), a card
issuer is required to disclose the amount
of any late payment fee and any
increased rate that may be imposed on
the account as a result of a late payment.
Previously, if a range of late payment
fees could be assessed,
§ 226.7(b)(11)(i)(B) permitted card
issuers to disclose the highest fee and,
at the card issuer’s option, an indication
that the fee imposed could be lower
(such as a disclosure that the late
payment fee is ‘‘up to $35’’). For
consistency with § 226.52(b) (discussed
below), the final rule amends
§ 226.7(b)(11)(i)(B) to clarify that it is no
longer optional to disclose an indication
that the late payment fee may be lower
than the disclosed amount. The Board
anticipates that card issuers, with little
additional burden, will incorporate the
final rule’s disclosure requirement with
the disclosures already required under
§ 226.7(b)(11)(i)(B). In an effort to
reduce burden, the Board amends
Appendix G–18 to provide guidance on
an ‘‘up to’’ disclosure.
Under §§ 226.9(c)(2)(iv)(A)(8) and
226.9(g)(3)(i)(A)(6), a card issuer is
required to disclose no more than four
reasons for an annual percentage rate
increase in the notice required to be
provided 45 days in advance of that
increase. The Board anticipates that
card issuers, with little additional
burden, will incorporate the final rule’s
disclosure requirement with the
disclosures already required under
§ 226.9(c) and § 226.9(g). In an effort to
reduce burden, the Board has amended
Appendix G–18 to provide guidance on
complying with the final rule.
Section 226.52(b) generally limits the
dollar amount of penalty fees imposed
by card issuers. Specifically, credit card
penalty fees must be based on an
analysis of the costs incurred by the
issuer as a result of violations of the
terms or other requirements of an
account or on one of the safe harbors
established by the final rule. In
addition, § 226.52(b) prohibits penalty
fees that exceed the dollar amount
associated with the violation and certain
types of penalty fees without an
associated dollar amount. As discussed
above, compliance with § 226.52(b) will
require card issuers to conform certain
penalty fee disclosures already required
under §§ 226.5a, 226.6, and 226.7.67
The Board estimates that the final rule
will impose a one-time increase in the
67 In addition, compliance with § 226.52(b) will
require card issuers that are small entities to revise
the disclosure of over-the-limit fees in the notice
provided pursuant to 226.56. In order to assist card
issuers in complying with the final rule, the Board
has revised the model language in Appendix G–18
for these disclosures.

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total annual burden under Regulation Z.
The 1,138 respondents will take, on
average, 40 hours to update their
systems to comply with the disclosure
requirements addressed in this final
rule. The total annual burden is
estimated to increase by 45,520 hours,
from 1,442,594 to 1,488,114 hours.68
The total one-time burden increase
represents averages for all respondents
regulated by the Federal Reserve. The
Federal Reserve expects that the amount
of time required to implement the
changes adopted by the final rule for a
given financial institution or entity may
vary based on the size and complexity
of the respondent.
The other Federal financial agencies:
The Office of the Comptroller of the
Currency (OCC), the Office of Thrift
Supervision (OTS), the Federal Deposit
Insurance Corporation (FDIC), and the
National Credit Union Administration
(NCUA) are responsible for estimating
and reporting to OMB the total
paperwork burden for the domestically
chartered commercial banks, thrifts, and
federal credit unions and U.S. branches
and agencies of foreign banks for which
they have primary administrative
enforcement jurisdiction under TILA
Section 108(a), 15 U.S.C. 1607(a). These
agencies are permitted, but are not
required, to use the Board’s burden
estimation methodology. Using the
Board’s method, the total current
estimated annual burden for the
approximately 16,200 domestically
chartered commercial banks, thrifts, and
federal credit unions and U.S. branches
and agencies of foreign banks
supervised by the Federal Reserve, OCC,
OTS, FDIC, and NCUA under TILA will
be approximately 18,962,245 hours. The
final rule will impose a one-time
increase in the estimated annual burden
for such institutions by 648,000 hours to
19,610,245 hours. The above estimates
represent an average across all
respondents; the Board expects
variations between institutions based on
their size, complexity, and practices.
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 Michelle Shore, Federal Reserve
Board Clearance Officer, Division of
Research and Statistics, Mail Stop 95–A,
68 The burden estimate for this rulemaking does
not include the burden addressing changes to
implement the following provisions announced in
separate rulemakings:
1. Closed-End Mortgages (Docket No. R–1366) (74
FR 43232).
2. Home-Equity Lines of Credit (Docket No. R–
1367) (74 FR 43428).
3. Notification of the sale or transfer of mortgage
loans (Docket No. R–1378) (74 FR 60143).

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Board of Governors of the Federal
Reserve System, Washington, DC 20551,
with copies of such comments sent to
the Office of Management and Budget,
Paperwork Reduction Project (7100–
0199), Washington, DC 20503.
List of Subjects in 12 CFR Part 226
Advertising, Consumer protection,
Federal Reserve System, Reporting and
recordkeeping requirements, Truth in
Lending.
Text of Final Revisions
For the reasons set forth in the
preamble, the Board is amending
Regulation Z, 12 CFR part 226, as set
forth below:
PART 226—TRUTH IN LENDING
(REGULATION Z)
1. In § 226.5a, revise paragraph
(a)(2)(iv) to read as follows:

■

§ 226.5a Credit and charge card
applications and solicitations.

(a) * * *
(2) * * *
(iv) When a tabular format is required,
any annual percentage rate required to
be disclosed pursuant to paragraph
(b)(1) of this section, any introductory
rate required to be disclosed pursuant to
paragraph (b)(1)(ii) of this section, any
rate that will apply after a premium
initial rate expires required to be
disclosed under paragraph (b)(1)(iii) of
this section, and any fee or percentage
amounts or maximum limits on fee
amounts disclosed pursuant to
paragraphs (b)(2), (b)(4), (b)(8) through
(b)(13) of this section must be disclosed
in bold text. However, bold text shall
not be used for: The amount of any
periodic fee disclosed pursuant to
paragraph (b)(2) of this section that is
not an annualized amount; and other
annual percentage rates or fee amounts
disclosed in the table.
*
*
*
*
*
■ 2. In § 226.6, revise paragraph (b)(1)(i)
to read as follows:
§ 226.6

Account-opening disclosures.

*

*
*
*
*
(b) * * *
(1) * * *
(i) Highlighting. In the table, any
annual percentage rate required to be
disclosed pursuant to paragraph (b)(2)(i)
of this section; any introductory rate
permitted to be disclosed pursuant to
paragraph (b)(2)(i)(B) or required to be
disclosed under paragraph (b)(2)(i)(F) of
this section, any rate that will apply
after a premium initial rate expires
permitted to be disclosed pursuant to
paragraph (b)(2)(i)(C) or required to be
disclosed pursuant to paragraph

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(b)(2)(i)(F), and any fee or percentage
amounts or maximum limits on fee
amounts disclosed pursuant to
paragraphs (b)(2)(ii), (b)(2)(iv), (b)(2)(vii)
through (b)(2)(xii) of this section must
be disclosed in bold text. However, bold
text shall not be used for: The amount
of any periodic fee disclosed pursuant
to paragraph (b)(2) of this section that is
not an annualized amount; and other
annual percentage rates or fee amounts
disclosed in the table.
*
*
*
*
*
■ 3. In § 226.7, revise paragraph
(b)(11)(i)(B) to read as follows:
§ 226.7

Periodic statement.

*

*
*
*
*
(b) * * *
(11) * * *
(i) * * *
(B) The amount of any late payment
fee and any increased periodic rate(s)
(expressed as an annual percentage
rate(s)) that may be imposed on the
account as a result of a late payment. If
a range of late payment fees may be
assessed, the card issuer may state the
range of fees, or the highest fee and an
indication that the fee imposed could be
lower. If the rate may be increased for
more than one feature or balance, the
card issuer may state the range of rates
or the highest rate that could apply and
at the issuer’s option an indication that
the rate imposed could be lower.
*
*
*
*
*
■ 4. In § 226.9, revise paragraphs (c)(2)
and (g) to read as follows:
§ 226.9 Subsequent disclosure
requirements.

*

*
*
*
*
(c) * * *
(2) Rules affecting open-end (not
home-secured) plans—(i) Changes
where written advance notice is
required—(A) General. For plans other
than home-equity plans subject to the
requirements of § 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 to a term
required to be disclosed under
§ 226.6(b)(3), (b)(4) or (b)(5) or the
required minimum periodic payment is
increased, a creditor must provide a
written notice of the change at least 45
days prior to the effective date of the
change to each consumer who may be
affected. The 45-day timing requirement
does not apply if the consumer has
agreed to a particular change; the notice
shall be given, however, before the
effective date of the change. Increases in
the rate applicable to a consumer’s

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Federal Register / Vol. 75, No. 124 / Tuesday, June 29, 2010 / Rules and Regulations
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.
(B) Changes agreed to by the
consumer. A notice of change in terms
is required, but it may be mailed or
delivered as late as the effective date of
the change if the consumer agrees to the
particular change. This paragraph
(c)(2)(i)(B) applies only when a
consumer substitutes collateral or when
the creditor can advance additional
credit only if a change relatively unique
to that consumer is made, such as the
consumer’s providing additional
security or paying an increased
minimum payment amount. The
following are not considered agreements
between the consumer and the creditor
for purposes of this paragraph
(c)(2)(i)(B): The consumer’s general
acceptance of the creditor’s contract
reservation of the right to change terms;
the consumer’s use of the account
(which might imply acceptance of its
terms under state law); the consumer’s
acceptance of a unilateral term change
that is not particular to that consumer,
but rather is of general applicability to
consumers with that type of account;
and the consumer’s request to reopen a
closed account or to upgrade an existing
account to another account offered by
the creditor with different credit or
other features.
(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 § 226.6(b)(1) and (b)(2),
an increase in the required minimum
periodic payment, or the acquisition of
a security interest.
(iii) Charges not covered by
§ 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 § 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 may 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.

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(iv) Disclosure requirements—(A)
Significant changes in account terms. If
a creditor makes a significant change in
account terms as described in paragraph
(c)(2)(ii) of this section, the notice
provided pursuant to paragraph (c)(2)(i)
of this section must provide the
following information:
(1) A summary of the changes made
to terms required by § 226.6(b)(1) and
(b)(2), a description of any increase in
the required minimum periodic
payment, and a description of any
security interest being acquired by the
creditor;
(2) A statement that changes are being
made to the account;
(3) For accounts other than credit card
accounts under an open-end (not homesecured) consumer credit plan subject to
§ 226.9(c)(2)(iv)(B), a statement
indicating the consumer has the right to
opt out of these changes, if applicable,
and a reference to additional
information describing the opt-out right
provided in the notice, if applicable;
(4) The date the changes will become
effective;
(5) If applicable, a statement that the
consumer may find additional
information about the summarized
changes, and other changes to the
account, in the notice;
(6) If the creditor is changing a rate on
the account, other than a penalty rate,
a statement that if a penalty rate
currently applies to the consumer’s
account, the new rate described in the
notice will not apply to the consumer’s
account until the consumer’s account
balances are no longer subject to the
penalty rate;
(7) If the change in terms being
disclosed is an increase in an annual
percentage rate, the balances to which
the increased rate will be applied. If
applicable, a statement identifying the
balances to which the current rate will
continue to apply as of the effective date
of the change in terms; and
(8) If the change in terms being
disclosed is an increase in an annual
percentage rate for a credit card account
under an open-end (not home-secured)
consumer credit plan, a statement of no
more than four principal reasons for the
rate increase, listed in their order of
importance.
(B) Right to reject for credit card
accounts under an open-end (not homesecured) 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

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37569

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 § 226.52(b)(1)(i) or an
adjustment to the safe harbors in
§ 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, a change in the
balance computation method applicable
to consumer’s account necessary to
comply with § 226.54, 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:
(1) A statement that the consumer has
the right to reject the change or changes
prior to the effective date of the changes,
unless the consumer fails to make a
required minimum periodic payment
within 60 days after the due date for
that payment;
(2) Instructions for rejecting the
change or changes, and a toll-free
telephone number that the consumer
may use to notify the creditor of the
rejection; and
(3) If applicable, a statement that if
the consumer rejects the change or
changes, the consumer’s ability to use
the account for further advances will be
terminated or suspended.
(C) Changes resulting from failure to
make minimum periodic payment
within 60 days from due date for credit
card accounts under an open-end (not
home-secured) consumer credit plan.
For a credit card account under an
open-end (not home-secured) consumer
credit plan:
(1) If the significant change required
to be disclosed pursuant to paragraph
(c)(2)(i) of this section is an increase in
an annual percentage rate or a fee or
charge required to be disclosed under
§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii)
based on the consumer’s failure to make
a minimum periodic payment within 60
days from the due date for that payment,
the notice provided pursuant to
paragraph (c)(2)(i) of this section must
state that the increase will cease to
apply to transactions that occurred prior
to or within 14 days of provision of the
notice, if the creditor receives six
consecutive required minimum periodic
payments on or before the payment due
date, beginning with the first payment
due following the effective date of the
increase.
(2) If the significant change required
to be disclosed pursuant to paragraph
(c)(2)(i) of this section is an increase in
a fee or charge required to be disclosed
under § 226.6(b)(2)(ii), (b)(2)(iii), or

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(b)(2)(xii) based on the consumer’s
failure to make a minimum periodic
payment within 60 days from the due
date for that payment, the notice
provided pursuant to paragraph (c)(2)(i)
of this section must also state the reason
for the increase.
(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), 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
§ 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 § 226.6(b)(2).
(2) Notice included with periodic
statement. If a notice required by
paragraph (c)(2)(i) of this section is
included on or with a periodic
statement, the information described in
paragraph (c)(2)(iv)(A)(1) of this section
must be disclosed on the front of any
page of the statement. The summary of
changes described in paragraph
(c)(2)(iv)(A)(1) of this section must
immediately follow the information
described in paragraph (c)(2)(iv)(A)(2)
through (c)(2)(iv)(A)(7) and, if
applicable, paragraphs (c)(2)(iv)(A)(8),
(c)(2)(iv)(B), and (c)(2)(iv)(C) of this
section, and be substantially similar to
the format shown in Sample G–20 or G–
21 in appendix G to this part.
(3) Notice provided separately from
periodic statement. If a notice required
by paragraph (c)(2)(i) of this section is
not included on or with a periodic
statement, the information described in
paragraph (c)(2)(iv)(A)(1) of this section
must, at the creditor’s option, be
disclosed on the front of the first page
of the notice or segregated on a separate
page from other information given with
the notice. The summary of changes
required to be in a table pursuant to
paragraph (c)(2)(iv)(A)(1) of this section
may be on more than one page, and may
use both the front and reverse sides, so
long as the table begins on the front of
the first page of the notice and there is
a reference on the first page indicating
that the table continues on the following
page. The summary of changes
described in paragraph (c)(2)(iv)(A)(1) of
this section must immediately follow
the information described in paragraph
(c)(2)(iv)(A)(2) through (c)(2)(iv)(A)(7)
and, if applicable, paragraphs
(c)(2)(iv)(A)(8), (c)(2)(iv)(B), and
(c)(2)(iv)(C), of this section,

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substantially similar to the format
shown in Sample G–20 or G–21 in
appendix G to this part.
(v) Notice not required. For open-end
plans (other than home equity plans
subject to the requirements of § 226.5b)
a creditor is not required to provide
notice under this section:
(A) When the change involves charges
for documentary evidence; a reduction
of any component of a finance or other
charge; suspension of future credit
privileges (except as provided in
paragraph (c)(2)(vi) of this section) or
termination of an account or plan; when
the change results from an agreement
involving a court proceeding; when the
change is an extension of the grace
period; or if the change is applicable
only to checks that access a credit card
account and the changed terms are
disclosed on or with the checks in
accordance with paragraph (b)(3) of this
section;
(B) When the change is an increase in
an annual percentage rate 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
that would apply after expiration of the
period;
(2) The disclosure of the length of the
period and the annual percentage rate
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 that
applies during the specified period of
time; and
(3) The annual percentage rate that
applies after that period does not exceed
the rate 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 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
§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii),
or the required minimum periodic
payment due to the completion of a
workout or temporary hardship

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arrangement by the consumer or the
consumer’s failure to comply with the
terms of such an arrangement, provided
that:
(1) The annual percentage rate or fee
or charge applicable to a category of
transactions or the required minimum
periodic payment following any such
increase does not exceed the rate or fee
or charge or required minimum periodic
payment that applied to that category of
transactions prior to commencement of
the arrangement or, if the rate that
applied to a category of transactions
prior to the commencement of the
workout or temporary hardship
arrangement was a variable rate, the rate
following any such increase is a variable
rate determined by the same formula
(index and margin) that applied to the
category of transactions prior to
commencement of the workout or
temporary hardship arrangement; and
(2) The creditor has provided the
consumer, prior to the commencement
of such arrangement, with a clear and
conspicuous disclosure of the terms of
the arrangement (including any
increases due to such completion or
failure). This disclosure must generally
be provided in writing. However, a
creditor may provide the disclosure of
the terms of the arrangement orally by
telephone, provided that the creditor
mails or delivers a written disclosure of
the terms of the arrangement to the
consumer as soon as reasonably
practicable after the oral disclosure is
provided.
(vi) Reduction of the credit limit. For
open-end plans that are not subject to
the requirements of § 226.5b, if a
creditor decreases the credit limit on an
account, advance notice of the decrease
must be provided before an over-thelimit fee or a penalty rate can be
imposed solely as a result of the
consumer exceeding the newly
decreased credit limit. Notice shall be
provided in writing or orally at least 45
days prior to imposing the over-thelimit fee or penalty rate and shall state
that the credit limit on the account has
been or will be decreased.
*
*
*
*
*
(g) Increase in rates due to
delinquency or default or as a penalty—
(1) Increases subject to this section. For
plans other than home-equity plans
subject to the requirements of § 226.5b,
except as provided in paragraph (g)(4) of
this section, a creditor must provide a
written notice to each consumer who
may be affected when:
(i) A rate is increased due to the
consumer’s delinquency or default; or
(ii) A rate is increased as a penalty for
one or more events specified in the

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account agreement, such as making a
late payment or obtaining an extension
of credit that exceeds the credit limit.
(2) Timing of written notice.
Whenever any notice is required to be
given pursuant to paragraph (g)(1) of
this section, the creditor shall provide
written notice of the increase in rates at
least 45 days prior to the effective date
of the increase. The notice must be
provided after the occurrence of the
events described in paragraphs (g)(1)(i)
and (g)(1)(ii) of this section that trigger
the imposition of the rate increase.
(3)(i) Disclosure requirements for rate
increases—(A) General. If a creditor is
increasing the rate due to delinquency
or default or as a penalty, the creditor
must provide the following information
on the notice sent pursuant to paragraph
(g)(1) of this section:
(1) A statement that the delinquency
or default rate or penalty rate, as
applicable, has been triggered;
(2) The date on which the
delinquency or default rate or penalty
rate will apply;
(3) The circumstances under which
the delinquency or default rate or
penalty rate, as applicable, will cease to
apply to the consumer’s account, or that
the delinquency or default rate or
penalty rate will remain in effect for a
potentially indefinite time period;
(4) A statement indicating to which
balances the delinquency or default rate
or penalty rate will be applied;
(5) If applicable, a description of any
balances to which the current rate will
continue to apply as of the effective date
of the rate increase, unless a consumer
fails to make a minimum periodic
payment within 60 days from the due
date for that payment; and
(6) For a credit card account under an
open-end (not home-secured) consumer
credit plan, a statement of no more than
four principal reasons for the rate
increase, listed in their order of
importance.
(B) Rate increases resulting from
failure to make minimum periodic
payment within 60 days from due date.
For a credit card account under an
open-end (not home-secured) consumer
credit plan, if the rate increase required
to be disclosed pursuant to paragraph
(g)(1) of this section is an increase
pursuant to § 226.55(b)(4) based on the
consumer’s failure to make a minimum
periodic payment within 60 days from
the due date for that payment, the notice
provided pursuant to paragraph (g)(1) of
this section must also state that the
increase will cease to apply to
transactions that occurred prior to or
within 14 days of provision of the
notice, if the creditor receives six
consecutive required minimum periodic

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payments on or before the payment due
date, beginning with the first payment
due following the effective date of the
increase.
(ii) Format requirements. (A) If a
notice required by paragraph (g)(1) of
this section is included on or with a
periodic statement, the information
described in paragraph (g)(3)(i) of this
section must be in the form of a table
and provided on the front of any page
of the periodic statement, above the
notice described in paragraph (c)(2)(iv)
of this section if that notice is provided
on the same statement.
(B) If a notice required by paragraph
(g)(1) of this section is not included on
or with a periodic statement, the
information described in paragraph
(g)(3)(i) of this section must be disclosed
on the front of the first page of the
notice. Only information related to the
increase in the rate to a penalty rate may
be included with the notice, except that
this notice may be combined with a
notice described in paragraph (c)(2)(iv)
or (g)(4) of this section.
(4) Exception for decrease in credit
limit. A creditor is not required to
provide a notice pursuant to paragraph
(g)(1) of this section prior to increasing
the rate for obtaining an extension of
credit that exceeds the credit limit,
provided that:
(i) The creditor provides at least 45
days in advance of imposing the penalty
rate a notice, in writing, that includes:
(A) A statement that the credit limit
on the account has been or will be
decreased.
(B) A statement indicating the date on
which the penalty rate will apply, if the
outstanding balance exceeds the credit
limit as of that date;
(C) A statement that the penalty rate
will not be imposed on the date
specified in paragraph (g)(4)(i)(B) of this
section, if the outstanding balance does
not exceed the credit limit as of that
date;
(D) The circumstances under which
the penalty rate, if applied, will cease to
apply to the account, or that the penalty
rate, if applied, will remain in effect for
a potentially indefinite time period;
(E) A statement indicating to which
balances the penalty rate may be
applied; and
(F) If applicable, a description of any
balances to which the current rate will
continue to apply as of the effective date
of the rate increase, unless the consumer
fails to make a minimum periodic
payment within 60 days from the due
date for that payment; and
(ii) The creditor does not increase the
rate applicable to the consumer’s
account to the penalty rate if the
outstanding balance does not exceed the

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37571

credit limit on the date set forth in the
notice and described in paragraph
(g)(4)(i)(B) of this section.
(iii)(A) If a notice provided pursuant
to paragraph (g)(4)(i) of this section is
included on or with a periodic
statement, the information described in
paragraph (g)(4)(i) of this section must
be in the form of a table and provided
on the front of any page of the periodic
statement; or
(B) If a notice required by paragraph
(g)(4)(i) of this section is not included
on or with a periodic statement, the
information described in paragraph
(g)(4)(i) of this section must be disclosed
on the front of the first page of the
notice. Only information related to the
reduction in credit limit may be
included with the notice, except that
this notice may be combined with a
notice described in paragraph (c)(2)(iv)
or (g)(1) of this section.
*
*
*
*
*
■ 5. Section 226.52(b) is added to read
as follows:
§ 226.52

Limitations on fees.

*

*
*
*
*
(b) Limitations on penalty fees. A card
issuer must not impose a fee for
violating the terms or other
requirements of a credit card account
under an open-end (not home-secured)
consumer credit plan unless the dollar
amount of the fee is consistent with
paragraphs (b)(1) and (b)(2) of this
section.
(1) General rule. Except as provided
in paragraph (b)(2) of this section, a card
issuer may impose a fee for violating the
terms or other requirements of a credit
card account under an open-end (not
home-secured) consumer credit plan if
the dollar amount of the fee is
consistent with either paragraph (b)(1)(i)
or (b)(1)(ii) of this section.
(i) Fees based on costs. A card issuer
may impose a fee for violating the terms
or other requirements of an account if
the card issuer has determined that the
dollar amount of the fee represents a
reasonable proportion of the total costs
incurred by the card issuer as a result
of that type of violation. A card issuer
must reevaluate this determination at
least once every twelve months. If as a
result of the reevaluation the card issuer
determines that a lower fee represents a
reasonable proportion of the total costs
incurred by the card issuer as a result
of that type of violation, the card issuer
must begin imposing the lower fee
within 45 days after completing the
reevaluation. If as a result of the
reevaluation the card issuer determines
that a higher fee represents a reasonable
proportion of the total costs incurred by

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the card issuer as a result of that type
of violation, the card issuer may begin
imposing the higher fee after complying
with the notice requirements in § 226.9.
(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:
(A) For the first violation of a
particular type, $25.00, adjusted
annually by the Board to reflect changes
in the Consumer Price Index;
(B) For an additional violation of the
same type during the next six billing
cycles, $35.00, adjusted annually by the
Board to reflect changes in the
Consumer Price Index; or
(C) When a card issuer has not
received the required payment for two
or more consecutive billing cycles for a
charge card account that requires
payment of outstanding balances in full
at the end of each billing cycle, three
percent of the delinquent balance.
(2) Prohibited fees—(i) Fees that
exceed dollar amount associated with
violation. (A) Generally. A card issuer
must not impose a fee for violating the
terms or other requirements of a credit
card account under an open-end (not
home-secured) consumer credit plan
that exceeds the dollar amount
associated with the violation.
(B) No dollar amount associated with
violation. A card issuer must not impose
a fee for violating the terms or other
requirements of a credit card account
under an open-end (not home-secured)
consumer credit plan when there is no
dollar amount associated with the
violation. For purposes of paragraph
(b)(2)(i) of this section, there is no dollar
amount associated with the following
violations:
(1) Transactions that the card issuer
declines to authorize;
(2) Account inactivity; and
(3) The closure or termination of an
account.
(ii) Multiple fees based on a single
event or transaction. A card issuer must
not impose more than one fee for
violating the terms or other
requirements of a credit card account
under an open-end (not home-secured)
consumer credit plan based on a single
event or transaction. A card issuer may,
at its option, comply with this
prohibition by imposing no more than
one fee for violating the terms or other
requirements of an account during a
billing cycle.
■ 6. Section 226.59 is added to read as
follows:
§ 226.59

Reevaluation of rate increases.

(a) General rule—(1) Evaluation of
increased rate. If a card issuer increases

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an annual percentage rate that applies 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, or increased such a rate on or
after January 1, 2009, and 45 days’
advance notice of the rate increase is
required pursuant to § 226.9(c)(2) or (g),
the card issuer must:
(i) Evaluate the factors described in
paragraph (d) of this section; and
(ii) Based on its review of such
factors, reduce the annual percentage
rate applicable to the consumer’s
account, as appropriate.
(2) Rate reductions—(i) Timing. If a
card issuer is required to reduce the rate
applicable to an account pursuant to
paragraph (a)(1) of this section, the card
issuer must reduce the rate not later
than 45 days after completion of the
evaluation described in paragraph (a)(1).
(ii) Applicability of rate reduction.
Any reduction in an annual percentage
rate required pursuant to paragraph
(a)(1) of this section shall apply to:
(A) Any outstanding balances to
which the increased rate described in
paragraph (a)(1) of this section has been
applied; and
(B) New transactions that occur after
the effective date of the rate reduction
that would otherwise have been subject
to the increased rate.
(b) Policies and procedures. A card
issuer must have reasonable written
policies and procedures in place to
conduct the review described in
paragraph (a) of this section.
(c) Timing. A card issuer that is
subject to paragraph (a) of this section
must conduct the review described in
paragraph (a)(1) of this section not less
frequently than once every six months
after the rate increase.
(d) Factors—(1) In general. Except as
provided in paragraph (d)(2) of this
section, a card issuer must review
either:
(i) The factors on which the increase
in an annual percentage rate was
originally based; or
(ii) The factors that the card issuer
currently considers when determining
the annual percentage rates applicable
to similar new credit card accounts
under an open-end (not home-secured)
consumer credit plan.
(2) Rate increases imposed between
January 1, 2009 and February 21, 2010.
For rate increases imposed between
January 1, 2009 and February 21, 2010,
an issuer must consider the factors
described in paragraph (d)(1)(ii) when
conducting the first two reviews
required under paragraph (a) of this
section, unless the rate increase subject
to paragraph (a) of this section was

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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.
(e) Rate increases subject to
§ 226.55(b)(4). If an issuer increases a
rate applicable to a consumer’s account
pursuant to § 226.55(b)(4) based on the
card issuer not receiving the consumer’s
required minimum periodic payment
within 60 days after the due date, the
issuer is not required to perform the
review described in paragraph (a) of this
section prior to the sixth payment due
date after the effective date of the
increase. However, if the annual
percentage rate applicable to the
consumer’s account is not reduced
pursuant to § 226.55(b)(4)(ii), the card
issuer must perform the review
described in paragraph (a) of this
section. The first such review must
occur no later than six months after the
sixth payment due following the
effective date of the rate increase.
(f) Termination of obligation to review
factors. The obligation to review factors
described in paragraph (a) and (d) of
this section ceases to apply:
(1) If the issuer reduces the annual
percentage rate applicable to a credit
card account under an open-end (not
home-secured) consumer credit plan to
the rate applicable immediately prior to
the increase, or, if the rate applicable
immediately prior to the increase was a
variable rate, to a variable rate
determined by the same formula (index
and margin) that was used to calculate
the rate applicable immediately prior to
the increase; or
(2) If the issuer reduces the annual
percentage rate to a rate that is lower
than the rate described in paragraph
(f)(1) of this section.
(g) Acquired accounts—(1) General.
Except as provided in paragraph (g)(2)
of this section, this section applies to
credit card accounts that have been
acquired by the card issuer from another
card issuer. A card issuer that complies
with this section by reviewing the
factors described in paragraph (d)(1)(i)
must review the factors considered by
the card issuer from which it acquired
the accounts in connection with the rate
increase.
(2) Review of acquired portfolio. If,
not later than six months after the
acquisition of such accounts, a card
issuer reviews all of the credit card
accounts it acquires in accordance with
the factors that it currently considers in
determining the rates applicable to its
similar new credit card accounts:
(i) Except as provided in paragraph
(g)(2)(iii), the card issuer is required to
conduct reviews described in paragraph

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continues to be subject to, an increased
rate as a penalty, or due to the
consumer’s delinquency or default, the
requirements of paragraph (a) of this
section apply.
(h) Exceptions—(1) Servicemembers
Civil Relief Act exception. The
requirements of this section do not
apply to increases in an annual
percentage rate that was previously
decreased pursuant to 50 U.S.C. app.
527, provided that such a rate increase
is made in accordance with
§ 226.55(b)(6).

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(2) Charged off accounts. The
requirements of this section do not
apply to accounts that the card issuer
has charged off in accordance with loanloss provisions.
■ 7. Appendix G to part 226 is amended
by revising Forms G–10(B), G–10(C), G–
10(E), G–17(B), G–17(C), G–18(B), G–
18(D), G–18(F), G–18(G), G–20, G–21,
G–22, G–25(A), and G–25(B).
Appendix G To Part 226—Open-End
Model Forms And Clauses
*

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(a) of this section only for rate increases
that are imposed as a result of its review
under this paragraph. See §§ 226.9 and
226.55 for additional requirements
regarding rate increases on acquired
accounts.
(ii) Except as provided in paragraph
(g)(2)(iii) of this section, the card issuer
is not required to conduct reviews in
accordance with paragraph (a) of this
section for any rate increases made prior
to the card issuer’s acquisition of such
accounts.
(iii) If as a result of the card issuer’s
review, an account is subject to, or

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G–18(B)—Late Payment Fee Sample
Late Payment Warning: If we do not
receive your minimum payment by the date
listed above, you may have to pay a late fee

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of up to $35 and your APRs may be increased
up to the Penalty APR of 28.99%.

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Federal Register / Vol. 75, No. 124 / Tuesday, June 29, 2010 / Rules and Regulations

Your choice regarding over-the-credit limit
coverage
Unless you tell us otherwise, we will
decline any transaction that causes you to go
over your credit limit. If you want us to
authorize these transactions, you can request
over-the-credit limit coverage.
If you have over-the-credit limit coverage
and you go over your credit limit, we will
charge you a fee of up to $35. We may also
increase your APRs to the Penalty APR of
XX.XX%. You will only pay one fee per
billing cycle, even if you go over your limit
multiple times in the same cycle.
Even if you request over-the-credit limit
coverage, in some cases we may still decline
a transaction that would cause you to go over
your limit, such as if you are past due or
significantly over your credit limit.
If you want over-the-limit coverage and to
allow us to authorize transactions that go
over your credit limit, please:
—Call us at [telephone number];
—Visit [Web site]; or
—Check or initial the box below, and return
the form to us at [address].
lllllllllllllllllllll
l I want over-the-limit coverage. I
understand that if I go over my credit limit,
my APRs may be increased and I will be
charged a fee of up to $35. [I have the right
to cancel this coverage at any time.]
[l I do not want over-the-limit coverage.
I understand that transactions that exceed my
credit limit will not be authorized.]
Printed Name: llllllllllllll
Date: llllllllllllllllll
[Account Number]: lllllllllll
G–25(B)—Revocation Notice for Periodic
Statement Regarding Over-the-Credit Limit
Transactions
You currently have over-the-credit limit
coverage on your account, which means that
we pay transactions that cause you go to over
your credit limit. If you do go over your
credit limit, we will charge you a fee of up
to $35. We may also increase your APRs. To
remove over-the-credit-limit coverage from
your account, call us at 1–800-xxxxxxx or
visit [insert web site]. [You may also write us
at: [insert address].]
[You may also check or initial the box
below and return this form to us at: [insert
address].
l I want to cancel over-the-limit coverage
for my account.
Printed Name: llllllllllllll

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Date: llllllllllllllllll issuer’s late payment fee will not exceed $35.
[Account Number]: lllllllllll The maximum limit of $35 for the late
payment fee must be highlighted in bold.
■ 8. In Supplement I to Part 226:
Similarly, assume an issuer will charge a
■ A. Under Section 226.5a—Credit and
cash advance fee of $5 or 3 percent of the
Charge Card Applications and
cash advance transaction amount, whichever
Solicitations, under 5a(a) General rules, is greater, but the fee will not exceed $100.
under 5a(a)(2) Form of disclosures;
The maximum limit of $100 for the cash
tabular format, paragraph 5.ii. is
advance fee must be highlighted in bold.

revised.
■ B. Under Section 226.9–Subsequent
Disclosure Requirements:
■ (i) Under 9(c) Change in terms, the
heading 9(c)(2)(iv) Significant charges in
account terms is removed.
■ (ii) Under 9(c) Change in terms, under
9(c)(2)(iv) Disclosure requirements,
paragraphs 1. through 10. are revised
and paragraph 11. is added.
■ (iii) Under 9(c) Change in terms,
under 9(c)(2)(v) Notice not required,
paragraph 12. is added.
■ (iii) Under 9(g) Increase in rates due
to delinquency or default or as a
penalty, paragraphs 1. through 6. are
revised and paragraph 7. is added.
■ C. Under Section 226.52—Limitations
on Fees, 52(b) Limitations on penalty
fees is added.
■ D. Under Section 226.56—
Requirements for over-the-limit
transactions:
■ (i) Under 56(e) Content, paragraph 1.
is revised; and
■ (ii) Under 56(j) Prohibited practices,
paragraph 6. is added.
■ E. Section 226.59–Reevaluation of
Rate Increases is added.
Supplement I to Part 226—Official Staff
Interpretations
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Section 226.5a—Credit and Charge Card
Applications and Solicitations

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5a(a) General rules.

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5a(a)(2) Form of disclosures; tabular
format.

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5. * * *
ii. Maximum limits on fees. Section
226.5a(a)(2)(iv) provides that any maximum
limits on fee amounts must be disclosed in
bold text. For example, assume that,
consistent with § 226.52(b)(1)(ii), a card

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Section 226.9—Subsequent Disclosure
Requirements

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9(c) Change in terms.

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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 § 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
§ 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 nonvariable rate. If a creditor is changing a rate
applicable to a consumer’s account from a
variable rate to a non-variable rate, the
creditor must provide a notice as otherwise
required under § 226.9(c) even if the variable
rate at the time of the change is higher than
the non-variable rate.
4. Changing from a non-variable rate to a
variable rate. If a creditor is changing a rate
applicable to a consumer’s account from a
non-variable rate to a variable rate, the
creditor must provide a notice as otherwise
required under § 226.9(c) even if the nonvariable rate is higher than the variable rate
at the time of the change.

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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 § 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
§ 226.9(c)(2)(iv) with a notice described in
§ 226.9(g)(3). If a creditor is required to
provide a notice described in § 226.9(c)(2)(iv)
and a notice described in § 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 § 226.9(c)(2)(iv) when a
variable rate is being changed to a nonvariable 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
§ 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 § 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
§ 226.9(c)(2)(iv)(A)(1).
10. Terminology. See § 226.5(a)(2) for
terminology requirements applicable to
disclosures required under
§ 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

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a minimum number of reasons that must be
disclosed. However, the specific reasons
disclosed under § 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, § 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.

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12. Temporary rates—relationship to
§ 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, § 226.59 may
require an issuer to reinstate a reduced
temporary rate based on that review. If, based
on a review required by § 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 § 226.9(c)(2)(v)(B) prior to the
original commencement of the temporary
rate. See § 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

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§ 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 § 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 § 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.

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9(g) Increase in rates due to delinquency or
default or as a penalty.
1. Relationship between § 226.9(c) and (g)
and § 226.55—examples. Card issuers subject
to § 226.55 are prohibited from increasing the
annual percentage rate for a category of
transactions on any consumer credit card
account unless specifically permitted by one
of the exceptions in § 226.55(b). See
comments 55(a)–1 and 55(b)–3 and the
commentary to § 226.55(b)(4) for examples
that illustrate the relationship between the
notice requirements of § 226.9(c) and (g) and
§ 226.55.
2. Affected consumers. If a single credit
account involves multiple consumers that
may be affected by the change, the creditor
should refer to § 226.5(d) to determine the
number of notices that must be given.
3. Combining a notice described in
§ 226.9(g)(3) with a notice described in
§ 226.9(c)(2)(iv). If a creditor is required to
provide notices pursuant to both
§ 226.9(c)(2)(iv) and (g)(3) to a consumer, the
creditor may combine the two notices. This
would occur when penalty pricing has been
triggered, and other terms are changing on
the consumer’s account at the same time.
4. Content. Sample G–22 contains an
example of how to comply with the
requirements in § 226.9(g)(3)(i) when the rate
on a consumer’s credit card account is being
increased to a penalty rate as described in
§ 226.9(g)(1)(ii), based on a late payment that
is not more than 60 days late. Sample G–23
contains an example of how to comply with
the requirements in § 226.9(g)(3)(i) when the
rate increase is triggered by a delinquency of
more than 60 days.
5. Clear and conspicuous standard. See
comment 5(a)(1)–1 for the clear and
conspicuous standard applicable to
disclosures required under § 226.9(g).
6. Terminology. See § 226.5(a)(2) for
terminology requirements applicable to
disclosures required under § 226.9(g).
7. Reasons for increase. See comment
9(c)(2)(iv)–11 for guidance on disclosure of
the reasons for a rate increase for a credit
card account under an open-end (not homesecured) consumer credit plan.

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Section 226.52—Limitations on Fees

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52(b) Limitations on penalty fees.
1. Fees for violating the account terms or
other requirements. For purposes of

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§ 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 § 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 § 226.52(b) or
are prohibited by § 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 § 226.56(a), to the
extent the imposition of such a fee or charge
is permitted by § 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
§ 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 § 226.52(b)(2)(i)(B).
G. Any fee imposed by a card issuer based
on the closure or termination of an account.
See § 226.52(b)(2)(i)(B).
ii. The following are examples of fees to
which § 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
§ 226.5a(b)(2), except to the extent that such
fees are based on account inactivity. See
§ 226.52(b)(2)(i)(B).
E. Fees for insurance described in
§ 226.4(b)(7) or debt cancellation or debt
suspension coverage described in
§ 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 § 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
§ 226.52(b) to the nearest whole dollar. For
example, if § 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 § 226.52(b) were
$21.49, the card issuer would not be
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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 § 226.52(b)(1)(i),
(b)(1)(ii), and (b)(2).
i. Relationship between § 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
§ 226.52(b)(1)(i) or (b)(1)(ii).
A. A card issuer that complies with the
safe harbors in § 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 § 226.52(b)(1)(i).
B. A card issuer may impose a fee for one
type of violation pursuant to § 226.52(b)(1)(i)
and may impose a fee for a different type of
violation pursuant to § 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 § 226.52(b)(1)(i)
but impose returned payment and over-thelimit fees of $25 or $35 pursuant to the safe
harbors in § 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 § 226.52(b)(1)(i) may begin to impose a
penalty fee for that type of violation that is
consistent with § 226.52(b)(1)(ii) at any time
(subject to the notice requirements in
§ 226.9), provided that the first fee imposed
pursuant to § 226.52(b)(1)(ii) is consistent
with § 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 § 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 § 226.52(b)(1)(i) or may impose a
$25 late payment fee pursuant to
§ 226.52(b)(1)(ii)(A). However, the card issuer
may not impose a $35 late payment fee
pursuant to § 226.52(b)(1)(ii)(B). If the card
issuer imposes a $25 fee pursuant to
§ 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 § 226.52(b)(1)(ii)(B).
ii. Relationship between § 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
§ 226.52(b)(2). For example, if
§ 226.52(b)(2)(i) prohibits the card issuer
from imposing a late payment fee that
exceeds $15, § 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 § 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

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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
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 § 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 § 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
§ 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
§ 226.52(b)(1)(i).
5. Uncollected fees. For purposes of
§ 226.52(b)(1)(i), a card issuer may consider

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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 § 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 § 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
§ 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

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words, $1.3 million in additional costs for a
total of $27.3 million). For purposes of
§ 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 § 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 § 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 § 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 § 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.

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8. Over-the-limit fees.
i. Costs incurred as a result of over-thelimit transactions. For purposes of
§ 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 overthe-limit transactions. For purposes of
§ 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 § 226.56 are not costs
incurred by a card issuer as a result of overthe-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 § 226.56,
the card issuer was only permitted to impose
200,000 over-the-limit fees during year one.
For purposes of § 226.52(b)(1)(i), a $23 overthe-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 § 226.52(b)(2)(i), an over-thelimit 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 § 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 overthe-limit transactions and other factors

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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 § 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 overthe-limit transactions during year two.
9. Declined access check fees.
i. Costs incurred as a result of declined
access checks. For purposes of
§ 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
§ 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. Section
226.52(b)(1)(ii)(A) permits a card issuer to
impose a fee that does not exceed $25 for the
first violation of a particular type. For a
subsequent violation of the same type during
the next six billing cycles,
§ 226.52(b)(1)(ii)(B) permits the card issuer to
impose a fee that does not exceed $35.
i. Next six billing cycles. A fee may be
imposed pursuant to § 226.52(b)(1)(ii)(B) if,
during the six billing cycles following the
billing cycle in which a violation occurred,
another violation of the same type occurs.
A. Late payments. For purposes of
§ 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
§ 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 § 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.

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D. Declined access checks. For purposes of
§ 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 §§ 226.52(b)(2)(ii) and
226.56(j)(1)(i). If multiple violations are
based on the same event or transaction such
that § 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 § 226.52(b)(1)(ii).
Furthermore, consistent with § 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
§ 226.52(b)(1)(ii).
iii. Examples: The following examples
illustrate the application of
§ 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 § 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
§ 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
§ 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, § 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 § 226.56, the consumer has affirmatively
consented to the payment of transactions that
exceed the credit limit. A required minimum

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37587

periodic payment of $30 is due on August 25.
On August 26, a late payment has occurred
because no payment has been received.
Accordingly, consistent with
§ 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
§ 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
§ 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
§ 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,
§ 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
§ 226.52(b)(1)(ii), the event or transaction
constitutes a single violation. However, if the
card issuer imposes a late payment fee,
§ 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 § 226.52(b)(1)(ii)(A).
2. Adjustments based on Consumer Price
Index. For purposes of § 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 § 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 § 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 § 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

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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 § 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 § 226.52(b)(1)(ii)(C). Consistent
with § 226.52(b)(2)(ii), a charge card issuer
that imposes a fee pursuant to
§ 226.52(b)(1)(ii)(C) with respect to a late
payment may not impose a fee pursuant to
§ 226.52(b)(1)(ii)(B) with respect to the same
late payment. The following examples
illustrate the application of
§ 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 § 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 § 226.52(b)(1)(ii)(A). On
August 5, the card issuer provides a periodic
statement disclosing the $1,325 balance
consistent with § 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 § 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 § 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
§ 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 § 226.52(b)(1)(ii)(B).
However, § 226.52(b)(2)(ii) prohibits the card
issuer from imposing both fees.
52(b)(2) Prohibited fees.
1. Relationship to § 226.52(b)(1). A card
issuer does not comply with § 226.52(b) if it
imposes a fee that is inconsistent with the
prohibitions in § 226.52(b)(2). Thus, the
prohibitions in § 226.52(b)(2) apply even if a

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fee is consistent with § 226.52(b)(1)(i) or
(b)(1)(ii). For example, even if a card issuer
has determined for purposes of
§ 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, § 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
§ 226.52(b)(1)(ii) permits a card issuer to
impose a $25 fee, § 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
§ 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, § 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 § 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 § 226.52(b)(2)(i)(A), the amount
of that fee cannot exceed $15 (even if a
higher fee would be permitted under
§ 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
§ 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 § 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
§ 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 § 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
§ 226.52(b)(2)(i)(A), the amount of that fee
cannot exceed $15 (even if a higher fee
would be permitted under § 226.52(b)(1)).
2. Returned payment fees. For purposes of
§ 226.52(b)(2)(i), the dollar amount associated
with a returned payment is the amount of the

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required minimum periodic payment due
immediately prior to the date on which the
payment is returned to the card issuer. Thus,
§ 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
§ 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
§ 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, § 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
§ 226.52(b)(1)). Furthermore, § 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
§ 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,
§ 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 § 226.52(b)(1)). Furthermore,
§ 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 § 226.52(b)(2)(i), the

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dollar amount associated with the returned
payment is the amount of the required
minimum periodic payment due on August
25 ($15). Thus, § 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
§ 226.52(b)(1)).
3. Over-the-limit fees. For purposes of
§ 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, § 226.52(b)(2)(i)(A) prohibits
a card issuer from imposing an over-the-limit
fee that exceeds that amount. Nothing in
§ 226.52(b) permits a card issuer to impose an
over-the-limit fee if imposition of the fee is
inconsistent with § 226.56. The following
examples illustrate the application of
§ 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 § 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 § 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,
§ 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 § 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
§ 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
§ 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 § 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, § 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
§ 226.52(b)(2)(i), the dollar amount associated
with the declined check is the amount of the

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check ($50). Thus, § 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
§ 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 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). For example,
§ 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.
Similarly, § 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.
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. The
following examples illustrate the application
of § 226.52(b)(2)(ii). Assume for purposes of
these examples that the billing cycles for a
credit card account begin on the first day of
the month and end on the last day of the
month and that the payment due date for the
account is the twenty-fifth day of the month.
i. Assume that the required minimum
periodic payment due on March 25 is $20.
On March 26, the card issuer has not
received any payment and imposes a late
payment fee. Section 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).
However, § 226.52(b)(2)(ii) does not prohibit
the card issuer from imposing an additional
late payment fee if the required minimum
periodic payment due on April 25 (which
may include the $20 due on March 25) is not
received on or before that date.
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

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insufficient funds on March 27. Consistent
with §§ 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, § 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 §§ 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, § 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), § 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 § 226.52(b)(1)(ii)(A)
and (b)(2)(i)(A), the card issuer may impose
a returned payment fee of $25. Nothing in
§ 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
§ 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 § 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.

*

*

*

*

*

Section 226.56—Requirements for over-thelimit transactions.

*

*

*

*

*

56(e) Content.
1. Amount of over-the-limit fee. See Model
Forms G–25(A) and G–25(B) for guidance on
how to disclose the amount of the over-thelimit fee.

*

*

*

*

*

56(j) Prohibited practices.

*

*

*

*

*

6. Additional restrictions on over-the-limit
fees. See § 226.52(b).

*

*

*

*

*

Section 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

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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
§ 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 homesecured) 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 § 226.9(c) of the change in terms,
but the requirements of § 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 § 226.9(g) and the requirements
of § 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 § 226.9(c) of the change in terms,
but the requirements of § 226.59 do not
apply. If the consumer subsequently engages
in a cash advance transaction, the
requirements of § 226.59 begin to apply at
that time.
3. 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, § 226.59(a) requires the
card issuer to review the factors described in
§ 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 § 226.9(c)(2) or
(g). For example, 45 days’ notice is not
required under § 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
§ 226.9(c)(2)(v)(C) or if the increase occurs
upon expiration of a specified period of time
and disclosures complying with
§ 226.9(c)(2)(v)(B) have been provided. The
requirements of § 226.59 do not apply to such
rate increases.
4. Amount of rate decrease. Even in
circumstances where a rate reduction is
required, § 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
§ 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 § 226.59(b) for
consideration of factors described in
§ 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

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reviewing the factors on which the increase
in an annual percentage rate was originally
based, in accordance with § 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 § 226.59(a)
must be reasonable, as required by
§ 226.59(b), and must take into account any
reduction in the consumer’s credit risk based
upon the consumer’s timely payments.
59(a)(2) Rate reductions.
59(a)(2)(ii) Applicability of rate reduction.
1. Applicability of reduced rate to new
transactions. Section 226.59(a)(2)(ii) requires,
in part, that any reduction in rate required
pursuant to § 226.59(a)(1) must apply to new
transactions that occur after the effective date
of the rate reduction, if those transactions
would otherwise have been subject to the
increased rate described in § 226.59(a)(1). A
credit card account may have multiple types
of balances, for example, purchases, cash
advances, and balance transfers, to which
different rates apply. For example, assume a
new credit card account opened on January
1 of year one has a rate applicable to
purchases of 15% and a rate applicable to
cash advances and balance transfers of 20%.
Effective March 1 of year two, consistent
with the limitations in § 226.55 and upon
giving notice required by § 226.9(c)(2), the
card issuer raises the rate applicable to new
purchases to 18% based on market
conditions. The only transaction in which
the consumer engages in year two is a $1,000
purchase made on July 1. The rate for cash
advances and balance transfers remains at
20%. Based on a subsequent review required
by § 226.59(a)(1), the card issuer determines
that the rate on purchases must be reduced
to 16%. Section 226.59(a)(2)(ii) requires that
the 16% rate be applied to the $1,000
purchase made on July 1 and to all new
purchases. The rate for new cash advances
and balance transfers may remain at 20%,
because there was no rate increase applicable
to those types of transactions and, therefore,
the requirements of § 226.59(a) do not apply.
59(c) Timing.
1. In general. The issuer may review all of
its accounts subject to § 226.59(a) at the same
time once every six months, may review each
account once each six months on a rolling
basis based on the date on which the rate was
increased for that account, or may otherwise
review each account not less frequently than
once every six months.
2. Example. A card issuer increases the
rates applicable to one half of its credit card
accounts on June 1, 2011. The card issuer
increases the rates applicable to the other
half of its credit card accounts on September
1, 2011. The card issuer may review the rate
increases for all of its credit card accounts on
or before December 1, 2011, and at least
every six months thereafter. In the
alternative, the card issuer may first review
the rate increases for the accounts that were
repriced on June 1, 2011 on or before
December 1, 2011, and may first review the
rate increases for the accounts that were
repriced on September 1, 2011 on or before
March 1, 2012.
3. Rate increases prior to effective date of
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applicable to a credit card account under an
open-end (not home-secured) consumer
credit plan on or after January 1, 2009 and
prior to August 22, 2010, § 226.59(c) requires
that the first review for such rate increases
be conducted prior to February 22, 2011.
59(d) Factors.
1. Change in factors. A creditor that
complies with § 226.59(a) by reviewing the
factors it currently considers in determining
the annual percentage rates applicable to
similar new credit card accounts may change
those factors from time to time. When a
creditor changes the factors it considers in
determining the annual percentage rates
applicable to similar new credit card
accounts from time to time, it may comply
with § 226.59(a) by reviewing the set of
factors it considered immediately prior to the
change in factors for a brief transition period,
or may consider the new factors. For
example, a creditor changes the factors it
uses to determine the rates applicable to
similar new credit card accounts on January
1, 2012. The creditor reviews the rates
applicable to its existing accounts that have
been subject to a rate increase pursuant to
§ 226.59(a) on January 25, 2012. The creditor
complies with § 226.59(a) by reviewing, at its
option, either the factors that it considered
on December 31, 2011 when determining the
rates applicable to similar new credit card
accounts or the factors that it considers as of
January 25, 2012. For purposes of compliance
with § 226.59(d), a transition period of 60
days from the change of factors constitutes a
brief transition period.
2. Comparison of existing account to
factors used for similar new accounts. Under
§ 226.59(a), if a creditor evaluates an existing
account using the same factors that it
considers in determining the rates applicable
to similar new accounts, the review of factors
need not result in existing accounts being
subject to exactly the same rates and rate
structure as a creditor imposes on similar
new accounts. For example, a creditor may
offer variable rates on similar new accounts
that are computed by adding a margin that
depends on various factors to the value of the
LIBOR index. The account that the creditor
is required to review pursuant to § 226.59(a)
may have variable rates that were determined
by adding a different margin, depending on
different factors, to a published prime rate. In
performing the review required by
§ 226.59(a), the creditor may review the
factors it uses to determine the rates
applicable to similar new accounts. If a rate
reduction is required, however, the creditor
need not base the variable rate for the
existing account on the LIBOR index but may
continue to use the published prime rate.
Section 226.59(a) requires, however, that the
rate on the existing account after the
reduction, as determined by adding the
published prime rate and margin, be
comparable to the rate, as determined by
adding the margin and LIBOR, charged on a
new account for which the factors are
comparable.
3. Similar new credit card accounts. A card
issuer complying with § 226.59(d)(1)(ii) is
required to consider the factors that the card
issuer currently considers when determining
the annual percentage rates applicable to

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similar new credit card accounts under an
open-end (not home-secured) consumer
credit plan. For example, a card issuer may
review different factors in determining the
annual percentage rate that applies to credit
card plans for which the consumer pays an
annual fee and receives rewards points than
it reviews in determining the rates for credit
card plans with no annual fee and no
rewards points. Similarly, a card issuer may
review different factors in determining the
annual percentage rate that applies to private
label credit cards than it reviews in
determining the rates applicable to credit
cards that can be used at a wider variety of
merchants. In addition, a card issuer may
review different factors in determining the
annual percentage rate that applies to private
label credit cards usable only at Merchant A
than it may review for private label credit
cards usable only at Merchant B. However,
§ 226.59(d)(1)(ii) requires a card issuer to
review the factors it considers when
determining the rates for new credit card
accounts with similar features that are
offered for similar purposes.
4. No similar new credit card accounts. In
some circumstances, a card issuer that
complies with § 226.59(a) by reviewing the
factors that it currently considers in
determining the annual percentage rates
applicable to similar new accounts may not
be able to identify a class of new accounts
that are similar to the existing accounts on
which a rate increase has been imposed. For
example, consumers may have existing credit
card accounts under an open-end (not homesecured) consumer credit plan but the card
issuer may no longer offer a product to new
consumers with similar characteristics, such
as the availability of rewards, size of credit
line, or other features. Similarly, some
consumers’ accounts may have been closed
and therefore cannot be used for new
transactions, while all new accounts can be
used for new transactions. In those
circumstances, § 226.59 requires that the card
issuer nonetheless perform a review of the
rate increase on the existing customers’
accounts. A card issuer does not comply with
§ 226.59 by maintaining an increased rate
without performing such an evaluation. In
such circumstances, § 226.59(d)(1)(ii)
requires that the card issuer compare the
existing accounts to the most closely
comparable new accounts that it offers.
5. Consideration of consumer’s conduct on
existing account. A card issuer that complies
with § 226.59(a) by reviewing the factors that
it currently considers in determining the
annual percentage rates applicable to similar
new accounts may consider the consumer’s
payment or other account behavior on the
existing account only to the same extent and
in the same manner that the issuer considers
such information when one of its current
cardholders applies for a new account with
the card issuer. For example, a card issuer
might obtain consumer reports for all of its
applicants. The consumer reports contain
certain information regarding the applicant’s
past performance on existing credit card
accounts. However, the card issuer may have
additional information about an existing
cardholder’s payment history or account
usage that does not appear in the consumer

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report and that, accordingly, it would not
generally have for all new applicants. For
example, a consumer may have made a
payment that is five days late on his or her
account with the card issuer, but this
information does not appear on the consumer
report. The card issuer may consider this
additional information in performing its
review under § 226.59(a), but only to the
extent and in the manner that it considers
such information if a current cardholder
applies for a new account with the issuer.
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, § 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
§ 226.9(c)(2)(v)(B), the review requirements
in § 226.59(a) do not apply. If a temporary
rate is revoked such that the requirements of
§ 226.59(a) apply, § 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 homesecured) 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 § 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 § 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 § 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

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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 § 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.
59(g) Acquired accounts.
59(g)(1) General.
1. Relationship to § 226.59(d)(2) for rate
increases imposed between January 1, 2009
and February 21, 2010. Section 226.59(d)(2)
applies to acquired accounts. Accordingly, if
a card issuer acquires accounts on which a
rate increase was imposed between January
1, 2009 and February 21, 2010 that was not
based solely upon consumer-specific factors,
that acquiring card issuer must consider the
factors that it currently considers when
determining the annual percentage rates
applicable to similar new credit card
accounts, if it conducts either or both of the
first two reviews of such accounts that are
required after August 22, 2010 under
§ 226.59(a).
59(g)(2) Review of acquired portfolio.
1. Example—general. A card issuer
acquires a portfolio of accounts that currently
are subject to annual percentage rates of 12%,
15%, and 18%. Not later than six months
after the acquisition of such accounts, the
card issuer reviews all of these accounts in
accordance with the factors that it currently
uses in determining the rates applicable to
similar new credit card accounts. As a result
of that review, the card issuer decreases the
rate on the accounts that are currently subject
to a 12% annual percentage rate to 10%,
leaves the rate applicable to the accounts
currently subject to a 15% annual percentage
rate at 15%, and increases the rate applicable
to the accounts currently subject to a rate of
18% to 20%. Section 226.59(g)(2) requires
the card issuer to review, no less frequently
than once every six months, the accounts for
which the rate has been increased to 20%.
The card issuer is not required to review the
accounts subject to 10% and 15% rates
pursuant to § 226.59(a), unless and until the
card issuer makes a subsequent rate increase
applicable to those accounts.
2. Example—penalty rates. A card issuer
acquires a portfolio of accounts that currently
are subject to standard annual percentage
rates of 12% and 15%. In addition, several
acquired accounts are subject to a penalty
rate of 24%. Not later than six months after
the acquisition of such accounts, the card
issuer reviews all of these accounts in
accordance with the factors that it currently

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uses in determining the rates applicable to
similar new credit card accounts. As a result
of that review, the card issuer leaves the
standard rates applicable to the accounts at
12% and 15%, respectively. The card issuer
decreases the rate applicable to the accounts
currently at 24% to its penalty rate of 23%.
Section 226.59(g)(2) requires the card issuer
to review, no less frequently than once every

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six months, the accounts that are subject to
a penalty rate of 23%. The card issuer is not
required to review the accounts subject to
12% and 15% rates pursuant to § 226.59(a),
unless and until the card issuer makes a
subsequent rate increase applicable to those
accounts.

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By order of the Board of Governors of the
Federal Reserve System, June 14, 2010.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2010–14717 Filed 6–28–10; 8:45 am]
BILLING CODE 6210–01–P

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