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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Rules and Regulations
I. Background on TILA and
Regulation Z

FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R–1286]

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 (TILA), and the
staff commentary to the regulation,
following a comprehensive review of
TILA’s rules for open-end (revolving)
credit that is not home-secured.
Consumer testing was conducted as a
part of the review.
Except as otherwise noted, the
changes apply solely to open-end credit.
Disclosures accompanying credit card
applications and solicitations must
highlight fees and reasons penalty rates
might be applied, such as for paying
late. Creditors are required to
summarize key terms at account
opening and when terms are changed.
Specific fees are identified that must be
disclosed to consumers in writing before
an account is opened, and creditors are
given flexibility regarding how and
when to disclose other fees imposed as
part of the open-end plan. Costs for
interest and fees are separately
identified for the cycle and year to date.
Creditors are required to give 45 days’
advance notice prior to certain changes
in terms and before the rate applicable
to a consumer’s account is increased as
a penalty. Rules of general applicability
such as the definition of open-end
credit, dispute resolution procedures,
and payment processing limitations
apply to all open-end plans, including
home-equity lines of credit. Rules
regarding the disclosure of debt
cancellation and debt suspension
agreements are revised for both closedend and open-end credit transactions.
Loans taken against employer-sponsored
retirement plans are exempt from TILA
coverage.
DATES: The rule is effective July 1, 2010.
FOR FURTHER INFORMATION CONTACT:
Benjamin K. Olson, Attorney, Amy
Burke or Vivian Wong, Senior
Attorneys, or Krista Ayoub, Ky TranTrong, or John Wood, Counsels,
Division of Consumer and Community
Affairs, Board of Governors of the
Federal Reserve System, at (202) 452–
3667 or 452–2412; for users of
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
SUPPLEMENTARY INFORMATION:

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Congress enacted the Truth in
Lending Act (TILA) based on findings
that economic stability would be
enhanced and competition among
consumer credit providers would be
strengthened by the informed use of
credit resulting from consumers’
awareness of the cost of credit. The
purposes of TILA are (1) to provide a
meaningful disclosure of credit terms to
enable consumers to compare credit
terms available in the marketplace more
readily and avoid the uninformed use of
credit; and (2) to protect consumers
against inaccurate and unfair credit
billing and credit card practices.
TILA’s disclosures differ depending
on whether consumer credit is an openend (revolving) plan or a closed-end
(installment) loan. TILA also contains
procedural and substantive protections
for consumers. TILA is implemented by
the Board’s Regulation Z. An Official
Staff Commentary interprets the
requirements of Regulation Z. By
statute, creditors that follow in good
faith Board or official staff
interpretations are insulated from civil
liability, criminal penalties, or
administrative sanction.
II. Summary of Major Changes
The goal of the amendments to
Regulation Z is to improve the
effectiveness of the disclosures that
creditors provide to consumers at
application and throughout the life of an
open-end (not home-secured) account.
The changes are the result of the Board’s
review of the provisions that apply to
open-end (not home-secured) credit.
The Board is adopting changes to
format, timing, and content
requirements for the five main types of
open-end credit disclosures governed by
Regulation Z: (1) Credit and charge card
application and solicitation disclosures;
(2) account-opening disclosures; (3)
periodic statement disclosures; (4)
change-in-terms notices; and (5)
advertising provisions. The Board is
also adopting additional protections that
complement rules issued by the Board
and other federal banking agencies
published elsewhere in today’s Federal
Register regarding certain credit card
practices.
Applications and solicitations.
Format and content changes are adopted
to make the credit and charge card
application and solicitation disclosures
more meaningful and easier for
consumers to use. The changes include:
• Adopting new format requirements for
the summary table, including rules regarding:

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type size and use of boldface type for certain
key terms, and placement of information.
• Revising content, including: a
requirement that creditors disclose the
duration that penalty rates may be in effect,
a shorter disclosure about variable rates, new
descriptions when a grace period is offered
on purchases or when no grace period is
offered, and a reference to consumer
education materials on the Board’s Web site.

Account-opening disclosures.
Requirements for cost disclosures
provided at account opening are
adopted to make the information more
conspicuous and easier to read. The
changes include:
• Disclosing certain key terms in a
summary table at account opening, in order
to summarize for consumers key information
that is most important to informed decisionmaking. The table is substantially similar to
the table required for credit and charge card
applications and solicitations.
• Adopting a different approach to
disclosing fees, to provide greater clarity for
identifying fees that must be disclosed. In
addition, creditors would have flexibility to
disclose charges (other than those in the
summary table) in writing or orally.

Periodic statement disclosures.
Revisions are adopted to make
disclosures on periodic statements more
understandable, primarily by making
changes to the format requirements,
such as by grouping fees and interest
charges together. The changes include:
• Itemizing interest charges for different
types of transactions, such as purchases and
cash advances, grouping interest charges and
fees separately, and providing separate totals
of fees and interest for the month and yearto-date.
• Eliminating the requirement to disclose
an ‘‘effective APR.’’
• Requiring disclosure of the effect of
making only the minimum required payment
on the time to repay balances, as required by
the Bankruptcy Act.

Changes in consumer’s interest rate
and other account terms. The final rule
expands the circumstances under which
consumers receive written notice of
changes in the terms (e.g., an increase in
the interest rate) applicable to their
accounts, and increase the amount of
time these notices must be sent before
the change becomes effective. The
changes include:
• Increasing advance notice before a
changed term can be imposed from 15 to 45
days, to better allow consumers to obtain
alternative financing or change their account
usage.
• Requiring creditors to provide 45 days’
prior notice before the creditor increases a
rate either due to a change in the terms
applicable to the consumer’s account or due
to the consumer’s delinquency or default or
as a penalty.
• When a change-in-terms notice
accompanies a periodic statement, requiring

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a tabular disclosure on the front side of the
periodic statement of the key terms being
changed.

Advertising provisions. Rules
governing advertising of open-end credit
are revised to help ensure consumers
better understand the credit terms
offered. These revisions include:
• Requiring advertisements that state a
periodic payment amount on a plan offered
to finance the purchase of goods or services
to state, in equal prominence to the periodic
payment amount, the time period required to
pay the balance and the total of payments if
only periodic payments are made.
• Permitting advertisements to refer to a
rate as ‘‘fixed’’ only if the advertisement
specifies a time period for which the rate is
fixed and the rate will not increase for any
reason during that time, or if a time period
is not specified, if the rate will not increase
for any reason while the plan is open.

Additional protections. Rules are
adopted that provide additional
protections to consumers. These
include:
• In setting reasonable cut-off hours for
mailed payments to be received on the due
date and be considered timely, deeming 5
p.m. to be a reasonable time.
• Requiring creditors that do not accept
mailed payments on the due date, such as on
weekends or holidays, to treat a mailed
payment received on the next business day
as timely.
• Clarifying that advances that are
separately underwritten are generally not
open-end credit, but closed-end credit for
which closed-end disclosures must be given.

III. The Board’s Review of Open-end
Credit Rules

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A. Advance Notices of Proposed
Rulemaking
December 2004 ANPR. The Board
began a review of Regulation Z in
December 2004.1 The Board initiated its
review of Regulation Z by issuing an
advance notice of proposed rulemaking
(December 2004 ANPR). 69 FR 70925,
December 8, 2004. At that time, the
Board announced its intent to conduct
its review of Regulation Z in stages,
focusing first on the rules for open-end
(revolving) credit accounts that are not
home-secured, chiefly general-purpose
credit cards and retailer credit card
plans. The December 2004 ANPR sought
public comment on a variety of specific
issues relating to three broad categories:
the format of open-end credit
disclosures, the content of those
disclosures, and the substantive
1 The review was initiated pursuant to
requirements of section 303 of the Riegle
Community Development and Regulatory
Improvement Act of 1994, section 610(c) of the
Regulatory Flexibility Act of 1980, and section 2222
of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996.

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protections provided for open-end
credit under the regulation. The
December 2004 ANPR solicited
comment on the scope of the Board’s
review, and also requested commenters
to identify other issues that the Board
should address in the review. A
summary of the comments received in
response to the December 2004 ANPR is
contained in the supplementary
information to proposed revisions to
Regulation Z published by the Board in
June 2007 (June 2007 Proposal). 72 FR
32948, 32949, June 14, 2007.
October 2005 ANPR. The Bankruptcy
Abuse Prevention and Consumer
Protection Act of 2005 (the Bankruptcy
Act) primarily amended the federal
bankruptcy code, but also contained
several provisions amending TILA.
Public Law 109–8, 119 Stat. 23. The
Bankruptcy Act’s TILA amendments
principally deal with open-end credit
accounts and require new disclosures
on periodic statements, on credit card
applications and solicitations, and in
advertisements.
In October 2005, the Board published
a second ANPR to solicit comment on
implementing the Bankruptcy Act
amendments (October 2005 ANPR). 70
FR 60235, October 17, 2005. In the
October 2005 ANPR, the Board stated its
intent to implement the Bankruptcy Act
amendments as part of the Board’s
ongoing review of Regulation Z’s openend credit rules. A summary of the
comments received in response to the
October 2005 ANPR also is contained in
the supplementary information to the
June 2007 Proposal. 72 FR 32948,
32950, June 14, 2007.
B. Notices of Proposed Rulemakings
June 2007 Proposal. The Board
published proposed amendments to
Regulation Z’s rules for open-end plans
that are not home-secured in June 2007.
72 FR 32948, June 14, 2007. The goal of
the proposed amendments to Regulation
Z was to improve the effectiveness of
the disclosures that creditors provide to
consumers at application and
throughout the life of an open-end (not
home-secured) account. In developing
the proposal, the Board conducted
consumer research, in addition to
considering comments received on the
two ANPRs. Specifically, the Board
retained a research and consulting firm
(Macro International) to assist the Board
in using consumer testing to develop
proposed model forms, as discussed in
C. Consumer Testing of this section,
below. The proposal would have made
changes to format, timing, and content
requirements for the five main types of
open-end credit disclosures governed by
Regulation Z: (1) Credit and charge card

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application and solicitation disclosures;
(2) account-opening disclosures; (3)
periodic statement disclosures; (4)
change-in-terms notices; and (5)
advertising provisions.
For credit and charge card application
and solicitation disclosures, the June
2007 Proposal included new format
requirements for the summary table,
such as rules regarding type size and
use of boldface type for certain key
terms, placement of information, and
the use of cross-references. Content
revisions included requiring creditors to
disclose the duration that penalty rates
may be in effect and a shorter disclosure
about variable rates.
For disclosures provided at account
opening, the June 2007 Proposal called
for creditors to disclose certain key
terms in a summary table that is
substantially similar to the table
required for credit and charge card
applications and solicitations. A
different approach to disclosing fees
was proposed, to provide greater clarity
for identifying fees that must be
disclosed, and to provide creditors with
flexibility to disclose charges (other
than those in the summary table) in
writing or orally.
The June 2007 Proposal also included
changes to the format requirements for
periodic statements, such as by
grouping fees, interest charges, and
transactions together and providing
separate totals of fees and interest for
the month and year-to-date. The
proposal also modified the provisions
for disclosing the ‘‘effective APR,’’
including format and terminology
requirements to make it more
understandable. Because of concerns
about the disclosure’s effectiveness,
however, the Board also solicited
comment on whether this rate should be
required to be disclosed. The proposal
required card issuers to disclose the
effect of making only the minimum
required payment on repayment of
balances, as required by the Bankruptcy
Act.
For changes in consumer’s interest
rate and other account terms, the June
2007 Proposal expanded the
circumstances under which consumers
receive written notice of changes in the
terms (e.g., an increase in the interest
rate) applicable to their accounts to
include increases of a rate due to the
consumer’s delinquency or default, and
increased the amount of time (from 15
to 45 days) these notices must be sent
before the change becomes effective.
For advertisements that state a
minimum monthly payment on a plan
offered to finance the purchase of goods
or services, the June 2007 Proposal
required additional information about

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the time period required to pay the
balance and the total of payments if
only minimum payments are made. The
proposal also limited the circumstances
under which an advertisement may refer
to a rate as ‘‘fixed.’’
The Board received over 2,500
comments on the June 2007 Proposal.
About 85% of these were from
consumers and consumer groups, and of
those, nearly all (99%) were from
individuals. Of the approximately 15%
of comment letters received from
industry representatives, about 10%
were from financial institutions or their
trade associations. The vast majority
(90%) of the industry letters were from
credit unions and their trade
associations. Those latter comments
mainly concerned a proposed revision
to the definition of open-end credit that
could affect how many credit unions
currently structure their consumer loan
products.
In general, commenters generally
supported the June 2007 Proposal and
the Board’s use of consumer testing to
develop revisions to disclosure
requirements. There was opposition to
some aspects of the proposal. For
example, industry representatives
opposed many of the format
requirements for periodic statements as
being overly prescriptive. They also
opposed the Board’s proposal to require
creditors to provide at least 45 days’
advance notice before certain key terms
change or interest rates are increased
due to default or delinquency or as a
penalty. Consumer groups opposed the
Board’s proposed alternative that would
eliminate the effective annual
percentage rate (effective APR) as a
periodic statement disclosure.
Consumers and consumer groups also
believed the Board’s proposal was too
limited in scope and urged the Board to
provide more substantive protections
and prohibit certain card issuer
practices. Comments on specific
proposed revisions are discussed in VI.
Section-by-Section Analysis, below.
May 2008 Proposal. In May 2008, the
Board published revisions to several
disclosures in the June 2007 Proposal
(May 2008 Proposal). 73 FR 28866, May
19, 2008. In developing these revisions,
the Board considered comments
received on the June 2007 Proposal and
worked with its testing consultant,
Macro International, to conduct
additional consumer research, as
discussed in C. Consumer Testing of
this section, below. In addition, the May
2008 Proposal contained proposed
amendments to Regulation Z that
complemented a proposal published by
the Board, along with the Office of
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Credit Union Administration, to adopt
rules prohibiting specific unfair acts or
practices with respect to consumer
credit card accounts under their
authority under the Federal Trade
Commission Act (FTC Act). See 15
U.S.C. 57a(f)(1). 73 FR 28904, May 19,
2008.
The May 2008 Proposal would have,
among other things, required changes
for the summary table provided on or
with application and solicitations for
credit and charge cards. Specifically, it
would have required different
terminology than the term ‘‘grace
period’’ as a heading that describes
whether the card issuer offers a grace
period on purchases, and added a de
minimis dollar amount trigger of more
than $1.00 for disclosing minimum
interest or finance charges.
Under the May 2008 Proposal,
creditors assessing fees at account
opening that are 25% or more of the
minimum credit limit would have been
required to provide in the accountopening summary table a notice of the
consumer’s right to reject the plan after
receiving disclosures if the consumer
has not used the account or paid a fee
(other than certain application fees).
Currently, creditors may require
consumers to comply with reasonable
payment instructions. The May 2008
Proposal would have deemed a cut-off
hour for receiving mailed payments
before 5 p.m. on the due date to be an
unreasonable instruction. The proposal
also would have prohibited creditors
that set due dates on a weekend or
holiday but do not accept mailed
payments on those days from
considering a payment received on the
next business day as late for any reason.
For deferred interest plans that
advertise ‘‘no interest’’ or similar terms,
the May 2008 Proposal would have
added notice and proximity
requirements to require advertisements
to state the circumstances under which
interest is charged from the date of
purchase and, if applicable, that the
minimum payments required will not
pay off the balance in full by the end of
the deferral period.
The Board received over 450
comments on the May 2008 Proposal.
About 88% of these were from
consumers and consumer groups, and of
those, nearly all (98%) were from
individuals. Six comments (1%) were
from government officials or
organizations, and the remaining 11%
represented industry, such as financial
institutions or their trade associations
and payment system networks.
Commenters generally supported the
May 2008 Proposal, although like the
June 2007 Proposal, some commenters

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opposed aspects of the proposal. For
example, operational concerns and costs
for system changes were cited by
industry representatives that opposed
limitations on when creditors may
consider mailed payments to be
untimely. Regarding revised disclosure
requirements, some industry and
consumer group commenters opposed
proposed heading descriptions for
accounts offering a grace period,
although these commenters were split
between those that favor retaining the
current term (‘‘grace period’’) and those
that suggested other heading
descriptions. Consumer groups opposed
the May 2008 proposal to permit card
issuers and creditors to omit charges in
lieu of interest that are $1.00 or less
from the table provided with credit or
charge card applications and
solicitations and the table provided at
account opening. Some retailers
opposed the proposed advertising rules
for deferred interest offers. Comments
on specific proposed revisions are
discussed in VI. Section-by-Section
Analysis, below.
C. Consumer Testing
Developing the June 2007 Proposal. A
principal goal for the Regulation Z
review was to produce revised and
improved credit card disclosures that
consumers will be more likely to pay
attention to, understand, and use in
their decisions, while at the same time
not creating undue burdens for
creditors. In April 2006, the Board
retained a research and consulting firm
(Macro International) that specializes in
designing and testing documents to
conduct consumer testing to help the
Board review Regulation Z’s credit card
rules. Specifically, the Board used
consumer testing to develop model
forms that were proposed in June 2007
for the following credit card disclosures
required by Regulation Z:
• Summary table disclosures provided in
direct-mail solicitations and applications;
• Disclosures provided at account opening;
• Periodic statement disclosures; and
• Subsequent disclosures, such as notices
provided when key account terms are
changed, and notices on checks provided to
access credit card accounts.

Working closely with the Board,
Macro International conducted several
tests. Each round of testing was
conducted in a different city throughout
the United States. In addition, the
consumer testing groups contained
participants with a range of ethnicities,
ages, educational levels, and credit card
behavior. The consumer testing groups
also contained participants likely to
have subprime credit cards as well as
those likely to have prime credit cards.

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Initial research and design of
disclosures for testing. In advance of
testing a series of revised disclosures,
the Board conducted research to learn
what information consumers currently
use in making decisions about their
credit card accounts, and how they
currently use disclosures that are
provided to them. In May and June
2006, the Board worked with Macro
International to conduct two sets of
focus groups with credit card
consumers. Through these focus groups,
the Board gathered information on what
credit terms consumers usually consider
when shopping for a credit card, what
information they find useful when they
receive a new credit card in the mail,
and what information they find useful
on periodic statements. In August 2006,
the Board worked with Macro
International to conduct one-on-one
discussions with credit card account
holders. Consumers were asked to view
existing sample credit card disclosures.
The goals of these interviews were: (1)
To learn more about what information
consumers read when they receive
current credit card disclosures; (2) to
research how easily consumers can find
various pieces of information in these
disclosures; and (3) to test consumers’
understanding of certain credit cardrelated words and phrases. In the fall of
2006, the Board worked with Macro
International to develop sample credit
card disclosures to be used in the later
rounds of testing, taking into account
information learned through the focus
groups and the one-on-one interviews.
Additional testing and revisions to
disclosures. In late 2006 and early 2007,
the Board worked with Macro
International to conduct four rounds of
one-on-one interviews (seven to nine
participants per round), where
consumers were asked to view new
sample credit card disclosures
developed by the Board and Macro
International. The rounds of interviews
were conducted sequentially to allow
for revisions to the testing materials
based on what was learned from the
testing during each previous round.
Several of the model forms contained
in the June 2007 Proposal were
developed through the testing. A report
summarizing the results of the testing is
available on the Board’s public Web
site: http://www.federalreserve.gov (May
2007 Macro Report).2 See also VI.
Section-by-Section Analysis, below. To
illustrate by example:
• Testing participants generally read the
summary table provided in direct-mail credit
card solicitations and applications and
2 Design

and Testing of Effective Truth in Lending
Disclosures, Macro International, May 16, 2007.

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ignored information presented outside of the
table. The June 2007 Proposal would have
required that information about events that
trigger penalty rates and about important fees
(late-payment fees, over-the-credit-limit fees,
balance transfer fees, and cash advance fees)
be placed in the table. Currently, this
information may be placed outside the table.
• With respect to the account-opening
disclosures, consumer testing indicates that
consumers commonly do not review their
account agreements, which currently are
often in small print and dense prose. The
June 2007 Proposal would have required
creditors to include a table summarizing the
key terms applicable to the account, similar
to the table required for credit card
applications and solicitations. The goal of
setting apart the most important terms in this
way is to better ensure that consumers are
apprised of those terms.
• With respect to periodic statement
disclosures, many consumers more easily
noticed the number and amount of fees when
the fees were itemized and grouped together
with interest charges. Consumers also
noticed fees and interest charges more
readily when they were located near the
disclosure of the transactions on the account.
The June 2007 Proposal would have required
creditors to group all fees together and
describe them in a manner consistent with
consumers’ general understanding of costs
(‘‘interest charge’’ or ‘‘fee’’), without regard to
whether the fees would be considered
‘‘finance charges,’’ ‘‘other charges’’ or neither
under the regulation.
• With respect to change-in-terms notices,
creditors commonly provide notices about
changes to terms or rates in the same
envelope with periodic statements.
Consumer testing indicates that consumers
may not typically look at the notices if they
are provided as separate inserts given with
periodic statements. In such cases under the
June 2007 Proposal, a table summarizing the
change would have been required on the
periodic statement directly above the
transaction list, where consumers are more
likely to notice the changes.

Developing the May 2008 Proposal. In
early 2008, the Board worked with a
testing consultant, Macro International,
to revise model disclosures published in
the June 2007 Proposal in response to
comments received. In March 2008, the
Board conducted an additional round of
one-on-one interviews on revised
disclosures provided with applications
and solicitations, on periodic
statements, and with checks that access
a credit card account. A report
summarizing the results of the testing is
available on the Board’s public Web
site: http://www.federalreserve.gov
(December 2008 Macro Report on
Qualitative Testing).3
With respect to the summary table
provided in direct-mail credit card
solicitations and applications,
3 Design and Testing of Effective Truth in Lending
Disclosures: Findings from Qualitative Consumer
Research, Macro International, December 15, 2008.

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participants who read the heading
‘‘How to Avoid Paying Interest on
Purchases’’ on the row describing a
grace period generally understood what
the phrase meant. The May 2008
Proposal would have required issuers to
use that phrase, or a substantially
similar phrase, as the row heading to
describe an account with a grace period
for purchases, and the phrase ‘‘Paying
Interest,’’ or a substantially similar
phrase, if no grace period is offered.
(The same row headings were also
proposed for tables provided at accountopening and with checks that access
credit card accounts.)
Prior to the May 2008 Proposal, the
Board also tested a disclosure of a useby date applicable to checks that access
a credit card account. The responses
given by testing participants indicated
that they generally did not understand
prior to the testing that there may be a
use-by date applicable to an offer of a
promotional rate for a check that
accesses a credit card account. However,
the participants that saw and read the
tested language understood that a
standard cash advance rate, not the
promotional rate, would apply if the
check was used after the date disclosed.
Thus, in May 2008 the Board proposed
to require that creditors disclose any
use-by date applicable to an offer of a
promotional rate for access checks.
Testing conducted after May 2008. In
July and August 2008, the Board worked
with Macro International to conduct two
additional rounds of one-on-one
interviews. See the December 2008
Macro Report on Qualitative Testing,
which summarizes the results of these
interviews. The results of this consumer
testing were used to develop the final
rule, and are discussed in more detail in
VI. Section-by-Section Analysis.
For example, these rounds of
interviews examined, among other
things, whether consumers understand
the meaning of a minimum interest
charge disclosed in the summary table
provided in direct-mail credit card
solicitations and applications. Most
participants could correctly explain the
meaning of a minimum interest charge,
and most participants indicated that a
minimum interest charge would not be
important to them because it is a
relatively small sum of money ($1.50 on
the forms tested). The final rule
accordingly establishes a threshold of
$1.00; if the minimum interest charge is
$1.00 or less it is not required to be
disclosed in the table.
Consumers also were asked to review
periodic statements that disclosed an
impending rate increase, with a tabular
summary of the change appearing on
statement, as proposed by the Board in

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June 2007. This testing was used in the
development of final Samples G–20 and
G–21, which give creditors guidance on
how advance notice of impending rate
increases or changes in terms should be
presented.
Quantitative testing. In September
2008, the Board worked with Macro
International to develop a survey to
conduct quantitative testing. The goal of
quantitative testing was to measure
consumers’ comprehension and the
usability of the newly-developed
disclosures relative to existing
disclosures and formats. A report
summarizing the results of the testing is
available on the Board’s public Web
site: http://www.federalreserve.gov
(December 2008 Macro Report on
Quantitative Testing).4
The quantitative consumer testing
conducted for the Board consisted of
mall-intercept interviews of a total of
1,022 participants in seven cities:
Dallas, TX; Detroit, MI; Los Angeles,
CA; Seattle, WA; Springfield, IL; St.
Louis, MO; and Tallahassee, FL. Each
interview lasted approximately fifteen
minutes and consisted of showing the
participant models of the summary table
provided in direct-mail credit card
solicitations and applications and the
periodic statement and asking a series of
questions designed to assess the
effectiveness of certain formatting and
content requirements proposed by the
Board or suggested by commenters.
With regard to the summary table
provided in direct-mail credit card
solicitations and applications,
consumers were asked questions
intended to gauge the impact of (i)
combining rows for APRs applicable to
different transaction types, (ii) the
inclusion of cross-references in the
table, and (iii) the impact of splitting the
table onto two pages instead of
presenting the table entirely on a single
page. More details about the specific
forms used in the testing as well as the
questions asked are available in the
December 2008 Macro Report on
Quantitative Testing.
The results of the testing
demonstrated that combining the rows
for APRs applicable to different
transaction types that have the same
applicable rate did not have a
statistically significant impact on
consumers’ ability to identify those
rates. Thus, the final rule permits
creditors to combine rows disclosing the
rates for different transaction types to
which the same rate applies.
4 Design and Testing of Effective Truth in Lending
Disclosures: Findings from Experimental Study,
Macro International, December 15, 2008.

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Similarly, the testing indicated that
the inclusion of cross-references in the
table did not have a statistically
significant impact on consumers’ ability
to identify fees and rates applicable to
their accounts. As a result, the Board
has not adopted the proposed
requirement that certain crossreferences between certain rates and
fees be included in the table.
Finally, the testing demonstrated that
consumers have more difficulty locating
fees applicable to their accounts when
the table is split on two pages and the
fee appears on the second page of the
table. As discussed further in VI.
Section-by-Section Analysis, the Board
is not requiring that creditors use a
certain paper size or present the entire
table on a single page, but is requiring
creditors that split the table onto two or
more pages to include a reference
indicating that additional important
information regarding the account is
presented on a separate page.
The Board also tested whether
consumers’ understanding of payment
allocation practices could be improved
through disclosure. The testing showed
that a disclosure, even of the relatively
simple payment allocation practice of
applying payments to lower-interest
balances before higher-interest
balances,5 improved understanding for
very few consumers. The disclosure also
confused some consumers who had
understood payment allocation based on
prior knowledge before reviewing the
disclosure. Based on this result, and
because of substantive protections
adopted by the Board and other federal
banking agencies published elsewhere
in this Federal Register, the Board is not
requiring a payment allocation
disclosure in the summary table
provided in direct-mail solicitations and
applications or at account-opening.
With regard to periodic statements,
the Board’s testing consultant examined
(i) the effectiveness of grouping
transactions and fees on the periodic
statement, (ii) consumers’
understanding of the effective APR
disclosure, (iii) the formatting and
location of change-in-terms notices
included with periodic statements, and
(iv) the formatting and grouping of
5 Under final rules issued by the Board and other
federal banking agencies published elsewhere in
today’s Federal Register, issuers are prohibited
from allocating payments to low-interest balances
before higher-interest balances. However, the Board
chose to test a disclosure of this practice in
quantitative consumer testing because (i) it is
currently the practice of many issuers and (ii) to test
one of the simpler payment allocation methods on
the assumption that consumers might be more
likely to understand disclosure of a simpler
payment allocation method than a more complex
one.

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various payment information, including
warnings about the effect of late
payments and making only the
minimum payment.
The testing demonstrated that
grouping of fees and transactions, by
type, separately on the periodic
statement improved consumers’ ability
to find fees that were charged to the
account and also moderately improved
consumers’ ability to locate
transactions. Grouping fees separately
from transactions made it more difficult
for some consumers to match a
transaction fee to the relevant
transaction, although most consumers
could successfully match the
transaction and fee regardless of how
the transaction list was presented. As
discussed in more detail in VI. Sectionby-Section Analysis, the final rule
requires grouping of fees and interest
separate from transactions on the
periodic statement, but the Board has
provided flexibility for issuers to
disclose transactions on the periodic
statement.
With regard to the effective APR,
testing overwhelmingly showed that few
consumers understood the disclosure
and that some consumers were less able
to locate the interest rate applicable to
cash advances when the effective APR
also was disclosed on the periodic
statement. Accordingly, and for the
additional reasons discussed in more
detail in VI. Section-by-Section
Analysis, the final rule eliminates the
requirement to disclose an effective APR
for open-end (not home-secured) credit.
When a change-in-terms notice for the
APR for purchases was included with
the periodic statement, disclosure of a
tabular summary of the change on the
front of the statement moderately
improved consumers’ ability to identify
the rate that would apply when the
changes take effect. However, whether
the tabular summary was presented on
page one or page two of the statement
did not have an effect on the ability of
participants to notice or comprehend
the disclosure. Thus, the final rule
requires a tabular summary of key
changes on the periodic statement,
when a change-in-terms notice is
included with the periodic statement,
but permits creditors to disclose that
summary on the front of any page of the
statement.
The formatting of certain grouped
information regarding payments,
including the amount of the minimum
payment, due date, and warnings
regarding the effect of making late or
minimum payments did not have an
effect on consumers’ ability to notice or
comprehend these disclosures. Thus,
while the final rule requires that this

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information be grouped, creditors are
not required to format this information
in any particular manner.

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D. Other Outreach and Research
Throughout the Board’s review of
Regulation Z’s rules affecting open-end
(not home-secured) plans, the Board
solicited input from members of the
Board’s Consumer Advisory Council on
various issues. During 2005 and 2006,
for example, the Council discussed the
feasibility and advisability of reviewing
Regulation Z in stages, ways to improve
the summary table provided on or with
credit card applications and
solicitations, issues related to TILA’s
substantive protections (including
dispute resolution procedures), and
issues related to the Bankruptcy Act
amendments. In 2007 and 2008, the
Council discussed the June 2007 and
May 2008 Proposals, respectively, and
comments received by the Board in
response to the proposals. In addition,
Board met or conducted conference
calls with various industry and
consumer group representatives
throughout the review process leading
to the June 2007 and May 2008
Proposals. Consistent with the
Bankruptcy Act, the Board also met
with the other federal banking agencies,
the National Credit Union
Administration (NCUA), and the
Federal Trade Commission (FTC)
regarding the clear and conspicuous
disclosure of certain information
required by the Bankruptcy Act. The
Board also reviewed disclosures
currently provided by creditors,
consumer complaints received by the
federal banking agencies, and surveys
on credit card usage to help inform the
June 2007 Proposal.6
E. Reviewing Regulation Z in Stages
The Board is proceeding with a
review of Regulation Z in stages. This
final rule largely contains revisions to
rules affecting open-end plans other
than home-equity lines of credit
(HELOCs) subject to § 226.5b. Possible
revisions to rules affecting HELOCs will
be considered in the Board’s review of
home-secured credit, currently
underway. To minimize compliance
burden for creditors offering HELOCs as
well as other open-end credit, many of
the open-end rules have been
reorganized to delineate clearly the
requirements for HELOCs and other
forms of open-end credit. Although this
6 Surveys reviewed include: Thomas A. Durkin,
Credit Cards: Use and Consumer Attitudes, 1970–
2000, FEDERAL RESERVE BULLETIN, (September
2000); Thomas A. Durkin, Consumers and Credit
Disclosures: Credit Cards and Credit Insurance,
FEDERAL RESERVE BULLETIN (April 2002).

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reorganization increases the size of the
regulation and commentary, the Board
believes a clear delineation of rules for
HELOCs and other forms of open-end
credit pending the review of HELOC
rules provides a clear compliance
benefit to creditors.
In addition, as discussed elsewhere in
this section and in VI. Section-bySection Analysis, the Board has
eliminated the requirement to disclose
an effective annual percentage rate for
open-end (not home-secured) credit. For
a home-equity plan subject to § 226.5b,
under the final rule a creditor has the
option to disclose an effective APR
(according to the current rules in
Regulation Z for computing and
disclosing the effective APR), or not to
disclose an effective APR. The Board
notes that the rules for computing and
disclosing the effective APR for HELOCs
could be the subject of comment during
the review of rules affecting HELOCs.
IV. The Board’s Rulemaking Authority
TILA mandates that the Board
prescribe regulations to carry out the
purposes of the act. TILA also
specifically authorizes the Board, among
other things, to do the following:
• Issue regulations that contain such
classifications, differentiations, or other
provisions, or that provide for such
adjustments and exceptions for any class of
transactions, that in the Board’s judgment are
necessary or proper to effectuate the
purposes of TILA, facilitate compliance with
the act, or prevent circumvention or evasion.
15 U.S.C. 1604(a).
• Exempt from all or part of TILA any class
of transactions if the Board determines that
TILA coverage does not provide a meaningful
benefit to consumers in the form of useful
information or protection. The Board must
consider factors identified in the act and
publish its rationale at the time it proposes
an exemption for comment. 15 U.S.C. 1604(f).
• 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.

In adopting this final rule, the Board
has considered the information
collected from comment letters
submitted in response to its ANPRs and
the June 2007 and May 2008 Proposals,
its experience in implementing and
enforcing Regulation Z, and the results
obtained from testing various disclosure
options in controlled consumer tests.
For the reasons discussed in this notice,
the Board believes this final rule is
appropriate to effectuate the purposes of
TILA, to prevent the circumvention or

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evasion of TILA, and to facilitate
compliance with the act.
Also as explained in this notice, the
Board believes that the specific
exemptions adopted are appropriate
because the existing requirements do
not provide a meaningful benefit to
consumers in the form of useful
information or protection. In reaching
this conclusion, the Board considered
(1) the amount of the loan and whether
the disclosure provides a benefit to
consumers who are parties to the
transaction involving a loan of such
amount; (2) the extent to which the
requirement complicates, hinders, or
makes more expensive the credit
process; (3) the status of the borrower,
including any related financial
arrangements of the borrower, the
financial sophistication of the borrower
relative to the type of transaction, and
the importance to the borrower of the
credit, related supporting property, and
coverage under TILA; (4) whether the
loan is secured by the principal
residence of the borrower; and (5)
whether the exemption would
undermine the goal of consumer
protection. The rationales for these
exemptions are explained in VI.
Section-by-Section Analysis, below.
V. Discussion of Major Revisions
The goal of the revisions adopted in
this final rule is to improve the
effectiveness of the Regulation Z
disclosures that must be provided to
consumers for open-end accounts. A
summary of the key account terms must
accompany applications and
solicitations for credit card accounts.
For all open-end credit plans, creditors
must disclose costs and terms at account
opening, generally before the first
transaction. Consumers must receive
periodic statements of account activity,
and creditors must provide notice before
certain changes in the account terms
may become effective.
To shop for and understand the cost
of credit, consumers must be able to
identify and understand the key terms
of open-end accounts. However, the
terms and conditions that impact credit
card account pricing can be complex.
The revisions to Regulation Z are
intended to provide the most essential
information to consumers when the
information would be most useful to
them, with content and formats that are
clear and conspicuous. The revisions
are expected to improve consumers’
ability to make informed credit
decisions and enhance competition
among credit card issuers. Many of the
changes are based on the consumer
testing that was conducted in

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connection with the review of
Regulation Z.
In considering whether to adopt the
revisions, the Board has also sought to
balance the potential benefits for
consumers with the compliance burdens
imposed on creditors. For example, the
revisions seek to provide greater
certainty to creditors in identifying what
costs must be disclosed for open-end
plans, and when those costs must be
disclosed. The Board has adopted the
proposal that fees must be grouped on
periodic statements, but has withdrawn
from the final rule proposed
requirements that would have required
additional formatting changes to the
periodic statement, such as the grouping
of transactions, for which the burden to
creditors may exceed the benefit to
consumers. More effective disclosures
may also reduce customer confusion
and misunderstanding, which may also
ease creditors’ costs relating to
consumer complaints and inquiries.

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A. Credit Card Applications and
Solicitations
Under Regulation Z, credit and charge
card issuers are required to provide
information about key costs and terms
with their applications and
solicitations.7 This information is
abbreviated, to help consumers focus on
only the most important terms and
decide whether to apply for the credit
card account. If consumers respond to
the offer and are issued a credit card,
creditors must provide more detailed
disclosures at account opening,
generally before the first transaction
occurs.
The application and solicitation
disclosures are considered among the
most effective TILA disclosures
principally because they must be
presented in a standardized table with
headings, content, and format
substantially similar to the model forms
published by the Board. In 2001, the
Board revised Regulation Z to enhance
the application and solicitation
disclosures by adding rules and
guidance concerning the minimum type
size and requiring additional fee
disclosures.
Proposal. The proposal added new
format requirements for the summary
table,8 including rules regarding type
size and use of boldface type for certain
key terms, placement of information,
and the use of cross-references. Content
revisions included a requirement that
7 Charge cards are a type of credit card for which
full payment is typically expected upon receipt of
the billing statement. To ease discussion, this notice
will refer simply to ‘‘credit cards.’’
8 This table is commonly referred to as the
‘‘Schumer box.’’

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creditors disclose the duration that
penalty rates may be in effect, a shorter
disclosure about variable rates, and a
reference to consumer education
materials available on the Board’s Web
site.
Summary of final rule.
Penalty pricing. The final rule makes
several revisions that seek to improve
consumers’ understanding of default or
penalty pricing. Currently, credit card
issuers must disclose inside the table
the APR that will apply in the event of
the consumer’s ‘‘default.’’ Some
creditors define a ‘‘default’’ as making
one late payment or exceeding the credit
limit once. The actions that may trigger
the penalty APR are currently required
to be disclosed outside the table.
Consumer testing indicated that many
consumers did not notice the
information about penalty pricing when
it was disclosed outside the table. Under
the final rule, card issuers are required
to include in the table the specific
actions that trigger penalty APRs (such
as a late payment), the rate that will
apply and the circumstances under
which the penalty rate will expire or, if
true, the fact that the penalty rate could
apply indefinitely. The regulation
requires card issuers to use the term
‘‘penalty APR’’ because the testing
demonstrated that some consumers are
confused by the term ‘‘default rate.’’
Similarly, the final rule requires card
issuers to disclose inside (rather than
outside) the table the fees for paying
late, exceeding a credit limit, or making
a payment that is returned. Cash
advance fees and balance transfer fees
also must be disclosed inside the table.
This change is also based on consumer
testing results; fees disclosed outside
the table were often not noticed.
Requiring card issuers to disclose
returned-payment fees, required credit
insurance, debt suspension, or debt
cancellation coverage fees, and foreign
transaction fees are new disclosures.
Variable-rate information. Currently,
applications and solicitations offering
variable APRs must disclose inside the
table the index or formula used to make
adjustments and the amount of any
margin that is added. Additional details,
such as how often the rate may change,
must be disclosed outside the table.
Under the final rule, information about
variable APRs is reduced to a single
phrase indicating the APR varies ‘‘with
the market,’’ along with a reference to
the type of index, such as ‘‘Prime.’’
Consumer testing indicated that few
consumers use the variable-rate
information when shopping for a card.
Moreover, participants were distracted
or confused by details about margin

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values, how often the rate may change,
and where an index can be found.
Subprime accounts. The final rule
addresses a concern that has been raised
about subprime credit cards, which are
generally offered to consumers with low
credit scores or credit problems.
Subprime credit cards often have
substantial fees associated with opening
the account. Typically, fees for the
issuance or availability of credit are
billed to consumers on the first periodic
statement, and can substantially reduce
the amount of credit available to the
consumer. For example, the initial fees
on an account with a $250 credit limit
may reduce the available credit to less
than $100. Consumer complaints
received by the federal banking agencies
state that consumers were unaware
when they applied for subprime cards of
how little credit would be available after
all the fees were assessed at account
opening.
The final rule requires additional
disclosures if the card issuer requires
fees or a security deposit to issue the
card that are 15 percent or more of the
minimum credit limit offered for the
account. In such cases, the card issuer
is required to include an example in the
table of the amount of available credit
the consumer would have after paying
the fees or security deposit, assuming
the consumer receives the minimum
credit limit.
Balance computation methods. TILA
requires creditors to identify their
balance computation method by name,
and Regulation Z requires that the
disclosure be inside the table. However,
consumer testing demonstrates that
these names hold little meaning for
consumers, and that consumers do not
consider such information when
shopping for accounts. The final rule
requires creditors to place the name of
the balance computation method
outside the table, so that the disclosure
does not detract from information that is
more important to consumers.
Description of grace period. The final
rule requires card issuers to use the
heading ‘‘How to Avoid Paying Interest
on Purchases’’ on the row describing a
grace period offered on all purchases,
and the phrase ‘‘Paying Interest’’ if a
grace period is not offered on all
purchases. Consumer testing indicates
consumers do not understand the term
‘‘grace period’’ as a description of
actions consumers must take to avoid
paying interest.
B. Account-Opening Disclosures
Regulation Z requires creditors to
disclose costs and terms before the first
transaction is made on the account. The
disclosures must specify the

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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Rules and Regulations
circumstances under which a ‘‘finance
charge’’ may be imposed and how it will
be determined. A ‘‘finance charge’’ is
any charge that may be imposed as a
condition of or an incident to the
extension of credit, and includes, for
example, interest, transaction charges,
and minimum charges. The finance
charge disclosures include a disclosure
of each periodic rate of interest that may
be applied to an outstanding balance
(e.g., purchases, cash advances) as well
as the corresponding annual percentage
rate (APR). Creditors must also explain
any grace period for making a payment
without incurring a finance charge. In
addition, they must disclose the amount
of any charge other than a finance
charge that may be imposed as part of
the credit plan (‘‘other charges’’), such
as a late-payment charge. Consumers’
rights and responsibilities in the case of
unauthorized use or billing disputes
must also be explained. Currently, there
are few format requirements for these
account-opening disclosures, which are
typically interspersed among other
contractual terms in the creditor’s
account agreement.
Proposal. Certain key terms were
proposed to be disclosed in a summary
table at account opening, which would
be substantially similar to the table
required for applications and
solicitations. A different approach to
disclosing fees was proposed, including
providing creditors with flexibility to
disclose charges (other than those in the
summary table) in writing or orally after
the account is opened, but before the
charge is imposed.
Summary of final rule.
Account-opening summary table.
Account-opening disclosures have often
been criticized because the key terms
TILA requires to be disclosed are often
interspersed within the credit
agreements, and such agreements are
long and complex. To address this
concern and make the information more
conspicuous, the final rule requires
creditors to provide at account-opening
a table summarizing key terms.
Creditors may continue, however, to
provide other account-opening
disclosures, aside from the fees and
terms specified in the table, with other
terms in their account agreements.
The new table provided at account
opening is substantially similar to the
table provided with direct-mail credit
card applications and solicitations.
Consumer testing indicates that
consumers generally are aware of the
table on applications and solicitations.
Consumer testing also indicates that
consumers may not typically read their
account agreements, which are often in
small print and dense prose. Thus,

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setting apart the most important terms
in a summary table will better ensure
that consumers are aware of those terms.
The table required at account opening
includes more information than the
table required at application. For
example, it includes a disclosure
whether or not there is a grace period
for all features of an account. For
subprime credit cards, to give
consumers the opportunity to avoid
fees, the final rule also requires issuers
to provide consumers at account
opening, a notice about the right to
reject a plan when fees have been
charged but the consumer has not used
the plan. However, to reduce
compliance burden for creditors that
provide account-opening disclosures at
application, the final rule allows
creditors to provide the more specific
and inclusive account-opening table at
application in lieu of the table otherwise
required at application.
How charges are disclosed. Under the
current rules, a creditor must disclose
any ‘‘finance charge’’ or ‘‘other charge’’
in the account-opening disclosures. A
subsequent notice is required if one of
the fees disclosed at account opening
increases or if certain fees are newly
introduced during the life of the plan.
The terms ‘‘finance charge’’ and ‘‘other
charge’’ are given broad and flexible
meanings in the regulation and
commentary. This ensures that TILA
adapts to changing conditions, but it
also creates uncertainty. The
distinctions among finance charges,
other charges, and charges that do not
fall into either category are not always
clear. As creditors develop new kinds of
services, some find it difficult to
determine if associated charges for the
new services meet the standard for a
‘‘finance charge’’ or ‘‘other charge’’ or
are not covered by TILA at all. This
uncertainty can pose legal risks for
creditors that act in good faith to
comply with the law. Examples of
included or excluded charges are in the
regulation and commentary, but these
examples cannot provide definitive
guidance in all cases. Creditors are
subject to civil liability and
administrative enforcement for underdisclosing the finance charge or
otherwise making erroneous
disclosures, so the consequences of an
error can be significant. Furthermore,
over-disclosure of rates and finance
charges is not permitted by Regulation
Z for open-end credit.
The fee disclosure rules also have
been criticized as being outdated. These
rules require creditors to provide fee
disclosures at account opening, which
may be months, and possibly years,
before a particular disclosure is relevant

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to the consumer, such as when the
consumer calls the creditor to request a
service for which a fee is imposed. In
addition, an account-related transaction
may occur by telephone, when a written
disclosure is not feasible.
The final rule is intended to respond
to these criticisms while still giving full
effect to TILA’s requirement to disclose
credit charges before they are imposed.
Accordingly, the rules are revised to (1)
specify precisely the charges that
creditors must disclose in writing at
account opening (interest, minimum
charges, transaction fees, annual fees,
and penalty fees such as for paying late),
which must be listed in the summary
table, and; (2) permit creditors to
disclose other less critical charges orally
or in writing before the consumer agrees
to or becomes obligated to pay the
charge. Although the final rule permits
creditors to disclose certain costs orally
for purposes of TILA, the Board
anticipates that creditors will continue
to identify fees in the account agreement
for contract or other reasons.
Under the final rule, some charges are
covered by TILA that the current
regulation, as interpreted by the staff
commentary, excludes from TILA
coverage, such as fees for expedited
payment and expedited delivery. It may
not have been useful to consumers to
cover such charges under TILA when
such coverage would have meant only
that the charges were disclosed long
before they became relevant to the
consumer. The Board believes it will be
useful to consumers to cover such
charges under TILA as part of a rule that
permits their disclosure at a time and in
a manner that consumers would be
likely to notice the disclosure of the
charge. Further, as new services (and
associated charges) are developed, the
proposal minimizes risk of civil liability
as well as inconsistency among
creditors associated with the
determination as to whether a fee is a
finance charge or an other charge, or is
not covered by TILA at all.
C. Periodic Statements
Creditors are required to provide
periodic statements reflecting the
account activity for the billing cycle
(typically, about one month). In
addition to identifying each transaction
on the account, creditors must identify
each ‘‘finance charge’’ using that term,
and each ‘‘other charge’’ assessed
against the account during the statement
period. When a periodic interest rate is
applied to an outstanding balance to
compute the finance charge, creditors
must disclose the periodic rate and its
corresponding APR. Creditors must also
disclose an ‘‘effective’’ or ‘‘historical’’

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APR for the billing cycle, which, unlike
the corresponding APR, includes not
just interest but also finance charges
imposed in the form of fees (such as
cash advance fees or balance transfer
fees). Periodic statements must also
state the time period a consumer has to
pay an outstanding balance to avoid
additional finance charges (the ‘‘grace
period’’), if applicable.
Proposal. Interest charges for different
types of transactions, such as purchases
and cash advances would be itemized,
and separate totals of fees and interest
for the month and year-to-date would be
disclosed. The proposal offered two
approaches regarding the ‘‘effective
APR.’’ One modified the provisions for
disclosing the ‘‘effective APR,’’
including format and terminology
requirements,9 and the other solicited
comment on whether this rate should be
required to be disclosed. To implement
changes required by the Bankruptcy
Act, the proposal required creditors to
disclose of the effect of making only the
minimum required payment on
repayment of balances.
Summary of final rule.
Fees and interest costs. The final rule
contains a number of revisions to the
periodic statement to improve
consumers’ understanding of fees and
interest costs. Currently, creditors must
identify on periodic statements any
‘‘finance charges’’ added to the account
during the billing cycle, and creditors
typically intersperse these charges with
other transactions, such as purchases,
chronologically on the statement. The
finance charges must be itemized by
type. Thus, interest charges might be
described as ‘‘finance charges due to
periodic rates.’’ Charges such as late
payment fees, which are not ‘‘finance
charges,’’ are typically disclosed
individually and are interspersed among
other transactions.
Consumer testing indicated that
consumers generally understand that
‘‘interest’’ is the cost that results from
applying a rate to a balance over time
and distinguish ‘‘interest’’ from other
fees, such as a cash advance fee or a late
payment fee. Consumer testing also
indicated that many consumers more
easily determine the number and
amount of fees when the fees are
itemized and grouped together.
Thus, under the final rule, creditors
are required to group all fees together
and to separately itemize interest
charges by transaction type, and
describe them in a manner consistent
with consumers’ general understanding
9 The ‘‘effective’’ APR reflects interest and other
finance charges such as cash advance fees or
balance transfer fees imposed for the billing cycle.

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of costs (‘‘interest charge’’ or ‘‘fee’’),
without regard to whether the charges
are considered ‘‘finance charges,’’
‘‘other charges,’’ or neither. Interest
charges must be identified by type (for
example, interest on purchases or
interest on balance transfers) as must
fees (for example, cash advance fee or
late-payment fee).
Consumer testing also indicated that
many consumers more quickly and
accurately determined the total dollar
cost of credit for the billing cycle when
a total dollar amount of fees for the
cycle was disclosed. Thus, the final rule
requires creditors to disclose the (1)
total fees and (2) total interest imposed
for the cycle. Creditors must also
disclose year-to-date totals for interest
charges and fees. For many consumers,
costs disclosed in dollars are more
readily understood than costs disclosed
as percentage rates. The year-to-date
figures are intended to assist consumers
in better understanding the overall cost
of their credit account and are an
important disclosure and an effective
aid in understanding annualized costs.
The Board believes these figures will
better ensure consumers understand the
cost of credit than the effective APR
currently provided on periodic
statements.
The effective APR. The ‘‘effective’’
APR disclosed on periodic statements
reflects the cost of interest and certain
other finance charges imposed during
the statement period. For example, for a
cash advance, the effective APR reflects
both interest and any flat or
proportional fee assessed for the
advance.
For the reasons discussed below, the
Board is eliminating the requirement to
disclose the effective APR.
Consumer testing conducted prior to
the June 2007 Proposal, in March 2008,
and after the May 2008 Proposal
demonstrates that consumers find the
current disclosure of an APR that
combines rates and fees to be confusing.
The June 2007 Proposal would have
required disclosure of the nominal
interest rate and fees in a manner that
is more readily understandable and
comparable across institutions. The
Board believes that this approach can
better inform consumers and further the
goals of consumer protection and the
informed use of credit for all types of
open-end credit.
The Board also considered whether
there were potentially competing
considerations that would suggest
retention of the requirement to disclose
an effective APR. First, the Board
considered the extent to which ‘‘sticker
shock’’ from the effective APR benefits
consumers, even if the disclosure may

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not enable consumers to meaningfully
compare costs from month to month or
between different credit products. A
second consideration is whether the
effective APR may be a hedge against
fee-intensive pricing by creditors, and if
so, the extent to which it promotes
transparency. On balance, however, the
Board believes that the benefits of
eliminating the requirement to disclose
the effective APR outweigh these
considerations.
The consumer testing conducted for
the Board strongly supports this
determination. Although in one round
of testing conducted prior to the June
2007 Proposal a majority of participants
evidenced some understanding of the
effective APR, the overall results of the
testing show that most consumers do
not correctly understand the effective
APR. Some consumers in the testing
offered no explanation of the difference
between the corresponding and effective
APR, and others appeared to have an
incorrect understanding. The results
were similar in the consumer testing
conducted in March 2008 and after the
May 2008 proposal; in all rounds of the
testing, a majority of participants did
not offer a correct explanation of the
effective APR. In quantitative testing
conducted for the Board in the fall of
2008, only 7% of consumers answered
a question correctly that was designed
to test their understanding of the
effective APR. In addition, including the
effective APR on the statement had an
adverse effect on some consumers’
ability to identify the interest rate
applicable to the account.
Even if some consumers have some
understanding of the effective APR, the
Board believes sound reasons support
eliminating the requirement for its
disclosure. Disclosure of the effective
APR on periodic statements does not
assist consumers in credit shopping,
because the effective APR disclosed on
a statement on one credit card account
cannot be compared to the nominal APR
disclosed on a solicitation or
application for another credit card
account. In addition, even for the same
account, the effective APR for a given
cycle is unlikely to accurately indicate
the cost of credit in a future cycle,
because if any of several factors (such as
timing of transactions and payments) is
different in the future cycle, the
effective APR will be different even if
the amount of the transaction is the
same. As to suggestions that the
effective APR for a particular billing
cycle provides the consumer a rough
indication that it is costly to engage in
transactions that trigger transaction fees,
the Board believes the requirements
adopted in the final rule to disclose

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interest and fee totals for the cycle and
year-to-date will better serve the same
purpose. In addition, the interest and
fee total disclosure requirements should
address concerns that elimination of the
effective APR would remove
disincentives for creditors to introduce
new fees.
Transactions. Currently, there are no
format requirements for disclosing
different types of transactions, such as
purchases, cash advances, and balance
transfers on periodic statements. Often,
transactions are presented together in
chronological order. Consumer testing
indicated that participants found it
helpful to have similar types of
transactions grouped together on the
statement. Consumers also found it
helpful, within the broad grouping of
fees and transactions, when transactions
were segregated by type (e.g., listing all
purchases together, separate from cash
advances or balance transfers). Further,
consumers noticed fees and interest
charges more readily when they were
located near the transactions. For these
reasons, the final rule requires creditors
to group fees and interest charges
together, itemized by type, with the list
of transactions. The Board has not
adopted the proposed requirement that
creditors group transactions by type on
the periodic statement. In consumer
testing, most consumers indicated that
they review the transactions on their
periodic statements, and grouping
transactions together only moderately
improved consumers’ ability to locate
transactions compared to when the
transaction list was presented
chronologically. In addition, the cost to
creditors of reformatting periodic
statements to group transactions by type
appears to outweigh any benefit to
consumers.
Late payments. Currently, creditors
must disclose the date by which
consumers must pay a balance to avoid
finance charges. Creditors must also
disclose any cut-off time for receiving
payments on the payment due date; this
is usually disclosed on the reverse side
of periodic statements. The Bankruptcy
Act amendments expressly require
creditors to disclose the payment due
date (or if different, the date after which
a late-payment fee may be imposed)
along with the amount of the latepayment fee.
Under the final rule, creditors are
required to disclose the payment due
date on the front side of the periodic
statement. Creditors also are required to
disclose, in close proximity to the due
date, the amount of the late-payment fee
and the penalty APR that could be
triggered by a late payment, to alert

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consumers to the consequence of paying
late.
Minimum payments. The Bankruptcy
Act requires creditors offering open-end
plans to provide a warning about the
effects of making only minimum
payments. The proposal would
implement this requirement solely for
credit card issuers. Under the final rule,
card issuers must provide (1) a
‘‘warning’’ statement indicating that
making only the minimum payment will
increase the interest the consumer pays
and the time it takes to repay the
consumer’s balance; (2) a hypothetical
example of how long it would take to
pay a specified balance in full if only
minimum payments are made; and (3) a
toll-free telephone number that
consumers may call to obtain an
estimate of the time it would take to
repay their actual account balance using
minimum payments. Most card issuers
must establish and maintain their own
toll-free telephone numbers to provide
the repayment estimates. However, the
Board is required to establish and
maintain, for two years, a toll-free
telephone number for creditors that are
depository institutions having assets of
$250 million or less. This number is for
the customers of those institutions to
call to get answers to questions about
how long it will take to pay their
account in full making only the
minimum payment. The FTC must
maintain a similar toll-free telephone
number for use by customers of
creditors that are not depository
institutions. In order to standardize the
information provided to consumers
through the toll-free telephone numbers,
the Bankruptcy Act amendments direct
the Board to prepare a ‘‘table’’
illustrating the approximate number of
months it would take to repay an
outstanding balance if the consumer
pays only the required minimum
monthly payments and if no other
advances are made (‘‘generic repayment
estimate’’).
Pursuant to the Bankruptcy Act
amendments, the final rule also allows
a card issuer to establish a toll-free
telephone number to provide customers
with the actual number of months that
it will take consumers to repay their
outstanding balance (‘‘actual repayment
disclosure’’) instead of providing an
estimate based on the Board-created
table. A card issuer that does so need
not include a hypothetical example on
its periodic statements, but must
disclose the warning statement and the
toll-free telephone number.
The final rule also allows card issuers
to provide the actual repayment
disclosure on their periodic statements.
Card issuers are encouraged to use this

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approach. Participants in consumer
testing who typically carry credit card
balances (revolvers) found an estimated
repayment period based on terms that
apply to their own account more useful
than a hypothetical example. To
encourage card issuers to provide the
actual repayment disclosure on their
periodic statements, the final rule
provides that if card issuers do so, they
need not disclose the warning, the
hypothetical example and a toll-free
telephone number on the periodic
statement, nor need they maintain a tollfree telephone number to provide the
actual repayment disclosure.
As described above, the Bankruptcy
Act also requires the Board to develop
a ‘‘table’’ that creditors, the Board and
the FTC must use to create generic
repayment estimates. Instead of creating
a table, the final rule contains guidance
for how to calculate generic repayment
estimates. Consumers that call the tollfree telephone number may be
prompted to input information about
their outstanding balance and the APR
applicable to their account. Although
issuers have the ability to program their
systems to obtain consumers’ account
information from their account
management systems, for the reasons
discussed in the section-by-section
analysis to Appendix M1 to part 226,
the final rule does not require issuers to
do so.
D. Changes in Consumer’s Interest Rate
and Other Account Terms
Regulation Z requires creditors to
provide advance written notice of some
changes to the terms of an open-end
plan. The proposal included several
revisions to Regulation Z’s requirements
for notifying consumers about such
changes.
Currently, Regulation Z requires
creditors to send, in most cases, notices
15 days before the effective date of
certain changes in the account terms.
However, creditors need not inform
consumers in advance if the rate
applicable to their account increases
due to default or delinquency. Thus,
consumers may not realize until they
receive their monthly statement for a
billing cycle that their late payment
triggered application of the higher
penalty rate, effective the first day of the
month’s statement.
Proposal. The proposal generally
would have increased advance notice
before a changed term, such as a rate
increase due to a change in the contract,
can be imposed from 15 to 45 days. The
proposal also would have required
creditors to provide 45 days’ prior
notice before the creditor increases a
rate due to the consumer’s delinquency

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or default or as a penalty. When a
change-in-terms notice accompanies a
periodic statement, the proposal would
have required a tabular disclosure on
the front of the first page of the periodic
statement of the key terms being
changed.
Summary of final rule.
Timing. Under the final rule, creditors
generally must provide 45 days’
advance notice prior to a change in any
term required to be disclosed in the
tabular disclosure provided at accountopening, as discussed above. This
increase in the advance notice for a
change in terms is intended to give
consumers approximately a month to
act, either to change their usage of the
account or to find an alternative source
of financing before the change takes
effect.
Penalty rates. Currently, creditors
must inform consumers about rates that
are increased due to default or
delinquency, but not in advance of
implementation of the increase.
Contractual thresholds for default are
sometimes very low, and currently
penalty pricing commonly applies to all
existing balances, including low-rate
promotional balances.
The final rule generally requires
creditors to provide 45 days’ advance
notice before rate increases due to the
consumer’s delinquency or default or as
a penalty, as proposed. Permitting
creditors to apply the penalty rate
immediately upon the consumer
triggering the rate may lead to undue
surprise and insufficient time for a
consumer to consider alternative
options regarding use of the card. Even
though the final rule contain provisions
intended to improve disclosure of
penalty pricing at account opening, the
Board believes that consumers will be
more likely to notice and be motivated
to act if they receive a specific notice
alerting them of an imminent rate
increase, rather than a general
disclosure stating the circumstances
when a rate might increase.
When asked which terms were the
most important to them when shopping
for an account, participants in consumer
testing seldom mentioned the penalty
rate or penalty rate triggers. Some
consumers may not find this
information relevant when shopping for
or opening an account because they do
not anticipate that they will trigger
penalty pricing. As a result, they may
not recall this information later, after
they have begun using the account, and
may be surprised when penalty pricing
is subsequently imposed.
In addition, the Board believes that
the notice required by § 226.9(g) is the
most effective time to inform consumers

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of the circumstances under which
penalty rates can be applied to their
existing balances for the reasons
discussed above and in VI. Section-bySection Analysis.
Format. Currently, there are few
format requirements for change-in-terms
disclosures. As with account-opening
disclosures, creditors commonly
intersperse change-in-terms notices with
other amendments to the account
agreement, and both are provided in
pamphlets in small print and dense
prose. Consumer testing indicates many
consumers set aside and do not read
densely-worded pamphlets.
Under the final rule, creditors may
continue to notify consumers about
changes to terms required to be
disclosed by Regulation Z, together with
other changes to the account agreement.
However, if a changed term is one that
must be provided in the accountopening summary table, creditors must
provide that change in a summary table
to enhance the effectiveness of the
change-in-terms notice. Consumer
testing conducted for the Board suggests
that consumer understanding of change
in terms notices is improved by
presentation of that information in a
tabular format.
Creditors commonly enclose notices
about changes to terms or rates with
periodic statements. Under the final
rule, if a notice enclosed with a periodic
statement discusses a change to a term
that must be disclosed in the accountopening summary table, or announces
that a penalty rate will be imposed on
the account, a table summarizing the
impending change must appear on the
periodic statement. The table must
appear on the front of the periodic
statement, although it is not required to
appear on the first page. Consumers
who participated in testing often set
aside change-in-terms pamphlets that
accompanied periodic statements, while
participants uniformly looked at the
front side of periodic statements.
E. Advertisements
Currently, creditors that disclose
certain terms in advertisements must
disclose additional information, to help
ensure consumers understand the terms
of credit being offered.
Proposal. For advertisements that
state a minimum monthly payment on
a plan offered to finance the purchase of
goods or services, additional
information must also be stated about
the time period required to pay the
balance and the total of payments if
only minimum payments are made. The
proposal also limited the circumstances
under which advertisements may refer
to a rate as ‘‘fixed.’’

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Summary of final rule.
Advertising periodic payments.
Consumers commonly are offered the
option to finance the purchase of goods
or services (such as appliances or
furniture) by establishing an open-end
credit plan. The periodic payments
(such as $20 a week or $45 per month)
associated with the purchase are often
advertised as part of the offer. Under
current rules, advertisements for openend credit plans are not required to
include information about the time it
will take to pay for a purchase or the
total cost if only periodic payments are
made; if the transaction were a closedend installment loan, the number of
payments and the total cost would be
disclosed. Under the final rule,
advertisements stating a periodic
payment amount for an open-end credit
plan that would be established to
finance the purchase of goods or
services must state, in equal prominence
to the periodic payment amount, the
time period required to pay the balance
and the total of payments if only
periodic payments are made.
Advertising ‘‘fixed’’ rates. Creditors
sometimes advertise the APR for openend accounts as a ‘‘fixed’’ rate even
though the creditor reserves the right to
change the rate at any time for any
reason. Consumer testing indicated that
many consumers believe that a ‘‘fixed
rate’’ will not change, and do not
understand that creditors may use the
term ‘‘fixed’’ as a shorthand reference
for rates that do not vary based on
changes in an index or formula. Under
the final rule, an advertisement may
refer to a rate as ‘‘fixed’’ if the
advertisement specifies a time period
the rate will be fixed and the rate will
not increase during that period. If a time
period is not specified, the
advertisement may refer to a rate as
‘‘fixed’’ only if the rate will not increase
while the plan is open.
F. Other Disclosures and Protections
‘‘Open-end’’ plans comprised of
closed-end features. Some creditors give
open-end credit disclosures on credit
plans that include closed-end features,
that is, separate loans with fixed
repayment periods. These creditors treat
these loans as advances on a revolving
credit line for purposes of Regulation Z
even though the consumer’s credit
information is separately evaluated, the
consumer may have to complete a
separate application for each ‘‘advance,’’
and the consumer’s payments on the
‘‘advance’’ do not replenish the line.
Provisions in the commentary lend
support to this approach.
Proposal. The proposal would have
revised these provisions to indicate

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closed-end disclosures rather than openend disclosures are appropriate when
advances that are individually approved
and underwritten are being extended, or
if payments made on a particular subaccount do not replenish the credit line
available for that sub-account.
Summary of final rule. The final rule
generally adopts the proposal that
would clarify that credit is not properly
characterized as open-end credit if
individual advances are separately
underwritten. The proposed revision
that would have required that payments
on a sub-account of an open-end credit
plan replenish that sub-account has
been withdrawn, because of concerns
that this revision would have had
unintended consequences for credit
cards and HELOCs that the Board
believes are appropriately treated as
open-end credit.
Checks that access a credit card
account. Many credit card issuers
provide accountholders with checks
that can be used to obtain cash, pay the
outstanding balance on another account,
or purchase goods and services directly
from merchants. The solicitation letter
accompanying the checks may offer a
low promotional APR for transactions
that use the checks. The proposed
revisions would require the checks
mailed by card issuers to be
accompanied by cost disclosures.
Currently, creditors need not disclose
costs associated with using the checks if
the finance charges that would apply
(that is, the interest rate and transaction
fees) have been previously disclosed,
such as in the account agreement. If the
check is sent 30 days or more after the
account is opened, creditors must refer
consumers to their account agreements
for more information about how the rate
and fees are determined.
Consumers may receive these checks
throughout the life of the credit card
account. Thus, significant time may
elapse between the time accountopening disclosures are provided and
the time a consumer considers using the
check. In addition, consumer testing
indicates that consumers may not notice
references to other documents such as
the account-opening disclosures or
periodic statements for rate information
because they tend to look for rates and
dollar figures when reviewing the
information accompanying access
checks.
Proposal. Under the proposal, checks
that can access credit card accounts
would have been required to be
accompanied by information about the
rates and fees that will apply if the
checks are used, about whether a grace
period exists, and any date by which the
consumer must use the checks in order

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to receive any discounted initial rate
offered on the checks. This information
would have been required to be
presented in a table, on the front side of
the page containing the checks.
Summary of final rule. The final rule
requires the following key terms to be
disclosed in a summary table on the
front of the page containing checks that
access credit card accounts: (1) Any
discounted initial rate, and when that
rate will expire, if applicable; (2) the
type of rate that will apply to the checks
after expiration of any discounted initial
rate (such as whether the purchase or
cash advance rate applies) and the
applicable APR; (3) any transaction fees
applicable to the checks; (4) whether a
grace period applies to the checks, and
if one does not apply, that interest will
be charged immediately; and (5) any
date by which the consumer must use
the checks in order to receive any
discounted initial rate offered on the
checks.
The final rule requires that the tabular
disclosure accompanying checks that
access a credit card account include a
disclosure of the actual rate or rates
applicable to the checks. While the
actual post-promotional rate disclosed
at the time the checks are sent to a
consumer may differ from the rate
disclosed by the time it becomes
applicable to the consumer’s account (if
it is a variable rate tied to an index),
disclosure of the actual postpromotional rate in effect at the time
that the checks are sent to the consumer
is an important piece of information for
the consumer to use in making an
informed decision about whether to use
the checks. Consumer testing suggests
that a disclosure of the actual rate,
rather than a toll-free number, also will
help to enhance consumer
understanding regarding the rate that
will apply when the promotional rate
expires.
Cut-off times and due dates for
mailing payments. TILA generally
requires that payments be credited to a
consumer’s account as of the date of
receipt, provided the payment conforms
to the creditor’s instructions. Under
Regulation Z, creditors are permitted to
specify reasonable cut-off times for
receiving payments on the due date.
Some creditors use different cut-off
times depending on the payment
method. Consumer groups and others
have raised concerns that the use of
certain cut-off times may effectively
result in a due date that is one day
earlier than the due date disclosed. In
addition, in response to the June 2007
Proposal, consumer commenters urged
the Board to address creditors’ practice
of using due dates on days that the

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creditor does not accept payments, such
as weekends or holidays.
Proposal. The May 2008 Regulation Z
Proposal provided that it would be
unreasonable for a creditor to require
that mailed payments be received earlier
than 5 p.m. on the due date in order to
be considered timely. In addition, the
proposal would have provided that if a
creditor does not receive and accept
mailed payments on the due date (e.g.,
a Sunday or holiday), a payment
received on the next business day is
timely.
Recommendation. The draft final rule
adopts the proposal regarding weekend
and holiday due dates. In addition, the
draft final rule adopts a modified
version of the 5 p.m. cut-off time
proposal to provide that a 5 p.m. cut-off
time is an example of a reasonable
requirement for payments.
Credit insurance, debt cancellation,
and debt suspension coverage. Under
Regulation Z, premiums for credit life,
accident, health, or loss-of-income
insurance are considered finance
charges if the insurance is written in
connection with a credit transaction.
However, these costs may be excluded
from the finance charge and APR (for
both open-end and closed-end credit
transactions), if creditors disclose the
cost and the fact that the coverage is not
required to obtain credit, and the
consumer signs or initials an affirmative
written request for the insurance. Since
1996, the same rules have applied to
creditors’ ‘‘debt cancellation’’
agreements, in which a creditor agrees
to cancel the debt, or part of it, on the
occurrence of specified events.
Proposal and summary of final rule.
As proposed, the existing rules for debt
cancellation coverage were applied to
‘‘debt suspension’’ coverage (for both
open-end credit and closed-end
transactions). ‘‘Debt suspension’’
products are related to, but different
from, debt cancellation products. Debt
suspension products merely defer
consumers’ obligation to make the
minimum payment for some period after
the occurrence of a specified event.
During the suspension period, interest
may continue to accrue, or it may be
suspended as well. Under the proposal,
to exclude the cost of debt suspension
coverage from the finance charge and
APR, creditors would have been
required to inform consumers that the
coverage suspends, but does not cancel,
the debt.
Under the current rules, charges for
credit insurance and debt cancellation
coverage are deemed not to be finance
charges if a consumer requests coverage
after an open-end credit account is
opened or after a closed-end credit

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transaction is consummated because the
coverage is deemed not to be ‘‘written
in connection’’ with the credit
transaction. Since the charges are
defined as non-finance charges in such
cases, Regulation Z does not require a
disclosure or written evidence of
consent to exclude them from the
finance charge. The proposal would
have implemented a broader
interpretation of ‘‘written in
connection’’ with a credit transaction
and required creditors to provide
disclosures, and obtain evidence of
consent, on sales of credit insurance or
debt cancellation or suspension
coverage during the life of an open-end
account. If a consumer requests the
coverage by telephone, creditors would
have been permitted to provide the
disclosures orally, but in that case they
would have been required to mail
written disclosures within three days of
the call.10 The final rule is unchanged
from the proposal.
VI. Section-by-Section Analysis
In reviewing the rules affecting openend credit, the Board proposed in June
2007 to reorganize some provisions to
make the regulation easier to use. Rules
affecting home-equity lines of credit
(HELOCs) subject to § 226.5b would
have been separately delineated in
§ 226.6 (account-opening disclosures),
§ 226.7 (periodic statements), and
§ 226.9 (subsequent disclosures). Rules
contained in footnotes would have been
moved to the text of the regulation or
commentary, as appropriate, and the
footnotes designated as reserved.
Commenters generally supported this
approach. One commenter questioned
retaining the footnotes as reserved and
suggested deleting references to the
footnotes entirely. The final rule is
organized, and rules currently stated in
footnotes have been moved, as
proposed. These revisions are identified
in a table below. See X. Redesignation
Table. The Board retains footnotes as
‘‘reserved’’ to preserve the current
footnote numbers in provisions of
Regulation Z that will be the subject of
future rulemakings. When rules
contained in all footnotes have been
moved to the regulation or commentary,
as appropriate, references to the
footnotes will be removed.

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10 The

revisions to Regulation Z requiring
disclosures to be mailed within three days of a
telephone request for these products are consistent
with the rules of the federal banking agencies
governing insured depository institutions’ sales of
insurance and with guidance published by the
Office of the Comptroller of the Currency (OCC)
concerning national banks’ sales of debt
cancellation and debt suspension products.

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Introduction
The official staff commentary to
Regulation Z begins with an
Introduction. Comment I–6 discusses
reference materials published at the end
of each section of the commentary
adopted in 1981. 46 FR 50288, Oct. 9,
1981. The references were intended as
a compliance aid during the transition
to the 1981 revisions to Regulation Z. In
June 2007, the Board proposed to delete
provisions addressing references and
transition rules applicable to 1981
revisions to Regulation Z. No comments
were received. Thus, the Board deletes
the references and comments I–3, I–4(b),
I–6, and I–7, as obsolete and renumbers
the remaining comments accordingly.
Section 226.1 Authority, Purpose,
Coverage, Organization, Enforcement,
and Liability
Section 226.1(c) generally outlines the
persons and transactions covered by
Regulation Z. Comment 1(c)–1 provides,
in part, that the regulation applies to
consumer credit extended to residents
(including resident aliens) of a state. In
June 2007, technical revisions were
proposed for clarity, and comment was
requested if further guidance on the
scope of coverage would be helpful. No
comments were received and the
comment is adopted with technical
revisions for clarity.
Section 226.1(d)(2), which
summarizes the organization of the
regulation’s open-end credit rules
(Subpart B), is amended to reinsert text
inadvertently deleted in a previous
rulemaking, as proposed. See 54 FR
24670, June 9, 1989. Section 226.1(d)(4),
which summarizes miscellaneous
provisions in the regulation (Subpart D),
is updated to describe amendments
made in 2001 to Subpart D relating to
disclosures made in languages other
than English, as proposed. See 66 FR
17339, Mar. 30, 2001. The substance of
Footnote 1 is deleted as unnecessary, as
proposed.
In July 2008, the Board revised
Subpart E to address certain mortgage
practices and disclosures. These
changes are reflected in § 226.1(d)(5), as
amended in the July 2008 Final HOEPA
Rule. In addition, transition rules for the
July 2008 rulemaking are added as
comment 1(d)(5)–1. 73 FR 44522, July
30, 2008.
Section 226.2
Construction

Definitions and Rules of

intended change in substance or
meaning. No changes were proposed for
the regulatory text. The Board received
no comments on the proposed changes,
and the changes are adopted as
proposed.
2(a)(4) Billing Cycle or Cycle
Section 226.2(a)(4) defines ‘‘billing
cycle’’ as the interval between the days
or dates of regular periodic statements,
and requires that billing cycles be equal
(with a permitted variance of up to four
days from the regular day or date) and
no longer than a quarter of a year.
Comment 2(a)(4)–3 states that the
requirement for equal cycles does not
apply to transitional billing cycles that
occur when a creditor occasionally
changes its billing cycles to establish a
new statement day or date. The Board
proposed in June 2007 to revise
comment 2(a)(4)–3 to clarify that this
exception also applies to the first billing
cycle that occurs when a consumer
opens an open-end credit account.
Few commenters addressed this
provision. One creditor requested that
the Board clarify that the proposed
revision applies to the time period
between the opening of the account and
the generation of the first periodic
statement (as opposed to the period
between the generation of the first
statement and the generation of the
second statement). The comment has
been revised to provide the requested
clarification.
The same commenter also requested
clarification that the same exception
would apply when a previously closed
account is reopened. The reopening of
a previously closed account is no
different, for purposes of comment
2(a)(4)–3, from the original opening of
an account; therefore, this clarification
is unnecessary. A consumer group
suggested that an irregular first billing
cycle should be limited to no longer
than twice the length of a regular billing
cycle, and that irregular billing cycles
should permitted no more than once per
year. The Board believes that these
limitations might unduly restrict
creditors’ operations. Although it would
be unlikely for a creditor to utilize a
billing cycle more than twice the length
of the regular cycle, or an irregular
billing cycle more often than once per
year, such cycles might need to be used
on rare occasions for operational
reasons.

2(a) Definitions

2(a)(6) Business Day

2(a)(2) Advertisement
In the June 2007 Proposal, the Board
proposed technical revisions to the
commentary to § 226.2(a)(2), with no

Section 226.2(a)(6) and comment
2(a)(6)–2, as reprinted, reflect revisions
adopted in the Board’s July 2008 Final
HOEPA Rule to address certain

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mortgage practices and disclosures. 73
FR 44522, 44599, 44605, July 30, 2008.
2(a)(15) Credit Card
TILA defines ‘‘credit card’’ as ‘‘any
card, plate, coupon book or other credit
device existing for the purpose of
obtaining money, property, labor, or
services on credit.’’ TILA Section
103(k); 15 U.S.C. 1602(k). In addition,
Regulation Z currently provides that a
credit card is a ‘‘card, plate, coupon
book, or other single credit device that
may be used from time to time to obtain
credit.’’ See § 226.2(a)(15).
Checks that access credit card
accounts. Credit card issuers sometimes
provide cardholders with checks that
access a credit card account (access
checks), which can be used to obtain
cash, purchase goods or services or pay
the outstanding balance on another
account. These checks are often mailed
to cardholders on an unsolicited basis,
sometimes with their monthly
statements. When a consumer uses an
access check, the amount of the check
is billed to the consumer’s credit card
account.
Historically, checks that access credit
card accounts have not been treated as
‘‘credit cards’’ under TILA because each
check can be used only once and not
‘‘from time to time.’’ See comment
2(a)(15)–1. As a result, TILA’s
protections involving merchant
disputes, unauthorized use of the
account, and the prohibition against
unsolicited issuance, which apply only
to ‘‘credit cards,’’ do not apply to
transactions involving these checks. See
§ 226.12. Nevertheless, billing error
rights apply with to these check
transactions. See § 226.13. In the June
2007 Proposal, the Board declined to
extend TILA’s protections for credit
cards to access checks.
While industry commenters generally
supported the Board’s approach,
consumer groups asserted that
excluding access checks from treatment
as credit cards does not adequately
protect consumers, particularly insofar
as consumers would not be able to
assert unauthorized use claims under
§ 226.12(b). Consumer groups thus
observed that the current rules lead to
an anomalous result where a consumer
would be protected from unauthorized
use under § 226.12(b) if a thief used the
consumer’s credit card number to
initiate a credit card transaction by
telephone or on-line, but would not be
similarly protected if the thief used the
consumer’s access check to complete
the same transaction. Consumer groups
also observed that consumers would be
unable to assert a merchant claim or
defense under § 226.12(c) in connection

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with a good or service purchased with
an access check, nor would they be
protected by the unsolicited issuance
provisions in § 226.12(a).
As stated in the proposal, the Board
believes that existing provisions under
state law governing checks, specifically
the Uniform Commercial Code (UCC),
coupled with the billing error
provisions under § 226.13, provide
consumers with appropriate protections
from the unauthorized use of access
checks. For example, a consumer
generally would not have any liability
for a forged access check under the
UCC, provided that the consumer
complies with certain timing
requirements in reporting the forgery. In
addition, in the event the consumer
asserts a timely notice of error for an
unauthorized transaction involving an
access check under § 226.13, the
consumer would not have any liability
if the creditor’s investigation determines
that the transaction was in fact
unauthorized. Lastly, the Board
understands that, in most instances,
consumers may ask their creditor to stop
sending access checks altogether, and
these opt-out requests will be honored
by the creditor.
Coupon books. The Board stated in
the supplementary information for the
June 2007 Proposal that it is unaware of
devices existing today that would
qualify as a ‘‘coupon book’’ for purposes
of the definition of ‘‘credit card’’ under
§ 226.2(a)(15). In addition, the Board
noted that elimination of this obsolete
term from the definition of ‘‘credit card’’
would help to reduce potential
confusion regarding whether an access
check or other single credit device that
is used once, if connected in some way
to other checks or devices, becomes a
‘‘coupon book,’’ thus becoming a ‘‘credit
card’’ for purposes of the regulation. For
these reasons, the June 2007 Proposal
would have deleted the reference to the
term ‘‘coupon book’’ from the definition
of ‘‘credit card’’ under § 226.2(a)(15).
Consumer groups opposed the Board’s
proposal, citing the statutory reference
in TILA Section 103(k) to a ‘‘coupon
book,’’ and noting that even if such
products were not currently being
offered, the proposed deletion could
provide issuers an incentive to develop
such products and in that event,
consumers would be unable to avail
themselves of the protections against
unauthorized use and unsolicited
issuance.
The final rule removes the reference
to ‘‘coupon book’’ in the definition of
‘‘credit card,’’ as proposed. Commenters
did not cite any examples of products
that could potentially qualify as a
‘‘coupon book.’’ Thus, in light of the

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confusion today regarding whether
access checks are ‘‘credit cards’’ as a
result of the existing reference to
‘‘coupon books,’’ the Board believes
removal of the term is appropriate in the
final rule, and that the removal will not
limit the availability of Regulation Z
protections overall.
Plans in which no physical device is
issued. The June 2007 Proposal did not
explicitly address circumstances where
a consumer may conduct a transaction
on an open-end plan that does not have
a physical device. In response, industry
commenters agreed that it was
premature and unnecessary to address
such open-end plans. Consumer groups
in contrast stated that it was appropriate
to amend the regulation at this time to
explicitly cover such plans, particularly
in light of the Board’s decision
elsewhere to update the commentary to
refer to biometric means of verifying the
identity of a cardholder or authorized
user. See comment 12(b)(2)(iii)–1,
discussed below. While the final rule
does not explicitly address open-end
plans in which no physical device is
issued, the Board will continue to
monitor developments in the
marketplace and may update the
regulation if and when such products
become common. Of course, to the
extent a creditor has issued a device that
meets the definition of a ‘‘credit card’’
for an account, the provisions that
require use of a ‘‘credit card,’’ could
apply even though a particular
transaction itself is not conducted using
the device (for example, in the case of
telephone and Internet transactions; see
comments 12(b)(2)(iii)–3 and
12(c)(1)–1).
Charge cards. Comment 2(a)(15)–3
discusses charge cards and identifies
provisions in Regulation Z in which a
charge card is distinguished from a
credit card. The June 2007 Proposal
would have updated comment 2(a)(15)–
3 to reflect that the new late payment
and minimum payment disclosure
requirements set forth by the
Bankruptcy Act do not apply to charge
card issuers. As further discussed in
more detail below under § 226.7,
comment 2(a)(15)–3 is adopted as
proposed.
2(a)(17) Creditor
In June 2007, the Board proposed to
exempt from TILA coverage credit
extended under employee-sponsored
retirement plans. For reasons explained
in the section-by-section analysis to
§ 226.3, this provision is adopted with
modifications, as discussed below.
Comment 2(a)(17)(i)–8, which provides
guidance on whether such a plan is a

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creditor for purposes of TILA, is deleted
as unnecessary, as proposed.
In addition, the substance of footnote
3 is moved to a new § 226.2(a)(17)(v),
and references revised, accordingly, as
proposed. The dates used to illustrate
numerical tests for determining whether
a creditor ‘‘regularly’’ extends consumer
credit are updated in comments
2(a)(17)(i)–3 through –6, as proposed.
References in § 226.2(a)(17)(iv) to
provisions in § 226.6 and § 226.7 are
renumbered consistent with this final
rule.
2(a)(20) Open-End Credit
Under TILA Section 103(i), as
implemented by § 226.2(a)(20) of
Regulation Z, ‘‘open-end credit’’ is
consumer credit extended by a creditor
under a plan in which (1) the creditor
reasonably contemplates repeated
transactions, (2) the creditor may
impose a finance charge from time to
time on an outstanding unpaid balance,
and (3) the amount of credit that may be
extended to the consumer during the
term of the plan, up to any limit set by
the creditor, generally is made available
to the extent that any outstanding
balance is repaid.
‘‘Open-end’’ plans comprised of
closed-end features. In the June 2007
Proposal, the Board proposed several
revisions to the commentary regarding
§ 226.2(a)(20) to address the concern
that currently some credit products are
treated as open-end plans, with openend disclosures given to consumers,
when such products would more
appropriately be treated as closed-end
transactions. The proposal was based on
the Board’s belief that closed-end
disclosures are more appropriate than
open-end disclosures when the credit
being extended is individual loans that
are individually approved and
underwritten. As stated in the June 2007
Proposal, the Board was particularly
concerned about certain credit plans,
where each individual credit transaction
is separately evaluated.
For example, under certain so-called
multifeatured open-end plans, creditors
may offer loans to be used for the
purchase of an automobile. These
automobile loan transactions are
approved and underwritten separately
from other credit made available on the
plan. (In addition, the consumer
typically has no right to borrow
additional amounts on the automobile
loan ‘‘feature’’ as the loan is repaid.) If
the consumer repays the entire
automobile loan, he or she may have no
right to take further advances on that
‘‘feature,’’ and must separately reapply
if he or she wishes to obtain another
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the plan for similar purchases.
Typically, while the consumer may be
able to obtain additional advances
under the plan as a whole, the creditor
separately evaluates each request.
In the June 2007 Proposal, the Board
proposed, among other things, two main
substantive revisions to the commentary
to § 226.2(a)(20). First, the Board
proposed to revise comment 2(a)(20)–2
to clarify that while a consumer’s
account may contain different subaccounts, each with different minimum
payment or other payment options, each
sub-account must meet the selfreplenishing criterion. Proposed
comment 2(a)(20)–2 would have
provided that repayments of an advance
for any sub-account must generally
replenish a single credit line for that
sub-account so that the consumer may
continue to borrow and take advances
under the plan to the extent that he or
she repays outstanding balances without
having to obtain separate approval for
each subsequent advance.
Second, the Board proposed in June
2007 to clarify in comment 2(a)(20)–5
that in general, a credit line is selfreplenishing if a consumer can obtain
further advances or funds without being
required to separately apply for those
additional advances, and without
undergoing a separate review by the
creditor of that consumer’s credit
information, in order to obtain approval
for each such additional advance. TILA
Section 103(i) provides that a plan can
be an open-end credit plan even if the
creditor verifies credit information from
time to time. 15 U.S.C. 1602(i). As stated
in the June 2007 Proposal, however, the
Board believes this provision is not
intended to permit a creditor to
separately underwrite each advance
made to a consumer under an open-end
plan or account. Such a process could
result in closed-end credit being
deemed open-end credit.
General comments. The Board
received approximately 300 comment
letters, mainly from credit unions, on
the proposed changes to § 226.2(a)(20).
(See below for a discussion of the
comments specific to each portion of the
proposed changes to § 226.2(a)(20);
more general comments pertaining to
the overall impact of recharacterizing
certain multifeatured plans as closedend credit are discussed in this
subsection.)
Consumer groups and one credit
union supported the proposed changes.
The credit union commenter noted that
it currently uses a multifeatured openend lending program, but that it believes
the changes would be beneficial to
consumers and financial institutions,
and that the benefit to consumers would

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outweigh any inconvenience and cost
imposed on the credit union. This
commenter noted that under a
multifeatured open-end lending
program, a consumer signs a master loan
agreement but does not receive
meaningful disclosures with each
additional extension of credit. This
commenter believes that consumers
often do not realize that subsequent
extensions of credit are subject to the
terms of the master loan agreement.
Consumer groups stated that there is
no meaningful difference between a
customer who obtains a conventional
car loan from a bank versus one who
receives an advance to purchase a car
via a sub-account from an open-end
plan. Consumer groups further noted
that to the extent a sub-account has
fixed payments, fixed terms, and no
replenishing line, it is functionally
indistinguishable from any other closedend loan for which closed-end
disclosures must be given. The
consumer groups’ comments stated that
there is no legitimate basis on which to
continue to classify these plans as openend credit.
Most comment letters opposed the
proposed changes to the definition of
‘‘open-end credit.’’ Many credit union
commenters questioned the need for the
proposed changes, and stated that the
Board had not identified a specific harm
arising out of multifeatured open-end
lending. These commenters stated that
there is no evidence of harm to
consumers associated with these plans,
such as complaints, information about
credit union members paying higher
rates or purchasing unnecessary
products, or evidence of higher default
rates. These commenters noted that
such plans have been offered by credit
unions for more than 25 years. These
commenters also stated that open-end
credit disclosures are adequate and
provide members with the information
they need on a timely basis, and that
open-end lending members receive
frequent reminders, via periodic
statements, of key financial terms such
as the APR. Also, commenters stated
that to the extent credit unions do not
charge fees for advances with fixed
repayment periods, the APR disclosed
for purposes of the open-end credit
disclosures is the same as the APR that
would be disclosed if the transaction
were characterized as closed-end.
The National Credit Union
Administration (NCUA) commented
that there are no problems that appear
to be generated by or inherent to the
multifeatured aspect of credit unions’
multifeatured open-end plans. This
agency urged the Board not to ignore the
identity of the creditor in considering

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the appropriateness of disclosures
because doing so ignores the
circumstances in which the disclosures
are made; the comment letter further
noted that multifeatured open-end plans
offered by credit unions involve
circumstances where there is an ongoing
relationship between the consumermember and a regulated financial
institution.
Credit union commenters and the
NCUA also stated that the proposed
revisions would result in a loss of
convenience to consumers because
credit unions generally would not be
able to continue to offer multifeatured
open-end lending programs, and
consumers would have to sign
additional paperwork in order to obtain
closed-end advances. Several of these
commenters specifically noted that loss
of convenience would be a concern with
respect to military personnel and other
customers they serve in geographically
remote locations. Credit union
commenters stated that the proposed
revisions, if adopted, would result in
increased costs of borrowing for
consumers. Some comment letters noted
that credit unions’ rates would become
less competitive and that consumers
would be more likely to obtain
financing from more expensive sources,
such as auto dealers, check cashing
shops, or payday lenders.
Several credit union commenters
discussed the likely cost associated with
providing closed-end disclosures
instead of open-end disclosures. The
commenters indicated that such costs
would include re-training personnel,
changing lending documents and dataprocessing systems, purchasing new
lending forms, potentially increased
staffing requirements, updating systems,
and additional paperwork. Several
commenters offered estimates of the
probable cost to credit unions of
converting multifeatured open-end
plans to closed-end credit. Those
comments with regard to small entities
are discussed in more detail below in
VIII. Final Regulatory Flexibility
Analysis. One major service provider to
credit unions estimated that the
conversion in loan products would cost
a credit union approximately $100,000,
with total expenses of at least $350
million for all credit unions and their
members. This commenter further noted
that there would be annual ongoing
costs totaling millions of dollars, largely
due to additional staff costs that would
arise because more business would take
place in person at the credit union.
One commenter indicated that the
proposed changes to the commentary
could give rise to litigation risk, and
may create more confusion and

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unintended consequences than
currently exist under the existing
commentary to Regulation Z. This
commenter stated that changing the
definition of open-end credit would
jeopardize many legitimate open-end
credit plans.
Comments regarding hybrid
disclosure. Several comment letters
from credit unions, one credit union
trade association, and the NCUA
suggested that the Board should adopt a
hybrid disclosure approach for
multifeatured open-end plans. Under
this approach, these commenters
indicated that the Board should
continue to permit multifeatured openend plans, as they are currently
structured, to provide open-end
disclosures to consumers, but should
also impose a new subsequent
disclosure requirement. Shortly after
obtaining credit, such as for an auto
loan, that is individually underwritten
or not self-replenishing, the creditor
would be required to give disclosures
that mirror the disclosures given for
closed-end credit.
The Board is not adopting this hybrid
disclosure approach. The Board believes
that the statutory framework clearly
provides for two distinct types of credit,
open-end and closed-end, for which
different types of disclosures are
deemed to be appropriate. Such a
hybrid disclosure regime would be
premised on the fact that the closed-end
disclosures are beneficial to consumers
in connection with certain types of
advances made under these plans. If this
is the case, the Board believes that
consumers should receive the closedend disclosures prior to consummation
of the transaction, when a consumer is
shopping for credit.
Replenishment. As discussed above,
the Board proposed in June 2007 to
revise comment 2(a)(20)–2 to clarify that
while a consumer’s account may
contain different sub-accounts, each
with different minimum payment or
other payment options, each subaccount must meet the self-replenishing
criterion.
Several industry commenters
specifically objected to the new
requirement in proposed comment
2(a)(20)–2 that open-end credit
replenish on a sub-account by subaccount basis. Some commenters
expressed concern about the
applicability of proposed comment
2(a)(20)–2 to promotional rate offers.
The commenters noted that a creditor
may make a balance transfer offer or
send out convenience checks at a
promotional APR. As the balance
subject to the promotional APR is
repaid, the available credit on the

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account will be replenished, although
the available credit for the original
promotional rate offer is not
replenished. These commenters stated
that unless the Board can define subaccounts in a manner that excludes
balances subject to special terms, the
Board should withdraw the proposed
revision to comment 2(a)(20)–2. Other
commenters indicated that the critical
requirement should be that repayment
of balances in any sub-account
replenishes the overall account, not that
each sub-account itself must be
replenishing.
Similarly, the Board received several
industry comment letters indicating that
the proposed changes to comment
2(a)(20)–2 would have adverse
consequences for certain HELOCs. The
comments noted that many creditors use
multiple features or sub-accounts in
order to provide consumers with
flexibility and choices regarding the
terms applicable to certain portions of
an open-end credit balance. They noted
as an example a feature on a HELOC
that permits a consumer to convert a
portion of the balance into a fixed-rate,
fixed-term sub-account; the sub-account
is never replenished but payments on
the sub-account replenish the master
open-end account.
In addition, the Board received a
comment from an association of state
regulators of credit unions raising
concerns that proposed comment
2(a)(20)–2 would present a safety and
soundness concern for institutions.
These comments noted that a selfreplenishing sub-account for an auto
loan, for example, would be a safety and
soundness concern because the value of
the collateral would decline and
eventually be less than the credit limit.
In light of the comments received and
upon further analysis, the Board has
withdrawn the proposed changes to
comment 2(a)(20)–2 from the final rule.
The Board believes that one unintended
consequence of the proposed
requirement that payments on each subaccount replenish is that some subaccounts (like HELOCs) would be recharacterized as closed-end credit when
they are properly treated as open-end
credit. Generally, the proposed changes
to comment 2(a)(20)–2 were intended to
ensure that repayments of advances on
an open-end credit plan generally
would replenish the credit available to
the consumer. The Board believes that
replenishment of an open-end plan on
an overall basis achieves this purpose
and that, as discussed below, the best
way to address loans that are more
properly characterized as closed-end
credit being treated as features of openend plans is through clarifications

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regarding verification of credit
information and separate underwriting
of individual advances.
Verification and underwriting of
separate advances. As discussed above,
the Board proposed in June 2007 to
clarify in comment 2(a)(20)–5 that, in
general, a credit line is self-replenishing
if a consumer can obtain further
advances or funds without being
required to separately apply for those
additional advances, and without
undergoing a separate review by the
creditor of that consumer’s credit
information, in order to obtain such
additional advance.
Notwithstanding this proposed
change, the Board noted that a creditor
would be permitted to verify credit
information to ensure that the
consumer’s creditworthiness has not
deteriorated (and could revise the
consumer’s credit limit or account terms
accordingly). This is consistent with the
statutory definition of ‘‘open end credit
plan,’’ which provides that a credit plan
may be an open end credit plan even if
credit information is verified from time
to time. See 15 U.S.C. 1602(i). However,
the Board noted in the June 2007
Proposal its belief that performing a
distinct underwriting analysis for each
specific credit request would go beyond
the verification contemplated by the
statute and would more closely
resemble underwriting of closed-end
credit. For example, assume that based
on the initial underwriting of an openend plan, a consumer were initially
approved for a line of credit with a
$20,000 credit limit. Under the
proposal, if that consumer subsequently
took a large advance of $10,000, it
would be inconsistent with the
definition of open-end credit for the
creditor to independently evaluate the
consumer’s creditworthiness in
connection with that advance. However,
proposed comment 2(a)(20)–5 would
have stated that a creditor could
continue to review, and as appropriate,
decrease the amount of credit available
to a consumer from time to time to
address safety and soundness and other
concerns.
The NCUA agreed with the Board that
the statutory provision regarding
verification is not intended to permit
separate underwriting and applications
for each sub-account. The agency
encouraged the Board to focus any
commentary changes regarding the
definition of open-end credit on the
distinctions between verification versus
a credit evaluation as a more
appropriate and less burdensome
response to its concerns than the
proposed revisions regarding
replenishment.

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Several industry commenters
indicated that proposed comment
2(a)(20)–5 could have unintended
adverse consequences for legitimate
open-end products. One industry trade
association and several industry
commenters stated creditors finance
purchases that may utilize a substantial
portion of available credit or even
exceed the credit line under preestablished credit criteria. According to
these commenters, creditors may have
over-the-limit buffers or strategies in
place that contemplate such purchases,
and these transactions should not be
considered a separate underwriting. The
commenters further stated that any
legitimate authorization procedures or
consideration of a credit line increase
should not exclude a transaction from
open-end credit.
One credit card association and one
large credit card issuer commented that
some credit cards have no preset
spending limits, and issuers may need
to review a cardholder’s credit history
in connection with certain transactions
on such accounts. These commenters
stated that regardless of how an issuer
handles individual transactions on such
accounts, they should be characterized
as open-end.
One other industry commenter stated
that a creditor should be able to verify
the consumer’s creditworthiness in
connection with a request for an
advance on an open-end credit account.
This creditor noted that the statute does
not impose any limitation on the
frequency with which verification is
made, nor does it indicate that
verification can be made only as part of
an account review, and not also when
a consumer requests an advance. The
commenter stated that the most
important time to conduct verification is
when an advance is requested.
This commenter further suggested
that the concept of ‘‘verification’’ is, by
itself, distinguishable from a de novo
credit decision on an application for a
new loan. This commenter posited that
comment 2(a)(20)–5 recognizes this
insofar as it contemplates a
determination of whether the consumer
continues to meet the lender’s credit
standards and provides that the
consumer should have a reasonable
expectation of obtaining additional
credit as long as the consumer continues
to meet those credit standards. An
application for a new extension of credit
contemplates a de novo credit
determination, while verification
involves a determination of whether a
borrower continues to meet the lender’s
credit standards.
The changes to comment 2(a)(20)–5
are adopted as proposed, with one

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revision discussed below in the
subsection titled Credit cards. Under
revised comment 2(a)(20)–5, verification
of a consumer’s creditworthiness
consistent with the statute continues to
be permitted in connection with an
open-end plan; however, underwriting
of specific advances is not permitted for
an open-end plan. The Board believes
that underwriting of individual
advances exceeds the scope of the
verification contemplated by the statute
and is inconsistent with the definition
of open-end credit. The Board believes
that the rule does not undermine safe
and sound lending practices, but simply
clarifies that certain types of advances
for which underwriting is done must be
treated as closed-end credit with closedend disclosures provided to the
consumer.
The revisions to comment 2(a)(20)–5
are intended only to have prospective
application to advances made after the
effective date of the final rule. A
creditor may continue to give open-end
disclosures in connection with an
advance that met the definition of
‘‘open-end credit’’ under current
§ 226.2(a)(20) and the associated
commentary, if that advance was made
prior to the effective date of the final
rule. However, a creditor that makes a
new advance under an existing credit
plan after the effective date of the final
rule will need to determine whether that
advance is properly characterized as
open-end or closed-end credit under the
revised definition, and give the
appropriate disclosures.
One commenter asked the Board to
clarify the ‘‘reasonable expectation’’
language in comment 2(a)(20)–5. This
commenter noted that a consumer
should not expect to obtain additional
advances if the consumer is in default
in any provision of the loan agreement
(it is not enough to merely be ‘‘current’’
in their payments), and otherwise does
not comply with the requirements for
advances in the loan agreement (such as
minimum advance requirements or the
method for requesting advances). The
Board believes that under the current
rule a creditor may suspend a
consumer’s credit privileges or reduce a
consumer’s credit limit if the consumer
is in default under his or her loan
agreement. Thus, the Board does not
believe that this clarification is
necessary and has not adopted it in the
final rule.
Verification of collateral. Several
commenters stated that comment
2(a)(20)–5 should expressly permit
routine collateral valuation and
verification procedures at any time,
including as a condition of approving an
advance. One of these commenters

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stated that Regulation U (Credit by
Banks and Persons Other than Brokers
or Dealers for the Purpose of Purchasing
or Carrying Margin Stock) requires a
bank in connection with margin
lending, to not advance funds in excess
of a certain collateral value. 12 CFR part
221. The commenter also pointed out
that for some accounts, a borrower’s
credit limit is determined from time to
time based on the market value of the
collateral securing the account.
In response to commenters’ concerns,
new comment 2(a)(20)–(6) is added to
clarify that creditors that otherwise meet
the requirements of § 226.2(a)(20)
extend open-end credit notwithstanding
the fact that the creditor must verify
collateral values to comply with federal,
state, or other applicable laws or verifies
the value of collateral in connection
with a particular advance under the
plan. Current comment 2(a)(20)–6 is
renumbered as comment 2(a)(20)–7.
Credit cards. Several credit and
charge card issuers commented that the
proposal could have adverse effects on
those products. One credit card issuer
indicated that the proposed changes
could have unintended adverse
consequences for certain credit card
securitizations. This commenter noted
that securitization documentation for
credit cards typically provides that an
account must be a revolving credit card
account for the receivables arising in
that account to be eligible for inclusion
in the securitization. If the proposal
were to recharacterize accounts that are
currently included in securitizations as
closed-end credit, this commenter stated
that it could require restructuring of
existing and future securitization
transactions.
As discussed above, several industry
commenters noted other circumstances
in which proposed comment 2(a)(20)–5
could have adverse consequences for
credit cards. Several commenters stated
that creditors may have over-the-limit
buffers or strategies in place that
contemplate purchases utilizing a
substantial portion of, or even exceed,
the credit line, and these transactions
should not be considered a separate
underwriting. Commenters also stated
that any legitimate authorization
procedures or consideration of a credit
line increase should not exclude a
transaction from open-end credit.
Finally, one credit card association and
one large credit card issuer commented
that some credit cards have no preset
spending limits, and issuers may need
to review a cardholder’s credit history
in connection with certain transactions
on such accounts. These commenters
stated that regardless of how an issuer
handles individual transactions on such

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accounts, they should be characterized
as open-end.
The Board has addressed credit card
issuers’ concerns about emergency
underwriting and underwriting of
amounts that may exceed the
consumer’s credit limit by expressly
providing in comment 2(a)(20)–5 that a
credit card account where the plan as a
whole replenishes meets the selfreplenishing criterion, notwithstanding
the fact that a credit card issuer may
verify credit information from time to
time in connection with specific
transactions. The Board did not intend
in the June 2007 Proposal and does not
intend in the final rule to exclude credit
cards from the definition of open-end
credit and believes that the revised final
rule gives certainty to creditors offering
credit cards. The Board believes that the
strategies identified by commenters,
such as over-the-limit buffers, treatment
of certain advances for cards without
preset spending limits, and
consideration of credit line increases
generally do not constitute separate
underwriting of advances, and that
open-end disclosures are appropriate for
credit cards for which the plan as a
whole replenishes. The Board also
believes that this clarification will help
to promote uniformity in credit card
disclosures by clarifying that all credit
cards are subject to the open-end
disclosure rules. The Board notes that
charge card accounts may not meet the
definition of open-end credit but
pursuant to § 226.2(a)(17)(iii) are subject
to the rules that apply to open-end
credit.
Examples regarding repeated
transactions. Due to the concerns noted
above regarding closed-end automobile
loans being characterized as features of
so-called open-end plans, the Board also
proposed in June 2007 to delete
comment 2(a)(20)–3.ii., which states
that it would be more reasonable for a
financial institution to make advances
from a line of credit for the purchase of
an automobile than it would be for an
automobile dealer to sell a car under an
open-end plan. As stated in the
proposal, the Board was concerned that
the current example placed
inappropriate emphasis on the identity
of the creditor rather than the type of
credit being extended by that creditor.
Similarly, the Board proposed to revise
current comment 2(a)(20)–3.i., which
referred to a thrift institution, to refer
more generally to a bank or financial
institution and to move the example
into the body of comment 2(a)(20)–3.
The Board received no comments
opposing the revisions to these
examples, and the changes are adopted
as proposed.

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Technical amendments. The Board
also proposed in the June 2007 Proposal
a technical update to comment 2(a)(20)–
4 to delete, without intended
substantive change, a reference to
‘‘china club plans,’’ which may no
longer be very common. No comments
were received on this aspect of the
proposal, and the update to comment
2(a)(20)–4 is adopted as proposed.
Comment 2(a)(20)–5.ii. currently
notes that a creditor may reduce a credit
limit or refuse to extend new credit due
to changes in the economy, the
creditor’s financial condition, or the
consumer’s creditworthiness. The
Board’s proposal would have deleted
the reference to changes in the economy
to simplify this provision. No comments
were received on this change, which is
adopted as proposed.
Implementation date. Many credit
union commenters on the June 2007
Proposal expressed concern about the
effect of successive regulatory changes.
These commenters stated that the June
2007 Proposal, if adopted, would
require them to give closed-end
disclosures in connection with certain
advances, such as the purchase of an
automobile, for which they currently
give open-end disclosures. The
commenters noted that because the
Board is also considering regulatory
changes to closed-end lending, it could
require such creditors to make two sets
of major systematic changes in close
succession. These commenters stated
that such successive regulatory changes
could impose a significant burden that
would impair the ability of credit
unions to serve their members
effectively. The Board expects all
creditors to provide closed-end or openend disclosures, as appropriate in light
of revised § 226.2(a)(20) and the
associated commentary, as of the
effective date of the final rule. The
Board has not delayed the effectiveness
of the changes to the definition of
‘‘open-end credit.’’ The Board is
mindful that the changes to the
definition may impose costs on certain
credit unions and other creditors, and
that any future changes to the
provisions of Regulation Z dealing with
closed-end credit may impose further
costs. However, the Board believes that
it is important that consumers receive
the appropriate type of disclosures for a
given extension of credit, and that it is
not appropriate to delay effectiveness of
these changes pending the Board’s
review of the rules pertaining to closedend credit.

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2(a)(24) Residential Mortgage
Transaction
Comment 2(a)(24)–1, which identifies
key provisions affected by the term
‘‘residential mortgage transaction,’’ and
comment 2(a)(24)–5.ii., which provides
guidance on transactions financing the
acquisition of a consumer’s principal
dwelling, are revised from the June 2007
Proposal to conform to changes adopted
by the Board in the July 2008 Final
HOEPA Rule to address certain
mortgage practices and disclosures. 73
FR 44522, 44605, July 30, 2008.
Section 226.3

Exempt Transactions

Section 226.3 implements TILA
Section 104 and provides exemptions
for certain classes of transactions
specified in the statute. 15 U.S.C. 1603.
In June 2007, the Board proposed
several substantive and technical
revisions to § 226.3 as described below.
The Board also proposed to move the
substance of footnote 4 to the
commentary. See comment 3–1. No
comments were received on moving
footnote 4 to the commentary, and that
change is adopted in the final rule.

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3(a) Business, Commercial, Agricultural,
or Organizational Credit
Section 226.3(a) provides, in part, that
the regulation does not apply to
extensions of credit primarily for
business, commercial or agricultural
purposes. As the Board noted in the
supplementary information to the June
2007 Proposal, questions have arisen
from time to time regarding whether
transactions made for business purposes
on a consumer-purpose credit card are
exempt from TILA. The Board proposed
to add a new comment 3(a)–2 to clarify
transactions made for business purposes
on a consumer-purpose credit card are
covered by TILA (and, conversely, that
purchases made for consumer purposes
on a business-purpose credit card are
exempt from TILA). The Board received
several comments on proposed
comment 3(a)–2. One consumer group
and one large financial institution
commented in support of the change.
One industry trade association stated
that the proposed clarification was
anomalous given the general exclusion
of business credit from TILA coverage.
The Board acknowledges that this
clarification will result in certain
business purpose transactions being
subject to TILA, and certain consumer
purpose transactions being exempt from
TILA. However, the Board believes that
the determination as to whether a credit
card account is primarily for consumer
purposes or business purposes is best
made when an account is opened (or

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when an account is reclassified as a
business-purpose or consumer-purpose
account) and that comment 3(a)–2
provides important clarification and
certainty to consumers and creditors. In
addition, determining whether specific
transactions charged to the credit card
account are for consumer or business
purposes could be operationally
difficult and burdensome for issuers.
Accordingly, the Board adopts new
comment 3(a)–2 as proposed with
several technical revisions described
below. Other sections of the
commentary regarding § 226.3(a) are
renumbered accordingly. The Board also
adopts new comment 3(a)–7, which
provides guidance on credit card
renewals consistent with new comment
3(a)–2, as proposed.
The examples in proposed comment
3(a)–2 contained several references to
credit plans, which are deleted from the
final rule as unnecessary because
comment 3(a)–2 was intended to
address only credit cards. Credit plans
are addressed by the examples in
redesignated comment 3(a)–3, which is
unaffected by this rulemaking.
3(g) Employer-Sponsored Retirement
Plans
The Board has received questions
from time to time regarding the
applicability of TILA to loans taken
against employer-sponsored retirement
plans. Pursuant to TILA Section 104(5),
the Board has the authority to exempt
transactions for which it determines that
coverage is not necessary in order to
carry out the purposes of TILA. 15
U.S.C. 1603(5). The Board also has the
authority pursuant to TILA Section
105(a) to provide adjustments and
exceptions for any class of transactions,
as in the judgment of the Board are
necessary or proper to effectuate the
purposes of TILA. 15 U.S.C. 1604(a).
The June 2007 Proposal included a
new § 226.3(g), which would have
exempted loans taken by employees
against their employer-sponsored
retirement plans qualified under Section
401(a) of the Internal Revenue Code and
tax-sheltered annuities under Section
403(b) of the Internal Revenue Code,
provided that the extension of credit is
comprised of fully-vested funds from
such participant’s account and is made
in compliance with the Internal
Revenue Code. 26 U.S.C. 1 et seq.; 26
U.S.C. 401(a); 26 U.S.C. 403(b). The
Board stated several reasons for this
proposed exemption in the
supplementary information to the June
2007 Proposal, including the fact that
the consumer’s interest and principal
payments on such a loan are reinvested
in the consumer’s own account and

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there is no third-party creditor imposing
finance charges on the consumer. In
addition, the costs of a loan taken
against assets invested in a 401(k) plan,
for example, are not comparable to the
costs of a third-party loan product,
because a consumer pays the interest on
a 401(k) loan to himself or herself rather
than to a third party.
The Board received several comments
regarding proposed § 226.3(g), which
generally supported the proposed
exemption for loans taken by employees
against their employer-sponsored
retirement plans. Two commenters
asked the Board to expand the proposed
exemption to include loans taken
against governmental 457(b) plans,
which are a type of retirement plan
offered by certain state and local
government employers. 26 U.S.C.
457(b). The comments noted that
governmental 457(b) plans may permit
participant loans, subject to the
requirements of section 72(p) of the
Internal Revenue Code (26 U.S.C. 1 et
seq.), which are the same requirements
that are applicable to qualified 401(a)
plans and 403(b) plans. The comments
also stated that the Board’s reasons for
proposing the exemption apply equally
to governmental 457(b) plans. The final
rule expands the scope of the exemption
to include loans taken against
governmental 457(b) plans. The
exemption for loans taken against
employer-sponsored retirement plans
was intended to cover all such similar
plans, and the omission of governmental
457(b) plans from the proposed
exemption was unintentional. The
Board believes the rationales stated
above and in the June 2007 Proposal for
the proposed exemption for qualified
401(a) plans and 403(b) plans apply
equally to governmental 457(b) plans.
In addition to the rationales stated
above, another reason given for the
proposed exception in the June 2007
Proposal was a statement that plan
administration fees must be disclosed
under applicable Department of Labor
regulations. One commenter noted that
the Department of Labor regulations
cited in the supplementary information
to the June 2007 Proposal do not apply
to governmental 403(b) plans,
governmental 457(b) plans, and certain
other 403(b) programs that are not
subject to the Employee Retirement
Income Security Act of 1974 (ERISA). 29
U.S.C. 1001 et seq. The commenter
asked for clarification regarding whether
the exemption will apply to loans taken
from plans and programs which are not
subject to ERISA. Section 226.3(g) itself
does not contain a reference to ERISA or
the Department of Labor regulations
pertaining to ERISA, and, accordingly,

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the exemption applies even if the
particular plan is not subject to ERISA.
For the other reasons stated above and
in the June 2007 Proposal, the Board
believes that the exemption for the
plans specified in new § 226.3(g) is
appropriate even for those plans to
which ERISA disclosure requirements
do not apply.

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Section 226.4 Finance Charge
Various provisions of TILA and
Regulation Z specify how and when the
cost of consumer credit expressed as a
dollar amount, the ‘‘finance charge,’’ is
to be disclosed. The rules for
determining which charges make up the
finance charge are set forth in TILA
Section 106 and Regulation Z § 226.4.
15 U.S.C. 1605. Some rules apply only
to open-end credit and others apply
only to closed-end credit, while some
apply to both. With limited exceptions,
the Board did not propose in June 2007
to change § 226.4 for either closed-end
credit or open-end credit. The areas in
which the Board did propose to revise
§ 226.4 and related commentary relate to
(1) transaction charges imposed by
credit card issuers, such as charges for
obtaining cash advances from
automated teller machines (ATMs) and
for making purchases in foreign
currencies or foreign countries, and (2)
charges for credit insurance, debt
cancellation coverage, and debt
suspension coverage.
4(a) Definition
Transaction charges. Under the
definition of ‘‘finance charge’’ in TILA
Section 106 and Regulation Z § 226.4(a),
a charge specific to a credit transaction
is ordinarily a finance charge. 15 U.S.C.
1605. See also § 226.4(b)(2). However,
under current comment 4(a)–4, a fee
charged by a card issuer for using an
ATM to obtain a cash advance on a
credit card account is not a finance
charge to the extent that it does not
exceed the charge imposed by the card
issuer on its cardholders for using the
ATM to withdraw cash from a consumer
asset account, such as a checking or
savings account. Another comment
indicates that the fee is an ‘‘other
charge.’’ See current comment 6(b)–1.vi.
Accordingly, the fee must be disclosed
at account opening and on the periodic
statement, but it is not labeled as a
‘‘finance charge’’ nor is it included in
the effective APR.
In the June 2007 Proposal, the Board
proposed new comment 4(a)–4 to
address questions that have been raised
about the scope and application of the
existing comment. For example, assume
the issuer assesses an ATM fee for one
kind of deposit account (for example, an

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account with a low minimum balance)
but not for another. The existing
comment does not indicate which
account is the proper basis for
comparison, nor is it clear in all cases
which account should be the
appropriate one to use.
Questions have also been raised about
whether disclosure of an ATM cash
advance fee pursuant to comments 4(a)–
4 and 6(b)–1.vi. is meaningful to
consumers. Under the comments, the
disclosure a consumer receives after
incurring a fee for taking a cash advance
through an ATM depends on whether
the credit card issuer provides asset
accounts and offers debit cards on those
accounts and whether the fee for using
the ATM for the cash advance exceeds
the fee for using the ATM for a cash
withdrawal from an asset account. It is
not clear that these distinctions are
meaningful to consumers.
In addition, questions have arisen
about the proper disclosure of fees that
cardholders are assessed for making
purchases in a foreign currency or
outside the United States—for example,
when the cardholder travels abroad. The
question has arisen in litigation between
consumers and major card issuers.11
Some card issuers have reasoned by
analogy to comment 4(a)–4 that a
foreign transaction fee is not a finance
charge if the fee does not exceed the
issuer’s fee for using a debit card for the
same purchase. Some card issuers
disclose the foreign transaction fee as a
finance charge and include it in the
effective APR, but others do not.
The uncertainty about proper
disclosure of charges for foreign
transactions and for cash advances from
ATMs reflects the inherent complexity
of seeking to distinguish transactions
that are ‘‘comparable cash transactions’’
to credit card transactions from
transactions that are not. In June 2007,
the Board proposed to replace comment
4(a)–4 with a new comment of the same
number stating a simple interpretive
rule that any transaction fee on a credit
card plan is a finance charge, regardless
of whether the issuer imposes the same
or lesser charge on withdrawals of funds
from an asset account, such as a
checking or savings account. The
proposed comment would have
provided as examples of such finance
charges a fee imposed by the issuer for
11 See, e.g., Third Consolidated Amended Class
Action Complaint at 47–48, In re Currency
Conversion Fee Antitrust Litigation, MDL Docket
No. 1409 (S.D.N.Y.). The court approved a
settlement on a preliminary basis on November 8,
2006. See also, e.g., LiPuma v. American Express
Company, 406 F. Supp. 2d 1298 (S.D.Fla. 2005).

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taking a cash advance at an ATM,12 as
well as a fee imposed by the issuer for
foreign transactions. The Board stated
its belief that clearer guidance might
result from a new and simpler approach
that treats as a finance charge any fee
charged by credit card issuers for
transactions on their credit card plans,
and accordingly proposed new
comment 4(a)–4.
Few commenters addressed proposed
comment 4(a)–4. Some commenters
supported the proposed comment,
including a financial institution
(although the commenter noted that its
support of the proposal was predicated
on the effective APR disclosure
requirements being eliminated, as the
Board proposed under one alternative).
Other commenters opposed the
proposed comment, some expressing
concern that including all transaction
fees as finance charges might cause the
effective APR to exceed statutory
interest rate limits contained in other
laws (for example, the 18 percent
statutory interest rate ceiling applicable
to federal credit unions).
One commenter stated particular
concerns about the proposed inclusion
of foreign transaction fees as finance
charges. The commenter stated that the
settlements in the litigation referenced
above have already resolved the issues
involved and that adopting the proposal
would cause disruption to disclosure
practices established under the
settlements. A consumer group that
supported including all transaction fees
in the finance charge noted its concern
that the positive effect of the proposal
would be nullified by specifying a
limited list of fees that must be
disclosed in writing at account opening
(see the section-by-section analysis to
§ 226.6(b)(2) and (b)(3), below), and by
eliminating the effective APR assuming
the Board adopted that alternative. The
commenter urged the Board to go
further and include a number of other
types of fees in the finance charge.
The Board is adopting proposed
comment 4(a)–4 with some changes for
clarification. As adopted in final form,
comment 4(a)–4 includes language
clarifying that foreign transaction fees
include charges imposed when
transactions are made in foreign
currencies and converted to U.S.
dollars, as well as charges imposed
when transactions are made in U.S.
dollars outside the United States and
charges imposed when transactions are
made (whether in a foreign currency or
12 The change to comment 4(a)–4 does not affect
disclosure of ATM fees assessed by institutions
other than the credit card issuer. See proposed
§ 226.6(b)(1)(ii)(A), adopted in the final rule as
§ 226.6(b)(3)(iii)(A).

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in U.S. dollars) with a foreign merchant,
such as via a merchant’s Web site. For
example, a consumer may use a credit
card to make a purchase in Bermuda, in
U.S. dollars, and the card issuer may
impose a fee because the transaction
took place outside the United States.
The comment also clarifies that foreign
transaction fees include charges
imposed by the card issuer and charges
imposed by a third party that performs
the conversion, such as a credit card
network or the card issuer’s corporate
parent. (For example, in a transaction
processed through a credit card
network, the network may impose a 1
percent charge and the card-issuing
bank may impose an additional 2
percent charge, for a total of a 3
percentage point foreign transaction fee
being imposed on the consumer.)
However, the comment also clarifies
that charges imposed by a third party
are included only if they are directly
passed on to the consumer. For
example, if a credit card network
imposes a 1 percent fee on the card
issuer, but the card issuer absorbs the
fee as a cost of doing business (and only
passes it on to consumers in the general
sense that the interest and fees are
imposed on all its customers to recover
its costs), then the fee is not a foreign
transaction fee that must be disclosed.
In another example, if the credit card
network imposes a 1 percent fee for a
foreign transaction on the card issuer,
and the card issuer imposes this same
fee on the consumer who engaged in the
foreign transaction, then the fee is a
foreign transaction fee and must be
included in finance charges to be
disclosed. The comment also makes
clear that a card issuer is not required
to disclose a charge imposed by a
merchant. For example, if the merchant
itself performs the currency conversion
and adds a fee, this would be not be a
foreign transaction fee that card issuers
must disclose. Under § 226.9(d), the
card issuer is not required to disclose
finance charges imposed by a party
honoring a credit card, such as a
merchant, although the merchant itself
is required to disclose such a finance
charge (assuming the merchant is
covered by TILA and Regulation Z
generally).
The foreign transaction fee is
determined by first calculating the
dollar amount of the transaction, using
a currency conversion rate outside the
card issuer’s and third party’s control.
Any amount in excess of that dollar
amount is a foreign transaction fee. The
comment provides examples of
conversion rates outside the card
issuer’s and third party’s control. (Such
a rate is deemed to be outside the card

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issuer’s and third party’s control, even
if the card issuer or third party could
arguably in fact have some degree of
control over the rate used, by selecting
the rate from among a number of rates
available.)
With regard to the conversion rate, the
comment also clarifies that the rate used
for a particular transaction need not be
the same rate that the card issuer (or
third party) itself obtains in its currency
conversion operations. The card issuer
or third party may convert currency in
bulk amounts, as opposed to performing
a conversion for each individual
transaction. The comment also clarifies
that the rate used for a particular
transaction need not be the rate in effect
on the date of the transaction (purchase
or cash advance), because the
conversion calculation may take place
on a later date.
Concerns of some commenters that
inclusion of all transaction charges in
the finance charge would cause the
effective APR to exceed permissible
ceilings are moot due to the fact that the
final rule eliminates the effective APR
requirements as to open-end (not homesecured) credit, as discussed in the
general discussion on the effective APR
in the section-by-section analysis to
§ 226.7(b). As to the consumer group
comment that eliminating the effective
APR would negate the beneficial impact
of the proposed comment for
consumers, the Board believes that
adoption of the comment will
nevertheless result in better and more
meaningful disclosures to consumers.
Transaction fees such as ATM cash
advance fees and foreign transaction
fees will be disclosed more consistently.
The Board also believes that the
comment will provide clearer guidance
to card issuers, as discussed above.
With regard to foreign transaction
fees, the Board believes that although
the settlements in the litigation
mentioned above may have led to some
standardization of disclosure practices,
the proposed comment is appropriate
because it will bring a uniform
disclosure approach to foreign
transaction fees (as opposed to possibly
differing approaches under the different
settlement terms), and will be a
continuing federal regulatory
requirement (whereas settlements can
be modified or expire).
Existing comment 4(b)(2)–1 (which is
not revised in the final rule) states that
if a checking or transaction account
charge imposed on an account with a
credit feature does not exceed the
charge for an account without a credit
feature, the charge is not a finance
charge. Comment 4(b)(2)–1 and revised

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comment 4(a)–4 address different
situations.
Charges in comparable cash
transactions. Comment 4(a)–1 provides
examples of charges in comparable cash
transactions that are not finance
charges. Among the examples are
discounts available to a particular group
of consumers because they meet certain
criteria, such as being members of an
organization or having accounts at a
particular institution. In the June 2007
Proposal, the Board solicited comment
on whether the example is still useful,
or should be deleted as unnecessary or
obsolete. No comments were received
on this issue. Nonetheless, because
many of the examples provide guidance
to creditors offering closed-end credit,
comment 4(a)–1 is retained in the final
rule and the examples will be reviewed
in a future rulemaking addressing
closed-end credit.
4(b) Examples of Finance Charges
Charges for credit insurance or debt
cancellation or suspension coverage.
Premiums or other charges for credit
life, accident, health, or loss-of-income
insurance are finance charges if the
insurance or coverage is ‘‘written in
connection with’’ a credit transaction.
15 U.S.C. 1605(b); § 226.4(b)(7).
Creditors may exclude from the finance
charge premiums for credit insurance if
they disclose the cost of the insurance
and the fact that the insurance is not
required to obtain credit. In addition,
the statute requires creditors to obtain
an affirmative written indication of the
consumer’s desire to obtain the
insurance, which, as implemented in
§ 226.4(d)(1)(iii), requires creditors to
obtain the consumer’s initials or
signature. 15 U.S.C. 1605(b). In 1996,
the Board expanded the scope of the
rule to include plans involving charges
or premiums for debt cancellation
coverage. See § 226.4(b)(10) and (d)(3).
See also 61 FR 49237, Sept. 19, 1996.
Currently, however, insurance or
coverage sold after consummation of a
closed-end credit transaction or after the
opening of an open-end plan and upon
a consumer’s request is considered not
to be ‘‘written in connection with the
credit transaction,’’ and, therefore, a
charge for such insurance or coverage is
not a finance charge. See comment
4(b)(7) and (8)–2.
In June 2007, the Board proposed a
number of revisions to these rules:
(1) The same rules that apply to debt
cancellation coverage would have been
applied explicitly to debt suspension
coverage. However, to exclude the cost
of debt suspension coverage from the
finance charge, creditors would have
been required to inform consumers, as

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applicable, that the obligation to pay
loan principal and interest is only
suspended, and that interest will
continue to accrue during the period of
suspension. These proposed revisions
would have applied to all open-end
plans and closed-end credit
transactions.
(2) Creditors could exclude from the
finance charge the cost of debt
cancellation and suspension coverage
for events in addition to those permitted
today, namely, life, accident, health, or
loss-of-income. This proposed revision
would also have applied to all open-end
plans and closed-end credit
transactions.
(3) The meaning of insurance or
coverage ‘‘written in connection with’’
an open-end plan would have been
expanded to cover sales made
throughout the life of an open-end (not
home-secured) plan. Under the
proposal, for example, consumers
solicited for the purchase of optional
insurance or debt cancellation or
suspension coverage for existing credit
card accounts would have received
disclosures about the cost and optional
nature of the product at the time of the
consumer’s request to purchase the
insurance or coverage. HELOCs subject
to § 226.5b and closed-end transactions
would not have been affected by this
proposed revision.
(4) For telephone sales, creditors
offering open-end (not home-secured)
plans would have been provided with
flexibility in evidencing consumers’
requests for optional insurance or debt
cancellation or suspension coverage,
consistent with rules published by
federal banking agencies to implement
Section 305 of the Gramm-Leach-Bliley
Act regarding the sale of insurance
products by depository institutions and
guidance published by the Office of the
Comptroller of the Currency (OCC)
regarding the sale of debt cancellation
and suspension products. See 12 CFR
§ 208.81 et seq. regarding insurance
sales; 12 CFR part 37 regarding debt
cancellation and debt suspension
products. For telephone sales, creditors
could have provided disclosures orally,
and consumers could have requested
the insurance or coverage orally, if the
creditor maintained evidence of
compliance with the requirements, and
mailed written information within three
days after the sale. HELOCs subject to
§ 226.5b and closed-end transactions
would not have been affected by this
proposed revision.
All of these products serve similar
functions but some are considered
insurance under state law and others are
not. Taken together, the proposed
revisions were intended to provide

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consistency in how creditors deliver,
and consumers receive, information
about the cost and optional nature of
similar products. The revisions are
discussed in detail below.
4(b)(7) and (8) Insurance Written in
Connection With Credit Transaction
Premiums or other charges for
insurance for credit life, accident,
health, or loss-of-income, loss of or
damage to property or against liability
arising out of the ownership or use of
property are finance charges if the
insurance or coverage is written in
connection with a credit transaction. 15
U.S.C. 1605(b) and (c); § 226.4(b)(7) and
(b)(8). Comment 4(b)(7) and (8)–2
provides that insurance is not written in
connection with a credit transaction if
the insurance is sold after
consummation on a closed-end
transaction or after an open-end plan is
opened and the consumer requests the
insurance. As stated in the June 2007
Proposal, the Board believes this
approach remains sound for closed-end
transactions, which typically consist of
a single transaction with a single
advance of funds. Consumers with
open-end plans, however, retain the
ability to obtain advances of funds long
after account opening, so long as they
pay down the principal balance. That is,
a consumer can engage in credit
transactions throughout the life of a
plan.
Accordingly, in June 2007 the Board
proposed revisions to comment 4(b)(7)
and (8)–2, to state that insurance
purchased after an open-end (not homesecured) plan was opened would be
considered to be written ‘‘in connection
with a credit transaction.’’ Proposed
new comment 4(b)(10)–2 would have
given the same treatment to purchases
of debt cancellation or suspension
coverage. As proposed, therefore,
purchases of voluntary insurance or
debt cancellation or suspension
coverage after account opening would
trigger disclosure and consent
requirements.
Few commenters addressed this issue.
One financial institution trade
association supported the proposed
revisions to comments 4(b)(7) and (8)–
2 and 4(b)(10)–2, while two other
commenters (a financial institution and
a trade association) opposed them,
arguing that the rules for open-end (not
home-secured) plans should remain
consistent with the rules for homeequity and closed-end credit, that there
is no demonstrable harm to consumers
from the existing rule, and that other
state and federal law provides adequate
protection.

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The revisions to comments 4(b)(7) and
(8)–2 and 4(b)(10)–2 are adopted as
proposed. In an open-end plan, where
consumers can engage in credit
transactions after the opening of the
plan, a creditor may have a greater
opportunity to influence a consumer’s
decision whether or not to purchase
credit insurance or debt cancellation or
suspension coverage than in the case of
closed-end credit. Accordingly, the
disclosure and consent requirements are
important in open-end plans, even after
the opening of the plan, to ensure that
the consumer is fully informed about
the offer of insurance or coverage and
that the decision to purchase it is
voluntary. In addition, under the final
rule, creditors will be permitted to
provide disclosures and obtain consent
by telephone (provided they mail
written disclosures to the consumer
after the purchase), so long as they meet
requirements intended to ensure the
purchase is voluntary. See the sectionby-section analysis to § 226.4(d)(4)
below. As to consistency between the
rules for open-end (not home-secured)
plans and home-equity plans, the Board
intends to consider this issue when the
home-equity credit plan rules are
reviewed in the future.
4(b)(9) Discounts
Comment 4(b)(9)–2, which addresses
cash discounts to induce consumers to
use cash or other payment means
instead of credit cards or other open-end
plans is revised for clarity, as proposed
in June 2007. No substantive change is
intended. No comments were received
on this change.
4(b)(10) Debt Cancellation and Debt
Suspension Fees
As discussed above, premiums or
other charges for credit life, accident,
health, or loss-of-income insurance are
finance charges if the insurance or
coverage is written in connection with
a credit transaction. This same rule
applies to charges for debt cancellation
coverage. See § 226.4(b)(10). Although
debt cancellation fees meet the
definition of ‘‘finance charge,’’ they may
be excluded from the finance charge on
the same conditions as credit insurance
premiums. See § 226.4(d)(3).
The Board proposed in June 2007 to
revise the regulation to provide the
same treatment to debt suspension
coverage as to credit insurance and debt
cancellation coverage. Thus, under
proposed § 226.4(b)(10), charges for debt
suspension coverage would be finance
charges. (The conditions under which
debt suspension charges may be
excluded from the finance charge are
discussed in the section-by-section

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analysis to § 226.4(d)(3), below.) Debt
suspension is the creditor’s agreement
to suspend, on the occurrence of a
specified event, the consumer’s
obligation to make the minimum
payment(s) that would otherwise be
due. During the suspension period,
interest may continue to accrue or it
may be suspended as well, depending
on the plan. The borrower may be
prohibited from using the credit plan
during the suspension period. In
addition, debt suspension may cover
events other than loss of life, health, or
income, such as a wedding, a divorce,
the birth of child, or a medical
emergency.
In the June 2007 Proposal, debt
suspension coverage would have been
defined as coverage that suspends the
consumer’s obligation to make one or
more payments on the date(s) otherwise
required by the credit agreement, when
a specified event occurs. See proposed
comment 4(b)(10)–1. The comment
would have clarified that the term debt
suspension coverage as used in
§ 226.4(b)(10) does not include ‘‘skip
payment’’ arrangements in which the
triggering event is the borrower’s
unilateral election to defer repayment,
or the bank’s unilateral decision to
allow a deferral of payment.
This aspect of the proposal would
have applied to closed-end as well as
open-end credit transactions. As
discussed in the supplementary
information to the June 2007 Proposal,
it appears appropriate to consider
charges for debt suspension products to
be finance charges, because these
products operate in a similar manner to
debt cancellation, and reallocate the risk
of nonpayment between the borrower
and the creditor.
Industry commenters supported the
proposed approach of including charges
for debt suspension coverage as finance
charges generally, but permitting
exclusion of such charges if the
coverage is voluntary and meets the
other conditions contained in the
proposal. Consumer group commenters
did not address this issue. Comment
4(b)(10)–1 is adopted as proposed with
some minor changes for clarification.
Exclusion of charges for debt
suspension coverage from the definition
of finance charge is discussed in the
section-by-section analysis to
§ 226.4(d)(3) below.
4(d) Insurance and Debt Cancellation
Coverage
4(d)(3) Voluntary Debt Cancellation or
Debt Suspension Fees
As explained in the section-by-section
analysis to § 226.4(b)(10), debt

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cancellation fees and, as clarified in the
final rule, debt suspension fees meet the
definition of ‘‘finance charge.’’ Under
current § 226.4(d)(3), debt cancellation
fees may be excluded from the finance
charge on the same conditions as credit
insurance premiums. These conditions
are: the coverage is not required and this
fact is disclosed in writing, and the
consumer affirmatively indicates in
writing a desire to obtain the coverage
after the consumer receives written
disclosure of the cost. Debt cancellation
coverage that may be excluded from the
finance charge is limited to coverage
that provides for cancellation of all or
part of a debtor’s liability (1) in case of
accident or loss of life, health, or
income; or (2) for amounts exceeding
the value of collateral securing the debt
(commonly referred to as ‘‘gap’’
coverage, frequently sold in connection
with motor vehicle loans).
Debt cancellation coverage and debt
suspension coverage are fundamentally
similar to the extent they offer a
consumer the ability to pay in advance
for the right to reduce the consumer’s
obligations under the plan on the
occurrence of specified events that
could impair the consumer’s ability to
satisfy those obligations. The two types
of coverage are, however, different in a
key respect. One cancels debt, at least
up to a certain agreed limit, while the
other merely suspends the payment
obligation while the debt remains
constant or increases, depending on
coverage terms.
In June 2007, the Board proposed to
revise § 226.4(d)(3) to expressly permit
creditors to exclude charges for
voluntary debt suspension coverage
from the finance charge when, after
receiving certain disclosures, the
consumer affirmatively requests such a
product. The Board also proposed to
add a disclosure (§ 226.4(d)(3)(iii)), to be
provided as applicable, that the
obligation to pay loan principal and
interest is only suspended, and that
interest will continue to accrue during
the period of suspension. These
proposed revisions would have applied
to closed-end as well as open-end credit
transactions. Model clauses and samples
were proposed at Appendix G–16(A)
and G–16(B) and Appendix H–17(A)
and H–17(B) to part 226.
In addition, the Board proposed in the
June 2007 Proposal to continue to limit
the exclusion permitted by § 226.4(d)(3)
to charges for coverage for accident or
loss of life, health, or income or for gap
coverage. The Board also proposed,
however, to add comment 4(d)(3)–3 to
clarify that, if debt cancellation or debt
suspension coverage for two or more
events is sold at a single charge, the

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entire charge may be excluded from the
finance charge if at least one of the
events is accident or loss of life, health,
or income. The proposal is adopted in
the final rule, with a few modifications
discussed below.
A few industry commenters suggested
that the exclusion of debt cancellation
or debt suspension coverage from the
finance charge should not be limited to
instances where one of the triggering
events is accident or loss of life, health,
or income. The commenters contended
that such a rule would lead to an
inconsistent result; for example, if debt
cancellation or suspension coverage has
only divorce as a triggering event, the
charge could not be excluded from the
finance charge, while if the coverage
applied to divorce and loss of income,
the charge could be excluded. The
proposal is adopted without change in
this regard. The identification of
accident or loss of life, health, or
income in current § 226.4(d)(3)(ii)
(renumbered § 226.4(d)(3) in the final
rule) with respect to debt cancellation
coverage is based on TILA Section
106(b), which addresses credit
insurance for accident or loss of life or
health. 15 U.S.C. 1605(b). That statutory
provision reflects the regulation of
credit insurance by the states, which
may limit the types of insurance that
insurers may sell. The approach in the
final rule is consistent with the purpose
of Section 106(b), but also recognizes
that debt cancellation and suspension
coverage often are not limited by
applicable law to the events allowed for
insurance.
A few commenters addressed the
proposed disclosure for debt suspension
programs that the obligation to pay loan
principal and interest is only
suspended, and that interest will
continue to accrue during the period of
suspension. A commenter suggested
that in programs combining elements of
debt cancellation and debt suspension,
the disclosure should not be required.
The final rule retains the disclosure
requirement in § 226.4(d)(3)(iii).
However, comment 4(d)(3)–4 has been
added stating that if the debt can be
cancelled under certain circumstances,
the disclosure may be modified to
reflect that fact. The disclosure could,
for example, state (in addition to the
language required by § 226.4(d)(3)(iii))
that ‘‘in some circumstances, my debt
may be cancelled.’’ However, the
disclosure would not be permitted to
list the specific events that would result
in debt cancellation, to avoid
‘‘information overload.’’
Another commenter noted that the
model disclosures proposed at
Appendix G–16(A), G–16(B), H–17(A),

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and H–17(B) to part 226 were phrased
assuming interest continues to accrue in
all cases of debt suspension programs.
The commenter contended that interest
does not continue to accrue during the
period of suspension in all cases, and
suggested revising the forms. However,
the disclosures under § 226.4(d)(3)(iii)
are only required as applicable; thus, if
the disclosure that interest will continue
to accrue during the period of
suspension is not applicable, it need not
be provided.
A commenter noted that proposed
model and sample forms G–16(A) and
G–16(B), for open-end credit, and H–
17(A) and H–17(B), for closed-end credit
are virtually identical, but that the
model language regarding cost of
coverage is more appropriate for openend credit. Model Clause H–17(A) and
Sample H–17(B) have been revised in
the final rule to include language
regarding cost of coverage that is
appropriate for closed-end credit.
A consumer group suggested that in
debt suspension programs where
interest continues to accrue during the
suspension period, periodic statements
should be required to include a
disclosure of the amount of the accrued
interest. The Board believes that the
requirement under § 226.7, as adopted
in the final rule, for each periodic
statement to disclose total interest for
the billing cycle as well as total year-todate interest on the account adequately
addresses this concern.
The Board noted in the June 2007
Proposal that the regulation provides
guidance on how to disclose the cost of
debt cancellation coverage (in proposed
§ 226.4(d)(3)(ii)), and sought comment
on whether additional guidance was
needed for debt suspension coverage,
particularly for closed-end loans. No
commenters addressed this issue except
for one industry commenter that
responded that no additional guidance
was needed.
In a technical revision, as proposed in
June 2007, the substance of footnotes 5
and 6 is moved to the text of
§ 226.4(d)(3).
4(d)(4) Telephone Purchases
Under § 226.4(d)(1) and (d)(3),
creditors may exclude from the finance
charge premiums for credit insurance
and debt cancellation or (as provided in
revisions in the final rule) debt
suspension coverage if, among other
conditions, the consumer signs or
initials an affirmative written request for
the insurance or coverage. In the June
2007 Proposal, the Board proposed an
exception to the requirement to obtain
a written signature or initials for
telephone purchases of credit insurance

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or debt cancellation and debt
suspension coverage on an open-end
(not home-secured) plan. Under
proposed new § 226.4(d)(4), for
telephone purchases, the creditor would
have been permitted to make the
disclosures orally and the consumer
could affirmatively request the
insurance or coverage orally, provided
that the creditor (1) maintained
reasonable procedures to provide the
consumer with the oral disclosures and
maintains evidence that demonstrates
the consumer then affirmatively elected
to purchase the insurance or coverage;
and (2) mailed the disclosures under
§ 226.4(d)(1) or (d)(3) within three
business days after the telephone
purchase. Comment 4(d)(4)–1 would
have provided that a creditor does not
satisfy the requirement to obtain an
affirmative request if the creditor uses a
script with leading questions or negative
consent.
Commenters supported proposed
§ 226.4(d)(4), with some suggested
modifications, and it is adopted in final
form with a few modifications discussed
below. A few commenters requested
that the Board expand the proposed
telephone purchase rule to home-equity
plans and closed-end credit for
consistency. HELOCs and closed-end
credit are largely separate product lines
from credit card and other open-end
(not home-secured) plans, and the Board
anticipates reviewing the rules applying
to these types of credit separately; the
issue of telephone sales of credit
insurance and debt cancellation or
suspension coverage can better be
addressed in the course of those
reviews. In addition, as discussed
above, comment 4(b)(7) and (8)–2, as
amended in the final rule, provides that
insurance is not written in connection
with a credit transaction if the insurance
is sold after consummation of a closedend transaction, or after a home-equity
plan is opened, and the consumer
requests the insurance. Accordingly, the
requirements for disclosure and
affirmative written consent to purchase
the insurance or coverage do not apply
in these situations, and thus the relief
that would be afforded by the telephone
purchase rule appears less necessary.
A commenter stated that the
requirement (in § 226.4(d)(4)(ii)) to mail
the disclosures under § 226.4(d)(1) or
(d)(3) within three business days after
the telephone purchase would be
difficult operationally, and
recommended that the rule allow five
business days instead of three. The
Board believes that three business days
should provide adequate time to
creditors to mail the written disclosures.
In addition, the three-business-day

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period for mailing written disclosures is
consistent with the rules published by
the federal banking agencies to
implement Section 305 of the GrammLeach-Bliley Act regarding the sale of
insurance products by depository
institutions, as well as with the OCC
rules regarding the sale of debt
cancellation and suspension products.
A few commenters expressed concern
about proposed comment 4(d)(4)–1,
prohibiting the use of leading questions
or negative consent in telephone sales.
The commenters stated that the leading
questions rule would be difficult to
comply with, because the distinction
between a leading question and routine
marketing language may not be apparent
in many cases. The commenters were
particularly concerned about being able
to ensure that the enrollment question
itself not be considered leading. The
final comment includes an example of
an enrollment question (‘‘Do you want
to enroll in this optional debt
cancellation plan?’’) that would not be
considered leading.
Section 226.4(d)(4)(i) in the June 2007
Proposal would have required that the
creditor must, in addition to providing
the required disclosures orally and
maintaining evidence that the consumer
affirmatively elected to purchase the
insurance or coverage, also maintain
reasonable procedures to provide the
disclosures orally. The final rule does
not contain the requirement to maintain
procedures to provide the disclosures
orally; this requirement is unnecessary
because creditors must actually provide
the disclosures orally in each case.
The Board proposed this approach
pursuant to its exception and exemption
authorities under TILA Section 105.
Section 105(a) authorizes the Board to
make exceptions to TILA to effectuate
the statute’s purposes, which include
facilitating consumers’ ability to
compare credit terms and helping
consumers avoid the uniformed use of
credit. 15 U.S.C. 1601(a), 1604(a).
Section 105(f) authorizes the Board to
exempt any class of transactions (with
an exception not relevant here) from
coverage under any part of TILA if the
Board determines that coverage under
that part does not provide a meaningful
benefit to consumers in the form of
useful information or protection. 15
U.S.C. 1604(f)(1). Section 105(f) directs
the Board to make this determination in
light of specific factors. 15 U.S.C.
1604(f)(2). These factors are (1) the
amount of the loan and whether the
disclosure provides a benefit to
consumers who are parties to the
transaction involving a loan of such
amount; (2) the extent to which the
requirement complicates, hinders, or

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makes more expensive the credit
process; (3) the status of the borrower,
including any related financial
arrangements of the borrower, the
financial sophistication of the borrower
relative to the type of transaction, and
the importance to the borrower of the
credit, related supporting property, and
coverage under TILA; (4) whether the
loan is secured by the principal
residence of the borrower; and (5)
whether the exemption would
undermine the goal of consumer
protection.
As stated in the June 2007 Proposal,
the Board has considered each of these
factors carefully, and based on that
review, believes it is appropriate to
exempt, for open-end (not homesecured) plans, telephone sales of credit
insurance or debt cancellation or debt
suspension plans from the requirement
to obtain a written signature or initials
from the consumer. Requiring a
consumer’s written signature or initials
is intended to evidence that the
consumer is purchasing the product
voluntarily; the proposal contained
safeguards intended to insure that oral
purchases are voluntary. Under the
proposal and as adopted in the final
rule, creditors must maintain tapes or
other evidence that the consumer
received required disclosures orally and
affirmatively requested the product.
Comment 4(d)(4)–1 indicates that a
creditor does not satisfy the requirement
to obtain an affirmative request if the
creditor uses a script with leading
questions or negative consent. In
addition to oral disclosures, under the
proposal consumers will receive written
disclosures shortly after the transaction.
The fee for the credit insurance or
debt cancellation or debt suspension
coverage will also appear on the first
monthly periodic statement after the
purchase, and, as applicable, thereafter.
Consumer testing conducted for the
Board suggests that consumers review
the transactions on their statements
carefully. Moreover, as discussed in the
section-by-section analysis under
§ 226.7, under the final rule fees,
including insurance and debt
cancellation or suspension coverage
charges, will be better highlighted on
statements. Consumers who are billed
for insurance or coverage they did not
purchase may dispute the charge as a
billing error. These safeguards are
expected to ensure that purchases of
credit insurance or debt cancellation or
suspension coverage by telephone are
voluntary.
At the same time, the amendments
should facilitate the convenience to
both consumers and creditors of
conducting transactions by telephone.

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The amendments, therefore, have the
potential to better inform consumers
and further the goals of consumer
protection and the informed use of
credit for open-end (not home-secured)
credit.
Section 226.5 General Disclosure
Requirements
Section 226.5 contains format and
timing requirements for open-end credit
disclosures. In the June 2007 Proposal,
the Board proposed, among other
changes to § 226.5, to reform the rules
governing the disclosure of charges
before they are imposed in open-end
(not home-secured) credit. Under the
proposal, all charges imposed as part of
the plan would have had to be disclosed
before they were imposed; however,
while certain specified charges would
have continued to be disclosed in
writing in the account-opening
disclosures, other charges imposed as
part of the plan could have been
disclosed orally or in writing at any
time before the consumer becomes
obligated to pay the charge.
5(a) Form of Disclosures
In the June 2007 Proposal, the Board
proposed changes to § 226.5(a) and the
associated commentary regarding the
standard to provide ‘‘clear and
conspicuous’’ disclosures. In addition,
in both the June 2007 Proposal and the
May 2008 Proposal, the Board proposed
changes to § 226.5(a) and the associated
commentary with respect to
terminology. To improve clarity, the
Board also proposed technical revisions
to § 226.5(a) in the June 2007 Proposal.
5(a)(1) General
Clear and conspicuous standard.
Under TILA Section 122(a), all required
disclosures must be ‘‘clear and
conspicuous.’’ 15 U.S.C. 1632(a). The
Board has interpreted ‘‘clear and
conspicuous’’ for most open-end
disclosures to mean that they must be in
a reasonably understandable form.
Comment 5(a)(1)–1. In most cases, this
standard does not require that
disclosures be segregated from other
material or located in any particular
place on the disclosure statement, nor
that disclosures be in any particular
type size. Certain disclosures in credit
and charge card applications and
solicitations subject to § 226.5a,
however, must meet a higher standard
of clear and conspicuous due to the
importance of the disclosures and the
context in which they are given. For
these disclosures, the Board has
required that they be both in a
reasonably understandable form and
readily noticeable to the consumer.

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Comment 5(a)(1)–1. In the June 2007
Proposal, the Board proposed to amend
comment 5(a)(1)–1 to expand the list of
disclosures that must be both in a
reasonably understandable form and
readily noticeable to the consumer.
Readily noticeable standard. Certain
disclosures in credit and charge card
applications and solicitations subject to
§ 226.5a are currently required to be in
a tabular format. In the June 2007
Proposal, the Board proposed to require
information be highlighted in a tabular
format in additional circumstances,
including: In the account-opening
disclosures pursuant to § 226.6(b)(4)
(adopted as § 226.6(b)(1) below); with
checks that access a credit card account
pursuant to § 226.9(b)(3); in change-interms notices pursuant to
§ 226.9(c)(2)(iii)(B); and in disclosures
when a rate is increased due to
delinquency, default or as a penalty
pursuant to § 226.9(g)(3)(ii). Because
these disclosures would be highlighted
in a tabular format similar to the table
required with respect to credit card
applications and solicitations under
§ 226.5a, the Board proposed that these
disclosures also be in a reasonably
understandable form and readily
noticeable to the consumer.
As discussed in further detail in the
section-by-section analysis to
§§ 226.6(b), 226.9(b), 226.9(c), and
226.9(g), many commenters supported
the Board’s proposal to require certain
information to be presented in a tabular
format, and consumer testing showed
that tabular presentation of disclosures
improved consumer attention to, and
understanding of, the disclosures. As a
result, the Board adopts the proposal to
require a tabular format for certain
information required by these sections
as well as the proposal to amend
comment 5(a)(1)–1. Technical
amendments proposed under the June
2007 Proposal, including moving the
guidance on the meaning of ‘‘reasonably
understandable form’’ to comment
5(a)(1)–2, and moving guidance on what
constitutes an ‘‘integrated document’’ to
comment 5(a)(1)–4, are also adopted.
In the June 2007 Proposal, the Board
also proposed to add comment 5(a)(1)–
3 to provide guidance on the meaning
of the readily noticeable standard.
Specifically, the Board proposed that to
meet the readily noticeable standard,
the following disclosures must be given
in a minimum of 10-point font:
Disclosures for credit card applications
and solicitations under § 226.5a,
highlighted account-opening disclosures
under § 226.6(b)(4) (adopted as
§ 226.6(b)(1) below), highlighted
disclosures accompanying checks that
access a credit card account under

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§ 226.9(b)(3), highlighted change-interms disclosures under
§ 226.9(c)(2)(iii)(B), and highlighted
disclosures when a rate is increased due
to delinquency, default or as a penalty
under § 226.9(g)(3)(ii).
The Board received numerous
consumer comments that credit card
disclosures are in fine print and that
disclosures should be given in a larger
font. Many consumer and consumer
group commenters suggested that
disclosures should be given in a
minimum 12-point font. Several of these
comments also suggested that the 12point font minimum be applied to
disclosures other than the highlighted
disclosures proposed to be subjected to
the readily noticeable standard as
proposed in comment 5(a)(1)–1.
Industry commenters suggested that
there be no minimum font size or that
the minimum should be 9-point font.
One industry commenter stated that the
10-point font minimum should not
apply to any disclosures on a periodic
statement.
The Board adopts comment 5(a)(1)–3
as proposed. As discussed in the June
2007 Proposal, the Board believes that
for certain disclosures, special
formatting requirements, such as a
tabular format and font size
requirements, are needed to highlight
for consumers the importance and
significance of the disclosures. The
Board does not believe, however, that
all TILA-required disclosures should be
subject to this same standard. For
certain disclosures, such as periodic
statements, requiring all TILA-required
disclosures to be highlighted in the
same way could be burdensome for
creditors because it would cause the
disclosures to be longer and more
expensive to provide to consumers. In
addition, the benefits to consumers
would not outweigh such costs. The
Board believes that a more balanced
approach is to require such highlighting
only for certain important disclosures.
The Board, thus, declines to extend the
minimum font size requirement to
disclosures other than those listed in
proposed comment 5(a)(1)–3. Similarly,
for disclosures that may appear on
periodic statements, such as the
highlighted change-in-terms disclosures
under § 226.9(c)(2)(iii)(B) and
highlighted disclosures when a rate is
increased due to delinquency, default or
as a penalty under § 226.9(g)(3)(ii), the
Board believes that the minimum 10point font size for these disclosures is
appropriate because these are
disclosures that consumers do not
expect to see each billing cycle.
Therefore, the Board believes that it is

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especially important to highlight these
disclosures.
As discussed in the June 2007
Proposal, the Board proposed a
minimum of 10-point font for these
disclosures to be consistent with the
approach taken by eight federal agencies
(including the Board) in issuing a
proposed model form that financial
institutions may use to comply with the
privacy notice requirements under
Section 503 of the Gramm-Leach-Bliley
Act. 15 U.S.C. 6803(e); 72 FR 14940,
Mar. 29, 2007. Furthermore, in
consumer testing conducted for the
Board, participants were able to read
and notice information in a 10-point
font. Therefore, the Board adopts the
comment as proposed.
Disclosures subject to the clear and
conspicuous standard. The Board
proposed comment 5(a)(1)–5 in the June
2007 Proposal to address questions on
the types of communications that are
subject to the clear and conspicuous
standard. The comment would have
clarified that all required disclosures
and other communications under
subpart B of Regulation Z are
considered disclosures required to be
clear and conspicuous, including the
disclosure by a person other than the
creditor of a finance charge imposed at
the time of honoring a consumer’s credit
card under § 226.9(d) and any correction
notice required to be sent to the
consumer under § 226.13(e). No
comments were received regarding the
proposed comment, and the comment is
adopted as proposed.
Oral disclosure. In order to give
guidance about the meaning of ‘‘clear
and conspicuous’’ for oral disclosures,
the Board proposed in the June 2007
Proposal to amend the guidance on
what constitutes a ‘‘reasonably
understandable form,’’ in proposed
comment 5(a)(1)–2. Specifically, the
Board proposed that oral disclosures be
considered to be in a reasonably
understandable form when they are
given at a volume and speed sufficient
for a consumer to hear and comprehend
the disclosures. No comments were
received on the Board’s proposed
guidance concerning clear and
conspicuous oral disclosures. Comment
5(a)(1)–2 is adopted as proposed. The
Board believes the comment provides
necessary guidance not only for the oral
disclosure of certain charges under
§ 226.5(a)(1)(ii), but also for other oral
disclosure, such as radio and television
advertisements.
5(a)(1)(ii)
Section 226.5(a)(1)(ii) provides that in
general, disclosures for open-end plans

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must be provided in writing and in a
retainable form.
Oral disclosures. As discussed in the
June 2007 Proposal, the Board proposed
that certain charges may be disclosed
after account opening and that
disclosure of those charges may be
provided orally or in writing before the
cost is imposed. Many industry
commenters supported the Board’s
proposal to permit oral disclosure of
certain charges while consumer group
commenters opposed the Board’s
proposal. Some of these consumer group
commenters acknowledged the
usefulness of oral disclosure of fees at
a time when the consumer is about to
incur the fee but suggested that it
should be in addition to, but not take
the place of, written disclosure.
As the Board discussed in the June
2007 Proposal, in proposing to permit
certain charges to be disclosed after
account opening, the Board’s goal was
to better ensure that consumers receive
disclosures at a time and in a manner
that they would be likely to notice them.
As discussed in the June 2007 Proposal,
at account opening, written disclosure
has obvious merit because it is a time
when a consumer must assimilate
information that may influence major
decisions by the consumer about how,
or even whether, to use the account.
During the life of an account, however,
a consumer will sometimes need to
decide whether to purchase a single
service from the creditor that may not be
central to the consumer’s use of the
account (for example, the service of
providing documentary evidence of
transactions). The consumer may
become accustomed to purchasing such
services by telephone, and will,
accordingly, expect to receive an oral
disclosure of the charge for the service
during the same telephone call.
Permitting oral disclosure of charges
that are not central to the consumer’s
use of the account would be consistent
with consumer expectations and with
the business practices of creditors. For
these reasons, the Board adopts its
proposal to permit creditors to disclose
orally charges not specifically identified
in the account-opening table in
§ 226.6(b)(2) (proposed as § 226.6(b)(4)).
Further, the Board adopts its proposal
that creditors be provided with the same
flexibility when the cost of such a
charge changes or is newly introduced,
as discussed in the section-by-section
analysis to § 226.9(c).
One industry commenter stated its
concerns that oral disclosure may make
it difficult for creditors to demonstrate
compliance with TILA. As the Board
discussed in the June 2007 Proposal,
creditors may continue to comply with

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TILA by providing written disclosures
at account opening for all fees. The
Board anticipates that creditors will
likely continue to identify fees in the
account agreement for contract and
other reasons even if the regulation does
not specifically require creditors to do
so.
In technical revisions, as proposed in
the June 2007 Proposal, the final rule
moves to § 226.5(a)(1)(ii)(A) the current
exemption in footnote 7 under
§ 226.5(a)(1) that disclosures required by
§ 226.9(d) need not be in writing.
Section 226.9(d) requires disclosure
when a finance charge is imposed by a
person other than the card issuer at the
time of a transaction. Specific wording
in § 226.5(a)(1)(ii)(A) also has been
amended from the proposal in order to
provide greater clarity, with no intended
substantive change from the June 2007
Proposal. In another technical revision,
the substance of footnote 8, regarding
disclosures that do not need to be in a
retainable form the consumer may keep,
is moved to § 226.5(a)(1)(ii)(B) as
proposed.
Electronic communication.
Commenters on the June 2007 Proposal
suggested that for disclosures that need
not be provided in writing at account
opening, creditors should be permitted
to provide disclosures in electronic
form, without having to comply with
the consumer notice and consent
procedures of the Electronic Signatures
in Global and National Commerce Act
(E-Sign Act), 15 U.S.C. 7001 et seq., at
the time an on-line or other electronic
service is used. For example,
commenters suggested, if a consumer
wishes to make an on-line payment on
the account, for which the creditor
imposes a fee (which has not previously
been disclosed), the creditor should be
allowed to disclose the fee
electronically, without E-Sign notice
and consent, at the time the on-line
payment service is requested.
Commenters contended that such a
provision would not harm consumers
and would expedite transactions, and
also that it would be consistent with the
Board’s proposal to permit oral
disclosure of such fees.
Under section 101(c) of the E-Sign
Act, if a statute or regulation requires
that consumer disclosures be provided
in writing, certain notice and consent
procedures must be followed in order to
provide the disclosures in electronic
form. Accordingly because the
disclosures under § 226.5(a)(1)(ii)(A) are
not required to be provided in writing,
the Board proposed to add comment
5(a)(1)(ii)(A)–1 in May 2008 to clarify
that disclosures not required to be in
writing may be provided in writing,

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orally, or in electronic form without
regard to the consumer consent or other
provisions of the E-Sign Act.
Most commenters supported the
Board’s proposal. Some consumer group
commenters, however, suggested that
the Board require that any electronic
disclosure be in a format that can be
printed and retained. The Board
declines to impose such a requirement.
Disclosures that the Board permits to be
made orally are not required to be in
written or retainable form. The Board
believes that the same standard should
apply if such disclosures are made
electronically. In order to clarify this
point, the Board has amended
§ 226.5(a)(1)(ii)(B) to specify that
disclosures that need not be in writing
also do not need to be in retainable
form. This would encompass both oral
and electronic disclosures.
5(a)(1)(iii)
In a final rule addressing electronic
disclosures published in November
2007 (November 2007 Final Electronic
Disclosure Rule), the Board adopted
amendments to § 226.5(a)(1) to clarify
that creditors may provide open-end
disclosures to consumers in electronic
form, subject to compliance with the
consumer consent and other applicable
provisions of the E-Sign Act. 72 FR
63462, Nov. 9, 2007; 72 FR 71058, Dec.
14, 2007. These amendments also
provide that the disclosures required by
§§ 226.5a, 226.5b, and 226.16 may be
provided to the consumer in electronic
form, under the circumstances set forth
in those sections, without regard to the
consumer consent or other provisions in
the E-Sign Act. These amendments have
been moved to § 226.5(a)(1)(iii) for
organizational purposes.
Furthermore, in May 2008, the Board
proposed comment 5(a)(1)(iii)–1 to
clarify that the disclosures specified in
§ 226.5(a)(1)(ii)(A) also may be provided
in electronic form without regard to the
E-Sign Act when the consumer requests
the service in electronic form, such as
on a creditor’s Web site. Consistent with
the Board’s decision to adopt comment
5(a)(1)(ii)(A)–1, as discussed above, the
Board adopts comment 5(a)(1)(iii)–1.
5(a)(2) Terminology
Consistent terminology. As proposed
in June 2007, disclosures required by
the open-end provisions of Regulation Z
(Subpart B) would have been required to
use consistent terminology under
proposed § 226.5(a)(2)(i). The Board also
proposed comment 5(a)(2)–4 to clarify
that terms do not need to be identical
but must be close enough in meaning to
enable the consumer to relate the
disclosures to one another.

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The Board received no comments
objecting to this proposal. Accordingly,
the Board adopts § 226.5(a)(2)(i) and
comment 5(a)(2)–4 as proposed. The
Board, however, received one comment
requesting clarification on the
implementation of this provision.
Specifically, the commenter pointed out
that creditors will likely phase in
changes during a transitional period,
and as a result, may not be able to align
terminology in all their disclosures to
consumers during this transitional
period. The Board agrees; thus, some
disclosures may contain existing
terminology required currently under
Regulation Z while other disclosures
may contain new terminology required
in this final rule or the final rules issued
by the Board and other federal banking
agencies published elsewhere in today’s
Federal Register. Therefore, during this
transitional period, terminology need
not be consistent across all disclosures.
By the effective date of this rule,
however, all disclosures must have
consistent terminology.
Terms required to be more
conspicuous than others. TILA Section
122(a) requires that the terms ‘‘annual
percentage rate’’ and ‘‘finance charge’’
be disclosed more conspicuously than
other terms, data, or information. 15
U.S.C. 1632(a). The Board has
implemented this provision in current
§ 226.5(a)(2) by requiring that the terms
‘‘finance charge’’ and ‘‘annual
percentage rate,’’ when disclosed with a
corresponding amount or percentage
rate, be disclosed more conspicuously
than any other required disclosure.
Currently, the terms do not need to be
more conspicuous when used under
§§ 226.5a, 226.7(d), 226.9(e), and
226.16. In June 2007, the Board
proposed to expand this list to include
the account-opening disclosures that
would be highlighted under proposed
§ 226.6(b)(4) (adopted as § 226.6(b)(1)
and (b)(2) below), the disclosure of the
effective APR under proposed
§ 226.7(b)(7) under one approach,
disclosures on checks that access a
credit card account under proposed
§ 226.9(b)(3), the information on changein-terms notices that would be
highlighted under proposed
§ 226.9(c)(2)(iii)(B), and the disclosures
given when a rate is increased due to
delinquency, default or as a penalty
under proposed § 226.9(g)(3)(ii). In
addition, the Board sought comment in
the June 2007 Proposal on ways to
address criticism by the United States
Government Accountability Office
(GAO) that credit card disclosure

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documents ‘‘unnecessarily emphasized
specific terms.’’ 13
As discussed in the June 2007
Proposal, the Board agreed with the
GAO’s assessment that overemphasis of
these terms may make disclosures more
difficult for consumers to read. One
approach the Board had considered to
remedy this problem was to prohibit the
terms ‘‘finance charge’’ and ‘‘annual
percentage rate’’ from being disclosed
more conspicuously than other required
disclosures except when the regulation
so requires. However, the Board
acknowledged in the June 2007 Proposal
that this approach could produce
unintended consequences. Commenters
agreed with the Board.
Many industry commenters suggested
that in light of the Board’s requirement
to disclose APRs and certain other
finance charges at account-opening and
at other times in the life of the account
in a tabular format with a minimum 10point font size pursuant to comment
5(a)(1)–3 (or 16-point font size as
required for the APR for purchases
under §§ 226.5a(b)(1) and 226.6(b)(2)),
requiring the terms ‘‘annual percentage
rate’’ and ‘‘finance charge’’ to be more
conspicuous than other disclosures to
draw attention to the terms was not
necessary. Furthermore, commenters
pointed out that the Board is no longer
requiring use of the term ‘‘finance
charge’’ in TILA disclosures to
consumers for open-end (not homesecured) plans, and in fact, is requiring
creditors to disclose finance charges as
either ‘‘fees’’ or ‘‘interest’’ on periodic
statements. As a result, creditors would,
in many cases, no longer have the term
‘‘finance charge’’ to make more
conspicuous than other terms.
For the reasons discussed above, the
Board is eliminating for open-end (not
home-secured) plans the requirement to
disclose ‘‘annual percentage rate’’ and
‘‘finance charge’’ more conspicuously,
using its authority under Section 105(a)
of TILA to make ‘‘such adjustments and
exceptions for any class of transaction
as in the judgment of the Board are
necessary or proper to effectuate the
purposes of the title, to prevent
circumvention or evasion thereof, or to
facilitate compliance therewith.’’ 15
U.S.C. 1604(a). Therefore, the
requirement in § 226.5(a)(2)(ii) that
‘‘annual percentage rate’’ and ‘‘finance
charge’’ be disclosed more
conspicuously than any other required
disclosures when disclosed with a
corresponding amount or percentage
13 United States Government Accountability
Office, Credit Cards: Increased Complexity in Rates
and Fees Heightens Need for More Effective
Disclosures to Consumers, 06–929 (September
2006).

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rate applies only to home-equity plans
subject to § 226.5b. As is currently the
case, even for home-equity plans subject
to § 226.5b, these terms need not be
more conspicuous when used under
§ 226.7(a)(4) on periodic statements and
under section § 226.16 in
advertisements. Other exceptions
currently in footnote 9 to § 226.5(a)(2),
which reference §§ 226.5a and 226.9(e),
have been deleted as unnecessary since
these disclosures do not apply to homeequity plans subject to § 226.5b. The
requirement, as it applies to homeequity plans subject to § 226.5b, may be
re-evaluated when the Board conducts
its review of the regulations related to
home-equity plans.
Use of the term ‘‘grace period’’. In the
June 2007 Proposal, the Board proposed
§ 226.5(a)(2)(iii) to require that the term
‘‘grace period’’ be used, as applicable, in
any disclosure that must be in a tabular
format under proposed § 226.5(a)(3).
The Board’s proposal was meant to
make other disclosures consistent with
credit card applications and
solicitations where use of the term
‘‘grace period’’ is required by TILA
Section 122(c)(2)(C) and
§ 226.5a(a)(2)(iii). 15 U.S.C.
1632(c)(2)(C). Based on comments
received as part of the June 2007
Proposal and further consumer testing,
the Board proposed in the May 2008
Proposal to delete § 226.5a(a)(2)(ii) and
withdraw the requirement to use the
term ‘‘grace period’’ in proposed
§ 226.5(a)(2)(iii).
As discussed in the section-by-section
analysis to § 226.5a(b)(5), the Board is
exercising its authority under TILA
Sections 105(a) and (f), and TILA
Section 127(c)(5) to delete the
requirement to use the term ‘‘grace
period’’ in the table required by
§ 226.5a. 15 U.S.C. 1604(a) and (f),
1637(c)(5). The purpose of the proposed
requirement was to provide consistency
for headings in a tabular summary.
Accordingly, the Board withdraws the
requirement to use the term ‘‘grace
period’’ in proposed § 226.5(a)(2)(iii).
Other required terminology. The
Board proposed § 226.5(a)(2)(iii) in the
June 2007 Proposal to provide that if
disclosures are required to be presented
in a tabular format, the term ‘‘penalty
APR’’ shall be used to describe an
increased rate that may result because of
the occurrence of one or more specific
events specified in the account
agreement, such as a late payment or an
extension of credit that exceeds the
credit limit. Therefore, the term
‘‘penalty APR’’ would have been
required when creditors provide
information about penalty rates in the
table given with credit card applications

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and solicitations under § 226.5a, in the
summary table given at account opening
under § 226.6(b)(1) and (b)(2) (proposed
as § 226.6(b)(4)), if the penalty rate is
changing, in the summary table given on
or with a change-in-terms notice under
§ 226.9(c)(2)(iii)(B), or if a penalty rate is
triggered, in the table given under
§ 226.9(g)(3)(ii).
Commenters were generally
supportive of the Board’s efforts to
develop some common terminology and
the Board’s proposal to require use of
the term ‘‘penalty APR’’ to describe an
increased rate resulting from the
occurrence of one or more specific
events. Some industry commenters,
however, urged the Board to reconsider
requiring use of the term ‘‘penalty
APR,’’ especially when used to describe
the loss of an introductory rate or
promotional rate. As discussed in the
June 2007 Proposal, the term ‘‘penalty
APR’’ proved the most successful of the
terms tested with participants in the
Board’s consumer testing efforts. In the
interest of uniformity, the Board adopts
the provision as proposed, with one
exception for promotional rates. To
prevent consumer confusion over use of
the term ‘‘penalty rate’’ to describe the
loss of a promotional rate where the rate
applied is the same or is calculated in
the same way as the rate that would
have applied at the end of the
promotional period, the Board is
amending proposed § 226.5(a)(2)(iii) to
provide that the term ‘‘penalty APR’’
need not be used in reference to the
APR that applies with the loss of a
promotional rate, provided the APR that
applies is no greater than the APR that
would have applied at the end of the
promotional period; or if the APR that
applies is a variable rate, the APR is
calculated using the same index and
margin as would have been used to
calculate the APR that would have
applied at the end of the promotional
period. In addition, the Board is also
modifying the required disclosure
related to the loss of an introductory
rate as discussed below in the sectionby-section analysis to § 226.5a, which
should also address these concerns.
Under the June 2007 Proposal,
proposed § 226.5(a)(2)(iii) also would
have provided that if credit insurance or
debt cancellation or debt suspension
coverage is required as part of the plan
and information about that coverage is
required to be disclosed in a tabular
format, the term ‘‘required’’ shall be
used in describing the coverage and the
program shall be identified by its name.
No comments were received on this
provision, and the provision is adopted
as proposed.

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Consistent with the Board’s proposal
under the advertising rules in the June
2007 Proposal, proposed
§ 226.5(a)(2)(iii), would have provided
that if required to be disclosed in a
tabular format, an APR may be
described as ‘‘fixed,’’ or using any
similar term, only if that rate will
remain in effect unconditionally until
the expiration of a specified time
period. If no time period is specified,
then the term ‘‘fixed,’’ or any similar
term, may not be used to describe the
rate unless the rate remains in effect
unconditionally until the plan is closed.
The final rule adopts § 226.5(a)(2)(iii) as
proposed, consistent with the Board’s
decision with respect to use of the term
‘‘fixed’’ in describing an APR stated in
an advertisement, as further discussed
in the section-by-section analysis to
§ 226.16(f) below.

Proposal to move this guidance from
comment 5(b)(1)–1 to proposed
§ 226.5(b)(1)(iii)–(v). In the May 2008
Proposal, the Board proposed additional
revisions to § 226.5(b)(1)(iv) regarding
membership fees.
The Board also proposed revisions in
the June 2007 Proposal to the timing
rules for disclosing certain costs
imposed on an open-end (not homesecured) plan and in connection with
certain transactions conducted by
telephone. Furthermore, the Board
proposed additional guidance on
providing timely disclosures when the
first transaction is a balance transfer.
Finally, technical revisions were
proposed to change references from
‘‘initial’’ disclosures required by § 226.6
to ‘‘account-opening’’ disclosures,
without any intended substantive
change.

5(a)(3) Specific Formats

5(b)(1)(i) General Rule
Creditors generally must provide the
account-opening disclosures before the
first transaction is made under the plan.
The renumbering of this rule as
§ 226.5(b)(1)(i) is adopted as proposed
in the June 2007 Proposal.
Balance transfers. Under existing
commentary and consistent with the
general rule on account-opening
disclosures, creditors must provide
account-opening disclosures before a
balance transfer occurs. In the June 2007
Proposal, the Board proposed to update
this commentary to reflect current
business practices. As the Board
discussed in the June 2007 Proposal,
some creditors offer balance transfers for
which the APRs that may apply are
disclosed as a range, depending on the
consumer’s creditworthiness.
Consumers who respond to such an
offer, and are approved for the transfer
later receive account-opening
disclosures, including the actual APR
that will apply to the transferred
balance. The Board proposed to clarify
in comment 5(b)(1)(i)–5 that a creditor
must provide disclosures sufficiently in
advance of the balance transfer to allow
the consumer to review and respond to
the terms that will apply to the transfer,
including to contact the creditor before
the balance is transferred and decline
the transfer. The Board, however, did
not propose a specific time period that
would be considered ‘‘sufficiently in
advance.’’
Industry commenters indicated that
following the Board’s guidance would
cause delays in making transfers, which
would be contrary to consumer
expectations that these transfers be
effected quickly. A consumer group
commenter suggested that requiring the
APR that will apply, as opposed to

As proposed in June 2007, for clarity,
the special rules regarding the specific
format for disclosures under § 226.5a for
credit and charge card applications and
solicitations and § 226.5b for homeequity plans have been consolidated in
§ 226.5(a)(3) as proposed. In addition, as
discussed below, the Board is requiring
certain account-opening disclosures,
periodic statement disclosures and
subsequent disclosures, such as changein-terms disclosures, to be provided in
specific formats under § 226.6(b)(1);
§ 226.7(b)(6) and (b)(13); and § 226.9(b),
(c) and (g). The final rule includes these
special format rules in § 226.5(a)(3), as
proposed in the June 2007 Proposal,
with one exception. Because the Board
is not requiring disclosure of the
effective APR pursuant to § 226.7(b)(7),
as discussed further in the general
discussion on the effective APR in the
section-by-section analysis to § 226.7(b),
the proposed special format rule relating
to the effective APR is not contained in
the final rule.
5(b) Time of Disclosures

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5(b)(1) Account-opening Disclosures
Creditors are required to make certain
disclosures to consumers ‘‘before
opening any account.’’ TILA Section
127(a) (15 U.S.C. 1637(a)). Under
§ 226.5(b)(1), these disclosures, as
identified in § 226.6, must be furnished
‘‘before the first transaction is made
under the plan,’’ which the Board has
interpreted as ‘‘before the consumer
becomes obligated on the plan.’’
Comment 5(b)(1)–1. There are limited
circumstances under which creditors
may provide the disclosures required by
§ 226.6 after the first transaction, and
the Board proposed in the June 2007

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allowing a range, to be disclosed on the
application or solicitation would be
simpler. The Board notes that creditors
may, at their option, provide accountopening disclosures, including the
specific APRs, along with the balance
transfer offer and account application to
avoid delaying the transfer.
The Board believes that, consistent
with the general rule, consumers should
receive account-opening information,
including the APR that will apply,
before the first transaction, which is the
balance transfer. Comment 5(b)(1)(i)–5
is adopted as proposed, and states that
a creditor must provide the consumer
with the annual percentage rate (along
with the fees and other required
disclosures) that would apply to the
balance transfer in time for the
consumer to contact the creditor and
withdraw the request. The Board has
made one revision to comment
5(b)(1)(i)–5 as adopted. In response to
commenters’ requests for additional
guidance, comment 5(b)(1)(i)–5 provides
a safe harbor that may be used by
creditors that permit a consumer to
decline the balance transfer by
telephone. In such cases, a creditor has
provided sufficient time to the
consumer to contact the creditor and
withdraw the request if the creditor
does not effect the balance transfer until
10 days after the creditor has sent out
information, assuming the consumer has
not canceled the transaction.
Disclosure before the first transaction.
Comment 5(b)(1)–1, renumbered as
comment 5(b)(1)(i)–1 in the June 2007
Proposal, addresses a creditor’s general
duty to provide account-opening
disclosures ‘‘before the first
transaction.’’ In the May 2008 Proposal,
the comment was proposed to be
reorganized for clarity to provide
existing examples of ‘‘first transactions’’
related to purchases and cash advances.
Other guidance in current comment
5(b)(1)–1 was proposed to be amended
and moved to proposed § 226.5(b)(1)(iv)
and associated commentary in the June
2007 and May 2008 Proposals, as
discussed below in the section-bysection analysis to § 226.5(b)(1)(iv).
The Board did not receive comment
on the proposed reorganization but
received many comments on the
guidance that was amended and moved
to proposed § 226.5(b)(1)(iv). These
comments are discussed below in the
section-by-section analysis to
§ 226.5(b)(1)(iv). Some consumer group
commenters noted that the Board’s
reorganization of this comment made
them realize that they opposed current
guidance on cash advances in comment
5(b)(1)–1 (now renumbered as comment
5(b)(1)(i)–1), which permits creditors to

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provide account-opening disclosures
along with the first cash advance check
as long as the consumer can return the
cash advance without obligation. The
Board continues to believe that this
approach is appropriate because of the
lack of harm to consumers. Therefore,
the Board declines to amend its current
guidance on cash advances in comment
5(b)(1)(i)–1, which is renumbered as
proposed without substantive change.
5(b)(1)(ii) Charges Imposed as Part of an
Open-End (Not Home-Secured) Plan
Under the June 2007 Proposal, the
Board proposed in new § 226.5(b)(1)(ii)
and comment 5(b)(1)(ii)–1 to except
charges imposed as part of an open-end
(not home-secured) plan, other than
those specified in proposed
§ 226.6(b)(4)(iii) (adopted as
§ 226.6(b)(2)), from the requirement to
disclose charges before the first
transaction. Creditors would have been
permitted, at their option, to disclose
those charges either before the first
transaction or later, so long as they were
disclosed before the cost was imposed.
The current rule requiring the
disclosure of costs before the first
transaction (in writing and in a
retainable form) would have continued
to apply to certain specified costs. These
costs are fees of which consumers
should be aware before using the
account, such as annual or late payment
fees, or fees that the creditor would not
otherwise have an opportunity to
disclose before the fee is triggered, such
as a fee for using a cash advance check
during the first billing cycle.
Numerous industry commenters
supported the Board’s proposal.
Consumer group commenters, on the
other hand, opposed the Board’s
proposal, arguing that all charges should
be required to be disclosed at account
opening before the first transaction.
While consumer group commenters
acknowledged that disclosure of the
amount of the fee at a time when the
consumer is about to incur it is a good
business practice, the commenters
indicated that the Board’s proposal
would encourage creditors to create new
fees that are not specified to be given in
writing at account-opening. The final
rule adopts § 226.5(b)(1)(ii) and
comment 5(b)(1)(ii)–1 largely as
proposed with some clarifying
amendments and additional illustrative
examples.
As the Board discussed in the June
2007 Proposal, the charges covered by
the proposed exception from disclosure
at account opening are triggered by
events or transactions that may take
place months, or even years, into the life
of the account, when the consumer may

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not reasonably be expected to recall the
amount of the charge from the accountopening disclosure, nor readily to find
or obtain a copy of the account-opening
disclosure or most recent change-interms notice. Requiring such charges to
be disclosed before account opening
may not provide a meaningful benefit to
consumers in the form of useful
information or protection. The rule
would allow flexibility in the timing of
certain cost disclosures by permitting
creditors to disclose such charges—
orally or in writing—before the fee is
imposed. As a result, creditors would be
disclosing the charge when the
consumer is deciding whether to take
the action that would trigger the charge,
such as purchasing a service, which is
a time at which consumers would likely
notice the charge. The Board intends to
continue monitoring credit card fees
and practices, and could add additional
fees to the specified costs that must be
disclosed in the account-opening table
before the first transaction, as
appropriate.
In addition, as discussed in the June
2007 Proposal, the Board believes the
exception may facilitate compliance by
creditors. Determining whether charges
are a finance charge or an other charge
or not covered by TILA (and thus
whether advance notice is required) can
be challenging, and the rule reduces
these uncertainties and risks. The
creditor will not have to determine
whether a charge is a finance charge or
other charge or not covered by TILA, so
long as the creditor discloses the charge,
orally or in writing, before the consumer
becomes obligated to pay it, which
creditors, in general, already do for
business and other legal reasons.
Electronic Disclosures. In the May
2008 Proposal, the Board proposed to
revise comment 5(b)(1)(ii)–1 to clarify
that for disclosures not required to be
provided in writing at account opening,
electronic disclosure, without regard to
the E-Sign Act notice and consent
requirements, is a permissible
alternative to oral or written disclosure,
when a consumer requests a service in
electronic form, such as on a creditor’s
Web site. As discussed in the sectionby-section analysis to comment
5(a)(1)(ii)(A)–1 above, the Board
received many comments in support of
permitting electronic disclosure,
without regard to the E-Sign Act notice
and consent requirements, for
disclosures that are not required to be
provided in writing at account opening.
Some consumer group commenters
objected to allowing any electronic
disclosure without the protections of the
E-Sign Act. As discussed in the May
2008 Proposal, since the disclosure of

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5273

charges imposed as part of an open-end
(not home-secured) plan, other than
those specified in § 226.6(b)(2), are not
required to be provided in writing, the
Board believes that E-Sign notice and
consent requirements do not apply
when the consumer requests the service
in electronic form. The revision to
comment 5(b)(1)(ii)–1 proposed in May
2008 is adopted as proposed.
5(b)(1)(iii) Telephone Purchases
In the June 2007 Proposal, the Board
proposed § 226.5(b)(1)(iii) to address
situations where a consumer calls a
merchant to order goods by telephone
and concurrently establishes a new
open-end credit plan to finance that
purchase. Because TILA accountopening disclosures must be provided
before the first transaction under the
current timing rule, merchants must
delay the shipment of goods until a
consumer has received the disclosures.
Consumers who want goods shipped
immediately may use another method to
finance the purchase, but they may lose
any incentives the merchant may offer
with opening a new plan, such as
discounted purchase prices or
promotional payment plans. The
Board’s proposal was meant to provide
additional flexibility to merchants and
consumers in such cases.
Under proposed § 226.5(b)(1)(iii),
merchants that established an open-end
plan in connection with a telephone
purchase of goods initiated by the
consumer would have been able to
provide account-opening disclosures as
soon as reasonably practicable after the
first transaction if the merchant (1)
permits consumers to return any goods
financed under the plan at the time the
plan is opened and provides the
consumer sufficient time to reject the
plan and return the items free of cost
after receiving the written disclosures
required by § 226.6, and (2) informs the
consumer about the return policy as a
part of the offer to finance the purchase.
Alternatively, the merchant would have
been able to delay shipping the goods
until after the account disclosures have
been provided.
The Board also proposed comment
5(b)(1)(iii)–1 to provide that a return
policy is of sufficient duration if the
consumer is likely to receive the
disclosures and have sufficient time to
decide about the financing plan. A
return policy includes returns via the
United States Postal Service for goods
delivered by private couriers. The
proposed commentary also clarified that
retailers’ policies regarding the return of
merchandise need not provide a right to
return goods if the consumer consumes
or damages the goods. As discussed in

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the June 2007 Proposal, the regulation
and commentary would not have
affected merchandise purchased after
the plan was initially established or
purchased by another means of
financing, such as a credit card issued
by another creditor.
Consumer group commenters opposed
the proposal arguing that providing a
right to cancel is much less protective
of consumers’ rights than requiring that
a consumer receive disclosures before
goods are shipped. As discussed above
and in the June 2007 Proposal, the
Board believes proposed
§ 226.5(b)(1)(iii) would provide
consumers with greater flexibility.
Consumers may have their goods
shipped immediately, and in some
cases, take advantage of merchant
incentives, such as discounted purchase
prices or promotional payment plans,
but still retain the right to reject the
plan, without cost, after receiving
account-opening disclosures.
Industry commenters were supportive
of the Board’s proposal, but several
commenters asked for additional
extensions or clarifications to the
policy. First, commenters requested
clarification that the exception is
available for third-party creditors that
are not retailers, arguing that few
merchants are themselves creditors and
that the same flexibility should be
available to creditors offering private
label or co-brand credit arrangements in
connection with the purchase of a
merchant’s goods. The Board agrees,
and revisions have been made to
§ 226.5(b)(1)(iii) accordingly. Industry
commenters also suggested that the
provision in § 226.5(b)(1)(iii) be
available not only for telephone
purchases ‘‘initiated by the consumer,’’
but also telephone purchases where the
merchant contacts the consumer.
Outbound calls to a consumer may raise
many telemarketing issues and concerns
about questionable marketing tactics. As
a result, the Board declines to extend
§ 226.5(b)(1)(iii) to telephone purchases
that have not been initiated by the
consumer.
A few industry commenters also
suggested that this exception be
available for all creditors opening an
account by telephone, regardless of
whether it is in connection with the
purchase of goods or not. These
commenters stated that for certain
consumers, such as active duty military
members, immediate use of the account
after it is opened may be necessary to
take care of personal or family needs.
The Board notes that the exception
under § 226.5(b)(1)(iii) turns on the
ability of consumers to return any goods
financed under the plan free of cost after

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receiving the written disclosures
required by § 226.6. In the case of an
account opened by telephone that is not
in connection with the purchase of
goods from the creditor or an affiliated
third party, a creditor would likely have
no way to reverse any purchases or
other transactions made before the
disclosures required by § 226.6 are
received by the consumer should the
consumer wish to reject the plan if the
purchase was made with an unaffiliated
third party. Thus, the Board declines to
extend § 226.5(b)(1)(iii) to accounts
opened by telephone that are not in
connection with the contemporaneous
purchase of goods.
The Board also received comments
requesting that § 226.5(b)(1)(iii) be made
applicable to the on-line purchase of
goods or that merchants have the option
to refer consumers purchasing by
telephone to a Web site to obtain
disclosures required by § 226.6. This
issue has been addressed in the
November 2007 Final Electronic
Disclosure Rule. The E-Sign Act clearly
states that any consumer to whom
written disclosures are required to be
given must affirmatively consent to the
use of electronic disclosures before such
disclosures can be used in place of
paper disclosures. The November 2007
Final Electronic Disclosure Rule created
certain instances where E-Sign consent
does not need to be obtained before
disclosures may be provided
electronically. Specifically, open-end
credit disclosures required by §§ 226.5a
(credit card applications and
solicitations), 226.5b (HELOC
applications), and 226.16 (open-end
credit advertising) may be provided to
the consumer in electronic form, under
the circumstances set forth in those
sections, without regard to the
consumer consent or other provisions of
the E-Sign Act. Disclosures required by
§ 226.6, however, may only be provided
electronically if the creditor obtains
consumer consent consistent with the ESign Act. 72 FR 63462, Nov. 9, 2007; 72
FR 71058, Dec. 14, 2007.
The Board also received comments
requesting clarification of the return
policy; in particular, whether this
would cause creditors to provide those
consumers who open a new credit plan
concurrently with the purchase of goods
over the telephone with a different
return policy from other customers. For
example, assume a merchant’s
customers are normally charged a
restocking fee for returning goods, and
the merchant does not wish to wait until
the disclosures under § 226.6 are sent
out before shipping the goods. A
commenter asked whether this means
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plan concurrently with the purchase of
goods over the telephone is exempted
from paying that restocking fee if the
goods are returned. As proposed in the
June 2007 Proposal, the final rule
requires that in order to use the
exception from providing disclosures
under § 226.6 before the consumer
becomes obligated on the account, the
consumer must have sufficient time to
reject the plan and return the items free
of cost after receiving the written
disclosures required by § 226.6. This
means that there can be no cost to the
consumer for returning the goods even
if for the merchant’s other customers, a
fee is normally charged. As the Board
discussed in the June 2007 Proposal,
merchants always have the option to
delay shipping of the goods until after
the disclosures are given if the merchant
does not want to maintain a potentially
different return policy for consumers
opening a new credit plan concurrently
with the purchase of goods over the
telephone.
Commenters also requested guidance
on what would be considered
‘‘sufficient time’’ for the consumer to
reject the plan and return the goods.
Because the amount of time that would
be deemed to be sufficient would
depend on the nature of the goods and
the transaction, and the locations of the
various parties to the transaction, the
Board does not believe that it is
appropriate to specify a particular time
period applicable to all transactions.
The Board also received requests for
other clarifications. One commenter
suggested that the Board expressly
acknowledge that if the consumer
rejects the credit plan, the consumer
may substitute another reasonable form
of payment acceptable to the merchant
other than the credit plan to pay for the
goods in full. This clarification has been
included in comment 5(b)(1)(iii)–1.
Furthermore, this commenter also
suggested that the exception in
comment 5(b)(1)(iii)–1 allowing for no
return policy for consumed or damaged
goods should be revised to expressly
cover installed appliances or fixtures,
provided a reasonable repair or
replacement policy covers defective
goods or installations. The Board
concurs and changes have been made to
comment 5(b)(1)(iii)–1 accordingly.
5(b)(1)(iv) Membership Fees
TILA Section 127(a) requires creditors
to provide specified disclosures ‘‘before
opening any account.’’ 15 U.S.C.
1637(a). Section 226.5(b)(1) requires
these disclosures (identified in § 226.6)
to be furnished before the first
transaction is made under the plan.
Currently and under the June 2007 and

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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Rules and Regulations
May 2008 Proposals, creditors may
collect or obtain the consumer’s promise
to pay a membership fee before the
account-opening disclosures are
provided, if the consumer can reject the
plan after receiving the disclosures. If a
consumer rejects the plan, the creditor
must promptly refund the fee if it has
been paid or take other action necessary
to ensure the consumer is not obligated
to pay the fee. In the June 2007
Proposal, guidance currently in
comment 5(b)(1)–1 about creditors’
ability to assess certain membership fees
before consumers receive the accountopening disclosures was moved to
§ 226.5(b)(1)(iv).
In the June 2007 and May 2008
Proposals, the Board proposed
clarifications to the consumer’s right not
to pay membership fees that were
assessed or agreed to be paid before the
consumer received account-opening
disclosures, if a consumer rejects a plan
after receiving the account-opening
disclosures. In the May 2008 Proposal,
the Board proposed in revised
§ 226.5(b)(1)(iv) and new comment
5(b)(1)(iv)–1 that ‘‘membership fee’’ has
the same meaning as fees for issuance or
availability of a credit or charge card
under § 226.5a(b)(2), including annual
or other periodic fees, or ‘‘start-up’’ fees,
such as account-opening fees. The
Board also proposed in the May 2008
Proposal under revised § 226.5(b)(1)(iv)
to clarify that if a consumer rejects an
open-end (not home-secured) plan as
permitted under that provision,
consumers are not obligated to pay any
membership fee, or any other fee or
charge (other than an application fee
that is charged to all applicants whether
or not they receive the credit).
Some consumer group commenters
opposed the Board’s clarification on the
term ‘‘membership fee’’ and argued that
the definition could expand the ability
of creditors to charge additional types of
fees prior to sending out accountopening disclosures. These consumer
group commenters, however, supported
that the Board’s clarification could
allow for a greater number of fees that
consumers would not be obligated to
pay should they reject the plan. One
industry commenter opposed the
Board’s reference to annual fees as
‘‘membership fees.’’ The Board notes
that the term ‘‘membership fee’’ is not
currently defined, and, therefore, there
is little guidance as to what fees would
be covered by that term. As discussed in
the May 2008 Proposal, the Board
proposed that ‘‘membership fee’’ have
the same meaning as fees for issuance or
availability under § 226.5a(b)(2) for
consistency and ease of compliance.
The Board continues to believe this

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clarification is warranted, and
§ 226.5(b)(1)(iv) is adopted generally as
proposed, with one change discussed
below.
The final rule expands the types of
fees for which consumers must not be
obligated if they reject an open-end (not
home-secured) plan as permitted under
§ 226.5(b)(1)(iv) to include application
fees charged to all applicants. The Board
believes that it is important that
consumers have the opportunity, after
receiving the account-opening
disclosures which set forth the fees and
other charges that will be applicable to
the account, to reject the plan without
being obligated for any charges. It is the
Board’s understanding that some
creditors may debit application fees to
the account, and thus these fees should
be treated in the same manner as other
fees debited at account opening.
Conforming changes have been made to
§ 226.5a(d)(2).
Furthermore, in May 2008, the Board
proposed to revise and move to
comment 5(b)(1)(iv)–2, guidance in
current comment 5(b)(1)–1 (renumbered
as comment 5(b)(1)(i)–1 in the June 2007
Proposal) regarding instances when a
creditor may consider an account not
rejected. In the May 2008 Proposal, the
Board proposed to revise the guidance
to provide that a consumer who has
received the disclosures and uses the
account, or makes a payment on the
account after receiving a billing
statement, is deemed not to have
rejected the plan. In the May 2008
Proposal, the Board also proposed to
provide a ‘‘safe harbor’’ that a creditor
may deem the plan to be rejected if, 60
days after the creditor mailed the
account-opening disclosures, the
consumer has not used the account or
made a payment on the account.
The Board received mixed comments
on the 60 day ‘‘safe harbor’’ proposal.
Some industry commenters opposed the
‘‘safe harbor’’ citing operational
complexity and uncertainty in account
administration procedures. Some
consumer group commenters and an
industry trade group commenter
supported the Board’s proposal. These
commenters also suggested that the
Board either require or encourage as a
‘‘best practice’’ a notice to be given to
consumers stating that inactivity for 60
days will cause an account to be closed.
After considering comments on the
proposal, the Board is amending
comment 5(b)(1)(iv)–2 to delete the 60
day ‘‘safe harbor’’ because the Board
believes the potential confusion this
guidance may cause and the operational
difficulties the guidance could impose
outweigh the benefits of the guidance.

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In the June 2007 Proposal, the Board
proposed to provide guidance in
comment 5(b)(1)(i)–1 on what it means
to ‘‘use’’ the account. The June 2007
proposed clarification was intended to
address concerns about some subprime
card accounts that assess a large number
of fees at account opening. In the May
2008 Proposal, this provision was
moved to new proposed comment
5(b)(1)(iv)–3 and revised to clarify that
a consumer does not ‘‘use’’ an account
when the creditor assesses fees to the
account (such as start-up fees or fees
associated with credit insurance or debt
cancellation or suspension programs
agreed to as a part of the application and
before the consumer receives accountopening disclosures). The May 2008
Proposal also clarified in comment
5(b)(1)(iv)–3 that the consumer does not
‘‘use’’ an account when, for example, a
creditor sends a billing statement with
start-up fees, there is no other activity
on the account, the consumer does not
pay the fees, and the creditor
subsequently assesses a late fee or
interest on the unpaid fee balances. In
the May 2008 Proposal, the Board also
proposed to add that a consumer is not
considered to ‘‘use’’ an account when,
for example, a consumer receives a
credit card in the mail and calls to
activate the card for security purposes.
The Board received several comments
regarding the guidance on whether
activation of the card constitutes ‘‘use’’
of the account. Some commenters
supported the Board’s proposed
guidance. Other commenters opposed
the proposal noting that a consumer will
have received account-opening
disclosures at the time the consumer
activates the card. These commenters
also stated that when a consumer
affirmatively activates a card, it should
constitute acceptance of the account.
Some consumer group commenters
suggested that the Board also include
guidance that payment of fees on the
first billing statement should not
constitute acceptance of the account and
that consumers should only be
considered to have used an account by
affirmatively using the credit, such as by
making a purchase or obtaining a cash
advance.
The Board is adopting comment
5(b)(1)(iv)–3 as proposed with one
modification. The Board believes that
what constitutes ‘‘use’’ of the account
should be consistent with consumer
understanding of the term. A consumer
is likely to think he or she has not
‘‘used’’ the account if the only action he
or she has taken is to activate the
account. Conversely, a consumer who
has made a purchase or a payment on
the account would likely believe that he

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or she is ‘‘using’’ the account. The
Board, however, is amending the
comment to delete the phrase ‘‘such as
for security purposes’’ in relation to the
discussion about card activation. One
industry commenter, while supportive
of the Board’s general guidance that
activation alone does not indicate a
consumer’s acceptance of a credit plan,
was concerned about any suggestion
that a customer should activate, for
security purposes, an account that a
consumer does not intend to use.
In technical revisions, comment
5(b)(1)–1, renumbered as comment
5(b)(1)(i)–1 in the June 2007 Proposal,
currently addresses a creditor’s general
duty to provide account-opening
disclosures ‘‘before the first transaction’’
and provides that HELOCs are not
subject to the prohibition on the
payment of fees other than application
or refundable membership fees before
account-opening disclosures are
provided. See § 226.5b(h) regarding
limitations on the collection of fees. In
the May 2008 Proposal, the existing
guidance about HELOCs was moved to
revised § 226.5(b)(1)(iv) and a new
comment 5(b)(1)(iv)–4 for clarity. The
Board received no comment on the
proposed reorganization, and the
reorganization of the guidance regarding
HELOCs is adopted as proposed.

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5(b)(2) Periodic Statements
TILA Sections 127(b) and 163 set
forth the timing requirements for
providing periodic statements for openend credit accounts. 15 U.S.C. 1637(b)
and 1666b. In the June 2007 Proposal,
the Board proposed to retain the
existing regulation and commentary
related to the timing requirements for
providing periodic statements for openend credit accounts, with a few changes
and clarifications as discussed below.
5(b)(2)(i)
TILA Section 127(b) establishes that
creditors generally must send periodic
statements at the end of billing cycles in
which there is an outstanding balance or
a finance charge is imposed. 15 U.S.C.
1637(b). Section 226.5(b)(2)(i) provides
for a number of exceptions to a
creditor’s duty to send periodic
statements.
De minimis amounts. Under the
current regulation, creditors need not
send periodic statements if an account
balance, whether debit or credit, is $1 or
less and no finance charge is imposed.
The Board proposed no changes to and
received no comments on this
provision. As a result, the Board retains
this provision as currently written.
Uncollectible accounts. Creditors are
not required to send periodic statements

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on accounts the creditor has deemed
‘‘uncollectible,’’ which is not
specifically defined. In the June 2007
Proposal, the Board sought comment on
whether guidance on the term
‘‘uncollectible’’ would be helpful.
Commenters to the June 2007
Proposal stated that guidance would be
helpful but differed on what that
guidance should be. Several consumer
group commenters suggested that an
account should be deemed
‘‘uncollectible’’ only when a creditor
has ceased collection efforts, either
directly or through a third party. These
commenters stated that for a consumer
whose account is delinquent but still
subject to collection, a periodic
statement is important to show the
consumer when and how much interest
is accruing and whether the consumer’s
payments have been credited. Industry
commenters suggested instead that an
account should be deemed
‘‘uncollectible’’ once the account is
charged off in accordance with loan-loss
provisions.
Based on the plain language of the
term ‘‘uncollectible’’ and the
importance of periodic statements to
show consumers when interest accrues
or fees are assessed on the account, the
Board is adopting new comment
5(b)(2)(i)–3 (accordingly, as discussed
below comment 5(b)(2)(i)–3 as proposed
in the June 2007 Proposal is adopted as
5(b)(2)(i)–4). The comment clarifies that
an account is ‘‘uncollectible’’ when a
creditor has ceased collection efforts,
either directly or through a third party.
In addition, if an account has been
charged off in accordance with loan-loss
provisions and the creditor no longer
accrues new interest or charges new fees
on the account, the Board believes that
the value of a periodic statement does
not justify the cost of providing the
disclosure because the amount of a
consumer’s obligation will not be
increasing. As a result, the Board is
modifying § 226.5(b)(2)(i) to state that in
such cases, the creditor also need not
provide a periodic statement. However,
this provision does not apply if a
creditor has charged off the account but
continues to accrue new interest or
charge new fees.
Instituting collection proceedings.
Creditors need not send statements if
‘‘delinquency collection proceedings
have been instituted’’ under
§ 226.5(b)(2)(i). In the June 2007
Proposal, the Board proposed to add
comment 5(b)(2)(i)–3 to clarify that a
collection proceeding entails a filing of
a court action or other adjudicatory
process with a third party, and not
merely assigning the debt to a debt
collector. Several consumer groups

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strongly supported the Board’s proposal
while industry commenters
recommended that the Board provide
greater flexibility in interpreting when
delinquency collection proceedings
have been instituted. In particular, an
industry commenter stated that the
minimum payment warning could
conflict with the creditor’s collection
demand and create consumer confusion.
Nonetheless, as discussed in more detail
in the section-by-section analysis to
§ 226.7(b)(12), the minimum payment
disclosure is not required where a fixed
repayment period has been specified in
the account agreement, such as where
the account has been closed due to
delinquency and the required monthly
payment has been reduced or the
balance decreased to accommodate a
fixed payment for a fixed period of time
designed to pay off the outstanding
balance.
The Board believes that clarifying that
a collection proceeding entails the filing
of a court action or other adjudicatory
process with a third party provides clear
and uniform guidance to creditors as to
when periodic statements are no longer
required. Accordingly, the Board adopts
the comment as proposed, though for
organizational purposes, the comment is
renumbered as comment 5(b)(2)(i)–4.
Workout arrangements. Comment
5(b)(2)(i)–2 provides that creditors must
continue to comply with all the rules for
open-end credit, including sending a
periodic statement, when credit
privileges end, such as when a
consumer stops taking draws and pays
off the outstanding balance over time.
Another comment provides that ‘‘if an
open-end credit account is converted to
a closed-end transaction under a written
agreement with the consumer, the
creditor must provide a set of closedend credit disclosures before
consummation of the closed-end
transaction.’’ Comment 17(b)–2.
To provide flexibility and reduce
burden and uncertainty, the Board
proposed to clarify in the June 2007
Proposal that creditors entering into
workout agreements for delinquent
open-end plans without converting the
debt to a closed-end transaction comply
with the regulation if creditors continue
to comply with the open-end provisions
for the work-out period. The Board
received only one comment concerning
workout arrangements, which supported
the Board’s proposal. Therefore,
amendments to comment 5(b)(2)(i)–2 are
adopted as proposed.
5(b)(2)(ii)
TILA Section 163(a) requires creditors
that provide a grace period to send
statements at least 14 days before the

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grace period ends. 15 U.S.C. 1666b(a).
The 14-day period runs from the date
creditors mail their statements, not from
the end of the statement period nor from
the date consumers receive their
statements. As discussed in the June
2007 Proposal, the Board has anecdotal
evidence that some consumers receive
statements relatively close to the
payment due date, which leaves
consumers with little time to review the
statement before payment must be
mailed to meet the due date. As a result,
the Board requested comment on (1)
whether it should recommend to
Congress that the 14-day period be
increased to a longer time period, so
that consumers will have additional
time to receive their statements and
mail their payments to ensure that
payments will be received by the due
date, and (2) if so, what time period the
Board should recommend to Congress.
The Board received numerous
comments on this issue. Consumer and
consumer group commenters
complained that the time period from
when consumers received their
statements to the payment due date was
too short, causing consumers often to
incur late fees and lose the benefit of the
grace period, and creditors to raise
consumers’ rates to the penalty rate.
Industry commenters, on the other
hand, stated that the 14-day period
under TILA Section 163(a) was
appropriate and that the Board should
not recommend a longer time frame to
Congress.
Based in part on these comments, the
Board and other federal banking
agencies proposed in May 2008 to
prohibit institutions from treating a
payment as late for any purpose unless
the consumer has been provided a
reasonable amount of time to make that
payment. Treating a payment as late for
any purpose includes increasing the
APR as a penalty, reporting the
consumer as delinquent to a credit
reporting agency, or assessing a late or
any other fee based on the consumer’s
failure to make payment within the
amount of time provided. 73 FR 28904,
May 19, 2008. The Board is opting not
to address the 14-day period under
TILA Section 163(a) and is retaining
§ 226.5(b)(2)(ii) as currently written.
Consumer comment letters mainly
focused on the due date with respect to
having their payments credited in time
to avoid a late fee and an increase in
their APR to the penalty rate and not
with the loss of a grace period.
Therefore, the Board has chosen to
address these concerns in final rules
issued by the Board and other federal
banking agencies published elsewhere
in today’s Federal Register.

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Technical Revisions. Changes
conforming with final rules issued by
the Board and other federal banking
agencies published elsewhere in today’s
Federal Register have been made to
comment 5(b)(2)(ii)–1. In addition, the
substance of comment 5(c)–4, which
was inadvertently placed as
commentary to § 226.5(c), has been
moved and renumbered as comment
5(b)(2)(ii)–2.
5(b)(2)(iii)
As proposed in the June 2007
Proposal, the substance of footnote 10 is
moved to the regulatory text.
5(c) Through 5(e)
Sections 226.5(c), (d), and (e) address,
respectively: The basis of disclosures
and the use of estimates; multiple
creditors and multiple consumers; and
the effect of subsequent events.
In the June 2007 Proposal, the Board
did not propose any changes to these
provisions, except the addition of new
comment 5(d)–3, referencing the
statutory provisions pertaining to charge
cards with plans that allow access to an
open-end credit plan maintained by a
person other than the charge card issuer.
TILA 127(c)(4)(D); 15 U.S.C.
1637(c)(4)(D). (See the section-bysection analysis to § 226.5a(f).) No
comments were received on comment
5(d)–3. The Board adopts this comment
as proposed. In addition, comment 5(c)–
4 is redesignated as comment 5(b)(2)(ii)–
2 to correct a technical error in
placement.
Section 226.5a Credit and Charge Card
Applications and Solicitations
TILA Section 127(c), implemented by
§ 226.5a, requires card issuers to
provide certain cost disclosures on or
with an application or solicitation to
open a credit or charge card account.14
15 U.S.C. 1637(c). The format and
content requirements differ for cost
disclosures in card applications or
solicitations, depending on whether the
applications or solicitations are given
through direct mail, provided
electronically, provided orally, or made
available to the general public such as
in ‘‘take-one’’ applications and in
catalogs or magazines. Disclosures in
applications and solicitations provided
by direct mail or electronically must be
presented in a table. For oral
applications and solicitations, certain
cost disclosures must be provided
orally, except that issuers in some cases
14 Charge cards are a type of credit card for which
full payment is typically expected upon receipt of
the billing statement. To ease discussion, this
section of the supplementary information will refer
to ‘‘credit cards’’ which includes charge cards.

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are allowed to provide the disclosures
later in a written form. Applications and
solicitations made available to the
general public, such as in a take-one
application, must contain one of the
following: (1) The same disclosures as
for direct mail presented in a table; (2)
a narrative description of how finance
charges and other charges are assessed;
or (3) a statement that costs are
involved, along with a toll-free
telephone number to call for further
information.
5a(a) General Rules
Combining disclosures. Currently,
comment 5a–2 states that accountopening disclosures required by § 226.6
do not substitute for the disclosures
required by § 226.5a; however, a card
issuer may establish procedures so that
a single disclosure document meets the
requirements of both sections. In the
June 2007 Proposal, the Board proposed
to retain this comment, but to revise it
to account for proposed revisions to
§ 226.6. Specifically, the Board
proposed to revise comment 5a–2 to
provide that a card issuer may satisfy
§ 226.5a by providing the accountopening summary table on or with a
card application or solicitation, in lieu
of the § 226.5a table. See proposed
§ 226.6(b)(4). The account-opening table
is substantially similar to the table
required by § 226.5a, but the content
required is not identical. The accountopening table requires information that
is not required in the § 226.5a table,
such as a reference to billing error
rights. The Board adopts this comment
provision as proposed, except for one
technical edit which is discussed in the
section-by-section analysis to
§ 226.5a(d)(2). Commenters on the June
2007 Proposal generally supported the
proposed comment allowing the
account-opening summary table to
substitute for the table required by
§ 226.5a. For various reasons, card
issuers may want to provide the
account-opening disclosures with the
card application or solicitation. To ease
compliance burden on issuers, this
comment allows them to provide the
account-opening summary table in lieu
of the table containing the § 226.5a
disclosures. Otherwise, issuers in these
circumstances would be required to
provide the table required by § 226.5a
and the account-opening table. In
addition, allowing issuers to substitute
the account-opening table for the table
required by § 226.5a would not
undercut consumers’ ability to compare
the terms of two credit card accounts
where one issuer provides the accountopening table and the other issuer
provides the table required by § 226.5a,

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because the two tables are substantially
similar.
Clear and conspicuous standard.
Section 226.5(a) requires that
disclosures made under subpart B
(including disclosures required by
§ 226.5a) must be clear and
conspicuous. Currently, comment
5a(a)(2)–1 provides guidance on the
clear and conspicuous standard for the
§ 226.5a disclosures. In the June 2007
Proposal, the Board proposed to provide
guidance on applying the clear and
conspicuous standard to the § 226.5a
disclosures in comment 5(a)(1)–1. Thus,
guidance currently in comment
5a(a)(2)–1 would have been deleted as
unnecessary. The Board proposed to
add comment 5a–3 to cross reference
the clear and conspicuous guidance in
comment 5(a)(1)–1. The final rule
deletes current comment 5a(a)(2)–1 and
adds comment 5a–3 as proposed.
5a(a)(1) Definition of Solicitation
Firm offers of credit. The term
‘‘solicitation’’ is defined in
§ 226.5a(a)(1) of Regulation Z to mean
‘‘an offer by the card issuer to open a
credit or charge card account that does
not require the consumer to complete an
application.’’ 15 U.S.C. 1637(c). Board
staff has received questions about
whether card issuers making ‘‘firm
offers of credit’’ as defined in the Fair
Credit Reporting Act (FCRA) are
considered to be making solicitations for
purposes of § 226.5a. 15 U.S.C. 1681 et
seq. In June 2007, the Board proposed
to amend the definition of ‘‘solicitation’’
in § 226.5a(a)(1) to clarify that such
‘‘firm offers of credit’’ for credit cards
are solicitations for purposes of
§ 226.5a. The final rule adopts the
amendment to § 226.5a(a)(1) as
proposed. Because consumers who
receive ‘‘firm offers of credit’’ have been
preapproved to receive a credit card and
may be turned down for credit only
under limited circumstances, the Board
believes that these preapproved offers
are of the type intended to be captured
as a ‘‘solicitation,’’ even though
consumers are asked to provide some
additional information in connection
with accepting the offer.
Invitations to apply. In the June 2007
Proposal, the Board also proposed to
add comment 5a(a)(1)–1 to distinguish
solicitations from ‘‘invitations to
apply,’’ which are not covered by
§ 226.5a. An ‘‘invitation to apply’’
occurs when a card issuer contacts a
consumer who has not been
preapproved for a card account about
opening an account (whether by direct
mail, telephone, or other means) and
invites the consumer to complete an
application, but the contact itself does

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not include an application. The Board
adopts comment 5a(a)(1)–1 as proposed.
The Board believes that these
‘‘invitations to apply’’ do not meet the
definition of ‘‘solicitation’’ because the
consumer must still submit an
application in order to obtain the
offered card. Thus, comment 5a(a)(1)–1
clarifies that this ‘‘invitation to apply’’
is not covered by § 226.5a unless the
contact itself includes (1) an application
form in a direct mailing, electronic
communication or ‘‘take-one’’; (2) an
oral application in a telephone contact
initiated by the card issuer; or (3) an
application in an in-person contact
initiated by the card issuer.
5a(a)(2) Form of Disclosures and
Tabular Format
Table must be substantially similar to
model and sample forms in Appendix
G–10. Currently and under the June
2007 Proposal, § 226.5a(a)(2)(i) provides
that when making disclosures that are
required to be disclosed in a table,
issuers must use headings, content and
format for the table substantially similar
to any of the applicable tables found in
Appendix G–10 to part 226. In response
to the June 2007 Proposal, several
consumer groups suggested that the
Board explicitly require that the
disclosures be made in the order shown
on the proposed model and sample
forms in Appendix G–10 to part 226.
These consumer groups also suggested
that the Board require issuers to use the
headings for the rows provided in the
proposed model and sample form in
Appendix G to part 226, and not allow
issuers to use headings that are
‘‘substantially similar’’ to the ones in
the model and sample forms. The final
rule adopts § 226.5a(a)(2)(i), as
proposed. The Board believes that
issuers may need flexibility to change
the order of the disclosures or the
headings for the row provided in the
table, such as to accommodate
differences in account terms that may be
offered on products and different
terminology used by the issuer to
describe those account terms. In
addition, as discussed elsewhere in the
section-by-section analysis to Appendix
G, the Board is permitting creditors in
some circumstances to combine rows for
APRs or fees, when the amount of the
fee or rate is the same for two or more
types of transactions. The Board
believes that the ‘‘substantially similar’’
standard is sufficient to ensure
uniformity of the tables used by
different issuers.
In response to the June 2007 Proposal,
several commenters suggested changes
to the formatting of the proposed model
and sample forms in Appendix G–10 to

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part 226. These comments are discussed
in the section-by-section analysis to
Appendix G.
Fees for late payment, over-the-limit,
balance transfers and cash advances.
Currently, § 226.5a(a)(2)(ii) and
comment 5a(a)(2)–5, which implement
TILA Section 127(c)(1)(B), provide that
card issuers may disclose late-payment
fees, over-the-limit fees, balance transfer
fees, and cash advance fees in the table
or outside the table. 15 U.S.C.
1637(c)(1)(B).
In the June 2007 Proposal, the Board
proposed to amend § 226.5a(a)(2)(i) to
require that these fees be disclosed in
the table. In addition, the Board
proposed to delete current
§ 226.5a(a)(2)(ii) and comment 5a(a)(2)–
5, which currently allow issuers to place
the fees outside the table.
The Board adopts § 226.5a(a)(2)(i) and
deletes current § 226.5a(a)(2)(ii) and
comment 5a(a)(2)–5 as proposed. The
final rule amends § 226.5a(a)(2)(i) to
require these fees to be disclosed in the
table, so that consumers can easily
identify them. In the consumer testing
conducted for the Board prior to the
June 2007 Proposal, participants
consistently identified these fees as
among the most important pieces of
information they consider as part of the
credit card offer. With respect to the
disclosure of these fees, the Board tested
placement of these fees in the table and
immediately below the table.
Participants who were shown forms
where the fees were disclosed below the
table tended not to notice these fees
compared to participants who were
shown forms where the fees were
presented in the table. These final
revisions are adopted in part pursuant
to TILA Section 127(c)(5), which
authorizes the Board to add or modify
§ 226.5a disclosures as necessary to
carry out the purposes of TILA. 15
U.S.C. 1637(c)(5).
Highlighting APRs and fee amounts in
the table. Section 226.5a generally
requires that certain information about
rates and fees applicable to the card
offer be disclosed to the consumer in
card applications and solicitations. This
information includes not only the APRs
and fee amounts that will apply, but
also explanatory information that gives
context to these figures. The Board seeks
to enable consumers to identify easily
the rates and fees disclosed in the table.
Thus, in the June 2007 Proposal, the
Board proposed to add § 226.5a(a)(2)(iv)
to require that when a tabular format is
required, issuers must disclose in bold
text any APRs required to be disclosed,
any discounted initial rate permitted to
be disclosed, and most fee amounts or
percentages required to be disclosed.

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The Board also proposed to add
comment 5a(a)(2)–5 to explain that
proposed Samples G–10(B) and G–10(C)
provide guidance on how to show the
rates and fees described in bold text. In
addition, proposed comment 5a(a)(2)–5
also would have explained that
proposed Samples G–10(B) and G–10(C)
provide guidance to issuers on how to
disclose the percentages and fees
described above in a clear and
conspicuous manner, by including these
percentages and fees generally as the
first text in the applicable rows of the
table so that the highlighted rates and
fees generally are aligned vertically. In
consumer testing conducted for the
Board prior to the June 2007 Proposal,
participants who saw a table with the
APRs and fees in bold and generally
before any text in the table were more
likely to identify the APRs and fees
quickly and accurately than participants
who saw other forms in which the APRs
and fees were not highlighted in such a
fashion.
The final rule adopts § 226.5a(a)(2)(iv)
and comment 5a(a)(2)–5 with several
technical revisions. Section
226.5a(a)(2)(iv) is amended to provide
that maximum limits on fee amounts
disclosed in the table that do not relate
to fees that vary by state must not be
disclosed in bold text. Comment
5a(a)(2)–5 provides guidance on when
maximum limits must be disclosed in
bold text. For example, assume an issuer
will charge a cash advance fee of $5 or
3 percent of the cash advance
transaction amount, whichever is
greater, but the fee will not exceed $100.
The maximum limit of $100 for the cash
advance fee must not be highlighted in
bold text. In contrast, assume that the
amount of the late fee varies by state,
and the range of amount of late fees
disclosed is $15–$25. In this case, the
maximum limit of $25 on the late fee
amount must be highlighted in bold
text. In both cases, the minimum fee
amount (e.g., $5 or $15) must be
disclosed in bold text.
Comment 5a(a)(2)–5 also provides
guidance on highlighting periodic fees.
Section 226.5a(a)(2)(iv) provides that
any periodic fee disclosed pursuant to
§ 226.5a(b)(2) that is not an annualized
amount must not be disclosed in bold.
For example, if an issuer imposes a $10
monthly maintenance fee for a card
account, the issuer must disclose in the
table that there is a $10 monthly
maintenance fee, and that the fee is
$120 on an annual basis. In this
example, the $10 fee disclosure would
not be disclosed in bold, but the $120
annualized amount must be disclosed in
bold. In addition, if an issuer must
disclose any annual fee in the table, the

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amount of the annual fee must be
disclosed in bold.
Section 226.5a(a)(2)(iv) is amended to
refer to discounted initial rates as
‘‘introductory’’ rates, as that term is
defined in § 226.16(g)(2)(ii), for
consistency, and to clarify that
introductory rates that are disclosed in
the table under new § 226.5a(b)(1)(vii)
must be in bold text. Similarly, rates
that apply after a premium initial rate
expires that are disclosed in the table
must also be in bold text.
Electronic applications and
solicitations. Section 1304 of the
Bankruptcy Act amends TILA Section
127(c) to require solicitations to open a
card account using the Internet or other
interactive computer service to contain
the same disclosures as those made for
applications or solicitations sent by
direct mail. Regarding format, the
Bankruptcy Act specifies that
disclosures provided using the Internet
or other interactive computer service
must be ‘‘readily accessible to
consumers in close proximity’’ to the
solicitation. 15 U.S.C. 1637(c)(7).
In September 2000, the Board revised
§ 226.5a, and as part of these revisions,
provided guidance on how card issuers
using electronic disclosures may
comply with the § 226.5a requirement
that certain disclosures be ‘‘prominently
located’’ on or with the application or
solicitation. 65 FR 58903, Oct. 3, 2000.
In March 2001, the Board issued interim
final rules containing additional
guidance for the electronic delivery of
disclosures under Regulation Z. 66 FR
17329, Mar. 30, 2001. In November
2007, the Board adopted the November
2007 Final Electronic Disclosure Rule,
which withdrew portions of the 2001
interim final rules and issued final rules
containing additional guidance for the
electronic delivery of disclosures under
Regulation Z. 72 FR 63462, Nov. 9,
2007; 72 FR 71058, Dec. 14, 2007.
The Bankruptcy Act provision applies
to solicitations to open a card account
‘‘using the Internet or other interactive
computer service.’’ The term ‘‘Internet’’
is defined as the international computer
network of both Federal and nonFederal interoperable packet-switched
data networks. The term ‘‘interactive
computer service’’ is defined as any
information service, system or access
software provider that provides or
enables computer access by multiple
users to a computer server, including
specifically a service or system that
provides access to the Internet and such
systems operated or services offered by
libraries or educational institutions. 15
U.S.C. 1637(c)(7). Based on the
definitions of ‘‘Internet’’ and
‘‘interactive computer service,’’ the

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Board believes that Congress intended
to cover all card offers that are provided
to consumers in electronic form, such as
via e-mail or a Web site.
In addition, although this Bankruptcy
Act provision refers to credit card
solicitations (where no application is
required), in the June 2007 Proposal, the
Board proposed to apply the Bankruptcy
Act provision relating to electronic
offers to both electronic solicitations
and applications pursuant to the Board’s
authority under TILA Section 105(a) to
make adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1601(a), 1604(a). Specifically, the
Board proposed to amend § 226.5a(c) to
require that applications and
solicitations that are provided in
electronic form contain the same
disclosures as applications and
solicitations sent by direct mail. With
respect to both electronic applications
and solicitations, it is important for
consumers who are shopping for credit
to receive accurate cost information
before submitting an electronic
application or responding to an
electronic solicitation. The final rule
adopts this change to § 226.5a(c), as
proposed.
With respect to the form of
disclosures required under § 226.5a, in
the June 2007 Proposal, the Board
proposed to amend § 226.5a(a)(2) by
adding a new paragraph (v) to provide
that if a consumer accesses an
application or solicitation for a credit
card in electronic form, the disclosures
required on or with an application or
solicitation for a credit card must be
provided to the consumer in electronic
form on or with the application or
solicitation. The Board also proposed to
add comment 5a(a)(2)–6 to clarify this
point and also to make clear that if a
consumer is provided with a paper
application or solicitation, the required
disclosures must be provided in paper
form on or with the application or
solicitation (and not, for example, by
including a reference in the paper
application or solicitation to the Web
site where the disclosures are located).
In the November 2007 Final
Electronic Disclosure Rule, the Board
adopted the proposed changes to
§ 226.5a(a)(2)(v) and comment 5a(a)(2)–
6 with several revisions. 72 FR 63462,
Nov. 9, 2007; 72 FR 71058, Dec. 14,
2007. In the November 2007 Final
Electronic Disclosure Rule, the guidance
in proposed comment 5a(a)(2)–6 was
contained in comment 5a(a)(2)–9. In this
final rule, the guidance in comment
5a(a)(2)–9 added by the November 2007
Final Electronic Disclosure Rule is
moved to comment 5a(a)(2)–6.

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In the June 2007 Proposal, the Board
also proposed to revise existing
comment 5a(a)(2)–8 added by the 2001
interim final rule on electronic
disclosures, which states that a
consumer must be able to access the
electronic disclosures at the time the
application form or solicitation reply
form is made available by electronic
communication. The Board proposed to
revise this comment to describe
alternative methods for presenting
electronic disclosures. This comment
was intended to provide examples of the
methods rather than an exhaustive list.
In the November 2007 Final Electronic
Disclosure Rule, the Board adopted the
proposed changes to comment 5a(a)(2)–
8 with several revisions. 72 FR 63462,
Nov. 9, 2007; 72 FR 71058, Dec. 14,
2007.
In the June 2007 Proposal, the Board
proposed to incorporate the ‘‘close
proximity’’ standard for electronic
applications and solicitations in
§ 226.5a(a)(2)(vi)(B), and the guidance
regarding the location of the § 226.5a
disclosures in electronic applications
and solicitations in comment 5a(a)(2)–
1.ii. This guidance, contained in
proposed comment 5a(a)(2)–1.ii, was
consistent with proposed changes to
comment 5a(a)(2)–8, that provides
guidance to issuers on providing access
to electronic disclosures at the time the
application form or solicitation reply
form is made available in electronic
form.
The final rule adopts
§ 226.5a(a)(2)(vi)(B) and comment
5a(a)(2)–1.ii as proposed, with several
revisions. Specifically, comment
5a(a)(2)–1.ii is revised to be consistent
with the revisions to comment 5a(a)(2)–
8 made in the November 2007 Final
Electronic Disclosure Rule. Comment
5a(a)(2)–1.ii provides that if the table
required by § 226.5a is provided
electronically, the table must be
provided in close proximity to the
application or solicitation. Card issuers
have flexibility in satisfying this
requirement. Methods card issuers
could use to satisfy the requirement
include, but are not limited to, the
following examples: (1) The disclosures
could automatically appear on the
screen when the application or reply
form appears; (2) the disclosures could
be located on the same Web page as the
application or reply form (whether or
not they appear on the initial screen), if
the application or reply form contains a
clear and conspicuous reference to the
location of the disclosures and indicates
that the disclosures contain rate, fee,
and other cost information, as
applicable; (3) card issuers could
provide a link to the electronic

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disclosures on or with the application
(or reply form) as long as consumers
cannot bypass the disclosures before
submitting the application or reply
form. The link would take the consumer
to the disclosures, but the consumer
need not be required to scroll
completely through the disclosures; or
(4) the disclosures could be located on
the same Web page as the application or
reply form without necessarily
appearing on the initial screen,
immediately preceding the button that
the consumer will click to submit the
application or reply. Whatever method
is used, a card issuer need not confirm
that the consumer has read the
disclosures. Comment 5a(a)(2)–8 is
deleted as unnecessary.
As discussed in the June 2007
Proposal, the Board believes that the
‘‘close proximity’’ standard is designed
to ensure that the disclosures are easily
noticeable to consumers, and this
standard is not met when consumers are
only given a link to the disclosures on
the Web page containing the application
(or reply form), but not the disclosures
themselves. Thus, the Board retains the
requirement that if an electronic link to
the disclosures is used, the consumer
must not be able to bypass the link
before submitting an application or a
reply form.
Terminology. Section 226.5a currently
requires terminology in describing the
disclosures required by § 226.5a to be
consistent with terminology used in the
account-opening disclosures (§ 226.6)
and the periodic statement disclosures
(§ 226.7). TILA and § 226.5a also require
that the term ‘‘grace period’’ be used to
describe the date by which or the period
within which any credit extended for
purchases may be repaid without
incurring a finance charge. 15 U.S.C.
1632(c)(2)(C). In the June 2007 Proposal,
the Board proposed that all guidance for
terminology requirements for § 226.5a
disclosures be placed in proposed
§ 226.5(a)(2)(iii). See section-by-section
analysis to § 226.5(a)(2). The Board also
proposed to add comment 5a(a)(2)–7 to
cross reference the guidance in
§ 226.5(a)(2). The Board adopts
comment 5a(a)(2)–7 as proposed.
5a(a)(4) Fees That Vary by State
Currently, under § 226.5a, if the
amount of a late-payment fee, over-thelimit fee, cash advance fee or balance
transfer fee varies by state, a card issuer
may either disclose in the table (1) the
amount of the fee for all states; or (2) a
range of fees and a statement that the
amount of the fee varies by state. See
current § 226.5a(a)(5), renumbered as
proposed § 226.5a(a)(4); see also TILA
Section 127(f). As discussed below, in

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the June 2007 Proposal, the Board
proposed to require card issuers to
disclose in the table any fee imposed
when a payment is returned. See
proposed § 226.5a(b)(12). The Board
proposed to amend new § 226.5a(a)(4) to
add returned-payment fees to the list of
fees for which an issuer may disclose a
range of fees.
The final rule adopts proposed
§ 226.5a(a)(4) with several
modifications. The Board is revising
proposed § 226.5a(a)(4) to provide that
card issuers that impose a late-payment
fee, over-the-limit fee, cash advance fee,
balance transfer fee or returned-payment
fee where the amount of those fees vary
by state may, at the issuer’s option,
disclose in the table required by
§ 226.5a either (1) the specific fee
applicable to the consumer’s account, or
(2) the range of the fees, if the disclosure
includes a statement that the amount of
the fee varies by state and refers the
consumer to a disclosure provided with
the § 226.5a table where the amount of
the fee applicable to the consumer’s
account is disclosed, for example in a
list of fees for all states. Listing fees for
multiple states in the table is not
permissible. For example, a card issuer
may not list fees for all states in the
table. Similarly, a card issuer that does
business in six states may not list fees
for all six of those states in the table.
(Conforming changes are also made to
comment 5a(a)(4)–1.)
As discussed in the section-by-section
analysis to § 226.6(b)(1)(iii), the Board is
adopting a similar rule for accountopening disclosures, with one notable
exception discussed below. In general, a
creditor must disclose the fee applicable
to the consumer’s account; listing all
fees for all states in the account-opening
summary table is not permissible. The
Board is concerned in each case that an
approach of listing all fees for all states
would detract from the purpose of the
table: to provide key information in a
simplified way.
One difference between the fee
disclosure requirement in § 226.5a(a)(4)
and the similar requirement in
§ 226.6(b)(1)(iii) is that § 226.6(b)(1)(iii)
limits use of the range of fees to pointof-sale situations while § 226.5a
contains no similar limitation. As
discussed further in the section-bysection analysis to § 226.6(b)(1)(iii), for
creditors with retail stores in a number
of states, it is not practicable to require
fee-specific disclosures to be provided
when an open-end (not home-secured)
plan is established in person in
connection with the purchase of goods
or services. Thus, the final rule in
§ 226.6(b)(1)(iii) provides that creditors
imposing fees such as late-payment fees

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or returned-payment fees that vary by
state and providing the disclosures
required by § 226.6(b) in person at the
time the open-end (not home-secured)
plan is established in connection with
financing the purchase of goods or
services may, at the creditor’s option,
disclose in the account-opening table
either (1) the specific fee applicable to
the consumer’s account, or (2) the range
of the fees, if the disclosure includes a
statement that the amount of the fee
varies by state and refers the consumer
to the account agreement or other
disclosure provided with the accountopening summary table where the
amount of the fee applicable to the
consumer’s account is disclosed.
As with the account-opening table,
the Board is concerned that including
all fees for all states in the table required
by § 226.5a would detract from the
purpose of the table: to provide key
information in a simplified way.
Nonetheless, unlike with the accountopening table, the final rule does not
limit the use of the range of fees for the
table required by § 226.5a only to pointof-sale situations. With respect to the
application and solicitation disclosures,
there may be many situations in which
it is impractical to provide the feespecific disclosures with the application
or solicitation, such as when the
application is provided on the Internet
or in ‘‘take-one’’ materials. For Internet
or ‘‘take-one’’ applications or
solicitations, a creditor will in most
cases not be aware in which state the
consumer resides and, consequently,
will not be able to determine the
amount of fees that would be charged to
that consumer under applicable state
law. The changes to § 226.5a(a)(4) are
adopted in part pursuant to TILA
Section 127(c)(5), which authorizes the
Board to add or modify § 226.5a
disclosures as necessary to carry out the
purposes of TILA. 15 U.S.C. 1637(c)(5).
5a(a)(5) Exceptions

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Section 226.5a currently contains
several exceptions to the disclosure
requirements. Some of these exceptions
are in the regulation itself, while others
are contained in the commentary. For
clarity, in the June 2007 Proposal, the
Board proposed to place all exceptions
in new § 226.5a(a)(5). The final rule
adopts new § 226.5a(a)(5) as proposed.
5a(b) Required Disclosures
Section 226.5a(b) specifies the
disclosures that are required to be
included on or with certain credit card
applications and solicitations.

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5a(b)(1) Annual Percentage Rate
Section 226.5a requires card issuers to
disclose the rates applicable to the
account, for purchases, cash advances,
and balance transfers. 15 U.S.C.
1637(c)(1)(A)(i)(I).
16-point font for disclosure of
purchase APRs. Currently, under
§ 226.5a(b)(1), the purchase rate must be
disclosed in the table in at least 18-point
font. This font requirement does not
apply to (1) a temporary initial rate for
purchases that is lower than the rate
that will apply after the temporary rate
expires; or (2) a penalty rate that will
apply upon the occurrence of one or
more specified events. In the June 2007
Proposal, the Board proposed to amend
§ 226.5a(b)(1) to reduce the 18-point
font requirement to a 16-point font.
Commenters generally did not object to
the proposal to reduce the font size for
the purchase APR. Several consumer
groups suggested that the Board
explicitly prohibit issuers from
disclosing any discounted initial rate in
16-point font.
The final rule adopts the 16-point font
requirement in § 226.5a(b)(1) as
proposed, with several revisions as
described below. The purchase rate is
one of the most important terms
disclosed in the table, and it is essential
that consumers be able to identify that
rate easily. A 16-point font size
requirement for the purchase APR
appears to be sufficient to highlight the
purchase APR. In consumer testing
conducted for the Board prior to June
2007, versions of the table in which the
purchase rate was the same font as other
rates included in the table were
reviewed. In other versions, the
purchase rate was in 16-point type
while other disclosures were in 10-point
type. Participants tended to notice the
purchase rate more often when it was in
a font larger than the font used for other
rates. Nonetheless, there was no
evidence from consumer testing that it
was necessary to use a font size of 18point in order for the purchase APR to
be noticeable to participants. Given that
the Board is requiring a minimum of 10point type for the disclosure of other
terms in the table, based on document
design principles, the Board believes
that a 16-point font size for the purchase
APR is effective in highlighting the
purchase APR in the table.
The final rule requires that
discounted initial rates for purchases
must be in 16-point font. Section
226.5a(b)(1), as proposed, did not
specifically prohibit disclosing any
discounted initial rate in 16-point font
but did not require such formatting.
New § 226.5a(b)(1)(vii), discussed

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below, requires disclosure of the
discounted initial rate in the table for
issuers subject to final rules issued by
the Board and other federal banking
agencies published elsewhere in today’s
Federal Register. As a result, the Board
believes that all rates that could apply
to a purchase balance, other than a
penalty rate, should be highlighted in
16-point font. For the same reasons,
§ 226.5a(b)(1)(iii) also has been
amended to clarify that both the
premium initial rate for purchases and
any rate that applies after the premium
initial rate for purchases expires must
be disclosed in 16-point font.
The final rule in § 226.5a(b)(1) has
also been revised to refer to discounted
initial rates as ‘‘introductory’’ rates, as
that term is defined in § 226.16(g)(2)(ii),
for consistency.
Periodic rate. Currently, comment
5a(b)(1)–1 allows card issuers to
disclose the periodic rate in the table in
addition to the required disclosure of
the corresponding APR. In the June
2007 Proposal, the Board proposed to
delete comment 5a(b)(1)–1, and thus,
prohibit disclosure of the periodic rate
in the table. Based on consumer testing
conducted for the Board prior to June
2007, consumers do not appear to shop
using the periodic rate, nor is it clear
that this information is important to
understanding a credit card offer.
Allowing the periodic rate to be
disclosed in the table may distract from
more important information in the table,
and contribute to ‘‘information
overload.’’ In an effort to streamline the
information that appears in the table,
the Board proposed to prohibit
disclosure of the periodic rate in the
table. Commenters generally did not
oppose the Board’s proposal to prohibit
disclosure of the periodic rate in the
table. Thus, the Board is deleting
current comment 5a(b)(1)–1 as
proposed. In addition, new comment
5a(b)(1)–8 is added to state that periodic
rates must not be disclosed in the table.
The Board notes that card issuers may
disclose the periodic rate outside of the
table. See § 226.5a(a)(2)(ii).
Variable rate information. Section
226.5a(b)(1)(i), which implements TILA
Section 127(c)(1)(A)(i)(II), currently
requires for variable-rate accounts, that
the card issuer must disclose the fact
that the rate may vary and how the rate
is determined. 15 U.S.C.
1637(c)(1)(A)(i)(II). Under current
comment 5a(b)(1)–4, in disclosing how
the applicable rate will be determined,
the card issuer is required to provide the
index or formula used and disclose any
margin or spread added to the index or
formula in setting the rate. The card
issuer may disclose the margin or

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spread as a range of the highest and
lowest margins that may be applicable
to the account. A disclosure of any
applicable limitations on rate increases
or decreases may also be included in the
table.
1. Index and margins. Currently, the
variable rate information is required to
be disclosed separately from the
applicable APR, in a row of the table
with the heading ‘‘Variable Rate
Information.’’ Some card issuers include
the phrase ‘‘variable rate’’ with the
disclosure of the applicable APR and
include the details about the index and
margin under the ‘‘Variable Rate
Information’’ heading. In the consumer
testing conducted for the Board prior to
the June 2007 Proposal, many
participants who saw the variable rate
information as described above
understood that the label ‘‘variable’’
meant that a rate could change, but
could not locate information on the
tested form regarding how or why these
rates could change. This was true even
if the index and margin information was
taken out of the row of the table with
the heading ‘‘Variable Rate Information’’
and placed in a footnote to the phrase
‘‘variable rate.’’ Many participants who
did find the variable rate information
were confused by the variable-rate
margins, often interpreting them
erroneously as the actual rate being
charged. In addition, very few
participants indicated that they would
use the margins in shopping for a credit
card account.
Accordingly, in the June 2007
Proposal, the Board proposed to amend
§ 226.5a(b)(1)(i) to specify that issuers
may not disclose the amount of the
index or margins in the table.
Specifically, card issuers would not
have been allowed to disclose in the
table the current value of the index (for
example, that the prime rate currently is
7.5 percent) or the amount of the margin
that is used to calculate the variable
rate. Card issuers would have been
allowed to indicate only that the rate
varies and the type of index used to
determine the rate (such as the ‘‘prime
rate,’’ for example). In describing the
type of index, the issuer would have
been precluded from including details
about the index in the table. For
example, if the issuer uses a prime rate,
the issuer would have been allowed to
describe the rate as tied to a ‘‘prime
rate’’ and would not have been allowed
to disclose in the table that the prime
rate used is the highest prime rate
published in the Wall Street Journal two
business days before the closing date of
the statement for each billing period.
See proposed comment 5a(b)(1)–2. Also,
the proposal would have required that

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the disclosure about a variable rate (the
fact that the rate varies and the type of
index used to determine the rate) must
be disclosed with the applicable APRs,
so that consumers can more easily
locate this information. See proposed
Model Form G–10(A), Samples G–10(B)
and G–10(C). Proposed Samples G–
10(B) and G–10(C) would have provided
guidance to issuers on how to disclose
the fact that the applicable rate varies
and how it is determined.
Commenters generally supported the
Board’s proposal to amend
§ 226.5a(b)(1)(i) to specify that issuers
may not disclose the amount of the
index or margins in the table. Several
commenters asked the Board to clarify
that issuers may include the index and
margin outside of the table, given that
some consumers are interested in
knowing the index and margin. One
commenter suggested that issuers be
allowed to disclose in the table
additional information about the index
used, such as the publication source of
the index used to calculate the rate
(e.g.,. describing that the prime rate
used is the highest prime rate published
in the Wall Street Journal two business
days before the closing date of the
statement for each billing period.) One
commenter suggested that issuers be
allowed to refer to an index as a ‘‘prime
rate’’ only if it is a bank prime loan rate
posted by the majority of the top 25 U.S.
chartered commercial banks, as
published by the Board.
The final rule amends § 226.5a(b)(1)(i)
as proposed to specify that issuers may
not disclose the amount of the index or
margins in the table. Section
226.5a(b)(1)(i) is not amended to allow
issuers to disclose in the table
additional information about the index
used, such as the publication source of
the index. See comment 5a(b)(1)–2. The
Board is concerned that allowing such
information in the table could
contribute to ‘‘information overload’’ for
consumers, and may distract from more
important information in the table. The
Board notes that additional information
about the variable rate, such as the
amount of the index and margins and
the publication source of the index used
to calculate the rate, may be included
outside of the table. See
§ 226.5a(a)(2)(ii).
In addition, the Board did not amend
the rule to provide that issuers only be
allowed to refer to an index as a ‘‘prime
rate’’ if it is a bank prime loan rate
posted by the majority of the top 25 U.S.
chartered commercial banks, as
published by the Board. The Board
believes that this rule is unnecessary at
this time. Credit card issuers typically
use a prime rate that is published in the

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Wall Street Journal, where that
published prime rate is based on prime
rates offered by the 30 largest U.S.
banks, and is a widely accepted measure
of prime rate.
2. Rate floors and ceilings. Currently,
card issuers may disclose in the table,
at their option, any limitations on how
high (i.e.,. a rate ceiling) or low (i.e., a
rate floor) a particular rate may go. For
example, assume that the purchase rate
on an account could not go below 12
percent or above 24 percent. An issuer
would be required to disclose in the
table the current rate offered on the
credit card (for example, 18 percent),
but could also disclose in the table that
the rate would not go below 12 percent
and above 24 percent. See current
comment 5a(b)(1)–4. In the June 2007
Proposal, the Board proposed to revise
the commentary to prohibit the
disclosure of the rate floors and ceilings
in the table.
Several consumer group commenters
suggested that the Board require floors
and ceilings to be disclosed in the table
because such information has a
significant effect on consumers’
economic risk. Several industry
commenters suggested that the Board
permit (but not require) issuers to
include the floors and ceiling of the
variable rate in the table so that
consumers are aware of the potential
variations in the rate. Section
226.5a(b)(1)(i) is revised to prohibit
explicitly the disclosure of the rate
floors and ceilings in the table, as
proposed. See also comment 5a(b)(1)–2.
Based on consumer testing conducted
for the Board prior to June 2007 and in
March 2008, consumers do not appear
to shop based on these rate floors and
ceilings, and allowing them to be
disclosed in the table may distract from
more important information in the table,
and contribute to ‘‘information
overload.’’ Card issuers may, however,
disclose this information outside of the
table. See § 226.5a(a)(2)(ii).
Discounted initial rates. Currently,
comment 5a(b)(1)–5 specifies that if the
initial rate is temporary and is lower
than the rate that will apply after the
temporary rate expires, a card issuer
must disclose the rate that will
otherwise apply to the account. A
discounted initial rate may be provided
in the table along with the rate required
to be disclosed if the card issuer also
discloses the time period during which
the discounted initial rate will remain
in effect. In the June 2007 Proposal, the
Board proposed to move comment
5a(b)(1)–5 to new § 226.5a(b)(1)(ii). The
Board also proposed to add new
comment 5a(b)(1)–3 to specify that if a
card issuer discloses the discounted

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initial rate and expiration date in the
table, the issuer is deemed to comply
with the standard to provide this
information clearly and conspicuously
if the issuer uses the format specified in
proposed Samples G–10(B) and G–
10(C).
In addition, under TILA Sections
127(c)(6)(A) and 127(c)(7), as added by
Sections 1303(a) and 1304 of the
Bankruptcy Act, the term
‘‘introductory’’ must be used in
immediate proximity to each listing of
a discounted initial rate in a direct mail
or electronic application or solicitation;
or promotional materials accompanying
such application or solicitation. In the
June 2007 Proposal, the Board proposed
to expand the requirement to other
applications or solicitations where a
table under § 226.5a is given, to promote
the informed use of credit by
consumers, pursuant to the Board’s
authority under TILA Section 105(a) to
make adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1604(a). Thus, the Board
proposed to add new § 226.5a(b)(1)(ii) to
specify that if an issuer provides a
discounted initial rate in the table along
with the rate required to be disclosed,
the card issuer must use the term
‘‘introductory’’ in immediate proximity
to the listing of the initial discounted
rate. Because ‘‘intro’’ is a commonly
understood abbreviation of the term
‘‘introductory,’’ and consumer testing
indicates that consumers understand
this term, the Board proposed to allow
creditors to use ‘‘intro’’ as an alternative
to the requirement to use the term
‘‘introductory’’ and proposed to clarify
this approach in new § 226.5a(b)(1)(ii).
Also, to give card issuers guidance on
the meaning of ‘‘immediate proximity,’’
the Board proposed to provide a safe
harbor for card issuers that place the
word ‘‘introductory’’ or ‘‘intro’’ within
the same phrase as each listing of the
discounted initial rate. This guidance
was set forth in proposed comment
5a(b)(1)–3.
The Board adopts new
§ 226.5a(b)(1)(ii) and comment 5a(b)(1)–
3, as proposed, with several
modifications. Discounted initial rates
are referred to as ‘‘introductory’’ rates,
as that term is defined in
§ 226.16(g)(2)(ii), for consistency. In
addition, as discussed below with
respect to disclosing penalty rates, an
issuer is required to disclose directly
beneath the table the circumstances
under which any discounted initial rate
may be revoked and the rate that will
apply after the discounted initial rate is
revoked, if the issuer discloses the
discounted initial rate in the table or in
any written or electronic promotional

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materials accompanying a direct mail,
electronic or take-one application or
solicitation. See § 226.5a(b)(1)(iv)(B).
Comment 5a(b)(1)–3 has been
amended to provide additional
clarifications on discounted initial rates.
Comment 5a(b)(1)–3.ii. has been added
to clarify that an issuer’s reservation of
the right to change a rate after account
opening, subject to the requirements of
§ 226.9(c), does not by itself make that
rate an introductory rate, even if the
issuer subsequently increases the rate
after providing a change-in-terms notice.
The comment notes, however, that
issuers subject to the final rules issued
by the Board and other federal banking
agencies published elsewhere in today’s
Federal Register are subject to
limitations on such rate increases. In
addition, comment 5a(b)(1)–3.iii. has
been added to clarify that if more than
one introductory rate may apply to a
particular balance in succeeding
periods, the term ‘‘introductory’’ need
only be used to describe the first
introductory rate.
Section 226.5a(b)(1)(ii) in the final
rule has been revised, and a new
§ 226.5a(b)(1)(vii) has been added as
discussed below, to provide that certain
issuers must disclose any introductory
rate applicable to the account in the
table. Creditors that are subject to the
final rules issued by the Board and other
federal banking agencies published
elsewhere in today’s Federal Register
are required to state at account opening
the annual percentage rates that will
apply to each category of transactions
on a consumer credit card account, and
generally may not increase those rates,
except as expressly permitted pursuant
to those rules. This requirement is
intended, among other things, to
promote fairness in the pricing of
consumer credit card accounts by
enabling consumers to rely on the rates
disclosed at account opening for at least
the first year that an account is open.
Consistent with those final rules, for
such issuers, the Board believes that
disclosure of introductory rates should
be as prominent as other rates disclosed
in the tabular summary given at account
opening. Therefore, as discussed in the
section-by-section analysis to
§ 226.6(b)(2)(i), the Board is requiring
that a creditor subject to those rules
must disclose any introductory rate in
the account-opening table provided
pursuant to § 226.6.
For consistency, the Board also is
requiring in the final rule that such
issuers also disclose any introductory
rate in the table provided with
applications and solicitations. The
Board believes that this will promote
consistency throughout the life of an

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account and will enable consumers to
better compare the terms that the
consumer receives at account opening
with the terms that were offered. Thus,
§ 226.5a(b)(1)(vii) has been added to the
final rule to clarify that an issuer subject
to 12 CFR 227.24 or similar law must
disclose in the tabular disclosures given
pursuant to § 226.5a any introductory
rate that will apply to a consumer’s
account. The Board believes that it is
important that any issuer required to
disclose an introductory rate applicable
to a consumer’s account highlights that
introductory rate or rates by disclosing
it in the § 226.5a table.
Similarly, and for the same reasons
stated above, § 226.5a(b)(1)(vii) also
requires that card issuers subject to the
final rules issued by the Board and other
federal banking agencies published
elsewhere in today’s Federal Register
disclose in the table any rate that will
apply after a premium initial rate (as
described in § 226.5a(b)(1)(iii)) expires.
A conforming change has been made to
§ 226.5a(b)(1)(iii). Consistent with
comment 5a(b)(1)–3.ii., discussed above,
a new comment 5a(b)(1)–4 has been
added to the final rule to clarify that an
issuer’s reservation of the right to
change rates after account-opening does
not by itself make an initial rate a
premium initial rate, even if the issuer
subsequently decreases the rate. The
comment notes, however, that issuers
subject to the final rules issued by the
Board and other federal banking
agencies published elsewhere in today’s
Federal Register may be subject to
limitations on rate decreases.
Penalty rates. Currently, comment
5a(b)(1)–7 requires that if a rate may
increase upon the occurrence of one or
more specific events, such as a late
payment or an extension of credit that
exceeds the credit limit, the card issuer
must disclose the increased penalty rate
that may apply and the specific event or
events that may result in the increased
rate. If a tabular format is required, the
issuer must disclose the penalty rate in
the table under the heading ‘‘Other
APRs,’’ along with any balance transfer
or cash advance rates.
Currently, the specific event or events
must be described outside the table with
a reference (an asterisk or other means)
included with the penalty APR in the
table to direct the consumer to the
additional information. At its option,
the issuer may include outside the table
an explanation of the period for which
the increased rate will remain in effect,
such as ‘‘until you make three timely
payments.’’ The issuer need not disclose
an increased rate that is imposed if
credit privileges are permanently
terminated.

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In the consumer testing conducted for
the Board prior to June 2007, when
reviewing forms in which the specific
events that trigger the penalty rate were
disclosed outside the table, many
participants did not readily notice the
penalty rate triggers when they initially
read through the document or when
asked follow-up questions. In addition,
many participants did not readily notice
the penalty rate when it was included
in the ‘‘Other APRs’’ row along with
other rates. The GAO also found that
consumers had difficulty identifying the
default rate and circumstances that
would trigger rate increases. See GAO
Report on Credit Card Rates and Fees,
at page 49. In the testing conducted for
the Board prior to June 2007, when the
penalty rate was placed in a separate
row in the table, participants tended to
notice the rate more often. Moreover,
participants tended to notice the
specific events that trigger the penalty
rate more often when these events were
included with the penalty rate in a
single row in the table. For example,
two types of forms related to placement
of the events that could trigger the
penalty rate were tested—several
versions showed the penalty rate in one
row of the table and the description of
the events that could trigger the penalty
rate in another row of the table. Several
other versions showed the penalty rate
and the triggering events in the same
row. Participants who saw the versions
of the table with the penalty rate in a
separate row from the description of the
triggering events tended to skip over the
row that specified the triggering events
when reading the table. In contrast,
participants who saw the versions of the
table in which the penalty rate and the
triggering events were in the same row
tended to notice the triggering events
when they reviewed the table.
As a result of this testing, in the June
2007 Proposal, the Board proposed to
add § 226.5a(b)(1)(iv) and amend new
comment 5a(b)(1)–4 (previously
comment 5a(b)(1)–7) to require card
issuers to briefly disclose in the table
the specific event or events that may
result in the imposition of a penalty
rate. In addition, the Board proposed
that the penalty rate and the specific
events that cause the penalty rate to be
imposed must be disclosed in the same
row of the table. See proposed Model
Form G–10(A). In describing the specific
event or events that may result in an
increased rate, the Board proposed to
amend new comment 5a(b)(1)–4 to
provide that the descriptions of the
triggering events in the table should be
brief. For example, if an issuer may
increase a rate to the penalty rate

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because the consumer does not make
the minimum payment by 5 p.m.,
Eastern time, on its payment due date,
the proposal would have indicated that
the issuer should describe this
circumstance in the table as ‘‘make a
late payment.’’ Proposed Samples G–
10(B) and G–10(C) would have provided
additional guidance on the level of
detail that issuers should use in
describing the specific events can trigger
the penalty rate.
The Board also proposed to specify in
new § 226.5a(b)(1)(iv) that in disclosing
a penalty rate, a card issuer also must
specify the balances to which the
increased rate will apply. This proposal
was based on the Board’s understanding
that, currently, card issuers typically
apply the increased rate to all balances
on the account. The Board believed that
this information would help consumers
better understand the consequences of
triggering the penalty rate.
In addition, the Board proposed to
specify in new § 226.5a(b)(1)(iv) that in
disclosing the penalty rate, a card issuer
must describe how long the increased
rate will apply. The Board proposed to
amend proposed comment 5a(b)(1)–4 to
provide that in describing how long the
increased rate will remain in effect, the
description should be brief, and referred
issuers to Samples G–10(B) and G–10(C)
for guidance on the level of detail that
issuer should use to describe how long
the increased rate will remain in effect.
Also, proposed comment 5a(b)(1)–4
would have provided that if a card
issuer reserves the right to apply the
increased rate indefinitely, that fact
should be stated. The Board stated its
belief that this information may help
consumers better understand the
consequences of triggering the penalty
rate.
Also, the Board proposed to add
language to new § 226.5a(b)(1)(iv) to
specify that in disclosing a penalty rate,
card issuers must include a brief
description of the circumstances under
which any discounted initial rates may
be revoked and the rate that will apply
after the discounted initial rate is
revoked. Sections 1303(a) and 1304 of
the Bankruptcy Act require that for a
direct mail or electronic credit card
application or solicitation, a clear and
conspicuous description of the
circumstances that may result in
revocation of a discounted initial rate
offered with the card and the rate that
will apply after the discounted initial
rate is revoked must be disclosed in a
prominent location on or with the
application or solicitation. 15 U.S.C.
1637(c)(6)(C). The Board proposed that
this information be disclosed in the
table along with other penalty rate

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information for all applications and
solicitations where a table under
§ 226.5a is given, to promote the
informed use of credit by consumers,
pursuant to the Board’s authority under
TILA Section 105(a) to make
adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1604(a).
In response to the June 2007 Proposal,
some consumer group commenters
requested that the Board delete the
statement that the card issuer need not
disclose the increased rate that would
be imposed if credit privileges are
permanently terminated. They viewed
this provision as inconsistent with the
Board’s other efforts to ensure that
consumers are aware of penalty rates.
They believed card issuers should be
required to disclose this information in
the table if the rate is different than the
penalty rate that otherwise applies.
In the May 2008 Proposal, the Board
proposed to delete the current provision
that an issuer need not disclose in the
table an increased rate that would be
imposed if credit privileges are
permanently terminated. Most
consumer groups and industry
commenters supported this aspect of the
proposal.
The final rule adopts new
§ 226.5a(b)(1)(iv) and comment 5a(b)(1)–
5 (proposed as comment 5a(b)(1)–4) as
proposed in the May 2008 Proposal with
several revisions. Section
226.5a(b)(1)(iv)(A) sets forth the
disclosures that are required when rates
that are not introductory rates may be
increased as a penalty for one or more
events specified in the account
agreement. The final rule specifies that
for rates that are not introductory rates,
if a rate may increase as a penalty for
one or more events specified in the
account agreement, such as a late
payment or an extension of credit that
exceeds the credit limit, the card issuer
must disclose the increased rate that
would apply, a brief description of the
event or events that may result in the
increased rate, and a brief description of
how long the increased rate will remain
in effect. Samples G–10(B) and G–10(C)
(in the row labeled ‘‘Penalty APR and
When it Applies’’) provide guidance to
card issuers on how to meet the
requirements in § 226.5a(b)(1)(iv)(A)
and accompanying comment 5a(b)(1)–5.
An issuer may use phrasing similar to
either Sample G–10(B) or G–10(C) to
disclose how long the increased rate
will remain in effect, modified as
appropriate to accurately reflect the
terms offered by that issuer.
The proposed requirement that
issuers must disclose a description of
the types of balances to which the

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increased penalty rate will apply is not
included in the final rule. When the
Board proposed this requirement in
June 2007, most issuers typically
applied the increased penalty rate to all
balances on the account. Nonetheless,
under final rules issued by the Board
and other federal banking agencies
published elsewhere in today’s Federal
Register, most credit card issuers are
precluded from applying an increased
rate to existing balances, except in
limited circumstances.15 In particular,
most issuers may not increase the
interest rate on existing credit card
balances to the penalty rate unless the
consumer is more than 30 days late on
the account. Because most issuers are
restricted from applying the increased
penalty rate to existing balances, except
in limited circumstances, the Board is
withdrawing the proposed requirement
to disclose in the table a description of
the types of balances to which the
increased penalty rate will apply.
Requiring issuers to explain in the table
the types of balances to which the
increased penalty rate will apply—such
as disclosing that the increased penalty
rate will apply to new transactions,
except if the consumer is more than 30
days late on the account, then the
increased penalty rate will apply to all
balances—could lead to ‘‘information
overload’’ for consumers. The Board
notes if a penalty rate is triggered on an
account, the issuer must provide the
consumer with a notice under § 226.9(g)
prior to the imposition of the penalty
rate, and this notice must include an
explanation of the balances to which the
increased penalty rate would apply.
Similarly, issuers that apply penalty
pricing only to some balances on the
account, specifically issuers subject to
the final rules issued by the Board and
other federal banking agencies
published elsewhere in today’s Federal
Register may not distinguish, in the
disclosures required by
§ 226.5a(b)(1)(iv), between the events
that may result in an increased rate for
one type of balances and the events that
may result in an increased rate for other
types of balances. Such issuers may
provide a consolidated list of the event
or events that may result in an increased
rate for any balance.
The Board has amended comment
5a(b)(1)–5.i. (proposed as comment
5a(b)(1)–4) to provide specific guidance
to issuers that are subject to the final
rules issued by the Board and other
federal banking agencies published
15 The final rules published elsewhere in today’s
Federal Register do not apply to all issuers, such
as state-chartered credit unions that are not subject
to the National Credit Union Administration’s final
rules.

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elsewhere in today’s Federal Register.
Such an issuer may have penalty rate
triggers that apply to new transactions
that differ from the penalty rate triggers
applicable to outstanding balances. For
example, an issuer might apply the
penalty rate to new transactions, subject
to the notice requirements in § 226.9(g),
based on a consumer making a payment
three days late, but may increase the
rate applicable to outstanding balances
only if the consumer pays more than 30
days late. Comment 5a(b)(1)–5.i., as
adopted, includes guidance stating that
if an issuer may increase a rate that
applies to a particular balance because
the account is more than 30 days late,
the issuer should describe this
circumstance in the table as ‘‘make a
late payment.’’ The comment has also
been amended to clarify that the issuer
may not distinguish between the events
that may result in an increased rate for
existing balances and the events that
may result in an increased rate for new
transactions.
In addition, as proposed in May 2008,
the final rule deletes the current
provision that an issuer need not
disclose an increased rate that would be
imposed if credit privileges were
permanently terminated.16 Thus, to the
extent an issuer is charging an increased
rate different from the penalty rate when
credit privileges are permanently
terminated, this different rate must be
disclosed along with the penalty rate.
The Board agrees with consumer group
commenters that requiring the
disclosure of the rate when credit
privileges are permanently terminated is
consistent with the Board’s efforts to
ensure that consumers are aware of the
potential for increased rates.
A commenter in response to the May
2008 Proposal asked for clarification of
the interplay between the requirement
to disclose an increased rate when
credit privileges are permanently
terminated and the restriction on
issuers’ ability to apply increased rates
to existing balances, proposed by the
Board and other federal banking
agencies. See 73 FR 28904, May 19,
2008. As discussed above, under final
rules issued by the Board and other
federal banking agencies published
elsewhere in today’s Federal Register,
most credit card issuers are precluded
from applying an increased rate to
existing balances, unless an exception
16 The Board notes that final rules published
elsewhere in today’s Federal Register would
generally prohibit increases in rates applicable to
outstanding balances, even if credit privileges have
been terminated. However, if the consumer’s
account is 30 days late, those rules would permit
a creditor to impose a rate increase on such
balances.

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applies, such as if the account is more
than 30 days late. Nonetheless, for
issuers subject to these restrictions,
there still are cases where an issuer
could impose on existing balances an
increased rate when credit privileges are
permanently terminated, for example
when the account is more than 30 days
late.
Section 226.5a(b)(1)(iv)(B) sets forth
the disclosures that are required when
discounted initial rates may be
increased as a penalty for one or more
events specified in the account
agreement. (In § 226.5a(b)(1)(iv)(B),
discounted initial rates are referred to as
‘‘introductory’’ rates, as that term is
defined in § 226.16(g)(2)(ii), for
consistency.) Specifically,
§ 226.5a(b)(1)(iv)(B) of the final rule
states that an issuer is required to
disclose directly beneath the table the
circumstances under which any
discounted initial rate may be revoked
and the rate that will apply after the
discounted initial rate is revoked only if
the issuer discloses the discounted
initial rate in the table, or in any written
or electronic promotional materials
accompanying a direct mail, electronic
or take-one application or solicitation.
As revised, this provision is consistent
with the Bankruptcy Act requirement
that a credit card application or
solicitation must clearly and
conspicuously disclose in a prominent
location on or with the application or
solicitation a general description of the
circumstances that may result in
revocation of a discounted initial rate
offered with the card. Therefore, to the
extent that an issuer is promoting the
discounted initial rate in the disclosure
table provided with the application or
solicitation or in the promotional
materials accompanying the application
or solicitation, the issuer must also
disclose directly beneath the table the
circumstances that may result in
revocation of the discounted initial rate,
and the rate that will apply after the
discounted initial rate is revoked.
Requiring issuers to disclose that
information directly beneath the table
will help consumers better understand
the terms under which the discounted
initial rate is being offered on the
account.
The final rule requires that the
circumstances under which a
discounted initial rate may be revoked
be disclosed directly beneath the table,
rather than in the table. Credit card
issuers subject to the final rules issued
by the Board and other federal banking
agencies published elsewhere in today’s
Federal Register will be prohibited from
increasing an introductory rate unless
the consumer’s account becomes more

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than 30 days late. Accordingly, for most
issuers subject to § 226.5a, the
disclosure provided under this
paragraph will be identical, because an
introductory rate may be increased only
if the account becomes more than 30
days late. As a result, the Board does not
believe that most consumers will use
the information about the revocation of
a discounted initial rate in shopping for
a credit card, since it will not vary from
product to product. Therefore, while
this information should be disclosed
clearly and conspicuously with the
table, the Board believes it should not
be included in the table, where it may
contribute to ‘‘information overload’’
and detract from the disclosure of other
terms that may be of more use to
consumers in shopping for credit.
Comment 5a(b)(1)–5 (proposed as
comment 5a(b)(1)–4) is restructured to
be consistent with new
§ 226.5a(b)(1)(iv). In addition, comment
5a(b)(1)–5.ii. is revised to clarify that the
information about revocation of a
discounted initial rate and the rate that
will apply after revocation must be
provided even if the rate that will apply
after the discounted initial rate is
revoked is the rate that would have
applied at the end of the promotional
period, and not a higher ‘‘penalty rate.’’
Also, comment 5a(b)(1)–5.ii. clarifies
that in describing the rate that will
apply after revocation of the discounted
initial rate, if the rate that will apply
after revocation of the discounted initial
rate is already disclosed in the table, the
issuer is not required to repeat the rate,
but may refer to that rate in a clear and
conspicuous manner. For example, if
the rate that will apply after revocation
of a discounted initial rate is the
standard rate that applies to that type of
transaction (such as a purchase or
balance transfer transaction), and the
standard rates are labeled in the table as
‘‘standard APRs,’’ the issuer may refer to
the ‘‘standard APR’’ when describing
the rate that will apply after revocation
of a discounted initial rate.
In addition, comment 5a(b)(1)–5.ii. is
revised to specify that the description of
the circumstances in which a
discounted initial rate could be revoked
should be brief. For example, if an
issuer may increase a discounted initial
rate because the consumer does not
make the minimum payment within 30
days of the due date, the issuer should
describe this circumstance directly
beneath the table as ‘‘make a late
payment.’’ In addition, if the
circumstances in which a discounted
initial rate could be revoked are already
listed elsewhere in the table, the issuer
is not required to repeat the
circumstances again, but may refer to

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those circumstances in a clear and
conspicuous manner. For example, if
the circumstances in which an initial
discounted rate could be revoked are the
same as the event or events that may
trigger a ‘‘penalty rate’’ as described in
§ 226.5a(b)(1)(iv)(A), the issuer may
refer to the actions listed in the Penalty
APR row, in describing the
circumstances in which the
introductory rate could be revoked.
Sample G–10(C) sets forth a disclosure
labeled ‘‘Loss of Introductory APR’’
directly below the table to provide
guidance to card issuers on how to meet
the requirements in § 226.5a(b)(1)(iv)(B)
and accompanying comment 5a(b)(1)–5.
Comment 5a(b)(1)–5.iii. also has been
included in the final rule to expressly
note that issuers subject to the final
rules issued by the Board and other
federal banking agencies published
elsewhere in today’s Federal Register
are prohibited by those rules from
increasing or revoking an introductory
rate prior to its expiration, unless the
account is more than 30 days late. The
comment gives guidance on how such
an issuer should comply with
§ 226.5a(b)(1)(iv)(B).
Rates that depend on consumers’
creditworthiness. Credit card issuers
often engage in risk-based pricing such
that the rates offered on a credit card
will depend on later determinations of
a consumer’s creditworthiness. For
example, an issuer may use information
collected in a consumer’s application or
solicitation reply form (e.g., income
information) or obtained through a
credit report from a consumer reporting
agency to determine the rate for which
a consumer qualifies. Issuers that use
risk-based pricing may not be able to
disclose the specific rate that would
apply to a consumer, because issuers
may not have sufficient information
about a consumer’s creditworthiness at
the time the application is given or
made available to the consumer.
In the June 2007 Proposal, the Board
proposed to add § 226.5(b)(1)(v) and
comment 5a(b)(1)–5 to address the
circumstances in which an issuer is not
required to state a single specific rate
being offered at the time disclosures are
given because the rate will depend on
a later determination of the consumer’s
creditworthiness. In this situation,
issuers would have been required to
disclose the possible rates that might
apply, and a statement that the rate for
which the consumer may qualify at
account opening depends on the
consumer’s creditworthiness. Under the
proposal, a card issuer would have been
allowed to disclose the possible rates as
either specific rates or a range of rates.
For example, if there are three possible

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rates that may apply (e.g., 9.99, 12.99 or
17.99 percent), an issuer would have
been allowed to disclose specific rates
(9.99, 12.99 or 17.99 percent) or a range
of rates (9.99 to 17.99 percent).
Proposed Samples G–10(B) and G–10(C)
would have provided guidance for
issuers on how to meet these
requirements. In addition, the Board
solicited comment on whether card
issuers should alternatively be
permitted to list only the highest
possible rate that may apply instead of
a range of rates (e.g., up to 17.99
percent).
In response to the June 2007 Proposal,
several consumer group commenters
suggested that the Board should not
allow issuers to disclose a range of
possible rates. Instead, issuers should be
required to disclose the actual APR that
the issuer is offering the consumer,
because otherwise, consumers do not
know the rate for which they are
applying. Industry commenters
generally supported the proposal
clarifying that issuers may disclose the
specific rates or range of possible rates,
with an explanation that the rate
obtained by the consumer is based on
the consumer’s creditworthiness.
Several commenters suggested that the
Board also allow issuers to disclose the
highest APR that may apply instead of
a range of rates, because they believed
that this approach might be less
confusing to consumers than seeing a
range of rates. For example, a consumer
may focus on the lowest rate in a range
and be surprised when the final rate is
higher than this lowest rate. Also, if the
highest rate was the only rate disclosed,
a consumer would not be upset by
obtaining a lower rate than the rate
initially disclosed. Other commenters
indicated that disclosing only the
highest APR should not be allowed,
because consumers may believe this
would be the APR that applied to them
even though the highest APR may apply
only to a small group of consumers
solicited.
In addition, one commenter indicated
that for some issuers, especially in the
private label market, the actual rate for
which a consumer qualifies may be
determined using multiple factors,
including the consumer’s
creditworthiness, whether the consumer
is contemplating a purchase with the
retailer named on the private label card,
and other factors.
The Board adopts § 226.5a(b)(1)(v)
and comment 5a(b)(1)–6 (proposed as
comment 5a(b)(1)–5) with several
revisions. Consistent with the proposal,
§ 226.5a(b)(1)(v) specifies that if a rate
cannot be determined at the time
disclosures are given because the rate

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depends at least in part on a later
determination of the consumer’s
creditworthiness, the card issuer must
disclose the specific rates or the range
of rates that could apply and a statement
that the rate for which the consumer
may qualify at account opening will
depend on the consumer’s
creditworthiness, and other factors if
applicable. Generally, issuers are not
allowed to disclose only the lowest rate,
the median rate or the highest rate that
could apply. See comment 5a(b)(1)–6
(proposed as comment 5a(b)(1)–5). The
Board believes that requiring card
issuers to disclose all the possible rates
(as either specific rates, or as a range of
rates) provides more useful information
to consumers than allowing issuers to
disclose only the lowest, median or
highest APR. If a consumer sees a range
or several specific rates, the consumer
may be better able to understand the
possible rates that may apply to the
account.
Nonetheless, if the rate is a penalty
rate, the card issuer at its option may
disclose the highest rate that could
apply, instead of disclosing the specific
rates or the range of rates that could
apply. See § 226.5a(b)(1)(v). With
respect to penalty rates, issuers may set
a highest rate for the penalty rate (such
as 28 percent) but may either decide not
to increase a consumer’s rates based on
a violation of a penalty rate trigger or
may impose a penalty rate that is less
than that highest rate, depending on
factors at the time the penalty rate is
imposed. It would be difficult for the
issuer to disclose a range of possible
rates for the penalty rate that is
meaningful because the issuer might
decide not to increase a consumer’s
rates based on a violation of a penalty
rate trigger. In the penalty rate context,
a range of possible penalty rates would
likely be more confusing to consumers
than only disclosing the highest penalty
rate.
Comment 5a(b)(1)–6 (proposed as
comment 5a(b)(1)–5) also is revised to
clarify that § 226.5a(b)(1)(v) applies
even if other factors are used in
combination with a consumer’s
creditworthiness to determine the rate
for which a consumer may qualify at
account opening. For example,
§ 226.5a(b)(1)(v) would apply if the
issuer considers the type of purchase
the consumer is making at the time the
consumer opens the account, in
combination with the consumer’s
creditworthiness, to determine the rate
for which the consumer may qualify at
account opening. If other factors are
considered, the issuer must amend the
statement about creditworthiness, to
indicate that the rate for which the

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consumer may qualify at account
opening will depend on the consumer’s
creditworthiness and other factors.
Nonetheless, if a consumer’s
creditworthiness is not one of the
factors that will determine the rate for
which the consumer may qualify at
account opening (for example, if the rate
is based solely on the type of purchase
that the consumer is making at the time
the consumer opens the account, or is
based solely on whether the consumer
has other banking relationships with the
card issuer), § 226.5a(b)(1)(v) does not
apply.
The Board is not requiring an issuer
to provide the actual rate that the issuer
is offering the consumer if that rate is
not known. As explained above, issuers
that use risk-based pricing may not be
able to disclose the specific rate that
would apply to a consumer because
issuers may not have sufficient
information about a consumer’s
creditworthiness at the time the
application is given.
Proposed Samples G–10(B) and G–
10(C) would have provided guidance for
issuers on how to meet the requirements
to provide the specific rates or the range
of rates that could apply and a statement
that the rate for which the consumer
may qualify at account opening will
depend on the consumer’s
creditworthiness. Specifically, proposed
Samples G–10(B) and G–10(C) would
have provided that issuers may meet
these requirements by providing the
specific rates or the range of rates and
stating that the rate for which the
consumer qualifies would be ‘‘based on
your creditworthiness.’’ As discussed
above, in response to the June 2007
Proposal, one commenter indicated that
for some issuers, especially in the
private label market, the actual rate for
which a consumer qualifies may be
determined using multiple factors,
including the consumer’s
creditworthiness, whether the consumer
is contemplating a purchase with the
retailer named on the private label card
and other factors. Samples G–10(B) and
G–10(C) as adopted contain the phrase
‘‘based on your creditworthiness,’’ but
pursuant to § 226.5a(b)(1)(v) discussed
above, a creditor that considers other
factors in addition to a consumer’s
creditworthiness in determining the
APR applicable to a consumer’s account
would use language such as ‘‘based on
your creditworthiness and other
factors.’’
Transactions with both rate and fee.
When a consumer initiates a balance
transfer or cash advance, card issuers
typically charge consumers both interest
on the outstanding balance of the
transaction and a fee to complete the

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transaction. It is important that
consumers understand when both a rate
and a fee apply to specific transactions.
In the June 2007 Proposal, the Board
proposed to add a new § 226.5a(b)(1)(vi)
to require that if both a rate and fee
apply to a balance transfer or cash
advance transaction, a card issuer must
disclose that a fee also applies when
disclosing the rate, and provide a cross
reference to the fee. In consumer testing
conducted for the Board prior to the
June 2007 Proposal, some participants
were more aware that an interest rate
applies to cash advances and balance
transfers than they were aware of the fee
component, so the Board believed that
a cross reference between the rate and
the fee may help those consumers notice
both the rate and the fee components.
In response to the June 2007 Proposal,
several industry commenters suggested
that the cross reference be eliminated, as
unnecessary and leading to
‘‘information overload.’’ In addition,
one industry commenter suggested that
the Board also require a cross reference
from the purchase APR to any
transaction fee on purchases. One
industry commenter suggested that
issuers be allowed to modify the cross
reference to state when the cash
advance fee or balance transfer fee will
not apply, such as ‘‘Cash advance fees
will apply to cash advances except for
convenience checks and fund transfers
to other accounts with us.’’ In addition,
one industry commenter asked the
Board for clarification on whether a 0
percent APR required the cross
reference between the rate and the fee.
In quantitative consumer testing
conducted for the Board after the May
2008 Proposal, the Board investigated
whether the presence of a cross
reference from the balance transfer APR
to the balance transfer fee improved
consumers’ awareness of and ability to
identify the balance transfer fee. The
results of the testing indicate that there
was no statistically significant
improvement in consumers’ ability to
identify the balance transfer fee if the
cross reference was present. Given the
results of the consumer testing and
concerns about ‘‘information overload,’’
the Board has withdrawn proposed
§ 226.5a(b)(1)(vi). Proposed comment
5a(b)(1)–6, which would have given
guidance on how to present a cross
reference between a rate and fee, also is
withdrawn.
APRs that vary by state. Currently,
§ 226.5a(b) requires card issuers to
disclose the rates applicable to the
account, for purchases, cash advances,
and balance transfers. For disclosures
required to be provided with credit card
applications and solicitations, if the rate

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varies by state, card issuers must
disclose in the table the rates for all
states. Specifically, comment 5a(a)(2)–2
currently provides, in relevant part, that
if rates or other terms vary by state, card
issuers may list the states and the
various disclosures in a single table or
in separate tables.
The Board is concerned that such an
approach of disclosing the rates for all
states in the table (or having a table for
each state) would detract from the
purpose of the table: To provide key
information in a simplified way. Thus,
consistent with the reasons discussed in
the section-by-section analysis to
§ 226.5a(a)(4) with respect to fees that
vary by state, the final rule adds
§ 226.5a(b)(1)(vi) to provide that card
issuers imposing APRs that vary by state
may, at the issuer’s option, disclose in
the table required by § 226.5a either (1)
the specific APR applicable to the
consumer’s account, or (2) the range of
APRs, if the disclosure includes a
statement that the APR varies by state
and refers the consumer to a disclosure
provided with the § 226.5a table where
the APR applicable to the consumer’s
account is disclosed, for example in a
list of APRs for all states. Listing APRs
for multiple states in the table (or
having a table for each state) is not
permissible. In addition, as discussed
above, comment 5a(a)(2)–2 currently
provides, in relevant part, that if rates or
other terms vary by state, card issuers
may list the states and the various
disclosures in a single table or in a
separate table. Because under the final
rule, an issuer would no longer be
allowed to list fees or rates for multiple
states in the table (or have a table for
each state), this provision in comment
5a(a)(2)–2 is deleted as obsolete. These
changes to § 226.5a and comment
5a(a)(2)–2 are adopted in part pursuant
to TILA Section 127(c)(5), which
authorizes the Board to add or modify
§ 226.5a disclosures as necessary to
carry out the purposes of TILA. 15
U.S.C. 1637(c)(5).
Rate based on another rate on the
account. In response to the June 2007
Proposal, one commenter asked the
Board to clarify how a rate should be
disclosed if that rate is based on another
rate on the account. For example,
assume that a penalty rate as described
in § 226.5a(b)(1)(iv)(A) is determined by
adding 5 percentage points to the
current purchase rate, which is 10
percent. The Board adopts new
comment 5a(b)(1)–7 to clarify how such
a rate should be disclosed. Pursuant to
comment 5a(b)(1)–7, a card issuer, in
this example, must disclose 15 percent
as the current penalty rate. If the
purchase rate is a variable rate, then the

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penalty rate also is a variable rate. In
that case, the card issuer also must
disclose the fact that the penalty rate
may vary and how the rate is
determined, such as ‘‘This APR may
vary with the market based on the Prime
Rate.’’ In describing the penalty rate, the
issuer may not disclose in the table the
amount of the margin or spread added
to the current purchase rate to
determine the penalty rate, such as
describing, in this example, that the
penalty rate is determined by adding 5
percentage points to the purchase rate.
Typical APR. Several consumer
groups have indicated that the current
disclosure requirements in § 226.5a
allow card issuers to promote low APRs,
that include interest but not fees, while
charging high penalty fees and penalty
rates when consumers, for example, pay
late or exceed the credit limit. As a
result, these consumer groups suggested
that the Board require credit card
issuers to disclose in the table a ‘‘typical
rate’’ that would include fees and
charges that consumers pay for a
particular open-end credit product. This
rate would be calculated as the average
effective rate disclosed on periodic
statements over the last three years for
customers with the same or similar
credit card product. These consumer
groups believe that this ‘‘typical rate’’
would reflect the real rate that
consumers pay for the credit card
product.
In the June 2007 Proposal, the Board
did not propose that card issuers
disclose the ‘‘typical rate’’ as part of the
§ 226.5a disclosures because the Board
did not believe that the proposed typical
APR would be helpful to consumers that
seek credit cards. There are many
different ways consumers may use their
credit cards, such as the features they
use, what fees they incur, and whether
a balance is carried from month to
month. For example, some consumers
use their cards only for purchases,
always pay off the bill in full, and never
incur fees. Other consumers may use
their cards for purchases, balance
transfers or cash advances, but never
incur late-payment fees, over-the-limit
fees or other penalty fees. Still others
may incur penalty fees and penalty
rates. A ‘‘typical rate,’’ however, would
be based on average fees and average
balances that may not be typical for
many consumers. Moreover, such a rate
may confuse consumers about the actual
rate that may apply to their account.
In response to the June 2007 Proposal,
several consumers groups again
suggested that the Board reconsider the
issue of disclosing a ‘‘typical rate’’ in
the table required by § 226.5a. The
Board continues to believe that the

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proposed typical APR would not be
helpful to consumers that seek credit
cards for the reasons stated above. Thus,
a requirement to disclose a ‘‘typical
rate’’ is not included in the final rule.
5a(b)(2) Fees for Issuance or Availability
Section 226.5a(b)(2), which
implements TILA Section
127(c)(1)(A)(ii)(I), requires card issuers
to disclose any annual or other periodic
fee, expressed as an annualized amount,
that is imposed for the issuance or
availability of a credit card, including
any fee based on account activity or
inactivity. 15 U.S.C. 1637(c)(1)(A)(ii)(I).
In 1989, the Board used its authority
under TILA Section 127(c)(5) to require
that issuers also disclose non-periodic
fees related to opening the account,
such as one-time membership or
participation fees. 15 U.S.C. 1637(c)(5);
54 FR 13855, Apr. 6, 1989.
Fees for issuance or availability of
credit card products targeted to
subprime borrowers. Often, subprime
credit cards will have substantial fees
related to the issuance and availability
of credit. For example, these cards may
impose an annual fee and a monthly
maintenance fee for the card. In
addition, these cards may impose
multiple one-time fees when the
consumer opens the card account, such
as an application fee and a program fee.
The Board believes that these fees
should be clearly explained to
consumers at the time of the offer so
that consumers better understand when
these fees will be imposed.
In the June 2007 Proposal, the Board
proposed to amend § 226.5a(b)(2) to
require additional information about
periodic fees. 15 U.S.C. 1637(c)(5).
Currently, issuers are required to
disclose only the annualized amount of
the fee. The Board proposed to amend
§ 226.5a(b)(2) to require issuers also to
disclose the amount of the periodic fee,
and how frequently it will be imposed.
For example, if an issuer imposes a $10
monthly maintenance fee for a card
account, the issuer must disclose in the
table that there is a $10 monthly
maintenance fee, and that the fee is
$120 on an annual basis.
In addition, the Board proposed to
amend § 226.5a(b)(2) to require
additional information about nonperiodic fees related to opening the
account. Currently, issuers are required
to disclose the amount of the nonperiodic fee, but not that it is a one-time
fee. The Board proposed to amend
§ 226.5a(b)(2) to require card issuers to
disclose the amount of the fee and that
it is a one-time fee. The final rule adopts
§ 226.5a(b)(2) as proposed. The Board
believes that this additional information

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will allow consumers to better
understand set-up and maintenance fees
that are often imposed in connection
with subprime credit cards. For
example, the changes will provide
consumers with additional information
about how often the fees will be
imposed by identifying which fees are
one-time fees, which fees are periodic
fees (such as monthly fees), and which
fees are annual fees.
In addition, application fees that are
charged regardless of whether the
consumer receives credit currently are
not considered fees as imposed for the
issuance or availability of a credit card,
and thus are not disclosed in the table.
See current comment 5a(b)(2)–3 and
§ 226.4(c)(1). The Board proposed to
delete the exception for these
application fees and require that they be
disclosed in the table as fees imposed
for the issuance or availability of a
credit card. Comment 5a(b)(2)–3 is
adopted as proposed with stylistic
changes. The Board believes that
consumers should be aware of these fees
when they are shopping for a credit
card.
Currently, and under the June 2007
and May 2008 Proposals, comment
5a(b)(2)–2 provides that fees for optional
services in addition to basic
membership privileges in a credit or
charge card account (for example, travel
insurance or card-registration services)
shall not be disclosed in the table if the
basic account may be opened without
paying such fees. The Board is aware
that some subprime cards may charge a
fee for an additional card on the
account, beyond the first card on the
account. For example, if there were two
primary cardholders listed on the
account, only one card on the account
would be issued, and the cardholders
would be charged a fee for another card
if the cardholders request an additional
card, so that each cardholder would
have his or her own card. The Board is
amending comment 5a(b)(2)–2 to clarify
that issuing a card to each primary
cardholder (not authorized users) is
considered a basic membership
privilege and fees for additional cards,
beyond the first card on the account,
must be disclosed as a fee for issuance
or availability. Thus, a fee to obtain an
additional card on the account beyond
the first card (so that each primary
cardholder would have his or her own
card) must be disclosed in the table as
a fee for issuance or availability under
§ 226.5a(b)(2). This fee must be
disclosed even if the fee is optional in
that the fee is charged only if the
cardholder requests one or more
additional cards.

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5a(b)(3) Fixed Finance Charge;
Minimum Interest Charge
Currently, § 226.5a(b)(3), which
implements TILA Section
127(c)(1)(A)(ii)(II), requires that card
issuers must disclose any minimum or
fixed finance charge that could be
imposed during a billing cycle. Card
issuers typically impose a minimum
charge (e.g., $0.50) in lieu of interest in
those months where a consumer would
otherwise incur an interest charge that
is less than the minimum charge (a socalled ‘‘minimum interest charge’’).
In the June 2007 Proposal, the Board
proposed to retain the minimum finance
charge disclosure in the table but refer
to the charge as a ‘‘minimum interest
charge’’ or ‘‘minimum charge’’ in the
table, as discussed in the section-bysection analysis to Appendix G.
Although minimum charges currently
may be small, the Board was concerned
that card issuers may increase these
charges in the future. Also, the Board
noted that it was aware of at least one
credit card product for which no APR is
charged, but each month a fixed charge
is imposed based on the outstanding
balance (for example, $6 charge per
$1,000 balance). If the minimum finance
charge disclosure were eliminated from
the table, card issuers that offer this type
of pricing would no longer be required
to disclose the fixed charge in the table
and consumers would not receive
important information about the cost of
the credit card. The Board also did not
propose a de minimis minimum finance
charge threshold. The Board was
concerned that this approach could
undercut the uniformity of the table,
and could be misleading to consumers.
The Board also proposed to amend
§ 226.5a(b)(3) to require card issuers to
disclose in the table a brief description
of the minimum finance charge, to give
consumers context for when this charge
will be imposed. See also proposed
comment 5a(b)(3)–1.
In response to the June 2007 Proposal,
several industry commenters
recommended that the Board delete this
disclosure from the table unless the
minimum finance charge is over a
certain nominal amount. They indicated
that in most cases, the minimum finance
charge is so small as to be irrelevant to
consumers. They believed that it should
only be in the table if the minimum
finance charge is a significant amount.
Consumer groups agreed with the
Board’s proposal to require the
disclosure of the minimum finance
charge in all cases and not to allow
issuers to exclude the minimum finance
charge from the table if the charge was
under a certain specific amount.

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In consumer testing conducted by the
Board in March 2008, participants were
asked to compare disclosure tables for
two credit card accounts and decide
which account they would choose. In
one of the disclosure tables, a small
minimum finance charge, labeled as a
‘‘minimum interest charge,’’ was
disclosed. In the other disclosure table,
no minimum finance charge was
disclosed. None of the participants
indicated that the small minimum
finance charge on one card but not on
the other would impact their decision to
choose one card over the other.
Based on this consumer testing, the
Board proposed in May 2008 to revise
proposed § 226.5a(b)(3) to provide that
an issuer must disclose in the table any
minimum or fixed finance charge in
excess of $1.00 that could be imposed
during a billing cycle and a brief
description of the charge, pursuant to
the Board’s authority under TILA
Section 127(c)(5) which authorizes the
Board to add or modify § 226.5a
disclosures as necessary to carry out the
purposes of TILA. 15 U.S.C. 1637(c)(5).
The proposed rule would have
continued to require disclosure in the
table if any minimum or fixed finance
charge was over this de minimis amount
to ensure that consumers are aware of
larger minimum or fixed finance charges
that might impact them. Under the
proposal, the $1.00 amount would have
been adjusted to the next whole dollar
amount when the sum of annual
percentage changes in the Consumer
Price Index in effect on June 1 of
previous years equals or exceeds $1.00.
See proposed comment 5a(b)(3)–2. This
approach in adjusting the dollar amount
that triggers the disclosure of a
minimum or fixed finance charge is
similar to TILA’s rules for adjusting a
dollar amount of fees that trigger
additional protections for certain homesecured loans. TILA Section 103(aa), 15
U.S.C. 1602(aa). Under the proposal, at
the issuer’s option, the issuer would
have been allowed to disclose in the
table any minimum or fixed finance
charge below the threshold. This
flexibility was intended to facilitate
compliance when adjustments are made
to the dollar threshold. For example, if
an issuer has disclosed a $1.50
minimum finance charge in its
application and solicitation table at the
time the threshold is increased to $2.00,
the issuer could continue to use forms
with the minimum finance charge
disclosed, even though the issuer would
no longer be required to do so.
In response to the May 2008 Proposal,
industry commenters generally
supported this aspect of the proposal.
One industry commenter suggested a

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$5.00 threshold, because with the
proposed $1.00 threshold, when
operational costs are considered, for
most banks it will be simpler to disclose
any and all minimum or fixed finance
charges. Another industry commenter
suggested eliminating the minimum or
fixed finance charge disclosure
altogether, and adding a disclosure for
cards that charge a monthly fee in lieu
of the APR. In addition, one industry
commenter suggested that the Board
eliminate the minimum or fixed finance
charge disclosure and monitor if issuers
change their minimum or fixed finance
charge calculations as a result.
Consumer group commenters generally
opposed the proposal because issuers
would no longer be required to disclose
an important cost to consumers
(especially subprime consumers, where
the fee might be significant in relation
to the small initial available credit on
subprime cards).
The minimum interest charge was
also tested in the Board’s qualitative
consumer testing. In the two rounds of
consumer testing conducted by the
Board after the May 2008 Proposal,
participants were asked to compare
disclosure tables for two credit card
accounts. In one of the disclosure tables,
a small minimum interest charge was
disclosed. In the other disclosure table,
no minimum interest charge was
disclosed. Participants were specifically
asked whether the minimum interest
charge would influence which card they
would choose. Of the participants who
understood what a minimum interest
charge was, almost all said that the
minimum interest charge would not
play a significant role in their decision
whether or not to apply for the card that
disclosed the minimum interest charge
because of the small amount of the fee.
The final rule retains the $1.00
threshold, as proposed, in § 226.5a(b)(3)
with several modifications. Pursuant to
the Board’s authority under TILA
Section 127(c)(5), the final rule retains
the $1.00 threshold for minimum
interest charges because the Board
believes that when the minimum
interest charge is a de minimis amount
(i.e., $1.00 or less, as adjusted for
inflation), disclosure of the minimum
interest charge is not information that
consumers will use to shop for a card.
15 U.S.C. 1637(c)(5). The final rule
limits the $1.00 threshold to apply only
to minimum interest charges, which are
charges in lieu of interest in those
months where a consumer would
otherwise incur an interest charge that
is less than the minimum charge. Fixed
finance charges must be disclosed
regardless of whether they are equal to
or less than $1.00. For example, for

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credit card products described above
where no APR is charged, but each
month a fixed charge is imposed based
on the outstanding balance (e.g., $6
charge per $1,000 balance), this fixed
charge must be disclosed regardless of
whether the charge is equal to or less
than $1.00. The Board is limiting the
$1.00 threshold to minimum interest
charges because the Board believes that
minimum interest charges are imposed
infrequently, and most likely are not
imposed month after month on an
account, unlike fixed finance charges.
In addition, in a technical edit, the
final rule is amended to specify that the
$1.00 amount would be adjusted
periodically by the Board to reflect
changes in the Consumer Price Index.
The final rule specifies that the Board
shall calculate each year a price level
adjusted minimum interest charge using
the Consumer Price Index in effect on
the 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 minimum interest charge
threshold has risen by a whole dollar,
the minimum interest charge will be
increased by $1.00. Comments 5a(b)(3)–
1 and –2 are also adopted with technical
modifications.
5a(b)(4) Transaction Charges
Section 226.5a(b)(4), which
implements TILA Section
127(c)(1)(A)(ii)(III), requires that card
issuers disclose any transaction charge
imposed on purchases. In the June 2007
Proposal, the Board proposed to amend
§ 226.5a(b)(4) to explicitly exclude from
the table fees charged for transactions in
a foreign currency or that take place in
a foreign country. In an effort to
streamline the contents of the table, the
Board proposed to highlight only those
fees that may be important for a
significant number of consumers. In
consumer testing for the Board prior to
the June 2007 Proposal, participants did
not mention foreign transaction fees as
important fees they use to shop. In
addition, there are few consumers who
may pay these fees with any frequency.
Thus, in the June 2007 Proposal, the
Board proposed to except foreign
transaction fees from disclosure of
transaction fees in an application or
solicitation, but to include such fees in
the proposed account-opening summary
table to ensure that interested
consumers can learn of the fees before
using the card. See proposed
§ 226.6(b)(4).
In response to the June 2007 Proposal,
some consumer group commenters
recommended that the Board mandate
disclosure of foreign transaction fees in

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the table required under § 226.5a. They
questioned the utility of the Board
requiring foreign transaction fees in the
account-opening table required under
§ 226.6, but prohibiting those fees to be
disclosed in the table under § 226.5a.
They believed that consumers as well as
the industry would be better served by
eliminating the few differences between
the disclosures required at the two
stages. In addition, one industry
commenter recommended that the table
required under § 226.5a include foreign
transaction fees. This commenter
believed that the foreign transaction fee
is relevant to any consumer who travels
in other countries, and the ability to
choose a credit card based on the
presence of the fee is important. In
addition, the commenter noted that the
large amount of press attention that the
issue has received suggests that the
presence or absence of the fee is now of
interest to a significant number of
consumers.
In the May 2008 Proposal, the Board
proposed to require that foreign
transaction fees imposed by the card
issuer must be disclosed in the table
required under § 226.5a. Specifically,
the Board proposed to withdraw
proposed § 226.5a(b)(4)(ii), which
would have precluded a card issuer
from disclosing a foreign transaction fee
in the table required by § 226.5a. In
addition, the Board proposed to add
comment 5a(b)(4)–2 to indicate that
foreign transaction fees charged by the
card issuer are considered transaction
charges for the use of a card for
purchases, and thus must be disclosed
in the table required under § 226.5a.
In the May 2008 Proposal, the Board
noted its concern about the
inconsistency in requiring foreign
transaction fees in the account-opening
table required by § 226.6, but
prohibiting that fee in the table required
by § 226.5a. In the June 2007 Proposal,
the Board proposed that issuers may
substitute the account-opening table for
the table required by § 226.5a. See
proposed comment 5a–2. Under the
June 2007 Proposal, circumstances
could have arisen where one issuer
substitutes the account-opening table for
the table required under § 226.5a (and
thus is required to disclose the foreign
transaction fee) but another issuer
provides the table required under
§ 226.5a (and thus is prohibited from
disclosing the foreign transaction fee). If
a consumer was comparing the
disclosures for these two offers, it may
appear to the consumer that the issuer
providing the account-opening table
charges a foreign transaction fee and the
issuer providing the table required
under § 226.5a does not, even though

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the second issuer may charge the same
or a higher foreign transaction fee than
the first issuer. Thus, to promote
uniformity, the Board proposed in May
2008 to require issuers to disclose the
foreign transaction fee in both the
account-opening table required by
§ 226.6 and the table required by
§ 226.5a. See proposed comment
5a(b)(4)–2. The Board also proposed that
foreign transaction fees would be
disclosed in the table required by
§ 226.5a similar to how those fees are
disclosed in the proposed accountopening tables published in the June
2007 Proposal. See proposed Model
Forms and Samples G–17(A), (B) and
(C).
In response to the May 2008 Proposal,
most consumer group and industry
commenters supported the Board’s
proposal to require issuers to disclose
foreign transaction fees in the table
required by § 226.5a. Nonetheless, some
industry commenters opposed the
proposal because they believed that
consumers would not shop on these
fees. One industry commenter indicated
that disclosing the foreign transaction
fee in the table only in connection with
purchases may be misleading to
consumers as some issuers also charge
this fee on cash advances in foreign
currencies or in foreign countries. This
commenter noted that in the June 2007
Proposal, the Board identified this fee in
proposed § 226.5a(b)(4)(ii) as ‘‘a fee
imposed by the issuer for transactions
made in a foreign currency or that take
place in a foreign country.’’ This
commenter encouraged the Board to
adopt similar ‘‘transaction’’ language in
the final rule for § 226.5a(b)(4).
Comment 5a(b)(4)–2 is adopted as
proposed in the May 2008 Proposal with
several modifications. As discussed
above, the final rule requires issuers to
disclose foreign transaction fees in the
table required by § 226.5a, to be
consistent with the requirement to
disclose that fee in the account-opening
table required by § 226.6. In addition,
foreign transaction fees could be
relevant to consumers who travel in
other countries or conduct transactions
in foreign currencies, and the ability to
choose a credit card based on the
presence of the fee may be important to
those consumers.
The Board notes that § 226.5a(b)(4)
requires issuers to disclose any
transaction charge imposed by the card
issuer for the use of the card for
purchases. Thus, comment 5a(b)(4)–2
clarifies that a transaction charge
imposed by the card issuer for the use
of the card for purchases includes any
fee imposed by the issuer for purchases
in a foreign currency or that take place

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outside the United States or with a
foreign merchant. As noted by one
commenter on the May 2008 Proposal,
some issuers also charge a foreign
transaction fee on cash advances in
foreign currencies or in foreign
countries. Issuers that charge a foreign
transaction fee on cash advances in
foreign currencies or in foreign
countries are required to disclose that
fee under § 226.5a(b)(8), which requires
the issuer to disclose in the table any fee
imposed for an extension of credit in the
form of cash or its equivalent. Comment
5a(b)(8)–2 is added to clarify that cash
advance fees include any charge
imposed by the card issuer for cash
advances in a foreign currency or that
take place in a foreign country. In
addition, both comments 5a(b)(4)–2 and
5a(b)(8)–2 clarify that if an issuer
charges the same foreign transaction fee
for purchases and cash advances in a
foreign currency or in a foreign country,
the issuer may disclose this foreign
transaction fee as shown in Samples
G–10(B) and G–10(C). Otherwise, the
issuer will need to revise the foreign
transaction fee language shown in
Samples G–10(B) and G–10(C) to
disclose clearly and conspicuously the
amount of the foreign transaction fee
that applies to purchases and the
amount of the foreign transaction fee
that applies to cash advances. Moreover,
both comments 5a(b)(4)–2 and 5a(b)(8)–
2 include a cross reference to comment
4(a)–4 for guidance on when a foreign
transaction fee is considered charged by
the card issuer.
5a(b)(5) Grace Period
Currently, § 226.5a(b)(5), which
implements TILA Section
127(c)(A)(iii)(I), requires that card
issuers disclose in the § 226.5a table the
date by which or the period within
which any credit extended for
purchases may be repaid without
incurring a finance charge. Section
226.5a(a)(2)(iii), which implements
TILA Section 122(c)(2)(C), requires
credit card applications and
solicitations under § 226.5a to use the
term ‘‘grace period’’ to describe the date
by which or the period within which
any credit extended for purchases may
be repaid without incurring a finance
charge. 15 U.S.C. 1632(c)(2)(C). In the
June 2007 Proposal, the Board proposed
new § 226.5(a)(2)(iii) to extend this
requirement to use the term ‘‘grace
period’’ to all references to such a term
for the disclosures required to be in the
form of a table, such as the accountopening table.
In response to the June 2007 Proposal,
one industry commenter recommended
that the Board no longer mandate the

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use of the term ‘‘grace period’’ in the
table. Although TILA specifically
requires use of the term ‘‘grace period’’
in the § 226.5a table, this commenter
urged the Board to use its exception
authority to choose a term that is more
understandable to consumers. This
commenter pointed out that its research
as well as that conducted by the Board
and the GAO had demonstrated that the
term is confusing as a descriptor of the
interest-free period between the
purchase and the due date for customers
who pay their balances in full. This
commenter suggested that the Board
revise the disclosure of the grace period
in the table to use the heading ‘‘interestfree period’’ instead of ‘‘grace period.’’
In the May 2008 Proposal, the Board
proposed to use its exemption authority
to delete the requirement to use the term
‘‘grace period’’ in the table required by
§ 226.5a. 15 U.S.C. 1604(a) and (f) and
1637(c)(5). As the Board discussed in
the June 2007 Proposal, consumer
testing conducted for the Board prior to
the June 2007 Proposal indicated that
some participants misunderstood the
term ‘‘grace period’’ to mean the time
after the payment due date that an
issuer may give the consumer to pay the
bill without charging a late-payment fee.
The GAO in its Report on Credit Card
Rates and Fees found similar
misunderstandings by consumers in its
consumer testing. See page 50 of GAO
Report. Furthermore, many participants
in the GAO testing incorrectly indicated
that the grace period was the period of
time promotional interest rates applied.
Nonetheless, in consumer testing
conducted for the Board prior to the
June 2007 Proposal, the Board found
that participants tended to understand
the term ‘‘grace period’’ more clearly
when additional context was added to
the language of the grace period
disclosure, such as describing that if the
consumer paid the bill in full each
month, the consumer would have some
period of time (e.g., 25 days) to pay the
new purchase balance in full to avoid
interest. Thus, the Board proposed to
retain the term ‘‘grace period.’’
As discussed above, in response to the
June 2007 Proposal, one commenter
performed its own testing with
consumers on the grace period
disclosure proposed by the Board. This
commenter found that the term ‘‘grace
period’’ was still confusing to the
participants in its testing, even with the
additional context given in the grace
period disclosure proposed by the
Board. The commenter found that
consumers understood the term
‘‘interest-free period’’ to more accurately
describe the interest-free period
between the purchase and the due date

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for customers who pay their balances in
full.
In consumer testing conducted by the
Board prior to the June 2007 Proposal,
the Board tested the phrase ‘‘interestfree period.’’ The Board found that some
consumers believed the phase ‘‘interestfree period’’ referred to the period of
time that a zero percent introductory
rate would be in effect, instead of the
grace period. Subsequently, in
consumer testing conducted by the
Board in March 2008, the Board tested
disclosure tables for a credit card
solicitation that used the phrase ‘‘How
to Avoid Paying Interest on Purchases’’
as the heading for the row containing
the information on the grace period.
Participants in this testing generally
seemed to understand this phrase to
describe the grace period. In addition, in
the March 2008 consumer testing, the
Board also tested the phrase ‘‘Paying
Interest’’ in the context of a disclosure
relating to a check that accesses a credit
card account, where a grace period was
not offered on this access check.
Specifically, the phrase ‘‘Paying
Interest’’ was used as the heading for the
row containing information that no
grace period was offered on the access
check. Participants seemed to
understand this phrase to mean that no
grace period was being offered on the
use of the access check. Thus, in the
May 2008 Proposal the Board proposed
to revise proposed § 226.5a(b)(5) to
require that issuers use the phrase ‘‘How
to Avoid Paying Interest on Purchases,’’
or a substantially similar phrase, as the
heading for the row describing the grace
period. If no grace period on purchases
is offered, when an issuer is disclosing
this fact in the table, the issuer would
have been required to use the phrase
‘‘Paying Interest,’’ or a substantially
similar phrase, as the heading for the
row describing that no grace period is
offered.
Comments on this aspect of the May
2008 Proposal were mixed. Some
consumer group and industry
commenters supported the new
headings. Some of these commenters
suggested that the new headings be
mandated, that is, the Board should not
allow ‘‘substantially similar’’ phrases to
be used. Other industry and consumer
group commenters suggested that the
Board retain the use of the term ‘‘grace
period’’ because they claimed that
consumers generally understand the
‘‘grace period’’ phrase. In addition,
other industry commenters suggested
that the Board mandate one row heading
(regardless of whether there is a grace
period or not) and that heading should
be ‘‘interest-free period.’’ These
commenters believed that the phrase

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‘‘interest-free period’’ would help
consumers better understand the ‘‘grace
period’’ concept generally and would
reinforce for consumers that they pay
interest from the date of the transaction
for transactions other than purchases.
In one of the rounds of consumer
testing conducted by the Board after the
May 2008 Proposal, the following three
headings were tested for describing the
‘‘grace period’’ concept: ‘‘How to Avoid
Paying Interest on Purchases,’’ ‘‘Grace
Period’’ and ‘‘Interest-free Period.’’
Participants in this round of testing
were asked which of the three headings
most clearly communicates the
information contained in that row of the
table. Most of the participants selected
the heading ‘‘How to Avoid Paying
Interest on Purchases.’’ A few of the
participants selected the heading
‘‘Interest-Free Period.’’ None of the
participants selected ‘‘Grace Period’’ as
the best heading. A few participants
commented that the term ‘‘grace period’’
was misleading because some people
might think of a ‘‘grace period’’ as a
period of time after the due date that a
consumer could pay without being
considered late. In addition, the Board
believes that the heading ‘‘How to
Avoid Paying Interest on Purchases’’
communicates in plain language the
concept of the ‘‘grace period,’’ without
requiring consumers to understand a
specific phrase like ‘‘grace period’’ or
‘‘interest-free period’’ to represent that
concept.
In addition, in the consumer testing
conducted after the May 2008 Proposal,
the Board continued to test the phrase
‘‘Paying Interest’’ as a disclosure
heading in the context of a check that
accesses a credit card account, where no
grace period was offered on this access
check. When asked whether there was
any way to avoid paying interest on
transactions made with the access
check, most participants in these rounds
of testing understood the ‘‘Paying
Interest’’ phrase to mean that no grace
period was being offered on the use of
the access check. Thus, the final rule in
§ 226.5a(b)(5) adopts the new headings
as proposed in May 2008, pursuant to
the Board’s authority in TILA Section
105(a) to provide exceptions necessary
or proper to effectuate the purposes of
TILA. 15 U.S.C. 1604(a).
Although the heading of the row will
change depending on whether or not a
grace period for all purchases is offered
on the account, the Board does not
believe that different headings will
significantly undercut a consumer’s
ability to compare terms of credit card
accounts. Most issuers offer a grace
period on all purchases; thus, most
issuers will use the term ‘‘How to Avoid

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Paying Interest on Purchases.’’
Nonetheless, in those cases where a
consumer is reviewing the tables for two
credit card offers—one which has a row
with the heading ‘‘How to Avoid Paying
Interest on Purchases’’ and one with a
row ‘‘Paying Interest’’—the Board
believes that consumers will recognize
that the information in those two rows
relate to the same concept of when
consumers will pay interest on the
account.
As discussed above, some
commenters suggested that the new
headings be mandated to promote
uniformity of the table, that is, the
Board should not allow ‘‘substantially
similar’’ phrases to be used. The Board
agrees that consistent headings are
important to enable consumers to better
compare grace periods for different
offers. Section 226.5a(b)(5) specifies that
in disclosing a grace period that applies
to all types of purchases in the table, the
phrase ‘‘How to Avoid Paying Interest
on Purchases’’ must be used as the
heading for the row describing the grace
period. If a grace period is not offered
on all types of purchases or is not
offered on any purchases, in describing
this fact in the table, the phrase ‘‘Paying
Interest’’ must be used as the heading
for the row describing this fact.
As discussed above, § 226.5a(b)(5)
currently requires that card issuers
disclose in the § 226.5a table the date by
which or the period within which any
credit extended for purchases may be
repaid without incurring a finance
charge. Comment 5a(b)(5)–1 provides
that a card issuer may, but need not,
refer to the beginning or ending point of
any grace period and briefly state any
conditions on the applicability of the
grace period. For example, the grace
period disclosure might read ‘‘30 days’’
or ‘‘30 days from the date of the periodic
statement (provided you have paid your
previous balance in full by the due
date).’’
In the June 2007 Proposal, the Board
proposed to amend § 226.5a(b)(5) to
require card issuers to disclose briefly
any conditions on the applicability of
the grace period. The Board also
proposed to amend comment 5a(b)(5)–1
to provide guidance for how issuers may
meet the requirements in proposed
§ 226.5a(b)(5). Specifically, proposed
comment 5a(b)(5)–1 would have
provided that an issuer that conditions
the grace period on the consumer
paying his or her balance in full by the
due date each month, or on the
consumer paying the previous balance
in full by the due date the prior month
will be deemed to meet requirements to
disclose conditions on the applicability
of the grace period by providing the

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following disclosure: ‘‘If you pay your
entire balance in full each month, you
have [at least] ll days after the close
of each period to pay your balance on
purchases without being charged
interest.’’
In response to the June 2007 Proposal,
several commenters suggested that the
Board revise the model language
provided in proposed comment
5a(b)(5)–1 to describe the grace period.
One commenter suggested the following
language: ‘‘Your due date is [at least] 25
days after your bill is totaled each
month. If you don’t pay your bill in full
by your due date, you will be charged
interest on the remaining balance.’’
Other commenters also recommended
that the Board revise the disclosure of
the grace period to make clearer that the
consumer must pay the total balance in
full each month by the due date to avoid
paying interest on purchases. In
addition, some consumer groups
commented that if the issuer does not
provide a grace period, the Board
should mandate specific language that
draws the consumer’s attention to this
fact.
Two industry commenters to the June
2007 Proposal noted that the ‘‘grace
period’’ description in proposed sample
forms was conditioned on ‘‘if you pay
your entire balance in full each month.’’
One commenter suggested deleting the
phrase as unnecessary; another asked
the Board to provide flexibility in the
description for creditors that offer a
grace period on purchases if the
purchase (not the entire) balance is paid
in full.
In the March 2008 consumer testing,
the Board tested the following language
to describe a grace period: ‘‘Your due
date is [at least] ll days after the close
of each billing cycle. We will not charge
you interest on purchases if you pay
your entire balance (excluding
promotional balances) by the due date
each month.’’ Participants that read this
language appeared to understand it
correctly. That is, they understood that
they could avoid paying interest on
purchases is they paid their bill by the
due date each month. Thus, in May
2008, the Board proposed to amend
comment 5a(b)(5)–1 to provide this
language as guidance to issuers on how
to disclose a grace period. The Board
noted that currently issuers typically
require consumers to pay their entire
balance in full each month to qualify for
a grace period on purchases. However,
in May 2008, the Board and other
federal banking agencies proposed to
prohibit most issuers from requiring
consumers to pay off promotional
balances in order to receive any grace
period offered on non-promotional

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purchases. See 73 FR 28904, May 19,
2008. Thus, consistent with this
proposed prohibition, the language in
proposed comment 5a(b)(5)–1 would
have indicated that the entire balance
(excluding promotional balances) must
be paid each month to avoid interest
charges on purchases.
Also, in the March 2008 consumer
testing, the Board tested language to
describe that no grace period was being
offered. Specifically, in the context of
testing a disclosure related to an access
check for which a grace period was not
offered, the Board tested the following
language: ‘‘We will begin charging
interest on these check transactions on
the transaction date.’’ Most participants
that read this language understood they
could not avoid paying interest on this
check transaction, and therefore, that no
grace period was being offered on this
check transaction. Thus, in May 2008,
the Board proposed to add comment
5a(b)(5)–2 to provide guidance on how
to disclose the fact that no grace period
on purchases is offered on the account.
Specifically, proposed comment
5a(b)(5)–2 would have provided that
issuers may use the following language
to describe that no grace period on
purchases is offered, as applicable: ‘‘We
will begin charging interest on
purchases on the transaction date.’’
In response to the May 2008 Proposal,
several industry commenters urged the
Board to provide flexibility for card
issuers to amend the ‘‘grace period’’
language to allow for a more accurate
description of the grace period as may
be appropriate or necessary. For
example, these commenters indicated
that this flexibility is needed since
promotional balances may be described
with more particularity (or using
different terminology) on billing
statements and elsewhere, and also
since there may be circumstances in
which the grace period could be
conditioned on additional factors, aside
from payment of a balance in full. In
addition, several industry commenters
noted that if the interagency proposal to
prohibit most issuers from treating a
payment as late unless consumers have
been provided a reasonable amount of
time to make that payment is adopted,
issuers may have two due dates each
month—one for the grace period end
date and one for when payments will be
considered late. Issuers would need
flexibility to amend the grace period
language to reference clearly the grace
period end date. Also, several consumer
group commenters suggested that the
Board not adopt the proposed model
language when a grace period is not
offered on purchases, namely ‘‘We will
begin charging interest on purchases on

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the transaction date.’’ These
commenters suggested instead that the
Board mandate the following language:
‘‘No grace period.’’
In consumer testing conducted by the
Board after the May 2008 Proposal, the
Board tested the following language
describing the grace period: ‘‘Your due
date is [at least] ll days after the close
of each billing cycle. We will not charge
you interest on purchases if you pay
your entire outstanding balance
(excluding promotional balances) by the
due date each month.’’ When asked
whether there was any way not to pay
interest on purchase, most participants
noticed the language describing the
grace period and appeared generally to
understand that they could avoid paying
interest on purchases by paying their
balance in full each month.
Nonetheless, most participants did not
understand the phrase ‘‘(excluding
promotional balances).’’ In the context
of testing a disclosure related to an
access check for which a grace period
was not offered, the Board tested the
following language: ‘‘We will begin
charging interest on these check
transactions on the transaction date.’’
When asked where there was any way
to avoid paying interest on these check
transactions, most participants saw the
above language and understood that
there was no grace period for these
check transactions.
Based on this testing, the Board
adopts in comment 5a(b)(5)–1 the model
language proposed in May 2008 for
describing a grace period that is offered
on all types of purchases, with one
modification. Specifically, the phrase
‘‘(excluding promotional balances)’’ is
deleted from the model language. Thus,
the model language is revised to read:
‘‘Your due date is [at least] ll days
after the close of each billing cycle. We
will not charge you interest on
purchases if you pay your entire balance
by the due date each month.’’ As
discussed in supplemental information
to final rules issued by the Board and
other federal banking agencies
published elsewhere in today’s Federal
Register, the Board and the other federal
banking agencies have withdrawn the
proposal that would have prohibited
most issuers from requiring consumers
to pay off promotional balances in order
to receive any grace period offered on
non-promotional purchases. Thus, the
phrase ‘‘(excluding promotional
balances)’’ is deleted as unnecessary. In
addition, other technical edits have
been made to comment 5a(b)(5)–1.
The final rule adopts in comment
5a(b)(5)–2 the following model language
proposed in May 2008 to describe that
no grace period on any purchases is

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offered, as applicable: ‘‘We will begin
charging interest on purchases on the
transaction date.’’ Comment 5a(b)(5)–3
is added to clarify that if an issuer
provides a grace period on some types
of purchases but no grace period on
others, the issuer, as appropriate, may
combine and revise the model language
in comments 5a(b)(5)–1 and –2 to
describe to which types of purchases a
grace period applies and to which types
of purchases no grace period is offered.
The Board’s language in 5a(b)(5)–1 for
describing a grace period on all
purchases, and in 5a(b)(5)–2 for
describing that no grace period exists on
any purchases is not mandatory. This
model language is meant as a safe
harbor for issuers. Credit card issuers
may amend this language as necessary
or appropriate to describe accurately the
grace period (or lack of grace period)
offered on purchases on the account.
5a(b)(6) Balance Computation Method
TILA Section 127(c)(1)(A)(iv) requires
the Board to name not more than five of
the most common balance computation
methods used by credit card issuers to
calculate the balance for purchases on
which finance charges are computed. 15
U.S.C. 1637(c)(1)(A)(iv). If issuers use
one of the balance computation methods
named by the Board, § 226.5a(b)(6)
requires that issuers must disclose the
name of that balance computation
method in the table as part of the
disclosures required by § 226.5a, but
issuers are not required to provide a
description of the balance computation
method. If the issuer uses a balance
computation method that is not named
by the Board, however, the issuer must
disclose a detailed explanation of the
balance computation method. See
current § 226.5a(b)(6); § 226.5a(a)(2)(i).
In the June 2007 Proposal, the Board
proposed to retain a brief reference to
the balance computation method, but
move the disclosure from the table to
directly below the table. See proposed
§ 226.5a(a)(2)(iii).
Commenters generally supported the
proposal. Many consumers urged the
Board to ban the use of a computation
method commonly called ‘‘two-cycle’’
as unfair. A federal banking agency
urged the Board to require ‘‘cautionary
disclosures’’ where technical
explanations were insufficient, such as
a for a description of two-cycle billing.
Two commenters suggested expanding
the list of commonly-used methods in
§ 226.5a(g) to include the daily balance
method. One industry commenter
suggested eliminating the requirement
to provide the name of the balance
computation method, and requiring a
toll-free telephone number or an

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optional reference to the creditor’s Web
site instead.
Currently, the Board in § 226.5a(g) has
named four balance computation
methods: (1) Average daily balance
(including new purchases) or (excluding
new purchases); (2) two-cycle average
daily balance (including new purchases)
or (excluding new purchases); (3)
adjusted balance; and (4) previous
balance. In the June 2007 Proposal, the
Board proposed to retain these four
balance computation methods.
In May 2008, the Board and other
federal banking agencies proposed to
prohibit most issuers from using a
balance computation method commonly
referred to as the ‘‘two-cycle’’ balance
method. See 73 FR 28904, May 19, 2008.
Nonetheless, in the May 2008
Regulation Z Proposal, the Board did
not propose deleting the two-cycle
average daily balance method from the
list in § 226.5(g) because the prohibition
would not have applied to all issuers,
such as state-chartered credit unions
that would not have been subject to the
National Credit Union Administration’s
proposed rules.
In response to the May 2008 Proposal,
several consumer groups suggested that
the Board consider requiring issuers that
use the two-cycle method to disclose
that ‘‘this method is the most expensive
balance computation method and is
prohibited for most credit card issuers,’’
assuming that the banking agencies’
proposed rules prohibiting most issuers
from using the ‘‘two cycle’’ method goes
forward. In addition, these consumer
groups continued to advocate use of an
‘‘Energy Star’’ approach in describing
the balance calculation methods, where
each balance computation method
would be rated on how expensive it is,
and that rating would be disclosed.
The Board is adopting the
requirement to disclose the name of the
balance computation method used by
the creditor beneath the table, as
proposed. In consumer testing
conducted for the Board prior to the
June 2007 Proposal, virtually no
participants understood the two balance
computation methods used by most card
issuers—the average daily balance
method and the two-cycle average daily
balance method—when those methods
were just described by name. The GAO
found similar results in its consumer
testing. See GAO Report on Credit Card
Rates and Fees, at pages 50–51. In the
consumer testing conducted for the
Board prior to the June 2007 Proposal,
a version of the table was used which
attempted to explain briefly that the
‘‘two-cycle average daily balance
method’’ would be more expensive than
the ‘‘average daily balance method’’ for

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those consumers that sometimes pay
their bill in full and sometimes do not.
Participants’ answers suggested they did
not understand this disclosure. They
appeared to need more information
about how balances are calculated.
In consumer testing conducted for the
Board in March 2008, a version of the
table was used which attempted to
explain in more detail the ‘‘average
daily balance method’’ and the ‘‘twocycle average daily balance method’’
and the situation in which the two-cycle
method results in higher interest
charges—namely, in those months
where a consumer paid his or her entire
outstanding balance in full in one
billing cycle but then does not pay the
entire balance in full the following
cycle. While participants that saw the
table understood that under two-cycle
billing, interest would be charged on
balances during both the current and
previous billing cycles, most
participants did not understand that
they would only be charged interest in
the previous billing cycle if they had
paid the outstanding balance in full for
the previous cycle but not for the
current cycle. Thus, most participants
did not understand that two-cycle
billing would not lead to higher interest
charges than the ‘‘average daily balance
method’’ if a consumer never paid in
full.
TILA Section 122(c)(2) states that for
certain disclosures set forth in Section
TILA 127(c)(1)(A), including the balance
computation method, the Board shall
require that the disclosure of such
information, to the extent the Board
determines to be practicable and
appropriate, be in the form of a table. 15
U.S.C. 1632(c)(2). The Board believes
that it is no longer appropriate to
continue to require issuers to disclose
the balance computation method in the
table, because the name of the balance
computation method used by issuers
does not appear to be meaningful to
consumers and may distract from more
important information contained in the
table. Thus, the final rule retains a brief
reference to the balance computation
method, but moves the disclosure from
the table to directly below the table. See
§ 226.5a(a)(2)(iii).
The final rule continues to require
that issuers disclose the name of the
balance computation method beneath
the table because this disclosure is
required by TILA Section
127(c)(1)(A)(iv). Consumers and others
will have access to information about
the balance calculation method used on
the credit card account if they find it
useful. Under final rules issued by the
Board and other federal banking
agencies published elsewhere in today’s

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Federal Register, most credit card
issuers are prohibited from using the
‘‘two cycle’’ balance computation
method. Nonetheless, this final rule
retains the ‘‘two-cycle’’ disclosure
because not all issuers are covered by
the final rules published elsewhere in
today’s Federal Register which preclude
use of the two-cycle balance
computation method.
The Board is not requiring issuers that
are permitted to and choose to use the
two-cycle method to disclose that ‘‘this
method is the most expensive balance
computation method and is prohibited
for most credit card issuers.’’ As
discussed above, a statement that the
two-cycle method is the most expensive
balance computation method would be
accurate only for those consumers who
sometimes pay their bill in full and
sometime do not. For consumers that
never pay their bill in full, or always
pay their bill in full, the interest paid
under the two-cycle method is the same
as paid under the one-cycle average
daily balance method. For the same
reasons, the Board is not requiring an
‘‘Energy Star’’ approach in describing
the balance calculation methods, which
would require each balance
computation method to be rated on how
expensive it is, and require that rating
to be disclosed. Whether one balance
computation method is more expensive
than another would depend on how a
consumer uses his or her account.

§ 226.5a(b)(4), new comment 5a(b)(8)–2
is added to clarify that cash advance
fees includes any charge imposed by the
card issuer for cash advances in a
foreign currency or that take place
outside the United States or with a
foreign merchant. In addition, comment
5a(b)(8)–2 clarifies that if an issuer
charges the same foreign transaction fee
for purchases and cash advances in a
foreign currency or that take place
outside the United States or with a
foreign merchant, the issuer may
disclose this foreign transaction fee as
shown in Samples G–10(B) and (C).
Otherwise, the issuer will need to revise
the foreign transaction fee shown in
Samples G–10(B) and (C) to disclose
clearly and conspicuously the amount
of the foreign transaction fee that
applies to purchases and the amount of
the foreign transaction fee that applies
to cash advances. Moreover, comment
5a(b)(8)–2 provides a cross reference to
comment 4(a)–4 for guidance on when
a foreign transaction fee is considered
charged by the card issuer.
In addition, consistent with the
account-opening disclosures required in
§ 226.6, comment 5a(b)(8)–3 is added to
clarify that any charge imposed on a
cardholder by an institution other than
the card issuer for the use of the other
institution’s ATM in a shared or
interchange system is not a cash
advance fee that must be disclosed in
the table pursuant to § 226.5a(b)(8).

5a(b)(8) Cash Advance Fee
Currently, comment 5a(b)(8)–1
provides that a card issuer must disclose
only those fees it imposes for a cash
advance that are finance charges under
§ 226.4. For example, a charge for a cash
advance at an ATM would be disclosed
under § 226.5a(b)(8) unless a similar
charge is imposed for ATM transactions
not involving an extension of credit. In
the June 2007 Proposal, the Board
proposed to provide that all transaction
fees on credit cards would be
considered finance charges. Thus, the
Board proposed to delete the current
guidance discussed in comment
5a(b)(8)–1 as obsolete. As discussed in
the section-by-section analysis to
§ 226.4, the final rule adopts the
proposal that all transaction fees
imposed by a card issuer on a
cardholder are considered finance
charges. Thus, the Board also deletes
current comment 5a(b)(8)–1 as
proposed.
A new comment 5a(b)(8)–1 is added
to refer issuers to Samples G–10(B) and
G–10(C) for guidance on how to disclose
clearly and conspicuously the cash
advance fee. In addition, as discussed in
the section-by-section analysis to

5a(b)(12) Returned-Payment Fee
Currently, § 226.5a does not require a
card issuer to disclose a fee imposed
when a payment is returned. In the June
2007 Proposal, the Board proposed to
add § 226.5a(b)(12) to require issuers to
disclose this fee in the table. Typically,
card issuers will impose a fee and a
penalty rate if a cardholder’s payment is
returned. As discussed above, the final
rule adopts the Board’s proposal to
require card issuers to disclose in the
table the reasons that a penalty rate may
be imposed. See § 226.5a(b)(1)(iv). The
final rule also requires card issuers to
disclose the returned-payment fee,
pursuant to the Board’s authority under
TILA Section 127(c)(5), so that
consumers are told both consequences
of returned payments. 15 U.S.C.
1637(c)(5). In addition, returnedpayment fees are similar to late-payment
fees in that returned-payment fees also
can relate to a consumer not paying on
time; if the only payment made by a
consumer during a given billing cycle is
returned, the return of the payment also
could result in the consumer being
deemed to have paid late. Late-payment
fees are disclosed in the table and the
Board believes that consumers also

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should be aware of returned-payment
fees when shopping for a credit card.
See section-by-section analysis to
§ 226.5a(a)(2).
Cross References to Penalty Rate
Card issuers often impose both a fee
and penalty rate for the same behavior—
such as a consumer paying late,
exceeding the credit limit, or having a
payment returned. In consumer testing
conducted for the Board prior to the
June 2007 Proposal, participants tended
to associate paying penalty fees with
certain behaviors (such as paying late or
going over the credit limit), but they did
not tend to associate rate increases with
these same behaviors. By linking the
penalty fees with the penalty rate,
participants more easily understood that
if they engage in certain behaviors, such
as paying late, their rates may increase
in addition to incurring a fee. Thus, in
the June 2007 Proposal, the Board
proposed to add § 226.5a(b)(13) to
provide that if a card issuer may impose
a penalty rate for any of the reasons that
a penalty fee would be imposed (such
as a late payment, going over the credit
limit, or a returned payment), the issuer
in disclosing the fee also must disclose
that the penalty rate may apply, and
must provide a cross reference to the
penalty rate. Proposed Samples G–10(B)
and G–10(C) would have provided
guidance on how to provide these
disclosures.
In response to the June 2007 Proposal,
several industry commenters suggested
that the cross reference be eliminated, as
unnecessary and leading to
‘‘information overload.’’ In addition,
one commenter suggested that the cross
reference not be required if one late
payment cannot cause the APR to
increase. Alternatively, this commenter
suggested that the conditions be
disclosed with the cross reference, for
example, ‘‘If two consecutive payments
are late, your APRs may also be
increased; see Penalty APR section
above.’’
In quantitative consumer testing
conducted for the Board after the May
2008 Proposal, the Board investigated
whether the presence of a cross
reference from a penalty fee, specifically
the over-the-limit fee, to the penalty
APR improved consumers’ awareness of
the fact that a penalty rate could be
applied to their accounts if they went
over the credit limit. The results of the
testing indicate that there was no
statistically significant improvement in
consumers’ awareness that going over
the limit could trigger penalty pricing
when a cross reference was included.
Because the testing suggests that crossreferences from penalty fees to the

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penalty rate disclosure does not
improve consumer understanding of the
circumstances in which penalty pricing
can be applied to their accounts, and
due to concerns about ‘‘information
overload,’’ proposed § 226.5a(b)(13) and
comment 5a(b)(13)–1 have been
withdrawn from the final rule. Thus, the
final rule does not require crossreferences from penalty fees to penalty
rates in the § 226.5a table.

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5a(b)(13) Required Insurance, Debt
Cancellation or Debt Suspension
Coverage
Credit card issuers often offer optional
insurance or debt cancellation or
suspension coverage with the credit
card. Under the current rules, costs
associated with the insurance or debt
cancellation or suspension coverage are
not considered ‘‘finance charges’’ if the
coverage is optional, the issuer provides
certain disclosures to the consumer
about the coverage, and the issuer
obtains an affirmative written request
for coverage after the consumer has
received the required disclosures. Card
issuers frequently provide the
disclosures discussed above on the
application form with a space to sign or
initial an affirmative written request for
the coverage. Currently, issuers are not
required to provide any information
about the insurance or debt cancellation
or suspension coverage in the table that
contains the § 226.5a disclosures.
In the event that a card issuer requires
the insurance or debt cancellation or
debt suspension coverage (to the extent
permitted by state or other applicable
law), the Board proposed new
§ 226.5a(b)(14) in the June 2007
Proposal to require that the issuer
disclose any fee for this coverage in the
table. In addition, proposed
§ 226.5a(b)(14) would have required that
the card issuer also disclose a cross
reference to where the consumer may
find more information about the
insurance or debt cancellation or debt
suspension coverage, if additional
information is included on or with the
application or solicitation. Proposed
Sample G–10(B) would have provided
guidance on how to provide the fee
information and the cross reference in
the table. The final rule adopts new
§ 226.5a(b)(13) (renumbered from
§ 226.5a(b)(14)) as proposed. If
insurance or debt cancellation or
suspension coverage is required in order
to obtain a credit card, the Board
believes that fees required for this
coverage should be highlighted in the
table so that consumers are aware of
these fees when considering an offer,
because they will be required to pay the

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fee for this coverage every month in
order to have the credit card.
5a(b)(14) Available Credit
Subprime credit cards often have
substantial fees assessed when the
account is opened. Those fees will be
billed to the consumer as part of the first
statement, and will substantially reduce
the amount of credit that the consumer
initially has available with which to
make purchases or other transactions on
the account. For example, for cards
where a consumer is given a minimum
credit line of $250, after the start-up fees
have been billed to the account, the
consumer may have less than $100 of
available credit with which to make
purchases or other transactions in the
first month. In addition, consumers will
pay interest on these fees until they are
paid in full.
The federal banking agencies have
received a number of complaints from
consumers with respect to cards of this
type. Complainants often claim that
they were not aware of how little
available credit they would have after
all the fees were assessed. Thus, in the
June 2007 Proposal, the Board proposed
to add § 226.5a(b)(16) to inform
consumers about the impact of these
fees on their initial available credit.
Specifically, proposed § 226.5a(b)(16)
would have provided that if (1) a card
issuer imposes required fees for the
issuance or availability of credit, or a
security deposit, that will be charged
against the card when the account is
opened, and (2) the total of those fees
and/or security deposit equal 25 percent
or more of the minimum credit limit
applicable to the card, a card issuer
must disclose in the table an example of
the amount of the available credit that
a consumer would have remaining after
these fees or security deposit are debited
to the account, assuming that the
consumer receives the minimum credit
limit offered on the relevant account. In
determining whether the 25 percent
threshold test is met, the issuer would
have been required to consider only fees
for issuance or availability of credit, or
a security deposit, that are required. If
certain fees for issuance or availability
are optional, these fees would not have
been required to be considered in
determining whether the disclosure
must be given. Nonetheless, if the 25
percent threshold test is met in
connection with the required fees or
security deposit, the issuer would have
been required to disclose two figures—
the available credit after excluding any
optional fees from the amounts debited
to the account, and the available credit
after including any optional fees in the
amounts debited to the account.

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In addition, the Board proposed
comment 5a(b)(16)–1 to clarify that in
calculating the amount of available
credit that must be disclosed in the
table, an issuer must consider all fees
for the issuance or availability of credit
described in § 226.5a(b)(2), and any
security deposit, that will be imposed
and charged to the account when the
account is opened, such as one-time
issuance and set-up fees. For example,
in calculating the available credit,
issuers would have been required to
consider the first year’s annual fee and
the first month’s maintenance fee (if
applicable) if they are charged to the
account immediately at account
opening. Proposed Sample G–10(C)
would have provided guidance to
issuers on how to provide this
disclosure. (See proposed comment
5a(b)(16)–2).
As described above, a card issuer
would have been required to consider
only required fees for issuance or
availability of credit, or a security
deposit, that will be charged against the
card when the account is opened in
determining whether the 25 percent
threshold test is met. A card issuer
would not have been required to
consider other kinds of fees, such as late
fees or over-the-limit fees when
evaluating whether the 25 percent
threshold test is met. The Board
solicited comment on whether there are
other fees (other than fees required for
issuance or availability of credit) that
are typically imposed on these types of
accounts when the account is opened,
and should be included in determining
whether the 25 percent threshold test is
met.
In response to the June 2007 Proposal,
several commenters suggested start-up
fees should be banned in some
instances. Several consumer groups and
one member of Congress suggested that
start-up fees that equal 25 percent or
more of the available credit line be
banned. Another consumer group
suggested that start-up fees exceeding 5
percent of the available credit line be
banned. In addition, several consumer
groups suggested that the Board should
prohibit security deposits from being
charged to the account as an unfair
practice.
Assuming the Board did not ban startup fees, several consumer groups
suggested that the threshold for the
available credit disclosure be lowered to
5 percent instead of 25 percent. In
contrast, several industry commenters
suggested that the threshold be lowered
to 10 percent or 15 percent. In addition,
while some commenters supported the
Board’s proposal to consider only
required start-up fees (and not optional

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fees) in deciding whether the 25 percent
threshold is met, some consumer groups
suggested that the threshold test be
based on required and optional fees.
Several consumer groups also
recommended that the language of the
available credit disclosure be shortened
and a percentage be disclosed, as
follows: ‘‘AVAILABLE CREDIT: The
fees charged when you open this
account will be $25 (or $40 with an
additional card), which is 10% (or 16%
with an additional card) of the
minimum credit limit of $250. If you
receive a $250 credit limit, you will
have $225 in available credit (or $210
with an additional card).’’ These
consumer groups also suggested that the
available credit disclosure be required
in advertisements as well, especially in
the solicitation letter for direct mail and
Internet applications and solicitations.
In May 2008, the Board and other
federal banking agencies proposed to
address concerns regarding subprime
credit cards by prohibiting institutions
from financing security deposits and
fees for credit availability (such as
account-opening fees or membership
fees) if those charges would exceed 50
percent of the credit limit during the
first twelve months and from collecting
at account opening fees that are in
excess of 25 percent of the credit limit
in effect on the consumer’s account
when opened. See 73 FR 28904, May 19,
2008. In the supplementary information
to the May 2008 Regulation Z Proposal,
the Board indicated that if such an
approach is adopted as proposed,
appropriate revisions would be made to
ensure consistency among the
regulatory requirements and to facilitate
compliance when the Board adopted
revisions to the Regulation Z rules for
open-end (not home-secured) credit.
In response to the May 2008
Regulation Z Proposal, several
commenters again suggested that the
threshold for the available credit
disclosure be reduced to 5 percent or 10
percent. Another consumer group
commenter suggested that the Board
always require the available credit
disclosure if there are start-up fees on
the account, including annual fees. In
addition, several consumer group
commenters reiterated their comments
on the June 2007 Proposal that the
threshold test for when the available
credit disclosure must be given should
be based on required and optional fees.
Under final rules issued by the Board
and other federal banking agencies
published elsewhere in today’s Federal
Register, most credit card issuers are
precluded from financing security
deposits and fees for credit availability
if those charges would exceed 50

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percent of the credit limit during the
first six months and from collecting at
account opening, fees that are in excess
of 25 percent of the credit line in effect
on the consumer’s account when
opened. Notwithstanding these
substantive provisions, the Board
believes that for subprime cards, a
disclosure of available credit is needed
in the table to inform consumers about
the impact of start-up fees on the initial
available credit.
The final rule adopts § 226.5a(b)(16)
with several modifications, and
renumbers the provision as
§ 226.5a(b)(14). Specifically, the final
rule amends the proposal to provide
that fees or security deposits that are not
charged to the account are not subject to
the disclosure requirements in
§ 226.5a(b)(14). In addition, comment
5a(b)(14)–1 (proposed as comment
5a(b)(16)–1) is revised from the proposal
to clarify that in calculating the amount
of the available credit including
optional fees, if optional fees could be
charged multiple times, the issuer shall
assume that the optional fee is only
imposed once. For example, if an issuer
charges a fee for each additional card
issued on the account, the issuer in
calculating the amount of the available
credit including optional fees must
assume that the cardholder requests
only one additional card. Also,
comment 5a(b)(14)–1 is revised to
specify that in disclosing the available
credit, an issuer must round down the
available credit amount to the nearest
whole dollar.
The final rule also differs from the
proposal in that it contains a 15 percent
threshold for when the credit
availability disclosure must be given,
namely, when required fees for issuance
or availability of credit, or a security
deposit, that will be charged against the
card when the account is opened equal
15 percent or more of the minimum
credit limit applicable to the card. The
Board lowered the threshold to 15
percent to address commenters’
concerns that a lower threshold would
better inform consumers about offers of
credit where large portions of the
available credit on a new account are
taken up by fees before the consumer
has the opportunity to use the account.
The Board has not lowered the
threshold to 5 percent or 10 percent as
suggested by some other commenters.
The Board believes that a 15 percent
threshold will ensure that consumers
will receive the disclosure in
connection with subprime credit card
products, but that the disclosure will
generally not be required in connection
with a prime credit card account, for
which credit limits are higher and less

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fees are charged when the account is
opened. The Board believes that the
disclosure is most useful to consumers
when a substantial portion of the
minimum credit line is not available
because required start-up fees (or a
required security deposit) are charged to
the account. The available credit
disclosure may not be as meaningful to
consumers, when those consumers are
receiving 90 to 95 percent of the
minimum credit line in available credit
at account opening.
In addition, the Board retained in the
final rule that the available credit
disclosure must be given if required
start-up fees (or a required security
deposit) charged against the account at
account-opening equal 15 percent or
more of the minimum credit line.
Optional start-up fees are not
considered when determining whether
the 15 percent threshold is met.
Nonetheless, if the 15 percent threshold
is met in connection with the required
fees or security deposit, the issuer must
disclose two figures—the available
credit after excluding any optional fees
from the amounts debited to the
account, and the available credit after
including any optional fees in the
amounts debited to the account
(assuming that each optional fee is only
charged once). The Board believes that
it is appropriate not to consider optional
fees when determining whether the 15
percent threshold is initially met
because consumers are not required to
incur these fees to obtain the credit card
account. Consistent with the proposal,
the final rule also requires an issuer to
consider only fees for the issuance or
availability of credit when determining
whether the 15 percent threshold is met;
other types of fees such as late-payment
fees or over-the-limit fees are not
required to be considered.
Moreover, the final rule does not
adopt the language for the available
credit disclosure suggested by several
consumer groups. The Board believes
that including percentages in the
disclosure, as suggested by those
consumer groups, would be confusing to
consumers. The final rule also does not
require that issuers provide the
available credit disclosure in the
solicitation letter for direct mail and
Internet applications and solicitations,
as suggested by several consumer group
commenters. In consumer testing
conducted by the Board, participants
generally noticed and understood the
available credit disclosure in the table
required by § 226.5a. Thus, the Board
does not believe that repeating that
disclosure in the solicitation letter for
direct mail and Internet applications
and solicitations is needed. Sample

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G–10(C) sets forth an example of how
the available credit disclosure may be
made.
5a(b)(15) Web Site Reference
In June 2007, the Board proposed to
revise § 226.5a to require that credit
card issuers must disclose in the table
a reference to a Board Web site and a
statement that consumers can find on
this Web site educational materials on
shopping for and using credit card
accounts. See proposed § 226.5a(b)(17).
Such materials would expand those
already available on choosing a credit
card at the Board’s Web site.17 The
Board recognized that some consumers
may need general education about how
credit cards work and an explanation of
typical account terms that apply to
credit cards. In the consumer testing
conducted for the Board, participants
showed a wide range of understanding
about how credit cards work generally,
with some participants showing a firm
understanding of terms that relate to
credit card accounts, while others had
difficulty expressing basic financial
concepts, such as how the interest rate
differs from a one-time fee. The Board’s
current Web site explains some basic
financial concepts—such as what an
APR is—as well as terms that typically
apply to credit card accounts. Through
the Web site, the Board may continue to
expand the explanation of other credit
card terms, such as grace periods, that
may be difficult to explain concisely in
the disclosures given with applications
and solicitations.
In response to the June 2007 Proposal,
several industry commenters questioned
whether consumers would use the Web
site resource, and suggested that the
Board either not require the Web site
disclosure or place the disclosure
outside of the table to avoid
‘‘information overload.’’ Consumer
groups generally supported placing the
Web site disclosure in the table, and
requested that the Board provide an
alternative information source for those
consumers who lack Internet access,
such as a toll-free telephone number at
which consumers can obtain a free copy
of similar information.
The final rule adopts § 226.5a(b)(15)
(proposed as § 226.5a(b)(17)). As part of
consumer testing, participants were
asked whether they would use a Board
Web site to obtain additional
information about credit cards
generally. Some participants indicated
they might use the Web site, while
others indicated that it was unlikely
they would use such a Web site.
17 The materials can be found at http://
www.federalreserve.gov/pubs/shop/default.htm.

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Although it is hard to predict from the
results of the testing how many
consumers might use the Board’s Web
site, and recognizing that not all
consumers have access to the Internet,
the Board believes that this Web site
may be helpful to some consumers as
they shop for a credit card and manage
their account once they obtain a credit
card. Thus, the final rule requires a
reference to a Board Web site to be
included in the table because this is a
cost-effective way to provide consumers
with additional information on credit
cards. The Board is not requiring
creditors to also disclose a toll-free
telephone number at which consumers
can obtain a free copy of similar
information from the Board. The Board
anticipates that consumers are not likely
to use a toll-free telephone number to
request educational materials in these
instances because they will not want to
delay applying for a credit card until the
materials are delivered. Thus, such a
requirement would not significantly
benefit consumers on the whole.
Payment Allocation and Other
Suggested Disclosures Under § 226.5a(b)
Payment allocation. Currently, many
credit card issuers allocate payments in
excess of the minimum payment first to
balances that are subject to the lowest
APR. For example, if a cardholder made
purchases using a credit card account
and then initiated a balance transfer, the
card issuer might allocate a payment
(less than the amount of the balances) to
the transferred balance portion of the
account if that balance was subject to a
lower APR than the purchases. Card
issuers often will offer a discounted
initial rate on balance transfers (such as
0 percent for an introductory period)
with a credit card solicitation, but not
offer the same discounted rate for
purchases. In addition, the Board is
aware of at least one issuer that offers
the same discounted initial rate for
balance transfers and purchases for a
specified period of time, where the
discounted rate for balance transfers
(but not the discounted rate for
purchases) may be extended until the
balance transfer is paid off if the
consumer makes a certain number of
purchases each billing cycle. At the
same time, issuers typically offer a grace
period for purchases if a consumer pays
his or her bill in full each month. Card
issuers, however, do not typically offer
a grace period on balance transfers or
cash advances. Thus, on the offers
described above, a consumer cannot
take advantage of both the grace period
on purchases and the discounted rate on
balance transfers. The only way for a
consumer to avoid paying interest on

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purchases—and thus have the benefit of
the grace period—is to pay off the entire
balance, including the balance transfer
subject to the discounted rate.
In the consumer testing conducted for
the Board prior to the June 2007
Proposal, many participants did not
understand how payments would be
allocated and that they could not take
advantage of the grace period on
purchases and the discounted rate on
balance transfers at the same time.
Model forms were tested that included
a disclosure attempting to explain this
to consumers. Nonetheless, testing
showed that a significant percentage of
participants still did not fully
understand how payment allocation can
affect their interest charges, even after
reading the disclosure tested. In the
supplementary information
accompanying the June 2007 Proposal,
the Board indicated its plans to conduct
further testing of the disclosure to
determine whether the disclosure could
be improved to more effectively
communicate to consumers how
payment allocation can affect their
interest charges.
In the June 2007 Proposal, the Board
proposed to add § 226.5a(b)(15) to
require card issuers to explain payment
allocation to consumers. Specifically,
the Board proposed that issuers explain
how payment allocation would affect
consumers, if an initial discounted rate
were offered on balance transfers or
cash advances but not purchases. The
Board proposed that issuers must
disclose to consumers (1) that the initial
discounted rate applies only to balance
transfers or cash advances, as
applicable, and not to purchases; (2)
that payments will be allocated to the
balance transfer or cash advance
balance, as applicable, before being
allocated to any purchase balance
during the time the discounted initial
rate is in effect; and (3) that the
consumer will incur interest on the
purchase balance until the entire
balance is paid, including the
transferred balance or cash advance
balance, as applicable.
In response to the June 2007 Proposal,
several commenters recommended the
Board test a simplified payment
allocation disclosure that covers cases
other than low rate balance transfers
offered with a credit card. In consumer
testing conducted for the Board in
March 2008, the Board tested the
following payment allocation
disclosure: ‘‘Payments may be applied
to balances with lower APRs first. If you
have balances at higher APRs, you may
pay more in interest because these
balances cannot be paid off until all
lower-APR balances are paid in full

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(including balance transfers you make at
the introductory rate).’’ Some
participants understood from prior
experience that issuers typically will
apply payments to lower APR balances
first and the fact that this method causes
them to incur higher interest charges.
For those participants that did not know
about payment allocation methods from
prior experience, the disclosure tested
was not effective in explaining payment
allocation to them.
In May 2008, the Board and other
federal banking agencies proposed
substantive provisions on how issuers
may allocate payments. 73 FR 28904,
May 19, 2008. Specifically, under that
proposal, when different annual
percentage rates apply to different
balances, most issuers would have been
required to allocate amounts paid in
excess of the minimum payment using
one of three specified methods or a
method that is no less beneficial to
consumers. Furthermore, when an
account has a discounted promotional
rate balance or a balance on which
interest is deferred, most issuers would
have been required to give consumers
the full benefit of that discounted rate
or deferred interest plan by allocating
amounts in excess of the minimum
payment first to balances on which the
rate is not discounted or interest is not
deferred (except, in the case of a
deferred interest plan, for the last two
billing cycles during which interest is
deferred). Most issuers also would have
been prohibited from denying
consumers a grace period on nonpromotional purchases (if one is offered)
solely because they have not paid off a
balance at a promotional rate or a
balance on which interest is deferred.
In the supplementary information to
the May 2008 Regulation Z Proposal, the
Board indicated it would withdraw the
proposal to require a card issuer to
explain payment allocation to
consumers in the table, if the
substantive provisions on payment
allocation proposed by the Board and
other federal banking agencies in May
2008 were adopted.
In response to the May 2008
Regulation Z Proposal, several
consumer group commenters suggested
that the Board retain a payment
allocation disclosure, even if the
substantive provisions on payment
allocation were adopted. Specifically,
these commenters suggested that the
Board require issuers to disclose which
of the three proposed payment
allocation methods they will use when
there is no promotional rate on the
account. Also, these commenters
indicated that issuers should be
required to disclose how they apply the

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minimum payment. These commenters
suggested that the payment allocation
disclosures could appear outside the
table required by § 226.5a. Furthermore,
these commenters suggested that some
consumers might understand these
disclosures and use them. In addition,
these commenters indicated that
disclosure of the payment allocation
method would allow consumer groups
to know which method an issuer is
using and the consumer groups could
rate the methods, to help consumers
understand which card is better for the
consumer.
In consumer testing conducted for the
Board after May 2008, different versions
of disclosures explaining payment
allocation were tested, including
language adapted from current credit
card disclosures. Before participants
were shown any disclosures explaining
payment allocation, they were asked a
series of questions designed to
determine whether they had prior
knowledge of payment allocation
methods. This portion of the testing
consisted of showing a hypothetical
example to participants and asking
them, based on their prior experience,
(i) how they believed the card issuer
would allocate the payment and (ii) how
the participant would want the payment
allocated. Participants were then shown
language explaining how a hypothetical
card issuer would allocate payments.
Each disclosure that was used in testing
indicated that the issuer would apply
payments to balances with lower APRs
before balances with higher APRs.
Consumers were then shown the same
hypothetical example and asked the
same series of questions. More
information about the specific
disclosures tested and the results of the
testing are available in the December
2008 Macro Report on Quantitative
Testing.
Most participants who answered both
questions correctly before being shown
the disclosure, suggesting that they had
prior knowledge of payment allocation,
answered the questions correctly after
reviewing the disclosure. Some of these
participants, however, gave incorrect
responses to questions that they had
answered correctly before reviewing the
disclosures, suggesting that the
disclosure was detrimental to these
participants’ understanding of payment
allocation practices. Only a small
percentage of consumers who did not
understand payment allocation prior to
reviewing the disclosure, gave the
correct responses after reviewing the
disclosure. None of the versions of the
disclosure that were tested performed
significantly better than any of the
others.

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The final rule does not require a
disclosure regarding payment allocation
in the table. As described above, the
consumer testing conducted on behalf of
the Board suggests that disclosures of
payment allocation practices have only
a minor positive impact on consumer
comprehension. In addition, the Board
and other federal banking agencies are
substantively addressing payment
allocation practices in rules published
elsewhere in today’s Federal Register.
Specifically, the Board and other federal
banking agencies are requiring issuers to
allocate amounts paid in excess of the
minimum payment using one of two
specified methods. These substantive
rules regarding payment allocation
would permit issuers to use payment
allocation methods that may be more
complicated to disclose than the
relatively simple example used in
consumer testing, i.e., application of
payments to balances with lower APRs
before balances with higher APRs.
Consequently, the Board does not
believe that disclosure requirements
would be helpful as a supplement to the
substantive rules. Finally, even if
consumers were able to understand
payment allocation disclosures, it is
unclear whether they would be able to
evaluate whether one payment
allocation method is better than another
at the time they are shopping for a credit
card because which payment allocation
method is the most beneficial to a given
consumer would depend on how that
consumer uses the account.
Additional disclosures. In response to
the June 2007 Proposal, several
commenters suggested that the Board
require in the table information about
the minimum payment formula, credit
limit, any security interest, reasons
terms on the account may change, and
all fees imposed on the account.
1. Minimum payment formula. In
response to the June 2007 Proposal,
several consumer groups urged the
Board to require issuers to disclose in
the table the minimum payment
formula. They believed that this would
allow consumers to understand what
portion of principal balance repayment
is being included in the minimum
payment. Several industry commenters
supported the Board’s proposal not to
require the minimum payment formula
in the table. The final rule does not
require the minimum payment formula
in the table. In the consumer testing
conducted for the Board, participants
did not tend to mention the minimum
payment formula as one of the terms on
which they shop for a card. In addition,
minimum payment formulas used by
card issuers can be complicated and

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would be hard to describe concisely in
the table.
2. Credit limit. Card issuers often state
a credit limit in a cover letter sent with
an application or solicitation.
Frequently, this credit limit is not
disclosed as a specific amount but,
instead, is stated as an ‘‘up to’’ amount,
indicating the maximum credit limit for
which a consumer may qualify. The
actual credit limit for which a consumer
qualifies depends on the consumer’s
creditworthiness and other factors such
as income, which is evaluated after the
consumer submits the application or
solicitation. As explained in the
supplementary information to the June
2007 Proposal, the Board did not
propose to include the credit limit in
the table. As explained above, in most
cases, the credit limit for which a
consumer qualifies depends on the
consumer’s creditworthiness, which is
fully evaluated after the consumer
submits the application or solicitation.
In addition, in consumer testing
conducted for the Board prior to the
June 2007 Proposal, participants were
not generally confused by the ‘‘up to’’
credit limit. Most participants
understood that the ‘‘up to’’ amount on
the solicitation letter was a maximum
amount, rather than the amount the
issuer was promising them. Almost all
participants tested understood that the
credit limit for which they would
qualify depended on their
creditworthiness, such as credit history.
In response to the June 2007 Proposal,
several consumer group commenters
suggested that the Board require issuers
to disclose the credit limit in the table
required by § 226.5a. Several consumer
groups suggested that the Board include
the credit limit in the table because it is
a key factor for many consumers in
shopping for a credit card. These groups
also suggested that the Board require
issuers to state a specific credit limit,
and not an ‘‘up to’’ amount. One
industry commenter also suggested that
the Board require issuers to disclose in
the table the range of credit limits that
are being offered. This commenter
pointed out that currently credit card
issuers generally have a range of credit
limits in mind when marketing a card,
and while the range is often disclosed
in the marketing materials, the
maximum and minimum credit lines are
not necessarily found in the same place
in the marketing materials or disclosed
with the same prominence.
In May 2008, the Board and other
federal banking agencies proposed that
financial institutions that make ‘‘firm
offers of credit’’ as defined in the FCRA
and that advertise multiple APRs or ‘‘up
to’’ credit limits would be required to

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disclose in the solicitation the factors
that determine whether a consumer will
qualify for the lowest APR and highest
credit limit advertised. See 73 FR 28904,
May 19, 2008. As discussed elsewhere
in today’s Federal Register, the Board
and other federal banking agencies have
not adopted a requirement that creditors
disclose in the solicitation the factors
that determine whether a consumer will
qualify for the lowest APR and highest
credit limit advertised.
Similarly, the Board has not included
in the final rule a requirement that
issuers disclose the credit limit in either
the table required by § 226.5a or the
solicitation. The Board’s consumer
testing indicates that consumers
generally understand from prior
experience that their credit limits will
depend on their credit histories. Thus,
the final rule does not require a
disclosure of the credit limit in the
§ 226.5a table or the solicitation.
3. Security interest. In response to the
June 2007 Proposal, several consumer
group commenters suggested that any
required security interest should be
disclosed in the table. These
commenters suggest that if a security
interest is required, the disclosure in the
table should describe it briefly, such as
‘‘in items purchased with card’’ or
‘‘required $200 deposit.’’ These
commenters indicated that a security
deposit is a very important
consideration in credit shopping,
especially for low-income consumers. In
addition, they stated that many credit
cards issued by merchants are secured
by the goods that the consumer
purchases, but consumers are often
unaware of the security interest.
The final rule does not require issuers
to disclose in the table any required
security interest. Credit card-issuing
merchants may include in their account
agreements a security interest in the
goods that are purchased with the card.
Any such security interest must be
disclosed at account-opening pursuant
to § 226.6(b)(5), as discussed below. It is
not apparent that consumers would
shop on whether a retail card has this
type of security interest. Requiring or
allowing this type of security interest to
be disclosed in the table may distract
from important information in the table,
and contribute to ‘‘information
overload.’’ Thus, in an effort to
streamline the information that may
appear in the table, the final rule does
not include this disclosure in the table.
With respect to security deposits, if a
consumer is required to pay a security
deposit prior to obtaining a credit card
and that security deposit is not charged
to the account but is paid by the
consumer from separate funds, a card

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issuer must necessarily disclose to the
consumer that a security deposit is
required, so that the consumer knows to
submit the deposit in order to obtain the
card. A security deposit in these
instances is likely to be sufficiently
highlighted in the materials
accompanying the application or
solicitation, and does need to appear in
the table. Nonetheless, the Board
recognizes that a security deposit may
need to be highlighted when the deposit
is not paid from separate funds but is
charged to the account when the
account is opened, particularly when
the security deposit may significantly
decrease consumers’ available credit
when the account is opened. Thus, as
described above, the final rule provides
that if (1) a card agreement requires
payment of a fee for issuance or
availability of credit, or a security
deposit, (2) the fee or security deposit
will be charged to the account when it
is opened, and (3) the total of those fees
and security deposit equal 15 percent or
more of the minimum credit limit
offered with the card, the card issuer
must disclose in the table an example of
the amount of the available credit that
a consumer would have remaining after
these fees or security deposit are debited
to the account, assuming that the
consumer receives the minimum credit
limit offered on the card.
4. Reasons terms may change. In
response to the June 2007 Proposal,
several commenters suggested that the
Board should require in the table a
disclosure of the reasons issuers may
change terms on the account. Typically,
a credit card issuer will reserve the right
to change terms on the account at any
time for any reason. These commenters
believed that a disclosure of the issuer’s
ability to change terms for any reason at
any time would alert consumers to the
practice at the outset of the relationship
and could promote competition among
issuers regarding use of the practice.
The Board is not requiring in the table
a disclosure of the reasons issuers may
change terms on the account. In
consumer testing conducted by the
Board in March 2008, participants were
asked to compare two credit card offers
where the offers contained different
account terms, such as APRs and fees.
In addition, one of these offers included
a disclosure in the table that the card
issuer could change APRs ‘‘at any time
for any reason,’’ while the other offer
did not include this disclosure. While
about half of the participants indicated
they considered it a positive factor that
one of the offers did not include a
disclosure that APRs could change at
any time for any reason, this fact did not

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ultimately impact which offer they
chose.
Thus, it does not appear consumers
would shop for a credit card based on
this disclosure, and allowing this
disclosure in the table may distract from
more important information in the table,
and contribute to ‘‘information
overload.’’ Nonetheless, the Board
believes that it is important for
consumers to be properly informed
when terms on their accounts are
changing, and the final rule contains
provisions relating to change-in-terms
notices and penalty rate notices that are
designed to achieve this goal. See
section-by-section analysis to § 226.9(c)
and (g). In addition, the Board and other
federal banking agencies have issued
final rules published elsewhere in
today’s Federal Register that generally
prohibit the application of increased
rates to existing balances. The Board
believes that the substantive protection
provided by these rules mitigates the
impact of many rate increases, and
decreases the need for an up-front
disclosure of the issuer’s reservation of
the right to change terms.
5. Fees. In response to the June 2007
Proposal, several consumer groups
suggested that in addition to the fees
that the Board has proposed to be
included in the table, the Board should
require that any fee that a creditor
charges to more than 5 percent of its
cardholders be disclosed in the table. In
addition, one member of Congress
suggested that issuers be required to
disclose in the table fees to pay by
phone or on the Internet.
As described above, under the final
rule, issuers will be required to disclose
certain transaction fees and penalty fees,
such as cash advance fees, balance
transfer fees, late-payment fees, and
over-the-limit fees, in the table because
these fees are frequently paid by
consumers, and consumers in testing
and comment letters have indicated
these fees are important for shopping
purposes. The Board is not requiring
issuers to disclose other fees in the
table, such as fees to pay by phone or
on the Internet, because these fees tend
to be imposed less frequently and are
not fees on which consumers tend to
shop. In consumer testing conducted for
the Board prior to the June 2007
Proposal, participants tended to
mention cash advance fees, balance
transfer fees, late-payment fees, and
over-the-limit fees as the most important
fees they would want to know when
shopping for a credit card. In addition,
most participants understood that
issuers were allowed to impose
additional fees, beyond those disclosed
in the table. Thus, the Board believes it

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is important to highlight in the table the
fees that most consumers want to know
when shopping for a card, rather than
including infrequently-paid fees, to
avoid creating ‘‘information overload’’
such that consumers could not easily
identify the fees that are most important
to them. In addition, the Board is not
imposing a requirement that issuers
disclose in the table any fee that the
issuer charges to more than 5 percent of
the cardholders for the card. This would
undercut the uniformity of the table. For
example, although most issuers may
charge a certain fee, such as a fee to pay
by phone, requiring issuers to disclose
a fee if the issuer charges it to more than
5 percent of the cardholders for the
card, could mean that some issuers
would disclose the fee to pay by phone
and some would not, even though most
issuers charge this fee. The Board
recognizes that fees can change over
time, and the Board plans to monitor the
market and update the fees required to
be disclosed in the table as necessary.
In addition, in response to the June
2007 Proposal, one federal banking
agency suggested that the Board include
a disclosure in the table when an issuer
may impose an over-the-limit or other
penalty fee based on circumstances that
result solely from the imposition of
other fees or finance charges, or if the
contract permits it to impose penalty
fees in consecutive cycles based on a
single failure by the consumer to abide
by the terms of the account. The Board
is not requiring this disclosure in the
table. The Board believes that
consumers are not likely to consider this
information in shopping for a credit
card. Requiring this disclosure in the
table may distract from important
information in the table, and contribute
to ‘‘information overload.’’
5a(c) Direct Mail and Electronic
Applications
5a(c)(1) General
Electronic applications and
solicitations. As discussed above, the
Bankruptcy Act amended TILA Section
127(c) to require that solicitations to
open a card account using the Internet
or other interactive computer service
must contain the same disclosures as
those made for applications or
solicitations sent by direct mail. 15
U.S.C. 1637(c)(7). The interim final
rules adopted by the Board in 2001
revised § 226.5a(c) to apply the direct
mail rules to electronic applications and
solicitations. In the June 2007 Proposal,
the Board proposed to retain these
provisions in § 226.5a(c)(1). (Current
§ 226.5a(c) would be revised and
renumbered as new § 226.5a(c)(1).) The

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final rule adopts new § 226.5a(c)(1) as
proposed.
The Bankruptcy Act also requires that
the disclosures for electronic offers must
be ‘‘updated regularly to reflect the
current policies, terms, and fee
amounts.’’ In the June 2007 Proposal,
the Board proposed to revise § 226.5a(c)
to implement the ‘‘updated regularly’’
standard in the Bankruptcy Act with
regard to the accuracy of variable rates.
As proposed, a new § 226.5a(c)(2) would
have been added to address the
accuracy of variable rates in direct mail
and electronic applications and
solicitations. This new section would
have required issuers to update variable
rates disclosed on mailed applications
and solicitations every 60 days and
variable rates disclosed on applications
and solicitations provided in electronic
form every 30 days, and to update other
terms when they change. As proposed,
§ 226.5a(c)(2) consisted of two
subsections.
Section 226.5a(c)(2)(i) would have
provided that § 226.5a disclosures
mailed to a consumer must be accurate
as of the time the disclosures are
mailed. This section also would have
provided that an accurate variable APR
is one that is in effect within 60 days
before mailing. Section 226.5a(c)(2)(ii)
would have provided that § 226.5a
disclosures provided in electronic form
(except for a variable APR) must be
accurate as of the time they are sent to
a consumer’s e-mail address, or as of the
time they are viewed by the public on
a Web site. As proposed, this section
would have provided that a variable
APR is accurate if it is in effect within
30 days before it is sent, or viewed by
the public. Many of the provisions
included in proposed § 226.5a(c)(2)
were incorporated from current
§ 226.5a(b)(1). To eliminate redundancy,
the Board proposed to revise
§ 226.5a(b)(1) by deleting
§ 226.5a(b)(1)(ii), (b)(1)(iii), and
comment 5a(c)–1.
In response to the June 2007 Proposal,
one commenter suggested that all
variable APR accuracy standards should
be simplified to allow for disclosures to
be modified every 60 days. This
commenter suggested that issuers
should be able to follow a 60-day
standard for accuracy for APR
disclosures no matter how they are
delivered to ease the burden of
compliance. This commenter also
indicated that issuers often mail a
solicitation for a credit card to a
consumer and post the same offer on a
Web site or e-mail it to the consumer.
The disclosures for the same offer could
be different, if the rate mailed is 60 days
old and the offer on the Web site is 30

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days old. This commenter also indicated
that having to create changes to the
direct mail documents for offers
delivered electronically is inefficient
and costly. On the other hand, one
consumer group commenter suggested
that all electronic disclosures should be
accurate as of the date when given,
including variable rate APRs.
The Board adds § 226.5a(c)(2) and
deletes § 226.5a(b)(1)(ii), (b)(1)(iii), and
comment 5a(c)–1 as proposed. The
Board believes the 30-day and 60-day
accuracy requirements for variable rates
strike an appropriate balance between
seeking to ensure consumers receive
updated information and avoiding
imposing undue burdens on creditors.
The Board believes it is unnecessary for
creditors to disclose to consumers the
exact variable APR in effect on the date
the application or solicitation is
accessed by the consumer, because
consumers generally understand that
variable rates are subject to change.
Moreover, it would be costly and
operationally burdensome for creditors
to comply with a requirement to
disclose the exact variable APR in effect
at the time the application or
solicitation is accessed. The obligation
to update the other terms when they
change ensures that consumers receive
information that is accurate and current,
and should not impose significant
burdens on issuers. These terms
generally do not fluctuate with the
market like variable rates. In addition,
the Board understands that issuers
typically change other terms
infrequently, perhaps once or twice a
year.
5a(d) Telephone Applications and
Solicitations

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5a(d)(1) Oral Disclosure
Section 226.5a(d) specifies rules for
providing cost disclosures in oral
applications and solicitations initiated
by a card issuer. Pursuant to TILA
Section 127(c)(2), card issuers generally
must provide certain cost disclosures
during the oral conversation in which
the application or solicitation is given.
Alternatively, an issuer is not required
to give the oral disclosures if the card
issuer either does not impose a fee for
the issuance or availability of a credit
card (as described in § 226.5a(b)(2)) or
does not impose such a fee unless the
consumer uses the card, provided that
the card issuer provides the disclosures
later in a written form. 15 U.S.C.
1637(c)(2).
Consumer-initiated calls. In response
to the June 2007 Proposal, several
consumer group commenters suggested
that the requirements to provide oral

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disclosures in § 226.5a(d)(1) should not
be limited to applications and
solicitations initiated by the card issuer.
Instead, the Board should require oral
disclosures for all calls resulting in an
application or solicitation for a credit
card—even if the consumer rather than
the issuer initiates the telephone call.
Consistent with the statutory
requirement in TILA Section 127(c)(2),
the final rule in § 226.5a(d)(1) continues
to limit the requirement to provide oral
disclosure to situations where oral
applications and solicitations are
initiated by a card issuer. 15 U.S.C.
1637(c)(2).
Written applications. In response to
the June 2007 Proposal, several
consumer group commenters suggested
that the Board require that all
applications be made in writing. They
indicated that while an issuer could
offer the credit card over the phone, the
consumer should be required to sign an
application to ensure that he or she
actually applied for the card and not a
thief or errant household member. The
final rule does not require all
applications for credit cards to be made
in writing. Allowing oral applications
and solicitations is consistent with the
statutory provision in TILA Section
127(c)(2). 15 U.S.C. 1637(c)(2).
Available credit disclosure. Currently,
under § 226.5a(d)(1), if the issuer
provides the disclosures orally, the
issuer must provide information
required to be disclosed under
§ 226.5a(b)(1) through (b)(7). This
includes information about (1) APRs; (2)
fees for issuance or availability of credit;
(3) minimum or fixed finance charges;
(4) transaction charges for purchases; (5)
grace period on purchases; (6) balance
computation method; and (7) as
applicable, a statement that charges
incurred by use of the charge card are
due when the periodic statement is
received.
In the June 2007 Proposal, the Board
did not propose to revise § 226.5a(d)(1).
In response to the June 2007 Proposal,
some consumer group commenters
urged the Board to revise § 226.5a(d)(1)
to require issuers that are marketing
credit cards by telephone to disclose
certain additional information to
consumers at the time of the phone call,
such as the cash advance fee, the latepayment fee, the over-the-limit fee, the
balance transfer fee, information about
penalty rates, any fees for required
insurance, and the disclosure about
available credit in proposed
§ 226.5a(b)(16).
In the May 2008 Proposal, the Board
proposed to amend § 226.5a(d)(1) to
require that if an issuer provides the
oral disclosures, the issuer must also

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disclose orally, if applicable, the
information about available credit in
proposed § 226.5a(b)(16) pursuant to the
Board’s authority under TILA Section
127(c)(5) to add or modify § 226.5a
disclosures as necessary to carry out the
purposes of TILA. 15 U.S.C. 1637(c)(5).
In response to the May 2008 Proposal,
commenters generally supported this
aspect of the proposal.
The final rule amends § 226.5a(d)(1),
as proposed. Currently, issuers that
provide the oral disclosures must
inform consumers about the fees for
issuance and availability of credit that
are applicable to the card. The Board
believes that the information about
available credit would complement this
disclosure, by disclosing to consumers
the impact of these fees on the available
credit.
Other oral disclosures. In response to
the June 2007 Proposal, several
consumer groups suggested that issuers
should be required to provide all of the
disclosures required by proposed
§ 226.5a(b)(1) through (b)(17) orally with
respect to an oral application or
solicitation, including cash advance
fees, late-payment fees, over-the-limit
fees, balance transfer fees, and fees for
required insurance. In the
supplementary information to the May
2008 Proposal, the Board did not
propose to require issuers to provide
orally a disclosure of the fees described
above. The Board was concerned that
requiring this information in oral
conversations about credit cards would
lead to ‘‘information overload’’ for
consumers. In response to the May 2008
Proposal, consumer groups still believed
that consumers should receive this
information when making the decision
whether to apply for a card. They
further suggested that the solution to
‘‘information overload’’ was to require a
written application to be made
whenever there is a telephone credit
card application or solicitation. As
explained above, the final rule does not
require applications for credit cards to
be made in writing. Allowing oral
applications and solicitations is
consistent with the statutory provision
in TILA Section 127(c)(2). 15 U.S.C.
1637(c)(2).
5a(d)(2) Alternative Disclosure
Section 226.5a(d) specifies rules for
providing cost disclosures in oral
applications and solicitations initiated
by a card issuer. Card issuers generally
must provide certain cost disclosures
orally during the conversation in which
the application or solicitation is
communicated to the consumer.
Alternatively, an issuer is not required
to give the oral disclosures if the card

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issuer either does not impose a fee for
the issuance or availability of a credit
card (as described in § 226.5a(b)(2)) or
does not impose such a fee unless the
consumer uses the card, provided that
the card issuer provides the disclosures
later in a written form. Specifically, the
issuer must provide the disclosures
required by § 226.5a(b) in a tabular
format in writing within 30 days after
the consumer requests the card (but in
no event later than the delivery of the
card), and disclose the fact that the
consumer need not accept the card or
pay any fee disclosed unless the
consumer uses the card. In the June
2007 Proposal, the Board proposed to
add comment 5a(d)–2 to indicate that an
issuer may disclose in the table that the
consumer is not required to accept the
card or pay any fee unless the consumer
uses the card.
Account is not approved. In response
to the June 2007 Proposal, one
commenter suggested that the Board
clarify that the written alternative
disclosures would only be necessary if
the application for the account is
approved. The Board notes that current
comment 5a(d)–1 indicates that the oral
and alternative written disclosure
requirements do not apply in situations
where no card will be issued because,
for example, the consumer indicates
that he or she does not want the card,
or the card issuer decides either during
the telephone conversation or later not
to issue the card. This comment is
retained in the final rule.
Substitution of account-opening table
for table required by § 226.5a. In
response to the June 2007 Proposal, one
commenter suggested that the Board
clarify that the account-opening table
may substitute for the written
alternative disclosures set forth in
§ 226.5a(d)(2). In the June 2007
Proposal, comment 5a–2 provided, in
part, that issuers in complying with
§ 226.5a(d)(2) may substitute the
account-opening table in lieu of the
disclosures required by § 226.5a, if the
issuer provides the disclosures required
by § 226.6 on or with the application or
solicitation. See proposed § 226.6(b)(4).
Because the written alternative
disclosures are not provided with the
application or solicitation, the Board
recognizes that proposed comment 5a–
2 might have led to confusion about
whether the account-opening table
described in § 226.6(b)(1) may be
substituted for the written alternative
disclosures. In the final rule, the Board
has revised comment 5a–2 to delete the
reference to the alternative written
disclosures in § 226.5a(d). Instead, the
Board adds new comment 5a(d)–3 to
indicate that issuers may substitute the

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account-opening table described in
§ 226.6(b)(1) in lieu of the alternative
written disclosures described in
§ 226.5a(d)(2).
Mailing of written alternative
disclosures. In response to the June 2007
Proposal, several consumer group
commenters suggested that the Board
require issuers to provide the written
alternative disclosures in the mailing
that delivers the card, and should
impose requirements that will ensure
that the disclosures are prominent.
Otherwise, issuers may make the
written alternative disclosures in
separate mailings, in an obscure part of
the cover letter with the card, or in other
ways that are designed not to attract
consumers’ attention. The final rule
does not contain this provision. The
Board expects that issuers will
substitute the account-opening table
described in § 226.6(b)(1) in lieu of the
written alternative disclosures described
in § 226.5a(d)(2). Card issuers typically
mail account-opening disclosures with
the card.
Right to reject account. As described
above, an issuer is not required to give
the oral disclosures if the card issuer
either does not impose a fee for the
issuance or availability of a credit card
(as described in § 226.5a(b)(2)) or does
not impose such a fee unless the
consumer uses the card, provided that
the card issuer provides the disclosures
later in a written form. 15 U.S.C.
1637(c)(2). In the final rule,
§ 226.5a(d)(2) is revised to be consistent
with the right to reject the account given
in § 226.5(b)(1)(iv) with respect to
account-opening disclosures. As
discussed in the section-by-section
analysis to § 226.5(b)(1)(iv), the final
rule amends § 226.5(b)(1)(iv) to provide
that creditors may collect or obtain the
consumer’s promise to pay a
membership fee before the accountopening disclosures are provided, if the
consumer can reject the plan after
receiving the disclosures. In addition, as
discussed in the section-by-section
analysis to § 226.6(b)(2)(xiii), the final
rule also requires creditors to disclose in
the account-opening table described in
§ 226.6(b)(1) the right to reject described
in § 226.5(b)(1)(iv) if required fees for
the availability or issuance of credit, or
a security deposit, equal 15 percent or
more of the actual credit limit offered on
the account at account opening. See
§ 226.6(b)(2)(xiii).
The Board expects that issuers will
provide the account-opening table
described in § 226.6(b)(1) in lieu of the
alternative written disclosures described
in § 226.5a(d)(2). The final rule revises
comment 5a(d)–2 to specify that the
right to reject the plan referenced in

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5303

§ 226.5a(d)(2) with respect to the
alternative written disclosures is the
same as the right to reject the plan
described in § 226.5(b)(1)(iv) with
respect to account-opening disclosures.
An issuer may substitute the accountopening summary table described in
§ 226.6(b)(1) in lieu of the written
alternative disclosures specified in
§ 226.5a(d)(2)(ii). In that case, the
disclosure about the right to reject
specified in § 226.5a(d)(2)(ii)(B) must
appear in the table, if the issuer is
required to do so pursuant to
§ 226.6(b)(2)(xiii). Otherwise, the
disclosure specified in
§ 226.5a(d)(2)(ii)(B) may appear either in
or outside the table containing the
required credit disclosures.
5a(d)(3) Accuracy
As proposed in June 2007 Proposal,
§ 226.5a(d)(3) would have provided
guidance on the accuracy of telephone
disclosures. Current comment 5a(b)(1)–
3 specifies that for variable-rate
disclosures in telephone applications
and solicitations, the card issuer must
provide the rates currently applicable
when oral disclosures are provided. For
the alternative disclosures under
§ 226.5a(d)(2), an accurate variable APR
is one that is: (1) In effect at the time
the disclosures are mailed or delivered;
(2) in effect as of a specified date (which
rate is then updated from time to time,
for example, each calendar month); or
(3) an estimate in accordance with
§ 226.5(c). Current comment 5a(b)(1)–3
was proposed to be moved to
§ 226.5a(d)(3) under the June 2007
Proposal, except that the option of
estimating a variable APR would have
been eliminated as the least meaningful
of the three options. Proposed
§ 226.5a(d)(3) also would have specified
that if an issuer discloses a variable APR
as of a specified date, the issuer must
update the rate on at least a monthly
basis, the frequency with which variable
rates on most credit card products are
adjusted. The Board also proposed to
amend § 226.5a(d)(3) to specify that oral
disclosures under § 226.5a(d)(1) must be
accurate when given, consistent with
the requirement in § 226.5(c) that
disclosures must reflect the terms of the
legal obligation between the parties. For
the alternative disclosures, the proposal
would have specified that terms other
than variable APRs must be accurate as
of the time they are mailed or delivered.
In response to the June 2007 Proposal,
one commenter indicated that the
accuracy standard for oral disclosures
could potentially require an issuer to
update rates on a daily basis. This
commenter believed that this proposed
rule would create unnecessary burden

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on creditors and would provide little
benefit to consumers since the rates do
not generally vary by much from one
day to the next. The Board understands
that issuers typically adjust variable
rates for most credit card products on a
monthly basis, so as a practical matter,
issuers will only need to update the oral
disclosures on a monthly basis in order
to meet the requirement that oral
disclosures be accurate when given.
Section 226.5a(d)(3) is adopted as
proposed.

§ 226.5a(e)(1) and comment 5a–2. As
discussed in the section-by-section
analysis to § 226.6(b)(1), the final rule
requires creditors to provide certain
account-opening information in the
form of a table. Accordingly, the Board
deletes current § 226.5a(e)(2) and
current comments 5a(e)(2)–1 and –2 as
proposed, pursuant to the Board’s
authority under TILA Section 127(c)(5).
15 U.S.C. 1637(c)(5). Current
§ 226.5a(e)(3) and comment 5a(e)(3)–1
are renumbered accordingly.

5a(e) Applications and Solicitations
Made Available to General Public
TILA Section 127(c)(3) and § 226.5a(e)
specify rules for providing disclosures
in applications and solicitations made
available to the general public such as
‘‘take-one’’ applications and
applications in catalogs or magazines.
15 U.S.C. 1637(c)(3). These applications
and solicitations must either contain: (1)
The disclosures required for direct mail
applications and solicitations, presented
in a table; (2) a narrative that describes
how finance charges and other charges
are assessed; or (3) a statement that costs
are involved, along with a toll-free
telephone number to call for further
information.
Narrative that describes how finance
charges and other charges are assessed.
TILA Section 127(c)(3)(D) and
§ 226.5a(e)(2) allow issuers to meet the
requirements of § 226.5a for take-one
applications and solicitations by giving
a narrative description of certain
account-opening disclosures (such as
information about how finance charges
and other charges are assessed), a
statement that the consumer should
contact the card issuer for any change in
the required information and a toll-free
telephone number or a mailing address
for that purpose. 15 U.S.C.
1637(c)(3)(D). Currently, this
information does not need to be in the
form of a table, but may be a narrative
description, as is also currently allowed
for account-opening disclosures. In the
June 2007 Proposal, the Board proposed
to require that certain account-opening
information (such as information about
key rates and fees) must be given in the
form of a table. Therefore, the Board
also proposed that card issuers give this
same information in a tabular form in
take-one applications and solicitations.
Specifically, the Board proposed to
delete § 226.5a(e)(2) and comments
5a(e)(2)–1 and –2 as obsolete. Under the
proposal, card issuers that provide cost
disclosures in take-one applications and
solicitations would have been required
to provide the disclosures in the form of
a table, for which they could use the
account-opening summary table. See

5a(e)(4) Accuracy
For applications or solicitations that
are made available to the general public,
if a creditor chooses to provide the cost
disclosures on the application or
solicitation, § 226.5a(b)(1)(ii) currently
requires that any variable APR disclosed
must be accurate within 30 days before
printing. In the June 2007 Proposal, the
Board proposed to move this provision
to § 226.5a(e)(4). In addition, proposed
§ 226.5a(e)(4) also would have specified
that other disclosures must be accurate
as of the date of printing. The final rule
adopts § 226.5a(e)(4) and accompanying
commentary as proposed.

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5a(f) In-Person Applications and
Solicitations
Card issuer and person extending
credit are not the same. Existing
§ 226.5a(f) and its accompanying
commentary contain special charge card
rules that address circumstances in
which the card issuer and the person
extending credit are not the same
person. (These provisions implement
TILA Section 127(c)(4)(D), 15 U.S.C.
1637(c)(4)(D).) The Board understands
that these types of cards are no longer
being offered. Thus, in the June 2007
Proposal, the Board proposed to delete
these provisions and Model Clause G–
12 from Regulation Z as obsolete,
recognizing that the statutory provision
in TILA Section 127(c)(4)(D) will remain
in effect if these products are offered in
the future. The Board also requested
comment on whether these provisions
should be retained in the regulation.
Under the June 2007 Proposal, a
commentary provision referencing the
statutory provision would have been
added to § 226.5(d), which addresses
disclosure requirements for multiple
creditors. See section-by-section
analysis to § 226.5(d). The final rule
deletes current § 226.5a(f),
accompanying commentary, and Model
Clause G–12 as proposed.
In-person applications and
solicitations. In the June 2007 Proposal,
the Board proposed a new § 226.5a(f)
and accompanying commentary to
address in-person applications and

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solicitations initiated by the card issuer.
For in-person applications, a card issuer
initiates a conversation with a consumer
inviting the consumer to apply for a
card account, and if the consumer
responds affirmatively, the issuer takes
application information from the
consumer. For example, in-person
applications include instances in which
a retail employee, in the course of
processing a sales transaction using the
customer’s bank credit card, invites the
customer to apply for the retailer’s
credit card and the customer submits an
application.
For in-person solicitations, a card
issuer makes an in-person offer to a
consumer to open an account that does
not require an application. For example,
in-person solicitations include instances
where a bank employee offers a
preapproved credit card to a consumer
who came into the bank to open a
checking account.
Currently, in-person applications in
response to an invitation to apply are
exempted from § 226.5a because they
are considered applications initiated by
consumers. (See current comments
5a(a)(3)–2 and 5a(e)–2.) On the other
hand, in-person solicitations are not
specifically addressed in § 226.5a.
Neither in-person applications nor
solicitations are specifically addressed
in TILA.
In the June 2007 Proposal, the Board
proposed to cover in-person
applications and solicitations under
§ 226.5a, pursuant to the Board’s
authority under TILA Section 105(a) to
make adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1604(a). In the June 2007
Proposal, existing comment 5a(a)(3)–2
(which would be moved to comment
5a(a)(5)–1) and comment 5a(e)–2 would
have been revised to be consistent with
§ 226.5a(f). No comments were received
on these proposed changes.
Thus, the Board adopts these changes
as proposed pursuant to its TILA
Section 105(a) authority. 15 U.S.C.
1604(a). Requiring in-person
applications and solicitations to include
credit terms under § 226.5a would help
serve TILA’s purpose to provide
meaningful disclosure of credit terms so
that a consumer will be able to compare
more readily the various credit terms
available to him or her, and avoid the
uninformed use of credit. 15 U.S.C.
1601(a). Also, the Board understands
that card issuers routinely provide
§ 226.5a disclosures in these
circumstances; therefore, any additional
compliance burden would be minimal.
Card issuers must provide the
disclosures required by § 226.5a in the
form of a table, and those disclosures

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must be accurate either when given
(consistent with the direct mail rules) or
when printed (consistent with one
option for the take-one rules). See
§ 226.5a(c) and (e)(1). These two
alternatives provide issuers flexibility,
while also providing consumers with
the information they need to make
informed credit decisions.
5a(g) Balance Computation Methods
Defined
TILA Section 127(c)(1)(A)(iv) calls for
the Board to name not more than five of
the most common balance computation
methods used by credit card issuers to
calculate the balance for purchases on
which finance charges are computed. 15
U.S.C. 1637(c)(1)(A)(iv). If issuers use
one of the balance computation methods
named by the Board, the issuer must
disclose that name of the balance
computation method as part of the
disclosures required by § 226.5a and is
not required to provide a description of
the balance computation method. If the
issuer uses a balance computation
method that is not named by the Board,
the issuer must disclose a detailed
explanation of the balance computation
method. See current § 226.5a(b)(6).
Currently, the Board has named four
balance computation methods: (1)
Average daily balance (including new
purchases) or (excluding new
purchases); (2) two-cycle average daily
balance (including new purchases) or
(excluding new purchases); (3) adjusted
balance; and (4) previous balance. In the
June 2007 and May 2008 Proposals, the
Board proposed to retain these four
balance computation methods.
In response to the June 2007 Proposal,
several industry commenters suggested
that the Board add the ‘‘daily balance
method’’ to the list of balance
computation methods listed in the
regulation. These commenters indicated
that the ‘‘daily balance method’’ is one
of the most common balance
computation methods used by card
issuers. Currently, comment 5a(g)–1
provides that card issuers using the
daily balance method may disclose it
using the name average daily balance
(including new purchases) or average
daily balance (excluding new
purchases), as appropriate.
Alternatively, such card issuers may
explain the method. The final rule
revises § 226.5a(g) to include daily
balance method as one of the balance
computation methods named in the
regulation. As a result, card issuers may
disclose ‘‘daily balance method’’ as the
name of the balance computation
method used as part of the disclosures
required by § 226.5a, and are not
required to provide a description of the

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balance computation method. The
Board deletes current comment 5a(g)–1,
which provides that card issuers using
the daily balance method may disclose
it using the name average daily balance
(including new purchases) or average
daily balance (excluding new
purchases), as appropriate. See also
§ 226.6(b)(2)(vi) and § 226.7(b)(5), which
allow creditors using balance
calculation methods identified in
§ 226.5a(g) to provide abbreviated
disclosures at account opening and on
periodic statements.
In addition, in response to the May
2008 Proposal, several industry
commenters requested that if the
proposal by the Board and other federal
banking agencies to prohibit certain
issuers from using the two-cycle balance
computation method was adopted, the
Board should include a cross reference
in § 226.5a(g) indicating that some
issuers are not allowed to use the twocycle balance computation method
described in § 226.5a(g). Under rules
issued by the Board and other federal
banking agencies published elsewhere
in today’s Federal Register, most credit
card issuers are prohibited from using
the two-cycle balance computation
method described in § 226.5a(g).
Comment 5a(g)–1 is amended to specify
that some issuers may be prohibited
from using the two-cycle balance
computation method described in
§ 226.5a(g)(2)(i) and (ii) and to cross
reference the rules issued by the federal
banking agencies, as described above.
Section 226.6 Account-Opening
Disclosures
TILA Section 127(a), implemented in
§ 226.6, requires creditors to provide
information about key credit terms
before an open-end plan is opened, such
as rates and fees that may be assessed
on the account. Consumers’ rights and
responsibilities in the case of
unauthorized use or billing disputes are
also explained. 15 U.S.C. 1637(a). See
also Model Forms G–2 and G–3 in
Appendix G to part 226. For a
discussion about account-opening
disclosure rules and format
requirements, see the section-by-section
analysis to § 226.6(a) for HELOCs
subject to § 226.5b, and § 226.6(b) for
open-end (not home-secured) plans.
6(a) Rules Affecting Home-Equity Plans
Account-opening disclosure and
format requirements for HELOCs subject
to § 226.5b were unaffected by the June
2007 Proposal, consistent with the
Board’s plan to review Regulation Z’s
disclosure rules for home-secured credit
in a separate rulemaking. To facilitate
compliance, the substantively unrevised

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rules applicable only to HELOCs are
grouped together in § 226.6(a), as
discussed in this section-by-section
analysis to § 226.6(a). (See redesignation
table below.)
Commenters supported the proposed
organizational changes to ease
compliance. All disclosure requirements
applying exclusively to HELOCs subject
to § 226.5b are set forth in § 226.6(a), as
proposed. Rules relating to the
disclosure of finance charges currently
in § 226.6(a)(1) through (a)(4) are moved
to § 226.6(a)(1)(i) through (a)(1)(iv);
those rules and accompanying official
staff interpretations are substantively
unchanged. Rules relating to the
disclosure of other charges are moved
from current § 226.6(b) to § 226.6(a)(2),
and specific HELOC-related disclosure
requirements are moved from current
§ 226.6(e) to § 226.6(a)(3). Rules of
general applicability to open-end credit
plans relating to security interests and
billing error disclosure requirements are
moved without substantive change from
current § 226.6(c) and (d) (proposed as
§ 226.6(c)(1) and (c)(2) in the June 2007
Proposal) to § 226.6(a)(4) and (a)(5), to
ease compliance.
Several technical revisions to
commentary provisions described in the
June 2007 Proposal are adopted for
clarity and in some cases for
consistency with corresponding
comments to § 226.6(b)(4), which
addresses rate disclosures for open-end
(not home-secured) plans; these
revisions are not intended to be
substantive. See, for example, comments
6(a)(1)(ii)–1 and 6(b)(4)(i)(B)–1, which
address disclosing ranges of balances.
For the reasons set forth in the sectionby-section analysis to § 226.6(b)(3), the
Board updates references to ‘‘free-ride
period’’ as ‘‘grace period’’ in the
regulation and commentary to
§ 226.6(a), without any intended
substantive change.
Also, commentary provisions that
currently apply to open-end plans
generally but are inapplicable to
HELOCs are not included in the
commentary provisions related to
§ 226.6(a), as proposed. For example,
guidance in current 6(a)(2)–2 regarding
a creditor’s general reservation of the
right to change terms is not included in
comment 6(a)(1)(ii)–2, because
§ 226.5b(f)(1) prohibits ‘‘ratereservation’’ clauses for HELOCs.
Model forms and clauses. Revisions to
current forms and a new form that
creditors offering HELOCs may use are
adopted as proposed. In response to
comments received on the June 2007
Proposal, the Board proposed in May
2008 to add a new paragraph to
Appendix G–1 (Balance Computation

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Methods Model Clauses) to part 226 to
describe the daily balance computation
method. A new Appendix G–1(A) to
part 226 was also proposed for creditors
offering open-end (not home-secured)
plans. See section-by-section analysis to
§ 226.6(b)(4)(i)(D).
For the reasons set forth in the May
2008 Proposal, the Board is adopting the
revisions to Appendix G–1 to part 226,
retitled as Balance Computation
Methods Model Clauses (Home-equity
Plans) to ease compliance, as proposed.
Comment App. G–1 is revised to clarify
that a creditor offering HELOCs may use
the model clauses in Appendix G–1 or
G–1(A), at the creditor’s option.
In addition, for the reasons discussed
in the section-by-section analysis to
§§ 226.12 and 226.13, model language
has been added to Model Clause G–2
(Liability for Unauthorized Use Model
Clause), Model Form G–3 (Long-form
Billing-error Rights Model Form Homeequity Plans) and Model Form G–4
(Alternative Billing-error Rights Model
Form Home-equity Plans) regarding
consumers’ use of electronic
communication relating to unauthorized
transactions or billing disputes. Like
with Model Clauses G–1 and G–1(A),
the Board is adding new forms G–3(A)
and G–4(A) for creditors offering openend (not home-secured) plans, which a
creditor offering HELOCs may use, at
the creditor’s option. See comment app.
G–3.
6(b) Rules Affecting Open-end (not
Home-secured) Plans
All account-opening disclosure
requirements applying to open-end (not
home-secured) plans are set forth in
§ 226.6(b). The Board is adopting two
significant revisions to account-opening
disclosures for open-end (not homesecured) plans, which are set forth in
§ 226.6(b), as proposed. The revisions
(1) require a tabular summary of key
terms to be provided before an account
is opened (see § 226.6(b)(1) and (b)(2)),
and (2) reform how and when cost
disclosures must be made (see
§ 226.6(b)(3) for content, § 226.5(b) and
§ 226.9(c) for timing).
In response to comments received on
the June 2007 Proposal, § 226.6(b) has
been reorganized in the final rule for
clarity. Rules relating to the accountopening tabular summary are set forth
in § 226.6(b)(1) and (b)(2) and mirror, to
the extent applicable, the organization
and text of disclosure requirements for
the tabular summary required to
accompany credit or charge card
applications or solicitations in § 226.5a.
General disclosure requirements about
costs imposed as part of the plan are set
forth in § 226.6(b)(3), and additional

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requirements for disclosing rates are at
§ 226.6(b)(4). Rules about disclosures for
optional credit insurance or debt
cancellation or suspension coverage are
set forth at § 226.6(b)(5). Rules of
general applicability to open-end credit
plans relating to security interests and
billing error disclosure requirements,
also are moved to § 226.6(b)(5) without
substantive change from current
§ 226.6(c) and (d) (proposed as
§ 226.6(c)(1) and (c)(2) in the June 2007
Proposal), to ease compliance.
6(b)(1) Format for Open-end (not Homesecured) Plans
As provided by Regulation Z,
creditors may, and typically do, include
account-opening disclosures as a part of
an account agreement document that
also contains other contract terms and
state law disclosures. The agreement is
typically lengthy and in small print. The
June 2007 Proposal would have
introduced format requirements for
account-opening disclosures for openend (not home-secured) plans at
§ 226.6(b)(4), based on proposed format
and content requirements for the tabular
disclosures provided with direct mail
applications for credit and charge cards
under § 226.5a. Proposed forms under
G–17 in Appendix G would have
illustrated the account-opening tables.
The proposal sought to summarize key
information most important to informed
decision-making in a table similar to
that required on or with credit and
charge card applications and
solicitations. TILA disclosures that are
typically lengthy or complex and less
often utilized in determining how to use
an account, such as how variable rates
are determined, could continue to be
integrated with the account agreement
terms but could not be placed in the
table. Uniformity in the presentation of
key information promotes consumers’
ability to compare account terms.
Commenters generally supported
format rules that focus on presenting
essential information in a simplified
way. Consumer groups supported the
use of a tabular format similar to the
summary table required under § 226.5a,
to ease consumers’ ability to find
important information in a uniform
format, and as a means for consumers to
compare terms that are offered with
terms they actually receive. A state
consumer protection body urged the
Board to develop a glossary and, along
with some consumer groups, to mandate
use of uniform terms so that creditors
use the same term to identify fees.
Industry commenters voiced a
number of concerns about the accountopening summary table. Some suggested
the purposes of TILA disclosures are

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different at application and accountopening, and a table at account-opening
is redundant since consumers have
already made their credit decisions.
Some suggested that other techniques to
summarize information, such as an
index or table of contents, should be
permitted. In particular, industry
commenters asked for additional
flexibility to disclose risk-based APRs
outside the summary table, such as in a
welcome letter or documents
accompanying the account agreement,
or on a sales receipt when an open-end
plan is established at a retail store in
connection with the purchase of goods
or services. Others believed the
information was too simple and could
be misleading to consumers and in any
event would quickly become outdated.
To combat out-of-date disclosures, one
creditor suggested requiring a ‘‘real
time’’ version of account terms on-line,
with a paper copy available upon
request.
For the reasons stated in this sectionby-section analysis to § 226.6, the Board
is adopting the formatting requirements
generally as proposed, with revisions
noted below. In response to
commenters’ suggestions, the regulatory
text (moved from proposed § 226.6(b)(4)
to § 226.6(b)(1) and (b)(2)) more closely
tracks the regulatory text in § 226.5a, to
ease compliance.
The Board’s revisions to rules
affecting open-end (not home-secured)
plans contain a limited number of
specific words or phrases that creditors
are required to use. The Board, however,
has not adopted a glossary of terms nor
mandated use of terms as defined in
such a glossary, to provide flexibility to
creditors. Although the Board is
supportive of creditors that provide realtime account agreements on their Web
sites, the Board believes requiring all
creditors to do so would be overly
burdensome at this time, and has not
adopted such a requirement.
Open-end (not home-secured) plans
not involving a credit card. The June
2007 Proposal would have applied the
tabular summary requirement to all
open-end credit products, except
HELOCs. Such products include credit
card accounts, traditional overdraft
credit plans, personal lines of credit,
and revolving plans offered by retailers
without a credit card.
In response to the June 2007 Proposal,
some industry commenters asked the
Board to limit any new disclosure rules
to credit card accounts. They
acknowledged that credit card accounts
typically have complex terms, and a
tabular summary is an effective way to
present key disclosures. In contrast,
these commenters noted that other

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open-end (not home-secured) products
such as personal lines of credit or
overdraft plans have very few of the cost
terms required to be disclosed.
Alternatively, if the Board continued to
apply the new requirements to open-end
plans other than HELOCs, commenters
asked that the Board consider
publishing model forms to ease
compliance.
The Board believes that the benefits to
consumers from receiving a concise and
uniform summary of rates and
important fees for these other types of
open-end plans outweigh the costs, such
as developing the new disclosures and
revising them as needed. In the May
2008 Proposal, the Board proposed
Sample Form 17(D), which would have
illustrated disclosures for an open-end
(not home-secured) plan not involving a
credit card, to address commenters’
requests for guidance.
Some consumer groups supported the
requirement for a summary table for
open-end (not home-secured) plans that
are not credit card accounts. They
believe the summary table will help
consumers understand the terms of their
credit agreements. An industry
commenter also supported a model form
for creditors’ use but suggested adding
additional terms to the form such as a
fee for returned payment, or variablerate disclosures. One industry
commenter strongly objected to the
requirement for a summary table. This
commenter believes creditors will incur
substantial costs to comply with the
requirement and the commenter was not
convinced that a tabular format is the
only way creditors may provide
accurate and meaningful disclosures.
For the reasons set forth above, the
final rule, pursuant to the Board’s TILA
Section 105(a) authority, applies the
tabular summary requirement to all
open-end credit products, except
HELOCs, as proposed. Sample Form
17(D) is adopted, with some revisions.
The name of the balance calculation
method and billing error summary were
inadvertently omitted in the May 2008
Proposal below the table in the
proposed sample form, and they
properly appear in the final form. The
Board notes that § 226.6(b)(2) requires
creditors to disclose in the accountopening table the items in that section,
to the extent applicable. Thus, for
example, if a creditor offered an
overdraft protection line of credit with
a variable rate, the creditor must
provide the applicable variable-rate
disclosures, even though such
disclosures do not appear in Sample
Form 17(D).
Comparison to summary table
provided with credit card applications.

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The summary tables proposed in June
2007 to accompany credit and charge
card applications and solicitations and
to be provided at account opening were
similar but not identical. Under the June
2007 Proposal, at the card issuer’s
option, a card issuer providing a table
that satisfies the requirements of § 226.6
could satisfy the requirements of
§ 226.5a by providing the accountopening table.
In response to the June 2007 Proposal,
some commenters urged the Board to
require identical disclosure
requirements under § 226.6 and
§ 226.5a. Others supported greater
flexibility. As discussed below, the
disclosure requirements for the two
summary tables remain very similar but
are not identical in all respects. The
final rule includes comment 6(b)(1)–1,
adopted substantially as proposed as
comment 6(b)(4)–1, which provides
guidance on how the summary table for
§ 226.5a differs from the table for
§ 226.6. For clarity, rules under § 226.5a
that do not apply to account-opening
disclosures are specifically noted.
6(b)(1)(iii) Fees that Vary by State
For disclosures required to be
provided with credit card applications
and solicitations, if the amount of a fee
such as a late-payment fee or returnedpayment fee varies by state, card issuers
currently may disclose a range of fees
and a statement that the amount of the
fee varies by state. See § 226.5a(a)(4). In
the June 2007 Proposal, the Board noted
that a goal of the proposed accountopening summary table is to provide to
a consumer specific key information
about the terms of the account and that
permitting creditors to disclose a range
of fees seems not to meet that standard.
Thus, the proposal would have required
creditors to disclose the amount of the
fee applicable to the consumer. The
Board solicited comment on whether
there are any operational issues
presented by the proposal.
One commenter discussed operational
issues for creditors that are licensed to
do business under state law and must
vary late-payment fees, for example,
according to state law. Although the
letter focused on late-payment fee
disclosures on the periodic statement,
one alternative suggested to stating fees
applicable to the consumer’s account
was to permit such creditors to refer to
a disclosure where fees arranged by
applicable states would be identified.
Upon further consideration of the
issues related to disclosing fees in the
account-opening table fees that vary by
state, the Board is adopting a rule that
requires creditors to disclose specific
fees applicable to the consumer’s

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account in the account-opening table,
with a limited exception. In general, a
creditor must disclose the fee applicable
to the consumer’s account; listing all
fees for multiple states in the accountopening summary table is not
permissible. The Board is concerned
that such an approach would detract
from the purpose of the table: To
provide key information in a simplified
way.
Currently, creditors licensed to do
business under state laws commonly
disclose at account opening as part of
the account agreement or disclosure
statement a matrix of fees applicable to
residents of various states. Creditors that
provide account-opening disclosures by
mail can more easily generate accountopening summaries with rates and
specific fees that apply to the consumer.
However, for creditors with retail stores
in a number of states, it is not
practicable to require fee-specific
disclosures to be provided when an
open-end (not home-secured) plan is
established in person in connection
with the purchase of goods or services.
If the Board were to impose such a
requirement, retail stores may need to
keep on hand copies of disclosures for
all states, because consumers from one
state can, and commonly do, shop and
obtain credit cards at retail locations in
other states. In addition, a retail store
creditor would need to rely on its
employees to determine at the point of
sale which state’s disclosures should be
provided to each consumer who opens
an open-end (not home-secured) plan.
Thus, the final rule provides in
§ 226.6(b)(1)(iii) that creditors imposing
fees such as late-payment fees or
returned-payment fees that vary by state
and providing the disclosures required
by § 226.6(b) in person at the time the
open-end (not home-secured) plan is
established in connection with
financing the purchase of goods or
services may, at the creditor’s option,
disclose in the account-opening table
either (1) the specific fee applicable to
the consumer’s account, or (2) the range
of the fees, if the disclosure includes a
statement that the amount of the fee
varies by state and refers the consumer
to the account agreement or other
disclosure provided with the accountopening summary table where the
amount of the fee applicable to the
consumer’s account is disclosed, for
example in a list of fees for all states.
Currently, creditors that establish openend plans at point of sale provide
account-opening disclosures at point of
sale before the first transaction, and
commonly provide an additional set of
account-opening disclosures when, for
example, a credit card is sent to the

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consumer. The Board believes that this
practice would continue and that the
account-opening disclosures provided
later, for example with the credit card,
would contain the specific rates and
fees applicable to the consumer’s
account, as the creditor must provide for
consumers who open accounts other
than at the point of sale.
6(b)(2) Required Disclosures for
Account-opening Table for Open-end
(not Home-secured) Plans
Fees. Under the June 2007 Proposal,
fees to be highlighted in the accountopening summary were identified in
§ 226.6(b)(4)(iii). The proposed list of
fees and categories of fees was intended
to be exclusive. The Board noted that it
considered these fees, among the
charges that TILA covers, to be the most
important fees, at least in the current
marketplace, for consumers to know
about before they start to use an
account. The fees identified in proposed
§ 226.6(b)(4)(iii) included charges that a
consumer could incur and which a
creditor likely would not otherwise be
able to disclose in advance of the
consumer engaging in the behavior that
triggers the cost, such as fees triggered
by a consumer’s use of a cash advance
check or by a consumer’s late payment.
Transaction fees imposed for
transactions in a foreign currency or that
take place in a foreign country also
would have been among the fees to be
disclosed at account opening.
Industry commenters generally
supported the proposal. Some consumer
groups believe it would be a mistake to
adopt a static list of fees to be disclosed
in the account-opening table. They
stated the credit card market is
dynamic, and a static list would
encourage creditors to establish new
fees that would not be disclosed as
prominently as those in the table. These
commenters suggested the Board also
require creditors to disclose in the
account-opening table any fee that a
creditor charges to more than 5 percent
of its cardholders.
The Board is adopting in § 226.6(b)(2)
the list of fees proposed in
§ 226.4(b)(4)(iii) as the exclusive list of
fees and categories of fees that must be
disclosed in the table, although
§ 226.6(b)(2) has been reorganized to
more closely track the requirements of
§ 226.5a. Accordingly, the fees required
to be disclosed in the table are those
identified in § 226.6(b)(2)(ii) through
(b)(2)(iv) and (b)(2)(vii) through
(b)(2)(xii); that is, fees for issuance or
availability of credit, minimum or fixed
finance charges, transaction fees, cash
advance fees, late-payment fees, overthe-limit fees, balance transfer fees,

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returned-payment fees, and fees for
required insurance, debt cancellation or
debt suspension coverage.
The Board intends this list of fees to
be exclusive, for two reasons. An
exclusive list eases compliance and
reduces the risk of litigation; creditors
have the certainty of knowing that as
new services (and associated fees)
develop, fees not required to be
disclosed in the summary table under
the final rule need not be highlighted in
the account-opening summary unless
and until the Board requires their
disclosure after notice and public
comment. And as discussed in the
section-by-section analysis to
§ 226.5(a)(1) and (b)(1), charges required
to be highlighted in the account-opening
table must be provided in a written and
retainable form before the first
transaction and before being increased
or newly introduced. Creditors have
more flexibility regarding disclosure of
other charges imposed as part of an
open-end (not home-secured) plan.
The exclusive list of fees also benefits
consumers. The list focuses on fees
consumer testing conducted for the
Board showed to be most important to
consumers. The list is manageable and
focuses on key information rather than
attempting to be comprehensive. Since
consumers must be informed of all fees
imposed as part of the plan before the
cost is incurred, not all fees need to be
included in the account-opening table
provided at account opening.
Payment allocation. Section
226.6(b)(4)(vi) of the June 2007 Proposal
would have required creditors to
disclose in the account-opening tabular
summary, if applicable, the information
regarding how payments will be
allocated if the consumer transfers
balances at a low rate and then makes
purchases on the account. The payment
allocation disclosure requirements
proposed for the account-opening table
mirrored the proposed requirements in
proposed § 226.5a(b)(15) to be provided
in the table given at application or
solicitation.
In May 2008, the Board and other
federal banking agencies proposed
limitations on how creditors may
allocate payments on outstanding credit
card balances. See 73 FR 28904, May 19,
2008. The Board indicated in the May
2008 Regulation Z Proposal that if the
proposed limitations were adopted, the
Board contemplated withdrawing
proposed § 226.6(b)(4)(vi). For the
reasons discussed in the section-bysection analysis to § 226.5a(b), the Board
is withdrawing proposed
§ 226.6(b)(4)(vi).

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6(b)(2)(i) Annual Percentage Rate
Section 226.6(b)(2)(i) (proposed at
§ 226.6(b)(4)(ii)) sets forth disclosure
requirements for rates that would apply
to accounts. Except as noted below, the
disclosure requirements for APRs in the
account-opening table are adopted for
the same reasons underlying, and
consistent with, the disclosure
requirements adopted for APRs in the
table provided with credit card
applications and solicitations. See
section-by-section analysis to
§ 226.5a(b)(1).
Periodic rates and index and margin
values are not permitted to be disclosed
in the table, for the same reasons
underlying, and consistent with, the
proposed requirements for the table
provided with credit card applications
and solicitations. See comments
5a(b)(1)–2 and –8. The index and
margin must be provided in the credit
agreement or other account-opening
disclosures pursuant to § 226.6(b)(4).
Creditors also must continue to disclose
periodic rates, as a cost imposed as part
of the plan, before the consumer agrees
to pay or becomes obligated to pay for
the charge, and these disclosures could
be provided in the credit agreement or
other disclosure, as is likely currently
the case.
The rate disclosures required for the
account-opening table differ from those
required for the table provided with
credit card applications and
solicitations. For applications and
solicitations, creditors may provide a
range of APRs or specific APRs that may
apply, where the APR is based at least
in part on a later determination of the
consumer’s creditworthiness. At
account opening, creditors must
disclose the specific APRs that will
apply to the account as proposed, with
a limited exception.
Similar to the discussion in the
section-by-section analysis to
§ 226.6(b)(1)(iii), the APR that some
creditors may charge vary by state. In
general, a creditor must disclose the
APR applicable to the consumer’s
account. Listing all APRs for multiple
states in the account-opening summary
box is not permissible. The Board is
concerned that such an approach would
detract from the purpose of the table: to
provide key information in a simplified
way. However, for creditors with retail
stores in a number of states, it is not
practicable to require APR-specific
disclosures to be provided when an
open-end (not home-secured) plan is
established in person in connection
with the purchase of goods or services.
Thus, the Board provides in
§ 226.6(b)(2)(i)(E) that creditors

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imposing APRs that vary by state and
providing the disclosures required by
§ 226.6(b) in person at the time the
open-end (not home-secured) plan is
established in connection with
financing the purchase of goods or
services may, at the creditor’s option,
disclose in the account-opening table
either (1) the specific APR applicable to
the consumer’s account, or (2) the range
of the APRs, if the disclosure includes
a statement that the APR varies by state
and refers the consumer to the account
agreement or other disclosure provided
with the account-opening summary
table where the APR applicable to the
consumer’s account is disclosed, for
example in a list of APRs for all states.
Currently, creditors that establish openend plans at point of sale provide
account-opening disclosures at point of
sale before the first transaction, and
commonly provide an additional set of
disclosures when, for example, a credit
card is sent to the consumer. The Board
believes that this practice would
continue and that the account-opening
summary provided with the additional
set of disclosures would contain the
APRs applicable to the consumer’s
account, as the creditor must provide for
consumers who open accounts other
than at point of sale.
This limited exception does not
extend to rates that vary due to
creditors’ pricing policies. Creditors that
offer risk-based APRs commonly offer
one or two rates, or perhaps three or
four, as opposed to retail creditors that
may offer a dozen or more rates, based
on varying state laws. The multiplicity
of rates and the training required for
retail sales staff to identify correctly
which state law governs the potential
account holder increases these creditors’
risk of inadvertent noncompliance.
Creditors that choose to offer risk-based
pricing, however, are better able to
manage their potential risk of
noncompliance. The exception is
intended to have a limited scope
because the Board believes consumers
benefit by knowing, at account-opening,
the actual rates that will apply to their
accounts.
Discounted and premium initial rates.
Currently, a discounted initial rate may,
but is not required to, be disclosed in
the table accompanying a credit or
charge card application or solicitation.
Card issuers that choose to include such
a rate must also disclose the time period
during which the discounted initial rate
will remain in effect. See
§ 226.5a(b)(1)(ii). Creditors, however,
must disclose these terms in accountopening disclosures. The June 2007
Proposal would have required any
initial temporary rate, the circumstances

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under which that rate expires, and the
rate that will apply after the temporary
rate expires to be disclosed in the
account-opening table. See proposed
§ 226.6(b)(4)(ii)(B).
The final rule regarding the disclosure
of temporary initial rates differs from
the proposal in several ways, two of
which are technical. As discussed
above, the text of the disclosure
requirements has been revised to more
closely track the regulatory text under
§ 226.5a. Therefore, § 226.6(b)(2)(i)(B)
and (b)(2)(i)(C), which set forth
disclosure requirements for discounted
initial rates and premium initial rates,
replace proposed text in
§ 226.6(b)(4)(ii)(B) regarding initial
temporary rates and are consistent with
§ 226.5a(b)(1)(ii) and (b)(1)(iii). For
consistency, discounted initial rates are
referred to as ‘‘introductory’’ rates as
that term in defined in § 226.16(g)(2)(ii).
Under § 226.6(b)(2)(i)(B) and
consistent with § 226.5a, creditors that
offer a temporary discounted initial rate
must disclose in the account-opening
table the rate that otherwise would
apply after the temporary rate expires.
Also, to be consistent with § 226.5a,
creditors under the final rule may, but
generally are not required to (except as
discussed below), disclose discounted
initial rates in the account-opening
table. Creditors that choose to include
such a rate must also disclose the time
period during which the discounted
initial rate will remain in effect. Under
§ 226.6(b)(2)(i)(D)(2), if a creditor
discloses discounted initial rates in the
account-opening table, the creditor must
also disclose directly beneath the table
the circumstances under which the
discounted initial rate may be revoked
and the rate that will apply after
revocation.
As discussed in the section-by-section
analysis to § 226.5a(b)(1), § 226.6(b)(2)(i)
of the final rule has been revised to
provide that issuers subject to the final
rules issued by the Board and other
federal banking agencies published
elsewhere in today’s Federal Register
must disclose any introductory rate
applicable to the account in the table.
This requirement is intended to promote
consistency with those final rules,
which require issuers to state at account
opening the annual percentage rates that
will apply to each category of
transactions on a consumer credit card
account. Thus, § 226.6(b)(2)(i)(F) has
been added to the final rule to clarify
that an issuer subject to 12 CFR 227.24
or similar law must disclose in the
account-opening table any introductory
rate that will apply to a consumer’s
account. A conforming change has been
made to § 226.6(b)(2)(i)(B).

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Similarly, and for the same reasons
stated above, § 226.6(b)(2)(i)(F) also
requires that card issuers subject to the
final rules issued by the Board and other
federal banking agencies published
elsewhere in today’s Federal Register
disclose in the table any rate that will
apply after a premium initial rate
expires. Section 226.6(b)(2)(i)(C) also
has been revised for consistency.
If a creditor that is not subject to 12
CFR 227.24 or similar law does not
disclose a discounted initial rate (and
thus also does not disclose the reasons
the rate may be revoked and the rate
that will apply after revocation) in the
account-opening table, the creditor must
provide these disclosures at any time
before the consumer agrees to pay or
becomes obligated to pay for a charge
based on the rate, pursuant to the
disclosure timing requirements of
§ 226.5(b)(1)(ii). Creditors may provide
disclosures of these charges in writing
but creditors are not required to do so;
only those charges identified in
§ 226.6(b)(2) that must appear in the
account-opening table must be provided
in writing. The Board expects, however,
that for contract law or other reasons,
most creditors as a practical matter will
disclose the discounted initial rate in
writing at account-opening. See sectionby-section analysis to § 226.5(a)(1)
above.
The Board believes aligning the
disclosure requirements for the accountopening summary table with the
requirements for the application
summary table will ease compliance
without lessening consumer protections.
Many creditors will continue to disclose
discounted initial rates, including
issuers subject to the final rules issued
by the Board and other federal banking
agencies published elsewhere in today’s
Federal Register, and how an initial rate
could be revoked in the accountopening table or in writing as part of the
account-opening disclosures.
6(b)(2)(iii) Fixed Finance Charge;
Minimum Interest Charge
TILA Section 127(a)(3), which is
currently implemented in § 226.6(a)(4),
requires creditors to disclose in accountopening disclosures the amount of the
finance charge, including any minimum
or fixed amount imposed as a finance
charge. 15 U.S.C. 1637(a)(3). In the June
2007 Proposal, the Board would have
required creditors to disclose in
account-opening disclosures the amount
of any finance charges in
§ 226.6(b)(1)(i)(A), and further required
creditors to disclose any minimum
finance charge in the account-opening
table in § 226.6(b)(4)(iii)(D). In May
2008, the Board proposed to require

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card issuers to disclose in the table
provided with applications or
solicitations minimum or fixed finance
charges in excess of $1.00 that could be
imposed during a billing cycle and a
brief description of the charge under the
heading ‘‘minimum interest charge’’ or
‘‘minimum charge,’’ as discussed in the
section-by-section analysis to Appendix
G, for the reasons discussed in the
section-by-section analysis to proposed
§ 226.5a(b)(3). At the card issuer’s
option, the card issuer could disclose in
the table any minimum or fixed finance
charge below the threshold. The Board
proposed the same disclosure
requirements to apply to the accountopening table for the same reasons.
For the reasons discussed in the
section-by-section analysis to
§ 226.5a(b)(3), § 226.6(b)(2)(iii) is
revised and new comment 6(b)(2)(iii)–1
is added, consistent with § 226.5a(b)(3).
As noted in the section-by-section
analysis to § 226.5a(b)(3), under the June
2007 Proposal, card issuers may
substitute the account-opening table for
the table required by § 226.5a.
Conforming the fixed finance charge
and minimum interest charge disclosure
requirement for the two tables promotes
consistency and uniformity. Because
minimum interest charges of $1.00 or
less would no longer be required to be
disclosed in the account-opening table,
these charges could be disclosed at any
time before the consumer agrees to pay
or becomes obligated to pay for the
charge, pursuant to the disclosure
timing requirements of § 226.5(b)(1)(ii).
Creditors may provide disclosures of
these charges in writing but are not
required to do so. See section-by-section
analysis to § 226.5(a)(1) above. The
Board believes creditors will continue to
disclose minimum interest charges of
$1.00 or less in writing at account
opening, to meet the timing requirement
to disclose the fee before the consumer
becomes obligated for the charge. In
addition, creditors that choose to charge
more than $1.00 would be required to
include the cost in the account-opening
table. Thus, the Board is adopting
§ 226.6(b)(2)(iii) (proposed in May 2008
as § 226.6(b)(4)(iii)(D)) with technical
changes described in the section-bysection analysis to § 226.5a(b)(3).
6(b)(2)(v) Grace Period
Under TILA, creditors providing
disclosures with applications and
solicitations must discuss grace periods
on purchases; at account opening,
creditors must explain grace periods
more generally. 15 U.S.C.
1637(c)(1)(A)(iii); 15 U.S.C. 1637(a)(1).
Section 226.6(b)(4)(iv) in the June 2007
Proposal would have required creditors

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to state for all balances on the account,
whether or not a period exists in which
consumers may avoid the imposition of
finance charges, and if so, the length of
the period.
In May 2008, as discussed in the
section-by-section analysis to
§ 226.5(a)(2) and to § 226.5a(b)(5), the
Board proposed to revise provisions
relating to the description of grace
periods. Under the proposal,
§ 226.6(b)(4)(iv) would have been
revised and comment 6(b)(4)(iv)–1
added, consistent with the proposed
revisions to § 226.5a(b)(5) and
commentary. The heading ‘‘How to
Avoid Paying Interest [on a particular
feature]’’ would have been used where
a grace period exists for that feature.
The heading ‘‘Paying Interest’’ would
have been used if there is no grace
period on any feature of the account. A
reference to required use of the phrase
‘‘grace period’’ in comment 6(b)(4)–3 of
the June 2007 Proposal was proposed to
be withdrawn.
Comments received on the proposed
text of headings and the results of
consumer testing are discussed in the
section-by-section analysis to
§ 226.5a(b)(5). For the reasons stated in
the section-by-section analysis to and
consistent with § 226.5a(b)(5), the final
rule (moved to § 226.6(b)(2)(v)) requires
the heading ‘‘How to Avoid Paying
Interest’’ to be used for the row that
describes a grace period, and the
heading ‘‘Paying Interest’’ to be used for
the row that describes no grace period.
The final rule differs from the
proposal in that the heading ‘‘Paying
Interest’’ must be used for the heading
in the account-opening table if any one
feature on the account does not have a
grace period. Comments 6(b)(2)(v)–1
through –3 provide language creditors
may use to describe features that have
grace periods and features that do not,
and guidance on complying with
§ 226.6(b)(2)(v) when some features on
an account have a grace period but
others do not. See Samples G–17(B) and
G–17(C).
As stated above under TILA, card
issuers must disclose any grace period
for purchases, which most credit cards
currently offer, in the table provided on
or with credit card applications or
solicitations, and creditors must
disclose at account opening whether or
not grace periods exist for all features of
an account. Cash advance and balance
transfer features on credit card accounts
typically do not offer grace periods.
Under the final rule, the row heading
describing grace periods in the accountopening table will likely be uniform
among creditors, ‘‘Paying Interest.’’ The
Board recognizes that this row heading

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may not be consistent with the row
heading describing grace periods for
purchases in the table provided on or
with credit card applications and
solicitations. However, the Board does
not believe that different headings will
significantly undercut a consumer’s
ability to compare the terms of a credit
card account to the terms that were
offered in the solicitation. Currently
most issuers offer a grace period on all
purchase balances; thus, most issuers
will use the term ‘‘How to Avoid Paying
Interest on Purchases’’ in the table
provided on or with credit card
applications and solicitations.
Nonetheless, when a consumer is
reviewing the application and accountopening tables for a credit card
account—the former having a row with
the heading ‘‘How to Avoid Paying
Interest on Purchases’’ and the latter
having a row ‘‘Paying Interest’’ because
no grace period is offered on balance
transfers and cash advances—the Board
believes that consumers will recognize
that the information in those two rows
relate to the same concept of when
consumers will pay interest on the
account.
6(b)(2)(vi) Balance Computation
Methods
TILA requires creditors to explain as
part of the account-opening disclosures
the method used to determine the
balance to which rates are applied. 15
U.S.C. 1637(a)(2). In June 2007, the
Board proposed § 226.6(b)(4)(ix), which
would have required that the name of
the balance computation method used
by the creditor be disclosed beneath the
table, along with a statement that an
explanation of the method is provided
in the account agreement or disclosure
statement. To determine the name of the
balance computation method to be
disclosed, the June 2007 Proposal would
have required creditors to refer to
§ 226.5a(g) for a list of commonly-used
methods; if the method used was not
among those identified, creditors would
be required to provide a brief
explanation in place of the name.
Commenters generally supported the
proposal. See section-by-section
analysis to § 226.5a(b)(6) regarding the
comments received on proposed
disclosures of the name of balance
computation method below the
summary table provided on or with
credit card applications or solicitations.
Consistent with the reasons discussed in
the section-by-section analysis to
§ 226.5a(b)(6), the Board adopts
§ 226.6(b)(2)(vi) (proposed as
§ 226.6(b)(4)(ix)) to require that the
name of the balance computation
method used by a creditor be disclosed

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beneath the table, along with a
statement that an explanation of the
method is provided in the account
agreement or disclosure statement.
Unlike § 226.5a(b)(6), creditors are
required in § 226.6(b)(2)(vi) to disclose
the balance computation method used
for each feature on the account. Samples
G–17(B) and G–17(C) provide guidance
on how to disclose the balance
computation method where the same
method is used for all features on the
account.
6(b)(2)(viii) Late-Payment Fee
Under the June 2007 Proposal,
creditors were required to disclose
penalty fees such as late-payment fees
in the account-opening summary table.
If the APR may increase due to a late
payment, the proposal required
creditors to disclose that fact. Cross
references were proposed to aid
consumer understanding. See proposed
§ 226.6(b)(4)(iii)(C).
In response to the proposal, one
federal banking agency suggested that in
addition to the amount of the fee, the
Board should consider additional
cautionary disclosures to aid in
consumer understanding, such as that
late fees imposed on an account may
cause the consumer to exceed the credit
limit on the account. To keep the table
manageable in size, the Board is not
adopting a requirement to include
cautionary information about the
consequences of paying late beyond the
requirement to provide information
about penalty rates.
Cross References to Penalty Rate
For the reasons stated in the
supplementary information regarding
proposed § 226.5a(b)(13), the Board has
withdrawn a requirement in proposed
§ 226.6(b)(4)(iii)(C) which provided that
if a creditor may impose a penalty rate
for one or more of the circumstances for
which a late-payment fee, over-the-limit
fee, or returned-payment fee is charged,
the creditor must disclose the fact that
the penalty rate also may apply and a
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6(b)(2)(xii) Required Insurance, Debt
Cancellation or Debt Suspension
Coverage
For the reasons discussed in the
section-by-section analysis to
§ 226.5a(b)(13), as permitted by
applicable law, creditors that require
credit insurance, or debt cancellation or
debt suspension coverage, as part of the
plan are required to disclose the cost of
the product and a reference to the
location where more information about
the product can be found with the

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account-opening materials, as
applicable. See § 226.6(b)(2)(xii).
6(b)(2)(xiii) Available Credit
The Board proposed in June 2007 a
disclosure targeted at subprime card
accounts that assess substantial fees at
account opening and leave consumers
with a limited amount of available
credit. Proposed § 226.6(b)(4)(vii) would
have applied to creditors that require
fees for the availability or issuance of
credit, or a security deposit, that in the
aggregate equal 25 percent or more of
the minimum credit limit offered on the
account. If that threshold is met, a
creditor would have been required to
disclose in the table an example of the
amount of available credit the consumer
would have after the fees or security
deposit are debited to the account,
assuming the consumer receives the
minimum credit limit. The accountopening disclosures regarding available
credit also would have been required for
credit and charge card applications or
solicitations. See proposed
§ 226.5a(b)(16). The requirement in
proposed § 226.6(b)(4)(vii) would have
applied to all open-end (not homesecured) credit for which the threshold
is met, unlike § 226.5a(b)(14) (proposed
as § 226.5a(b)(16)), which only applies
to card issuers.
Commenters generally supported the
proposal, which is generally adopted as
proposed with several revisions noted
below. See section-by-section analysis
to § 226.5a(b)(14) regarding comments
received on the proposed disclosure of
available credit in the summary table
provided on or with credit card
applications or solicitations. Consistent
with § 226.5a(b)(14), § 226.6(b)(2)(xiii)
of the final rule (proposed as
§ 226.6(b)(4)(vii)) reduces the threshold
for determining whether the available
credit disclosure must be given to 15
percent or more of the minimum credit
limit offered on the account.
Notice of right to reject plan. In May
2008, the Board proposed an additional
disclosure to inform consumers about
their right to reject a plan when set-up
fees have been charged before the
consumer receives account-opening
disclosures. See section-by-section
analysis to § 226.5(b)(1)(iv). Creditors
would have been required to provide
consumers with notice about the right to
reject the plan in such circumstances.
The Board intended to target the
disclosure requirement to creditors
offering subprime credit card accounts.
Comment 6(b)(4)(vii)–1 also was
proposed to provide creditors with
model language to comply with the
disclosure requirement.

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Both industry and consumer group
commenters that addressed the
provision generally supported the
proposed notice. See section-by-section
analysis to § 226.5(b)(1)(iv) for a
discussion of comments received
regarding the circumstances under
which a consumer could reject a plan.
Regarding the notice itself, one industry
commenter suggested adding to the
notice information about how the
consumer could contact the creditor to
reject the plan. One commenter
suggested expanding the disclosure
requirement to the table provided with
credit and charge card applications and
solicitations; another suggested
requiring the notice on the first billing
statement.
The final rule adopts the requirement
to provide a notice disclosure in the
account-opening table to inform
consumers about their right to reject a
plan until the consumer has used the
account or made a payment on the
account after receiving a billing
statement, when set-up fees have been
charged before the consumer receives
account-opening disclosures. The final
rule provides model language creditors
may use to comply with the disclosure
requirement, as proposed. The final rule
does not include a requirement that the
creditor provide information about how
to contact the creditor to reject the plan;
the Board believes such a requirement
would add to the length of the
disclosure and is readily available to
consumers in other account-opening
materials. The Board also declines to
require the notice on or with an
application or solicitation or on the first
billing statement; the Board believes the
most effective time for the notice to be
given is after the consumer has chosen
to apply for the card account and before
the consumer has used or had the
opportunity to use the card.
Actual credit limit. The available
credit disclosure proposed in June 2007
would have been triggered if start-up
fees, or a security deposit financed by
the creditor, in the aggregate equal 25
percent or more of the minimum credit
limit offered on the account, consistent
with the proposed disclosure in the
summary table required on or with
credit or charge card applications or
solicitations. Some consumer groups
urged the Board to base the disclosure
on the actual credit limit received,
rather than the minimum credit limit on
the account. As discussed in the
section-by-section analysis to
§ 226.5a(b)(14), final rules issued by the
Board and other federal banking
agencies published elsewhere in today’s
Federal Register address card issuers’
ability to finance certain fee amounts.

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The final rule, consistent with the
proposal, bases the threshold for
whether the available disclosure is
required to be given on the minimum
credit limit offered on the plan.
Specifically, the final rule requires that
the available credit disclosure be given
in the account-opening table if the
creditor requires fees for the availability
or issuance of credit, or a security
deposit, that in the aggregate equal 15
percent or more of the minimum credit
limit offered on the plan. The Board
believes that it is important that a
consumer receive consistent disclosures
in the table provided with an
application or solicitation and in the
account-opening table, regardless of the
actual credit limit for which the
consumer is approved. For example, if
a creditor offers an open-end plan with
a minimum credit limit of $300 and
imposes start-up fees of $45, that
creditor would be required to include
the available credit disclosure in the
table provided with applications and
solicitations. If a consumer applies for
that account and receives an initial
credit limit of $400, the $45 in start-up
fees would be less than 15% of the
consumer’s line. However, the Board
believes that the consumer still should
receive the available credit disclosure at
account-opening so that the consumer is
better able to compare the terms of the
account he or she received with the
terms of the offer.
Although, as discussed above, a
creditor must determine whether the 15
percent threshold is met with reference
to the minimum credit limit offered on
the plan, the final rule requires creditors
to base the available credit disclosure
for the account-opening summary table,
if required, on the actual credit limit
received. The Board believes a
disclosure of available credit based on
the actual credit limit provides
consumers with accurate information
that is helpful in understanding the
available credit remaining. Creditors
typically state the credit limit for the
account with account-opening
materials, and permitting creditors to
disclose in the table the minimum credit
limit offered on the account—likely a
different dollar amount than the actual
credit limit—could result in confusion.
The Board understands that creditors
offering accounts that would be subject
to the available credit disclosure
typically establish a limited number of
credit limits on such accounts.
Therefore, for creditors that use preprinted forms, the requirement should
not be overly burdensome.

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6(b)(2)(xiv) Web Site Reference
For the reasons stated under
§ 226.5a(b)(15), the Board adopts
§ 226.6(b)(2)(xiv) (proposed at
§ 226.6(b)(4)(viii)), which requires card
issuers to provide a reference to the
Board’s Web site for additional
information about shopping for and
using credit card accounts.
6(b)(2)(xv) Billing Error Rights
Reference
All creditors offering open-end plans
must provide notices of billing rights at
account opening. See current § 226.6(d).
This information is important, but
lengthy. The Board proposed
§ 226.6(b)(4)(x) in June 2007 to draw
consumers’ attention to the notices by
requiring a statement that information
about billing rights and how to exercise
them is provided in the accountopening disclosures. Under the
proposal, the statement, along with the
name of the balance computation
method, would have been required to be
located directly below the table. The
Board received no comments on the
billing error rights reference and is
adopting the requirement as proposed.
6(b)(3) Disclosure of Charges Imposed as
Part of Open-End (Not Home-Secured)
Plans
Currently, the rules for disclosing
costs related to open-end plans create
two categories of charges covered by
TILA: Finance charges (§ 226.6(a)) and
‘‘other charges’’ (§ 226.6(b)). According
to TILA, a charge is a finance charge if
it is payable directly or indirectly by the
consumer and imposed directly or
indirectly by the creditor ‘‘as an
incident to the extension of credit.’’ The
Board implemented the definition by
including as a finance charge under
Regulation Z, any charge imposed ‘‘as
an incident to or a condition of the
extension of credit.’’ TILA also requires
a creditor to disclose, before opening an
account, ‘‘other charges which may be
imposed as part of the plan * * * in
accordance with regulations of the
Board.’’ The Board implemented the
provision virtually verbatim, and the
staff commentary interprets the
provision to cover ‘‘significant charges
related to the plan.’’ 15 U.S.C. 1605(a),
§ 226.4; 15 U.S.C. 1637(a)(5), § 226.6(b),
current comment 6(b)–1.
The terms ‘‘finance charge’’ and
‘‘other charge’’ are given broad and
flexible meanings in the current
regulation and commentary. This
ensures that TILA adapts to changing
conditions, but it also creates
uncertainty. The distinctions among
finance charges, other charges, and

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charges that do not fall into either
category are not always clear. As
creditors develop new kinds of services,
some creditors find it difficult to
determine if associated charges for the
new services meet the standard for a
‘‘finance charge’’ or ‘‘other charge’’ or
are not covered by TILA at all. This
uncertainty can pose legal risks for
creditors that act in good faith to
classify fees. Examples of charges that
are included or excluded charges are in
the regulation and commentary, but
they cannot provide definitive guidance
in all cases.
The June 2007 Proposal would have
created a single category of ‘‘charges
imposed as part of an open-end (not
home-secured) plan’’ as identified in
proposed § 226.6(b)(1)(i). These charges
include finance charges under § 226.4(a)
and (b), penalty charges, taxes, and
charges for voluntary credit insurance,
debt cancellation or debt suspension
coverage.
Under the June 2007 Proposal,
charges to be disclosed also would have
included any charge the payment or
nonpayment of which affects the
consumer’s access to the plan, duration
of the plan, the amount of credit
extended, the period for which credit is
extended, or the timing or method of
billing or payment. Proposed
commentary provided examples of
charges covered by the provision, such
as application fees and participation
fees (which affect access to the plan),
fees to expedite card delivery (which
also affect access to the plan), and fees
to expedite payment (which affect the
timing and method of payment).
Three examples of types of charges
that are not imposed as part of the plan
were listed in proposed § 226.6(b)(1)(ii).
These examples would have included
charges imposed on a cardholder by an
institution other than the card issuer for
the use of the other institution’s ATM;
and charges for a package of services
that includes an open-end credit feature,
if the fee is required whether or not the
open-end credit feature is included and
the non-credit services are not merely
incidental to the credit feature.
Proposed comment 6(b)(1)(ii)–1
provided examples of fees for packages
of services that would have been
considered to be imposed as part of the
plan and fees for packages of services
that would not. This comment is
substantively identical to current
comment 6(b)–1.v.
Commenters generally supported
deemphasizing the distinction between
finance charges and other charges. One
trade association urged the Board to
identify costs as ‘‘interest’’ or ‘‘fees,’’ the
labels proposed to describe costs on

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periodic statements, rather than ‘‘costs
imposed as part of the plan,’’ to ease
compliance and consumer
understanding.
Some industry commenters urged the
Board to provide a specific and finite
list of fees that must be disclosed, to
avoid litigation risk. They stated the
proposed categories of charges
considered to be part of the plan were
not sufficiently precise. They asked for
additional guidance on what fees might
be captured as fees for failure to use the
card as agreed (except amounts payable
for collection activity after default), or
that affect the consumer’s access to the
plan, for example. One industry trade
association asked the Board to clarify
that creditors would be deemed to be in
compliance with the regulation if the
creditor disclosed a fee that was later
deemed to be not a part of the plan.
The Board is adopting the
requirement to disclose costs imposed
as part of the plan as proposed, but
renumbered for organizational clarity.
General rules are set forth in
§ 226.6(b)(3)(i), charges imposed as part
of the plan are identified in
§ 226.6(b)(3)(ii), and charges imposed
that are not part of the plan are
identified in § 226.6(b)(3)(iii). The final
rule continues to use the term
‘‘charges.’’ Although the Board’s
consumer testing indicates that
consumers’ understanding of costs
incurred during a statement period
improves when labeled as ‘‘fees’’ or
‘‘interest’’ on periodic statements, the
Board believes the general term
‘‘charges,’’ which encompasses interest
and fees, is an efficient description of
the requirement, and eases compliance
by not requiring creditors to recite ‘‘fees
and interest’’ wherever the term
‘‘charges’’ otherwise would appear.
As the Board acknowledged in the
June 2007 Proposal, the disclosure
requirements do not completely
eliminate ambiguity about what are
TILA charges. The commentary
provides examples to ease compliance.
To further mitigate ambiguity the rule
provides a complete list in new
§ 226.6(b)(2) of which charges and
categories of charges must be disclosed
in writing at account opening (or before
they are increased or newly introduced).
See §§ 226.5(b)(1) and 226.9(c)(2) for
timing rules. Any fees aside from those
fees or categories of fees identified in
§ 226.6(b)(2) are not required to be
disclosed in writing at account opening.
However, if they are not disclosed in
writing at account opening, other
charges imposed as part of an open-end
(not home-secured) plan must be
disclosed in writing or orally at a time
and in a manner that a consumer would

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be likely to notice them before the
consumer agrees to or becomes
obligated to pay the charge. This
approach is intended in part to reduce
creditor burden. For example when a
consumer orders a service by telephone,
creditors presumably disclose fees
related to that service at that time for
business reasons and to comply with
other state and federal laws.
Moreover, compared to the approach
reflected in the current regulation, the
broad application of the statutory
standard of fees ‘‘imposed as part of the
plan’’ should make it easier for a
creditor to determine whether a fee is a
charge covered by TILA, and reduce
litigation and liability risks. Comment
6(b)(3)(ii)–3 is added to provide that if
a creditor is unsure whether a particular
charge is a cost imposed as part of the
plan, the creditor may, at its option,
consider such charges as a cost imposed
as part of the plan for Truth in Lending
purposes. In addition, this approach
will help ensure that consumers receive
the information they need when it
would be most helpful to them.
Comment 6(b)(3)(ii)–2 has been
revised from the June 2007 Proposal.
The comment, as proposed in June 2007
as comment 6(b)(1)(i)–2, included a fee
to receive paper statements as an
example of a fee that affects the plan.
This example is not included in the
final rule. Creditors are required to
provide periodic statements in writing
in connection with open-end plans, and
the Board did not intend with the
inclusion of this example to express a
view on the permissibility of charging
consumers a fee to receive paper
statements.
Section 226.6(b)(3) applies to all
open-end plans except HELOCs subject
to § 226.5b. It retains TILA’s general
requirements for disclosing costs for
open-end plans: Creditors are required
to continue to disclose the
circumstances under which charges are
imposed as part of the plan, including
the amount of the charge (e.g., $3.00) or
an explanation of how the charge is
determined (e.g., 3 percent of the
transaction amount). For finance
charges, creditors currently must
include a statement of when the finance
charge begins to accrue and an
explanation of whether or not a ‘‘grace
period’’ or ‘‘free-ride period’’ exists (a
period within which any credit that has
been extended may be repaid without
incurring the charge). Regulation Z has
generally referred to this period as a
‘‘free-ride period.’’ To use consistent
terminology to describe the concept, the
Board is updating references to ‘‘freeride period’’ as ‘‘grace period’’ in the
regulation and commentary, without

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any intended substantive change, as
proposed. Comment 6(b)(3)–2 is revised
to provide that although the creditor
need not use any particular descriptive
phrase or term to describe a grace
period, the descriptive phrase or term
must be sufficiently similar to the
disclosures provided pursuant to
§§ 226.5a and 226.6(b)(2) to satisfy a
creditor’s duty to provide consistent
terminology under § 226.5(a)(2).
6(b)(4) Disclosure of Rates for Open-End
(Not Home-Secured) Plans
Rules for disclosing rates that affect
the amount of interest that will be
imposed are consolidated in
§ 226.6(b)(4) (proposed at § 226.6(b)(2)).
(See redesignation table below.)
Headings have been added for clarity.
6(b)(4)(i)
Currently, creditors must disclose
finance charges attributable to periodic
rates. These costs are typically interest
charges but may include other costs
such as premiums for required credit
insurance. For clarity, the text of
§ 226.6(b)(4)(i) uses the term ‘‘interest’’
rather than ‘‘finance charge’’ and is
adopted as proposed.
6(b)(4)(i)(D) Balance Computation
Method
Section § 226.6(b)(4)(i) sets forth rules
relating to the disclosure of rates.
Section § 226.6(b)(4)(i)(D) (currently
§ 226.6(a)(3) and proposed in June 2007
as § 226.6(b)(2)(i)(D)) requires creditors
to explain the method used to determine
the balance to which rates apply. 15
U.S.C. 1637(a)(2).
The June 2007 Proposal would have
required creditors to continue to explain
the balance computation methods in the
account-opening agreement or other
disclosure statement. The name of the
balance computation method and a
reference to where the explanation can
be found would have been required
along with the account-opening
summary table. Commenters generally
supported the Board’s approach, and the
Board is adopting the requirement to
provide an explanation of balance
computation methods in the account
agreement or other disclosure statement,
as proposed. See also the section-bysection analysis to § 226.6(b)(2)(vi).
Model clauses. Model clauses that
explain commonly used balance
computation methods, such as the
average daily balance method, are at
Appendix G–1 to part 226. In the June
2007 Proposal, the Board requested
comment on whether model clauses for
methods such as ‘‘adjusted balance’’ and
‘‘previous balance’’ should be deleted as
obsolete, and more broadly, whether

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Model Clauses G–1 should be
eliminated entirely because creditors no
longer use the model clauses.
One trade association asked that all
model clauses be retained. In response
to other comments received on the June
2007 Proposal, the Board proposed in
May 2008 to add a new model clause to
Model Clauses G–1 for the ‘‘daily
balance’’ method. In addition, the Board
proposed new Model Clauses G–1(A) for
open-end (not home-secured) plans. The
clauses in G–1(A) differ from the clauses
in G–1 by referring to ‘‘interest charges’’
rather than ‘‘finance charges’’ to explain
balance computation methods.
Commenters did not specifically
address this aspect of the May 2008
Proposal.
Based on the comments received on
both proposals, the Board is adopting
Model Clauses G–1(A). See section-bysection analysis to § 226.6(a) regarding
Model Clauses G–1.
Current comment 6(a)(3)–2 clarifies
that creditors may, but need not, explain
how payments and other credits are
allocated to outstanding balances as part
of explaining a balance computation
method. Two examples are deleted from
the comment (renumbered in this final
rule as 6(b)(4)(i)(D)–2), to avoid any
unintended confusion or conflict with
rules limiting how creditors may
allocate payments on outstanding credit
balances, published elsewhere in
today’s Federal Register.
6(b)(4)(ii) Variable-Rate Accounts
New § 226.6(b)(4)(ii) sets forth the
rules for variable-rate disclosures now
contained in footnote 12. In addition,
guidance on the accuracy of variable
rates provided at account opening is
moved from the commentary to the
regulation and revised, as proposed.
Currently, comment 6(a)(2)–3 provides
that creditors may provide the current
rate, a rate as of a specified date if the
rate is updated from time to time, or an
estimated rate under § 226.5(c). In June
2007, the Board proposed an accuracy
standard for variable rates disclosed at
account opening; the rate disclosed
would have been accurate if it was in
effect as of a specified date within 30
days before the disclosures are
provided. Creditors’ option to provide
an estimated rate as the rate in effect for
a variable-rate account would have been
eliminated under the proposal. Current
comment 6(a)(2)–10, which addresses
discounted variable-rate plans, was
proposed as comment 6(b)(2)(ii)–5, with
technical revisions but no substantive
changes.
The June 2007 Proposal also would
have required that, in describing how a
variable rate is determined, creditors

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must disclose the applicable margin, if
any. See proposed § 226.6(b)(2)(ii)(B).
The Board is adopting the rules for
variable-rate disclosures provided at
account-opening, as proposed. As to
accuracy requirements, the Board
believes 30 days provides sufficient
flexibility to creditors and reasonably
current information to consumers. The
Board believes creditors are provided
with sufficient flexibility under the
proposal to provide a rate as of a
specified date, so the use of an estimate
would not be appropriate.
Comment 6(b)(4)(ii)–5 (proposed as
6(b)(2)(ii)–5) is adopted, with revisions
consistent with the rule adopted under
§ 226.6(b)(2)(i)(B), which permits but
does not require creditors, except those
subject to 12 CFR § 227.24 or similar
law, to disclose temporary initial rates
in the account-opening summary table.
However, creditors must comply with
the general requirement to disclose
charges imposed as part of the plan
before the charge is imposed. The Board
believes creditors not subject to 12 CFR
§ 227.24 or similar law will continue to
disclose initial rates as part of the
account agreement for contract and
other reasons.
Pursuant to its TILA Section 105(a)
authority, the Board is also adopting in
§ 226.6(b)(4)(ii)(B) the requirement to
disclose any applicable margin when
describing how a variable rate is
determined. The Board believes
creditors already state the margin for
purposes of contract or other law and
are currently required to disclose
margins related to penalty rates, if
applicable. No particular format
requirements apply. Thus, the Board
does not expect the revision will add
burden.
6(b)(4)(iii) Rate Changes Not Due to
Index or Formula
The June 2007 Proposal would have
consolidated existing rules for rate
changes that are specifically set forth in
the account agreement but are not due
to changes in an index or formula, such
as rules for disclosing introductory and
penalty rates. See proposed
§ 226.6(b)(2)(iii). In addition to requiring
creditors to identify the circumstances
under which a rate may change (such as
the end of an introductory period or a
late payment), the June 2007 Proposal
would have required creditors to
disclose how existing balances would be
affected by the new rate. The change
was intended to improve consumer
understanding as to whether a penalty
rate triggered by, for example, a late
payment would apply not only to
outstanding balances for purchases but
to existing balances that were

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transferred at a low promotional rate. If
the increase in rate is due to an
increased margin, proposed comment
6(b)(2)(iii)–2 would require creditors to
disclose the increase; the highest margin
can be stated if more than one might
apply.
Comment 6(b)(4)(iii)–1 (proposed as
comment 6(b)(2)(iii)–1) is adopted with
revisions consistent with the rule
adopted under § 226.6(b)(2)(i)(B), which
permits but does not require creditors to
disclose temporary initial rates in the
account-opening summary table, except
as provided in § 226.6(b)(2)(i)(F). The
effect of making the disclosure
permissive is that creditors may disclose
initial rates at any time before those
rates are applied. However, the Board
believes creditors will continue to
disclose initial rates as part of the
account agreement for contract and
other reasons and to comply with the
general requirement to disclose charges
imposed as part of the plan before the
charge is imposed.
Balances to which rates apply. The
June 2007 Proposal would have required
creditors to inform consumers whether
any new rate would apply to balances
outstanding at the time of the rate
change. In May 2008, the Board and
other federal banking agencies proposed
rules to prohibit the application of a
penalty rate to outstanding balances,
with some exceptions. Elsewhere in
today’s Federal Register, the Board and
other federal banking agencies are
adopting the rule, with some revisions.
To conform the requirements of § 226.6
to the rules addressing the application
of a penalty rate to outstanding
balances, creditors are required under
§ 226.6(b)(4)(iii)(D) and (b)(4)(iii)(E) to
inform consumers about the balance to
which the new rate will apply and the
balance to which the current rate at the
time of the change will apply. Comment
6(b)(4)(iii)–3 is conformed accordingly.
Credit privileges permanently
terminated. Under current rules,
comment 6(a)(2)–11 provides that
creditors need not disclose increased
rates that may apply if credit privileges
are permanently terminated. That rule
was retained in the June 2007 Proposal,
but was moved to § 226.6(b)(4)(ii)(C)
and comment 6(b)(2)(iii)–2.iii., to be
consistent with § 226.5a(b)(1)(iv) in the
June 2007 Proposal. In May 2008, the
Board proposed to eliminate that
exception; accordingly, references to
increased rates upon permanently
terminated credit privileges in
paragraph iii. to comment 6(b)(2)(iii)–2
would have been removed.
For the reasons stated in the sectionby-section analysis to § 226.5a(b)(1), the
Board is eliminating the exception:

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creditors that increase rates when credit
privileges are permanently terminated
must disclose that increased rate in the
account-opening table.
6(b)(5) Additional Disclosures for Openend (not Home-secured) Plans
6(b)(5)(i) Voluntary Credit Insurance;
Debt Cancellation or Suspension
As discussed in the section-by-section
analysis to § 226.4, the Board is
adopting revisions to the requirements
to exclude charges for voluntary credit
insurance or debt cancellation or debt
suspension coverage from the finance
charge. See § 226.4(d). Creditors must
provide information about the voluntary
nature and cost of the credit insurance
or debt cancellation or suspension
product, and about the nature of
coverage for debt suspension products.
Because creditors must obtain the
consumer’s affirmative request for the
product as a part of the disclosure
requirements, the Board expects the
disclosures required under § 226.4(d)
will be provided at the time the product
is offered to the consumer.
In June 2007, the Board proposed
§ 226.6(b)(3) to require creditors to
provide the disclosures required under
§ 226.4(d) to exclude voluntary credit
insurance or debt cancellation or debt
suspension coverage from the finance
charge. One commenter asked the Board
to clarify that the disclosures are
required to be provided only to those
consumers that purchase the product
and not to all consumers to whom the
product was made available.
Section 226.6(b)(5)(i) (proposed as
§ 226.6(b)(3)) is adopted as proposed,
with technical revisions for clarity in
response to commenters’ concerns.
Comment 6(b)(5)(i)–1 is added to
provide that creditors comply with
§ 226.6(b)(5)(i) if they provide
disclosures required to exclude the cost
of voluntary credit insurance or debt
cancellation or debt suspension
coverage from the finance charge in
accordance with § 226.4(d). For
example, if the § 226.4(d) disclosures
are given at application, creditors need
not repeat those disclosures when
providing other disclosures required to
be given at account opening.

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6(b)(5)(ii) Security Interests
Regulatory text regarding the
disclosure of security interests
(currently at § 226.6(c) and proposed at
§ 226.6(c)(1)) is retained without
change. Comments to § 226.6(b)(5)(ii)
(currently at § 226.6(c) and proposed as
§ 226.6(c)(1)) are revised for clarity,
without any substantive change.

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6(b)(5)(iii) Statement of Billing Rights
Creditors offering open-end plans
must provide information to consumers
at account opening about consumers’
billing rights under TILA, in the form
prescribed by the Board. 15 U.S.C.
1637(a)(7). This requirement is
implemented in the Board’s Model
Form G–3. In June 2007, the Board
revised Model Form G–3 to improve its
readability, proposed as Model Form G–
3(A). The proposed revisions were not
based on consumer testing, although
design techniques and changes in
terminology were used to facilitate
improved consumer understanding of
TILA’s billing rights. Under the June
2007 Proposal, creditors offering
HELOCs subject to § 226.5b could
continue to use current Model Form G–
3 or G–3(A), at the creditor’s option.
Model Form G–3 is retained and
Model Form G–3(A) is adopted, with
some revisions. As discussed in the
section-by-section analysis to
§§ 226.12(b) and 226.13(b), the Board
clarified that creditors may choose to
permit a consumer, at the consumer’s
option, to communicate with the
creditor electronically when notifying
the creditor about possible unauthorized
transactions or other billing disputes.
The use of electronic communication in
these circumstances applies to all openend credit plans; thus, additional text
that provides instructions for a
consumer, at the consumer’s option, to
communicate with the creditor
electronically has been added to Model
Forms G–3 and G–3(A). In addition,
technical changes have also been made
to Model Form G–3(A) for clarity
without intended substantive change, in
response to comments received.
Technical revisions. The final rule
adopts several technical revisions, as
proposed in the June 2007 Proposal. The
section is retitled ‘‘Account-opening
disclosures’’ from the current title
‘‘Initial disclosures’’ to reflect more
accurately the timing of the disclosures,
as proposed. In today’s marketplace,
there are few open-end products for
which consumers receive the
disclosures required under § 226.6 as
their ‘‘initial’’ Truth in Lending
disclosure. See §§ 226.5a and 226.5b.
The substance of footnotes 11 and 12 is
moved to the regulation; the substance
of footnote 13 is moved to the
commentary. (See redesignation table
below.)
In other technical revisions, as
proposed, comments 6–1 and 6–2 are
deleted. The substance of comment 6–
1, which requires consistent
terminology, is discussed more
generally in § 226.5(a)(2). Comment 6–2

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addresses certain open-end plans
involving more than one creditor, and is
deleted as obsolete. See section-bysection analysis to § 226.5a(f).
Section 226.7 Periodic Statement
TILA Section 127(b), implemented in
§ 226.7, identifies information about an
open-end account that must be
disclosed when a creditor is required to
provide periodic statements. 15 U.S.C.
1637(b). For a discussion about periodic
statement disclosure rules and format
requirements, see the section-by-section
analysis to § 226.7(a) for HELOCs
subject to § 226.5b, and § 226.7(b) for
open-end (not home-secured) plans.
7(a) Rules Affecting Home-Equity Plans
Periodic statement disclosure and
format requirements for HELOCs subject
to § 226.5b were unaffected by the June
2007 Proposal, consistent with the
Board’s plan to review Regulation Z’s
disclosure rules for home-secured credit
in a future rulemaking. To facilitate
compliance, the substantively unrevised
requirements applicable only to
HELOCs are grouped together in
§ 226.7(a). (See redesignation table
below.)
For HELOCs, creditors are required to
comply with the disclosure
requirements under § 226.7(a)(1)
through (a)(10). Except for the addition
of an exception that HELOC creditors
may utilize at their option (further
discussed below), these rules and
accompanying commentary are
substantively unchanged from current
§ 226.7(a) through (k) and the June 2007
Proposal. As proposed, § 226.7(a) also
provides that at their option, creditors
offering HELOCs may comply with the
requirements of § 226.7(b). The Board
understands that some creditors may
use a single processing system to
generate periodic statements for all
open-end products they offer, including
HELOCs. These creditors would have
the option to generate statements
according to a single set of rules.
In technical revisions, the substance
of footnotes referenced in current
§ 226.7(d) is moved to § 226.7(a)(4) and
comment 7(a)(4)–6, as proposed.
7(a)(4) Periodic Rates
TILA Section 127(b)(5) and current
§ 226.7(d) require creditors to disclose
all periodic rates that may be used to
compute the finance charge, and an APR
that corresponds to the periodic rate
multiplied by the number of periods in
a year. 15 U.S.C. 1637(b)(5); § 226.14(b).
Currently, comment 7(d)–1 interprets
the requirement to disclose all periodic
rates that ‘‘may be used’’ to mean
‘‘whether or not [the rate] is applied

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during the billing cycle.’’ In June 2007,
the Board proposed for open-end (not
home-secured) plans a limited
exception to TILA Section 127(b)(5)
regarding promotional rates that were
offered but not actually applied, to
effectuate the purposes of TILA to
require disclosures that are meaningful
and to facilitate compliance.
For the reasons discussed in the
section-by-section analysis to
§ 226.7(b)(4)(ii), under the June 2007
Proposal, creditors would have been
required to disclose promotional rates
only if the rate actually applied during
the billing period. The Board noted that
interpreting TILA to require the
disclosure of all promotional rates
would be operationally burdensome for
creditors and result in information
overload for consumers. The proposed
exception did not apply to HELOCs
covered by § 226.5b, and the Board
requested comment on whether the
class of transactions under the proposed
exceptions should apply more broadly
to include HELOCs subject to § 226.5b,
and if so, why.
Commenters generally supported the
proposal under § 226.7(b)(4). Although
few commenters addressed the issue of
whether the exception should also
apply to HELOCs subject to § 226.5b,
these commenters favored extending the
exception to HELOCs because concerns
about information overload on
consumers and operational burdens on
creditors apply equally in the context of
HELOC disclosures. The Board is
adopting the exception as it applies to
open-end (not home-secured) plans as
proposed, with minor changes to the
description of the time period to which
the promotional rate applies. For the
reasons stated above and in the sectionby-section analysis to § 226.7(b)(4), the
Board also extends the exception to
HELOCs subject to § 226.5b. Section
226.7(a)(4) and comment 7(a)(4)–1 are
revised accordingly. Extending this
exception to HELOCs does not require
creditors offering HELOCs to revise any
forms or procedures. Therefore, no
additional burden is associated with
revising the rules governing HELOC
disclosures. Comment 7(a)(4)–5, which
provides guidance when the
corresponding APR and effective APR
are the same, is revised to be consistent
with a creditor’s option, rather than a
requirement, to disclose an effective
APR, as discussed below.
7(a)(7) Annual Percentage Rate
The June 2007 Proposal included two
alternative approaches to address
concerns about the effective APR. The
section-by-section analysis to § 226.7(b)
discusses in detail the proposed

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approaches and the reasons for the
Board’s determination to adopt the
proposed approach that eliminates the
requirement to disclose the effective
APR. Thus, under this approach, the
effective APR is optional for creditors
offering HELOCs. Section 226.7(a)
expressly provides, however, that a
HELOC creditor must provide
disclosures of fee and interest in
accordance with § 226.7(b)(6) if the
creditor chooses not to disclose an
effective APR. Comment 7(a)(7)–1 is
revised to provide that creditors stating
an annualized rate on periodic
statements in addition to the
corresponding APR required by
§ 226.7(a)(4) must calculate that
additional rate in accordance with
§ 226.14(c), to avoid the disclosure of
rates that may be calculated in different
ways.
Currently and under the June 2007
Proposal, HELOC creditors disclosing
the effective APR must label it as
‘‘annual percentage rate.’’ The final rule
adds comment 7(a)(7)–2 to provide
HELOC creditors with additional
guidance in labeling the APR as
calculated under § 226.14(c) and the
periodic rate expressed as an annualized
rate. HELOC creditors that choose to
disclose an effective APR may continue
to label the figure as ‘‘annual percentage
rate,’’ and label the periodic rate
expressed as an annualized rate as the
‘‘corresponding APR,’’ ‘‘nominal APR,’’
or a similar term, as is currently the
practice. Comment 7(a)(7)–2 further
provides that it is permissible to label
the APR calculated under § 226.14(c) as
the ‘‘effective APR’’ or a similar term.
For those creditors, the periodic rate
expressed as an annualized rate could
be labeled ‘‘annual percentage rate,’’
consistent with the requirement under
§ 226.7(b)(4). If the two rates are
different values, creditors must label the
rates differently to comply with the
regulation’s standard to provide clear
disclosures.
7(b) Rules Affecting Open-End (Not
Home-Secured) Plans
The June 2007 Proposal contained a
number of significant revisions to
periodic statement disclosures for openend (not home-secured) plans, grouped
together in proposed § 226.7(b). The
Board proposed for comment two
alternative approaches to disclose the
effective APR: The first approach
attempted to improve consumer
understanding of this rate and reduce
creditor uncertainty about its
computation. The second approach
eliminated the requirement altogether.
In addition, the Board proposed to add
new paragraphs § 226.7(b)(11) and

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(b)(12) to implement disclosures
regarding late-payment fees and the
effects of making minimum payments in
Section 1305(a) and 1301(a) of the
Bankruptcy Act. TILA Section
127(b)(11) and (12); 15 U.S.C.
1637(b)(11) and (12).
Effective annual percentage rate.
Background on effective APR. TILA
Section 127(b)(6) requires disclosure of
an APR calculated as the quotient of the
total finance charge for the period to
which the charge relates divided by the
amount on which the finance charge is
based, multiplied by the number of
periods in the year. 15 U.S.C. 1637(b)(6).
This rate has come to be known as the
‘‘historical APR’’ or ‘‘effective APR.’’
TILA Section 127(b)(6) exempts a
creditor from disclosing an effective
APR when the total finance charge does
not exceed 50 cents for a monthly or
longer billing cycle, or the pro rata
share of 50 cents for a shorter cycle. In
such a case, TILA Section 127(b)(5)
requires the creditor to disclose only the
periodic rate and the annualized rate
that corresponds to the periodic rate
(the ‘‘corresponding APR’’). 15 U.S.C.
1637(b)(5). When the finance charge
exceeds 50 cents, the act requires
creditors to disclose the periodic rate
but not the corresponding APR. Since
1970, however, Regulation Z has
required disclosure of the corresponding
APR in all cases. See current § 226.7(d).
Current § 226.7(g) implements TILA
Section 127(b)(6)’s requirement to
disclose an effective APR.
The effective APR and corresponding
APR for any given plan feature are the
same when the finance charge in a
period arises only from application of
the periodic rate to the applicable
balance (the balance calculated
according to the creditor’s chosen
method, such as average daily balance
method). When the two APRs are the
same, Regulation Z requires that the
APR be stated just once. The effective
and corresponding APRs diverge when
the finance charge in a period arises (at
least in part) from a charge not
determined by application of a periodic
rate and the total finance charge exceeds
50 cents. When they diverge, Regulation
Z currently requires that both be stated.
The statutory requirement of an
effective APR is intended to provide the
consumer with an annual rate that
reflects the total finance charge,
including both the finance charge due to
application of a periodic rate (interest)
and finance charges that take the form
of fees. This rate, like other APRs
required by TILA, presumably was
intended to provide consumers
information about the cost of credit that
would help consumers compare credit

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costs and make informed credit
decisions and, more broadly, strengthen
competition in the market for consumer
credit. 15 U.S.C. 1601(a). There is,
however, a longstanding controversy
about the extent to which the
requirement to disclose an effective APR
advances TILA’s purposes or, as some
argue, undermines them.
As discussed in greater detail in the
Board’s June 2007 Proposal, industry
and consumer groups disagree as to
whether the effective APR conveys
meaningful information. Creditors argue
that the cost of a transaction is rarely,
if ever, as high as the effective APR
makes it appear, and that this tendency
of the rate to exaggerate the cost of
credit makes this APR misleading.
Consumer groups contend that the
information the rate provides about the
cost of credit, even if limited, is
meaningful. The effective APR for a
specific transaction or set of
transactions in a given cycle may
provide the consumer a rough
indication that the cost of repeating
such transactions is high in some sense
or, at least, higher than the
corresponding APR alone conveys.
Consumer advocates and industry
representatives also disagree as to
whether the effective APR promotes
credit shopping. Industry and consumer
group representatives find some
common ground in their observations
that consumers do not understand the
effective APR well.
Industry representatives also claim
that the effective APR imposes direct
costs on creditors that consumers pay
indirectly. They represent that the
effective APR raises compliance costs
when they introduce new services,
including costs of: (1) Conducting legal
analysis of Regulation Z to determine
whether the fee for the new service is a
finance charge and must be included in
the effective APR; (2) reprogramming
software if the fee must be included;
and (3) responding to telephone
inquiries from confused customers and
accommodating them (e.g., with fee
waivers or rebates).
Consumer research conducted for the
Board prior to the June 2007 Proposal.
As discussed in the June 2007 Proposal,
the Board undertook research through a
consultant on consumer awareness and
understanding of the effective APR, and
on whether changes to the presentation
of the disclosure could increase
awareness and understanding. The
consultant used one-on-one cognitive
interviews with consumers; consumers
were provided mock disclosures of
periodic statements that included
effective APRs and asked questions
about the disclosure designed to elicit

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their understanding of the rate. In the
first round the statements were copied
from examples in the market. For
subsequent testing rounds, the language
and design of the statements were
modified to better convey how the
effective APR differs from the
corresponding APR. Several different
approaches and many variations on
those approaches were tested.
In most of the rounds, a minority of
participants correctly explained that the
effective APR for cash advances was
higher than the corresponding APR for
cash advances because a cash advance
fee had been imposed. A smaller
minority correctly explained that the
effective APR for purchases was the
same as the corresponding APR for
purchases because no transaction fee
had been imposed on purchases. A
majority offered incorrect explanations
or did not offer any explanation. Results
changed at the final testing site,
however, when a majority of
participants evidenced an
understanding that the effective APR for
cash advances would be elevated for the
statement period when a cash advance
fee was imposed during that period, that
the effective APR would not be as
elevated for periods where a cash
advance balance remained outstanding
but no fee had been imposed, and that
the effective APR for purchases was the
same as the corresponding APR for
purchases because no transaction fee
had been imposed on purchases.
The form in the final round of testing
prior to the June 2007 Proposal labeled
the rate ‘‘Fee-Inclusive APR’’ and placed
it in a table separate from the
corresponding APR. The ‘‘Fee-Inclusive
APR’’ table included the amount of
interest and the amount of transaction
fees. An adjacent sentence stated that
the ‘‘Fee-Inclusive APR’’ represented
the cost of transaction fees as well as
interest. Similar approaches had been
tried in some of the earlier rounds,
except that the effective APR had been
labeled ‘‘Effective APR.’’
The Board’s proposed two alternative
approaches. After considering the
concerns and issues raised by industry
and consumer groups about the effective
APR, as well as the results of the
consumer testing, the Board proposed in
June 2007 two alternative approaches
for addressing the effective APR. The
first approach attempted to improve
consumer understanding of this rate and
reduce creditor uncertainty about its
computation. The second approach
proposed to eliminate the requirement
to disclose the effective APR.
1. First alternative proposal. Under
the first alternative, the Board proposed
to impose uniform terminology and

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formatting on disclosure of the effective
APR and the fees included in its
computation. See proposed
§ 226.7(b)(6)(iv) and (b)(7)(i). This
proposal was based largely on a form
developed through several rounds of
one-on-one interviews with consumers.
The Board also proposed under this
alternative to revise § 226.14, which
governs computation of the effective
APR, in an effort to increase certainty
about which fees the rate must include.
Under proposed § 226.7(b)(7)(i) and
Sample G–18(B), creditors would have
disclosed an effective APR for each
feature, such as purchases and cash
advances, in a table with the heading
‘‘Fee-Inclusive APR.’’ Creditors would
also have indicated that the FeeInclusive APRs are ‘‘APRs that you paid
this period when transactions or fixed
fees are taken into account as well as
interest.’’ A composite effective APR for
two or more features would no longer
have been permitted, as it is more
difficult to explain to consumers. In
addition to the effective APR(s) for each
feature, the table would have included,
by feature, the total of interest, labeled
as ‘‘interest charges,’’ and the total of
the fees included in the effective APR,
labeled as ‘‘transaction and fixed
charges.’’ To facilitate understanding,
proposed § 226.7(b)(6)(iii) would have
required creditors to label the specific
fees used to calculate the effective APR
either as ‘‘transaction’’ or ‘‘fixed’’ fees,
depending on whether the fee relates to
a specific transaction. Such fees would
also have been disclosed in the list of
transactions. If the only finance charges
in a billing cycle are interest charges,
the corresponding and effective APRs
are identical. In those cases, creditors
would have disclosed only the
corresponding APRs and would not
have been required to label fees as
‘‘transaction’’ or ‘‘fixed’’ fees since there
would be no fees that are finance
charges in such cases. These
requirements would have been
illustrated in forms under G–18 in
Appendix G to part 226, and creditors
would have been required to use the
model form or a substantially similar
form.
The proposal also sought to simplify
computation of the effective APR, both
to increase consumer understanding of
the disclosure and facilitate creditor
compliance. Proposed § 226.14(e) would
have included a specific and exclusive
list of finance charges that would be
included in calculating the effective
APR.18
18 Under the statute, the numerator of the quotient
used to determine the historical APR is the total

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2. Second alternative proposal. Under
the second alternative proposal,
disclosure of the effective APR would
no longer have been required. The
Board proposed this approach pursuant
to its exception and exemption
authorities under TILA Section 105.
Section 105(a) authorizes the Board to
make exceptions to TILA to effectuate
the statute’s purposes, which include
facilitating consumers’ ability to
compare credit terms and helping
consumers avoid the uninformed use of
credit. 15 U.S.C. 1601(a), 1604(a).
Section 105(f) authorizes the Board to
exempt any class of transactions (with
an exception not relevant here) from
coverage under any part of TILA if the
Board determines that coverage under
that part does not provide a meaningful
benefit to consumers in the form of
useful information or protection. 15
U.S.C. 1604(f)(1).
Under the second alternative
proposal, disclosure of an effective APR
would have been optional for creditors
offering HELOCs, as discussed above in
the section-by-section analysis to
§ 226.7(a)(7). For creditors offering
open-end (not home-secured) plans, the
regulation would have included no
effective APR provision, and
§ 226.7(b)(7) would have been reserved.
Comments on the proposal. Many
industry commenters supported the
Board’s second alternative proposal to
eliminate the requirement to disclose
the effective APR. Commenters
supporting this alternative generally
echoed the reasons given by the Board
for this alternative in the June 2007
Proposal. For example, they contended
that the effective APR cannot be used
for shopping purposes because it is
backward-looking and only purports to
represent the cost of credit for a
particular cycle; the effective APR
confuses and misleads consumers; and
the effective APR requirement imposes
compliance costs and risks on creditors
(for example, cost of legal analysis to
determine whether new fees must be
included in the effective APR, litigation
risk, and costs of responding to
inquiries from confused consumers).
Another argument commenters made
in support of eliminating the effective
APR was that the disclosure would be
unnecessary, in light of the Board’s
proposal for disclosure of interest and
fees totaled by period and year to date
finance charge. See TILA Section 107(a)(2), 15
U.S.C. 1606(a)(2). The Board has authority to make
exceptions and adjustments to this calculation
method to serve TILA’s purposes and facilitate
compliance. See TILA Section 105(a), 15 U.S.C.
1604(a). The Board has used this authority before
to exclude certain kinds of finance charges from the
effective APR. See § 226.14(c)(2) and (c)(3).

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(see the section-by-section analysis to
§ 226.7(b)(6)). Some commenters also
indicated that retaining the effective
APR, in combination with the proposal
to include all transaction fees in the
finance charge, might result in a creditor
violating restrictions on interest rates.
Some commenters contended that the
Board’s proposal to rename the effective
APR the ‘‘Fee-Inclusive APR’’ would not
solve the problems of consumer
misunderstanding and might in fact
exacerbate such problems, although one
industry commenter stated that if the
Board decided to retain the effective
APR requirement (which this
commenter did not favor), the term
‘‘Fee-Inclusive APR’’ might represent an
improvement.
Industry commenters also expressed
concern about the Board’s proposal to
specify precisely the fees that are to be
included in the effective APR
calculation (in proposed § 226.14(e), as
discussed above). One commenter said
that if the effective APR requirement
were to be retained, the Board would
need to better clarify in § 226.14(e)
which fees must be included. Another
commenter stated that the proposed
approach would not solve the problem
of creditor uncertainty about which fees
are to be included in the effective APR,
because new types of fees will arise and
create further uncertainty.
Other commenters, including
consumer groups and government
agencies, supported the Board’s first
alternative proposal to retain the
effective APR requirement. Commenters
supporting this alternative believe that
consumers need the effective APR in
order to be able to properly evaluate and
compare costs of card programs;
commenters also contended that if the
effective APR were eliminated, creditors
could impose additional fees that would
escape effective disclosure. Many of
these commenters urged not only that
the effective APR requirement should be
retained, but in addition that all fees, or
at least more fees than under the current
regulation (for example, late-payment
fees and over-the-limit fees) should be
included in its calculation.
Some commenters noted that even if
the effective APR were retained, if the
proposed approach (in proposed
§ 226.14(e)) of specifying the fees to be
included in the effective APR were
followed, creditors could introduce new
fees that might qualify as finance
charges, but might not be included in
the effective APR. One commenter
supporting retention suggested that the
Board try further consumer testing of an
improved disclosure format for the
effective APR, but that if the testing
showed that consumers still did not

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understand the effective APR, then it
should be eliminated.
Consumer group commenters also
expressed concern about the proposal to
require disclosure of separate effective
APRs for each feature on a credit card
account. Commenters stated that such
an approach would understate the true
cost of credit, and would ‘‘dilute’’ the
effect of multiple fees, because the fees
would be shared among several different
APRs. One creditor commenter also
expressed concern about this proposal,
stating that it would increase
programming costs.
Additional consumer research. In
March 2008, and again after the May
2008 Proposal, the Board conducted
further consumer research using one-onone interviews in the same manner as in
the consumer research prior to the June
2007 Proposal, discussed above. Three
rounds of testing were conducted. A
majority of participants in all rounds
did not offer a correct explanation of the
effective APR; instead, they offered a
variety of incorrect explanations,
including that the effective APR
represented: the interest rate paid on fee
amounts; the interest rate if the
consumer paid late (the penalty rate);
the APR after the introductory period
ends; or the year-to-date interest charges
expressed as a percentage. Two different
labels were used for the effective APR
in the statements shown to participants:
the ‘‘Fee-Inclusive APR’’ and the ‘‘APR
including Interest and Fees’’. The label
that was used did not have a noticeable
effect on participant comprehension.
In addition, in September 2008 the
Board conducted additional consumer
research using quantitative methods for
the purpose of validating the qualitative
research (one-on-one interviews)
conducted previously. The quantitative
consumer research involved surveys of
1,022 consumers at shopping malls in
seven locations around the country.
Two research questions were
investigated; the first was designed to
determine what percentage of
consumers understand the significance
of the effective APR. The interviewer
pointed out the effective APR disclosure
for a month in which a cash advance
occurred, triggering a transaction fee
and thus making the effective APR
higher than the nominal APR (interest
rate). The interviewer then asked what
the effective APR would be in the next
month, in which the cash advance
balance was not paid off but no new
cash advances occurred. A very small
percentage of respondents gave the
correct answer (that the effective APR
would be the same as the nominal APR).
Some consumers stated that the
effective APR would be the same in the

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next month as in the current month,
others indicated that they did not know,
and the remainder gave other incorrect
answers.
The second research question was
designed to determine whether the
disclosure of the effective APR
adversely affects consumers’ ability to
correctly identify the current nominal
APR on cash advances. Some consumers
were shown a periodic statement
disclosing an effective APR, while other
consumers were shown a statement
without an effective APR disclosure.
Consumers were then asked to identify
the nominal APR on cash advances. A
greater percentage of consumers who
were shown a statement without an
effective APR than of those shown a
statement with an effective APR
correctly identified the rate on cash
advances. This finding was statistically
significant, as discussed in the
December 2008 Macro Report on
Quantitative Testing. Some of the
consumers who did not correctly
identify the rate on cash advances
instead identified the effective APR as
that rate.
The quantitative consumer research
conducted by the Board validated the
results of the qualitative testing
conducted both before and after the June
2007 proposal; it indicates that most
consumers do not understand the
effective APR, and that for some
consumers the effective APR is
confusing and detracts from the
effectiveness of other disclosures.
Final rule. After considering the
comments on the proposed alternatives
and the results of the consumer testing,
the Board has determined that it is
appropriate to eliminate the
requirement to disclose an effective
APR. The Board takes this action
pursuant to its exception and exemption
authorities under TILA Section 105.
Section 105(f) directs the Board to
make an exemption determination in
light of specific factors. 15 U.S.C.
1604(f)(2). These factors are: (1) The
amount of the loan and whether the
disclosure provides a benefit to
consumers who are parties to the
transaction involving a loan of such
amount; (2) the extent to which the
requirement complicates, hinders, or
makes more expensive the credit
process; (3) the status of the borrower,
including any related financial
arrangements of the borrower, the
financial sophistication of the borrower
relative to the type of transaction, and
the importance to the borrower of the
credit, related supporting property, and
coverage under TILA; (4) whether the
loan is secured by the principal
residence of the borrower; and (5)

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whether the exemption would
undermine the goal of consumer
protection.
The Board has considered each of
these factors carefully, and based on
that review, has concluded that it has
satisfied the criteria for the exemption
determination. Consumer testing
conducted prior to the June 2007
Proposal, in March 2008, and after the
May 2008 Proposal indicates that
consumers find the current disclosure of
an APR that combines rates and fees to
be confusing. The June 2007 Proposal
would have required disclosure of the
nominal interest rate and fees in a
manner that is more readily
understandable and comparable across
institutions. The Board believes that this
approach can better inform consumers
and further the goals of consumer
protection and the informed use of
credit for all types of open-end credit.
The Board also considered whether
there were potentially competing
considerations that would suggest
retention of the requirement to disclose
an effective APR. First, the Board
considered the extent to which ‘‘sticker
shock’’ from the effective APR benefits
consumers, even if the disclosure does
not enable consumers to meaningfully
compare costs from month to month or
for different products. A second
consideration is whether the effective
APR may be a hedge against feeintensive pricing by creditors, and if so,
the extent to which it promotes
transparency. On balance, however, the
Board believes that the benefits of
eliminating the requirement to disclose
the effective APR outweigh these
considerations.
The consumer testing conducted for
the Board supports this determination.
With the exception of one round of
testing conducted prior to the June 2007
Proposal, the overall results of the
testing demonstrated that most
consumers do not correctly understand
the effective APR. Some consumers in
the testing offered no explanation of the
difference between the corresponding
and effective APR, and others appeared
to have an incorrect understanding. The
results were similar in the consumer
testing conducted in March 2008 and in
the qualitative and quantitative testing
conducted after the May 2008 proposal;
in all rounds of the testing, a majority
of participants did not offer a correct
explanation of the effective APR.
Even if some consumers have some
understanding of the effective APR, the
Board believes sound reasons support
eliminating the requirement for its
disclosure. Disclosure of the effective
APR on periodic statements does not
significantly assist consumers in credit

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shopping, because the effective APR
disclosed on a statement on one credit
card account cannot be compared to the
nominal APR disclosed on a solicitation
or application for another credit card
account. In addition, even within the
same account, the effective APR for a
given cycle is unlikely to accurately
indicate the cost of credit in a future
cycle, because if any of several factors
(such as the timing of transactions and
payments and the amount carried over
from the prior cycle) is different in the
future cycle, the effective APR will be
different even if the amounts of the
transaction and the fee are the same in
both cycles. As to contentions that the
effective APR for a particular billing
cycle provides the consumer a rough
indication that the cost of repeating
transactions triggering transaction fees
is high in some sense, the Board
believes the requirements adopted in
the final rule to disclose interest and fee
totals for the cycle and year-to-date will
serve the same purpose. In addition, the
interest and fee total disclosure
requirements should address concerns
that elimination of the effective APR
would remove disincentives for
creditors to introduce new fees.
The Board is adopting its second
alternative proposal under which
disclosure of an effective APR is not
required. Under the second alternative
proposal, § 226.7(b)(7) would have been
reserved. In the final rule, proposed
§ 226.7(b)(14) (change-in-terms and
increased penalty rate summary) is
renumbered as § 226.7(b)(7). In addition,
Sample G–18(B), as proposed in June
2007 as part of the first alternative
proposal, is not adopted.
Format requirements for periodic
statements. TILA and Regulation Z
currently contain few formatting
requirements for periodic statement
disclosures. The Board proposed several
proximity requirements in June 2007,
based on consumer testing that showed
targeted proximity requirements on
periodic statements tended to improve
the effectiveness of disclosures for
consumers. Under the June 2007
Proposal, interest and fees imposed as
part of the plan during the statement
period would have been disclosed in a
simpler manner and in a consistent
location. Transactions would have been
grouped by type, and fee and interest
charge totals would have been required
to be located with the transactions. If an
advance notice of changed rates or terms
is provided on or with a periodic
statement, the June 2007 Proposal
would have required a summary of the
change beginning on the front of the
first page of the periodic statement. The
proposal would have linked by

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proximity the payment due date with
the late payment fee and penalty rate
that could be triggered by an untimely
payment. The minimum payment
amount also would have been linked by
proximity with the new warning
required by the Bankruptcy Act about
the effects of making only minimum
payments on the account. Grouping
these disclosures together was intended
to enhance consumers’ informed use of
credit.
Model clauses were proposed to
illustrate the revisions, to facilitate
compliance. The Board published for
the first time proposed forms illustrating
front sides of a periodic statement, as a
compliance aid. The Board published
Forms G–18(G) and G–18(H) to illustrate
how a periodic statement might be
designed to comply with the
requirements of § 226.7. Proposed
Forms G–18(G) and G–18(H) would
have contained some additional
disclosures that are not required by
Regulation Z. The forms also would
have presented information in some
additional formats that are not required
by Regulation Z.
Some consumer groups applauded the
Board’s prescriptive approach for
periodic statement disclosures, to give
effect to the Board’s findings about
presenting information in a manner that
makes it easier for consumers to
understand. A federal banking agency
noted that standardized periodic
statement disclosures may reduce
consumer confusion that may result
from variations among creditors.
Most industry commenters strongly
opposed the Board’s approach as being
overly prescriptive and costly to
implement. They strongly urged the
Board to permit additional flexibility, or
simply to retain the current requirement
to provide ‘‘clear and conspicuous’’
disclosures. For example, these
commenters asked the Board to
eliminate any requirement that dictated
the order or proximity of disclosures,
along with any requirement that
creditors’ disclosures be substantially
similar to model forms or samples.
Although the Board’s testing suggested
certain formatting may be helpful to
consumers, many commenters believe
other formats might be as helpful. They
stated that not all consumers place the
same value on a certain piece of
information, and creditors should be
free to tailor periodic statements to the
needs of their customers. Further,
although participants in the Board’s
consumer testing may have indicated
they preferred one format over another,
commenters believe consumers are not
confused by other formats, and the cost
to reformat paper-based and electronic

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statements is not justified by the
possible benefits. For example,
commenters said the proposed
requirements will require lengthier
periodic statements, which is an
additional ongoing expense
independent of the significant one-time
cost to redesign statements.
The final rule retains many of the
formatting changes the Board proposed.
In response to further consumer testing
results and comments, however, the
Board is providing flexibility to
creditors where the changes proposed
by the Board have not demonstrated
consumer benefit sufficient to justify the
expense to creditors of reformatting the
periodic statement. For example, while
the Board is adopting the proposal to
group interest and fees, the Board is not
adopting the requirement to group
transactions (including credits) by
transaction type. See the section-bysection analysis to § 226.7(b)(2), (b)(3),
and (b)(6) below. Furthermore, if an
advance notice of a change in rates or
terms is provided on or with a periodic
statement, the final rule requires that a
summary of the change appear on the
front of the periodic statement, but
unlike the proposal, the summary is not
required to begin on the front of the first
page of the statement. See the sectionby-section analysis to § 226.7(b)(7).
Moreover, proximity requirements for
certain information in the periodic
statement have been retained, but the
information does not need to be
presented substantially similar to the
Board’s model forms. See the sectionby-section analysis to § 226.7(b)(13).
Deferred interest plans. Current
comment 7–3 provides guidance on
various periodic statement disclosures
for deferred-payment transactions, such
as when a consumer may avoid interest
charges if a purchase balance is paid in
full by a certain date. The substance of
comment 7–3, revised to conform to
other proposed revisions in § 226.7(b),
was proposed in June 2007 as comment
7(b)–1, which applies to open-end (not
home-secured) plans. The comment
permits, but does not require, creditors
to disclose during the promotional
period information about accruing
interest, balances, interest rates, and the
date in a future cycle when the balance
must be paid in full to avoid interest.
Some industry commenters asked the
Board to provide additional guidance
about how and where this optional
information may be disclosed if the
Board adopts proposed formatting
requirements for periodic statements.
Some consumer commenters urged the
Board to require creditors to disclose on
each periodic statement the date when
any promotional offer ends.

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Comment 7(b)–1 is adopted as
proposed, with technical revisions for
clarity without any intended substantive
change. For example, the transactions
described in the comment are now
referred to as ‘‘deferred interest’’ rather
than ‘‘deferred-payment.’’ The comment
also has been revised to note that it does
not apply to card issuers that are subject
to 12 CFR 227.24 or similar law which
does not permit the assessment of
deferred interest.
The Board believes the formatting
requirements for periodic statements do
not interfere with creditors’ ability to
provide information about deferred
interest transactions or other
promotions. Comment 7(b)–1, retained
as proposed, clarifies that creditors are
permitted, but not required, to disclose
on each periodic statement the date in
a future cycle when the balance on the
deferred interest transaction must be
paid in full to avoid interest charges.
Similarly, subject to the requirement to
provide clear and conspicuous
disclosures, creditors may, but are not
required to, disclose when promotional
offers end. The final rule does not
require creditors to disclose on each
periodic statement the date when any
promotional offer ends. The Board
believes that many creditors currently
provide such information prior to the
end of the promotional period.
7(b)(2) Identification of Transactions
Under the June 2007 Proposal,
§ 226.7(b)(2) would have required
creditors to identify transactions in
accordance with rules set forth in
§ 226.8. This provision implements
TILA Section 127(b)(2), currently at
§ 226.7(b). The section-by-section
analysis to § 226.8 discusses the Board’s
proposal to revise and significantly
simplify the rules for identifying
transactions, which the Board adopts as
proposed.
Under the June 2007 Proposal, the
Board introduced a format requirement
to group transactions by type, such as
purchases and cash advances, based on
consumer testing conducted for the
Board. In consumer testing conducted
prior to the June 2007 Proposal,
participants in the Board’s consumer
testing found such groupings helpful.
Moreover, participants noticed fees and
interest charges more readily when
transactions were grouped together, the
fees imposed for the statement period
were not interspersed among the
transactions, and the interest and fees
were disclosed in proximity to the
transactions. Proposed Sample G–18(A)
would have illustrated the proposal.
Most industry commenters opposed
the proposed requirement to group

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transactions by type. Overall,
commenters opposing this aspect of the
proposal believe the cost to implement
the change exceeds the benefit
consumers might receive. Some
commenters reported that their
customers or consumer focus groups
preferred chronological listings.
Similarly, some commenters believe
consumer understanding is enhanced by
a chronological listing that permits fees
related to a transaction, such as foreign
transaction fees, to appear immediately
below the transaction. Other
commenters were concerned that under
the proposal, creditors would no longer
be able to disclose transactions grouped
by authorized user, or by other subaccounts such as for promotions.
In quantitative consumer testing
conducted in the fall of 2008, the Board
tested consumers’ ability to identify
specific transactions and fees on
periodic statements that grouped
transactions by transaction type versus
those that listed transactions in
chronological order. After they were
shown either a grouped periodic
statement or a chronological periodic
statement, consumer testing participants
were asked to identify the dollar amount
of the first cash advance in the
statement period. In order to test the
effect of grouping fees, participants also
were asked to identify the number of
fees charged during the statement
period. While testing evidence showed
that the grouped periodic statement
performed better among participants
with respect to both questions, the
improved performance of the grouped
periodic statement was more significant
with regard to consumers’ ability to
identify fees.
Based on these testing results and
comments the Board received on the
proposal to require transactions to be
grouped by transaction type on periodic
statements, the final rule requires
creditors to group fees and interest
together into a separate category but
permits flexibility in how transactions
may be listed. The Board believes that
it is especially important for consumers
to be able to identify fees and interest
in order to assess the overall cost of
credit. As further discussed below in the
section-by-section analysis to
§ 226.7(b)(6), because testing evidence
suggests that consumers can more easily
find fees when they are grouped
together under a separate heading rather
than when they are combined with a
consumer’s transactions in a
chronological list, the Board is adopting
the proposal that would require the
grouping of fees and interest on the
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With respect to grouping of
transactions, such as purchases and
cash advances, the Board believes that
the modest improvement in consumers’
ability to identify specific transactions
in a grouped periodic statement may not
justify the high cost to many creditors
of reformatting periodic statements and
coding transactions in order to group
transactions by type. Furthermore,
providing flexibility in how transactions
may be presented would allow creditors
to disclose transactions grouped by
authorized user or by other subaccounts, which consumers may find
useful. In addition, in consumer testing
conducted for the Board prior to the fall
of 2008, most consumers indicated that
they already review the transactions on
their periodic statements. The Board
expects that consumers will continue to
review their transactions, and that
consumers generally are aware of the
transactions in which they have engaged
during the billing period.
Accordingly, the Board has
withdrawn the requirement to group
transactions by type in proposed
§ 226.7(b)(2). Comment 7(b)(2)–1 has
been revised from the proposal to
permit, but not require, creditors to
group transactions by type. Therefore,
creditors may list transactions
chronologically, group transactions by
type, or organize transactions in any
other way that would be clear and
conspicuous to consumers. However,
consistent with § 226.7(b)(6), all fees
and interest must be grouped together
under a separate heading and may not
be interspersed with transactions.
7(b)(3) Credits
Creditors are required to disclose any
credits to the account during the billing
cycle. Creditors typically disclose
credits among other transactions. The
Board did not propose substantive
changes to the disclosure requirements
for credits in June 2007. However,
consistent with the format requirements
proposed in § 226.7(b)(2), the June 2007
Proposal would have required credits
and payments to be grouped together.
Proposed Sample G–18(A) would have
illustrated the proposal.
Few commenters directly addressed
issues related to disclosing credits on
periodic statements, although many
industry commenters opposed format
requirements to group transactions
(thus, credits) by type rather than in a
chronological listing. In response to a
request for guidance on the issue,
comment 7(b)(3)–1 is modified from the
proposal to clarify that credits may be
distinguished from transactions in any
way that is clear and conspicuous, for
example, by use of debit and credit

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columns or by use of plus signs and/or
minus signs.
As discussed in the section-by-section
analysis to § 226.7(b)(2) above, the
Board is not requiring creditors to group
transactions by type. For the reasons
discussed in that section and in the
section-by-section analysis to
§ 226.7(b)(6) below, the Board is only
requiring creditors to group fees and
interest into a separate category, while
credits, like transactions, may be
presented in any manner that is clear
and conspicuous to consumers.
Combined deposit account and credit
account statements. Currently, comment
7(c)–2 permits creditors to commingle
credits related to extensions of credit
and credits related to non-credit
accounts, such as for a deposit account.
In June 2007, the Board solicited
comment on the need for alternatives to
the proposed format requirements to
segregate transactions and credits, such
as when a depository institution
provides on a single periodic statement
account activity for a consumer’s
checking account and an overdraft line
of credit.
As discussed above in the section-bysection analysis to § 226.7(b)(2) above,
the Board is not requiring creditors to
segregate transactions and credits.
Therefore, formatting alternatives for
combined deposit account and credit
account statements are no longer
necessary. Comment 7(b)(3)–3, as
renumbered in the June 2007 Proposal,
is revised for clarity and is adopted as
proposed.
7(b)(4) Periodic Rates
Periodic rates. TILA Section 127(b)(5)
and current § 226.7(d) require creditors
to disclose all periodic rates that may be
used to compute the finance charge, and
an APR that corresponds to the periodic
rate multiplied by the number of
periods in a year. 15 U.S.C. 1637(b)(5);
§ 226.14(b). In the June 2007 Proposal,
the Board proposed to eliminate, for
open-end (not home-secured) plans, the
requirement to disclose periodic rates
on periodic statements.
Most industry commenters supported
the proposal, believing that periodic
rates are not important to consumers.
Some consumer groups opposed
eliminating the periodic rate as a
disclosure requirement, stating that it is
easier for consumers to check the
calculation of their interest charges
when the rate appears on the statement.
One industry commenter asked the
Board to clarify that the rule would not
prohibit creditors from providing, at
their option, the periodic rate close to
the APR and balance to which the rates
relate.

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The final rule eliminates the
requirement to disclose periodic rates
on periodic statements, as proposed,
pursuant to the Board’s exception and
exemption authorities under TILA
Section 105. Section 105(a) authorizes
the Board to make exceptions to TILA
to effectuate the statute’s purposes,
which include facilitating consumers’
ability to compare credit terms and
helping consumers avoid the
uninformed use of credit. 15 U.S.C.
1601(a), 1604(a). Section 105(f)
authorizes the Board to exempt any
class of transactions (with an exception
not relevant here) from coverage under
any part of TILA if the Board determines
that coverage under that part does not
provide a meaningful benefit to
consumers in the form of useful
information or protection. 15 U.S.C.
1604(f)(1). Section 105(f) directs the
Board to make this determination in
light of specific factors. 15 U.S.C.
1604(f)(2). These factors are (1) the
amount of the loan and whether the
disclosure provides a benefit to
consumers who are parties to the
transaction involving a loan of such
amount; (2) the extent to which the
requirement complicates, hinders, or
makes more expensive the credit
process; (3) the status of the borrower,
including any related financial
arrangements of the borrower, the
financial sophistication of the borrower
relative to the type of transaction, and
the importance to the borrower of the
credit, related supporting property, and
coverage under TILA; (4) whether the
loan is secured by the principal
residence of the borrower; and (5)
whether the exemption would
undermine the goal of consumer
protection.
The Board considered each of these
factors carefully, and based on that
review and the comments received,
determined that the exemption is
appropriate. In consumer testing
conducted for the Board prior to the
June 2007 Proposal, consumers
indicated they do not use periodic rates
to verify interest charges. Consistent
with the Board’s June 2007 Proposal not
to allow periodic rates to be disclosed
in the tabular summary on or with
credit card applications and disclosures,
requiring periodic rates to be disclosed
on periodic statements may detract from
more important information on the
statement, and contribute to information
overload. Eliminating periodic rates
from the periodic statement has the
potential to better inform consumers
and further the goals of consumer
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credit for open-end (not home-secured)
credit.
The Board notes that under the final
rule, creditors may continue to disclose
the periodic rate, so long as the
additional information is presented in a
way that is consistent with creditors’
duty to provide required disclosures
clearly and conspicuously. See
comment app. G–10.
Labeling APRs. Currently creditors are
provided with considerable flexibility in
identifying the APR that corresponds to
the periodic rate. Current comment
7(d)–4 permits labels such as
‘‘corresponding annual percentage rate,’’
‘‘nominal annual percentage rate,’’ or
‘‘corresponding nominal annual
percentage rate.’’ The June 2007
Proposal would have required creditors
offering open-end (not home-secured)
plans to label the APR disclosed under
proposed § 226.7(b)(4) as ‘‘annual
percentage rate.’’ The proposal was
intended to promote uniformity and to
distinguish between this ‘‘interest only’’
APR and the effective APR that includes
interest and fees, as proposed to be
enhanced under one alternative in the
June 2007 Proposal.
Commenters generally supported the
proposal, and the labeling requirement
is adopted as proposed. Forms G–18(F)
and G–18(G) illustrate periodic
statements that disclose an APR but no
periodic rates.
Rates that ‘‘may be used.’’ Currently,
comment 7(d)–1 interprets the
requirement to disclose all periodic
rates that ‘‘may be used’’ to mean
‘‘whether or not [the rate] is applied
during the cycle.’’ For example, rates on
cash advances must be disclosed on all
periodic statements, even for billing
periods with no cash advance activity or
cash advance balances. The regulation
and commentary do not clearly state
whether promotional rates, such as
those offered for using checks accessing
credit card accounts, that ‘‘may be
used’’ should be disclosed under
current § 226.7(d) regardless of whether
they are imposed during the period. See
current comment 7(d)–2. The June 2007
Proposal included a limited exception
to TILA Section 127(b)(5) to effectuate
the purposes of TILA to require
disclosures that are meaningful and to
facilitate compliance.
Under § 226.7(b)(4)(ii) of the June
2007 Proposal, creditors would have
been required to disclose promotional
rates only if the rate actually applied
during the billing period. For example,
a card issuer may impose a 22 percent
APR for cash advances but offer for a
limited time a 1.99 percent promotional
APR for advances obtained through the
use of a check accessing a credit card

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account. Creditors are currently
required to disclose, in this example,
the 22 percent cash advance APR on
periodic statements whether or not the
consumer obtains a cash advance during
the previous statement period. The
proposal clarified that creditors are not
required to disclose the 1.99 percent
promotional APR unless the consumer
used the check during the statement
period. In the June 2007 Proposal, the
Board noted its belief that interpreting
TILA to require the disclosure of all
promotional rates would be
operationally burdensome for creditors
and result in information overload for
consumers. The proposed exception did
not apply to HELOCs covered by
§ 226.5b.
Industry and consumer group
commenters generally supported the
proposal that requires promotional rates
to be disclosed only if the rate actually
applied during the billing period. Some
consumer groups urged the Board to go
further and prohibit creditors from
disclosing a promotional rate that has
not actually been applied, to avoid
possible consumer confusion over a
multiplicity of rates. For the reasons
stated in the June 2007 Proposal and
discussed above, the Board is adopting
§ 226.7(b)(4)(ii) as proposed, with minor
changes to the description of the rate
and time period, consistent with
§ 226.16(g). See also section-by-section
analysis to § 226.7(a)(4), which
discusses extending the exception to
HELOCs subject to § 226.5b.
Combining interest and other charges.
Currently, creditors must disclose
finance charges attributable to periodic
rates. These costs are typically interest
charges but may include other costs
such as premiums for required credit
insurance. If applied to the same
balance, creditors may disclose each
rate, or a combined rate. See current
comment 7(d)–3. As discussed below,
consumer testing for the Board
conducted prior to the June 2007
Proposal indicated that participants
appeared to understand credit costs in
terms of ‘‘interest’’ and ‘‘fees,’’ and the
June 2007 Proposal would have required
disclosures to distinguish between
interest and fees. To the extent
consumers associate periodic rates with
‘‘interest,’’ it seems unhelpful to
consumers’ understanding to permit
creditors to include periodic rate
charges other than interest in the dollar
cost disclosed. Thus, in the June 2007
Proposal guidance permitting periodic
rates attributable to interest and other
finance charges to be combined would
have been eliminated for open-end (not
home-secured) plans.

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Few comments were received on this
aspect of the proposal. Some consumer
groups strongly opposed the proposal if
the Board determined to eliminate the
effective APR, as proposed under one
alternative in the June 2007 Proposal.
They believe that because the required
credit insurance premium is calculated
as a percentage of the outstanding
balance, creditors could understate the
percentage consumers must pay for
carrying a balance, which would
conceal the true cost of credit.
The final rule provides that creditors
offering open-end (not home-secured)
plans that impose finance charges
attributable to periodic rates (other than
interest) must disclose the amount in
dollars, as a fee, as proposed. See
section-by-section analysis to
§ 226.7(b)(6) below. Many fees
associated with credit card accounts or
other open-end plans are a percentage of
the transaction or balance, such as
balance transfer or cash advance fees.
The Board believes that disclosing fees
such as for credit insurance premiums
as a separate dollar amount rather than
as part of a percentage provides
consistency and, based on the Board’s
consumer testing, may be more helpful
to many consumers.
In addition, a new comment 7(b)(4)–
4 (proposed in June 2007 as comment
7(b)(4)–7) is added to provide guidance
to creditors when a fee is imposed,
remains unpaid, and interest accrues on
the unpaid balance. The comment,
adopted as proposed, provides that
creditors disclosing fees in accordance
with the format requirements of
§ 226.7(b)(6) need not separately
disclose which periodic rate applies to
the unpaid fee balance.
In technical revisions, the substance
of footnotes referenced in § 226.7(d) is
moved to the regulation and comment
7(b)(4)–5, as proposed.
7(b)(5) Balance on Which Finance
Charge Is Computed
Creditors must disclose the amount of
the balance to which a periodic rate was
applied and an explanation of how the
balance was determined. The Board
provides model clauses creditors may
use to explain common balance
computation methods. 15 U.S.C.
1637(b)(7); current § 226.7(e); and
Model Clauses G–1. The staff
commentary to current § 226.7(e)
interprets how creditors may comply
with TILA in disclosing the ‘‘balance,’’
which typically changes in amount
throughout the cycle, on periodic
statements.
Amount of balance. The June 2007
Proposal did not change how creditors
are required to disclose the amount of

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the balance on which finance charges
are computed. Proposed comment
7(b)(5)–4 would have permitted
creditors, at their option, not to include
an explanation of how the finance
charge may be verified for creditors that
use a daily balance method. Currently,
creditors that use a daily balance
method are permitted to disclose an
average daily balance for the period,
provided they explain that the amount
of the finance charge can be verified by
multiplying the average daily balance by
the number of days in the statement
period, and then applying the periodic
rate. The Board proposed to retain the
rule permitting creditors to disclose an
average daily balance but would have
eliminated the requirement to provide
the explanation. Consumer testing
conducted for the Board prior to the
June 2007 Proposal suggested that the
explanation may not be used by
consumers as an aid to calculate their
interest charges. Participants suggested
that if they attempted without
satisfaction to calculate balances and
verify interest charges based on
information on the periodic statement,
they would call the creditor for
assistance. Thus, the final rule adopts
comment 7(b)(5)–4, as proposed, which
permits creditors, at their option, not to
include an explanation of how the
finance charge may be verified for
creditors that use a daily balance
method.
The June 2007 Proposal would have
required creditors to refer to the balance
as ‘‘balances subject to interest rate,’’ to
complement proposed revisions
intended to further consumers’
understanding of interest charges, as
distinguished from fees. The final rule
adopts the required description as
proposed. See section-by-section
analysis to § 226.7(b)(6). Forms G–18(F)
and 18(G) (proposed as Forms G–18(G)
and G–18(H)) illustrate this format
requirement.
Explanation of balance computation
method. The June 2007 Proposal would
have contained an alternative to
providing an explanation of how the
balance was determined. Under
proposed § 226.7(b)(5), a creditor that
uses a balance computation method
identified in § 226.5a(g) would have two
options. The creditor could: (1) Provide
an explanation, as the rule currently
requires, or (2) identify the name of the
balance computation method and
provide a toll-free telephone number
where consumers may obtain more
information from the creditor about how
the balance is computed and resulting
interest charges are determined. If the
creditor uses a balance computation
method that is not identified in

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§ 226.5a(g), the creditor would have
been required to provide a brief
explanation of the method. The Board’s
proposal was guided by the following
factors.
Calculating balances on open-end
plans can be complex, and requires an
understanding of how creditors allocate
payments, assess fees, and record
transactions as they occur during the
cycle. Currently, neither TILA nor
Regulation Z requires creditors to
disclose on periodic statements all the
information necessary to compute a
balance, and requiring that level of
detail appears not to be warranted.
Although the Board’s model clauses are
intended to assist creditors in
explaining common methods,
consumers continue to find these
explanations lengthy and complex. As
stated earlier, consumer testing
conducted prior to the June 2007
Proposal indicated that consumers call
the creditor for assistance when they
attempt without success to calculate
balances and verify interest charges.
Providing the name of the balance
computation method (or a brief
explanation, if the name is not
identified in § 226.5a(g)), along with a
reference to where additional
information may be obtained provides
important information in a simplified
way, and in a manner consistent with
how consumers obtain further balance
computation information.
Some consumer groups urged the
Board to continue to require creditors to
disclose the balance computation
method on the periodic statement. They
believe that the information is important
for consumers that check creditors’
interest calculations. Consumers, a
federal banking agency and a member of
Congress were among those who
suggested banning a computation
method commonly called ‘‘two-cycle.’’
As an alternative, the agency suggested
requiring a cautionary disclosure on the
periodic statement about the two-cycle
balance computation method for those
creditors that use the method.
Industry commenters generally
favored the proposal, although one
commenter would eliminate identifying
the name of the balance computation
method. Some commenters urged the
Board to add ‘‘daily balance’’ method to
§ 226.5a(g), to enable creditors that use
that balance computation method to
take advantage of the alternative
disclosure.
Some consumer groups further urged
the Board to require creditors, when
responding to a consumer who has
called the creditor’s toll-free number
established pursuant to the proposed
rules, to offer to mail consumers a

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document that provides a complete set
of rules for calculating the balances and
applying the periodic rate, and to post
this information on creditors’ Web sites.
An industry commenter asked the Board
to permit a creditor, in lieu of a
reference to a toll-free telephone
number, to reference the Board’s Web
site address that will be provided with
the application and account-opening
summary tables, or the creditor’s Web
site address, because a Web site can
better provide accurate, clear, and
consistent information about balance
computation methods. The Board is
adopting § 226.7(b)(5), as proposed for
the reasons stated above. See also
§ 226.5a(g), which is revised to include
the daily balance method as a common
balance computation method. The
Board is not requiring creditors also to
refer to the creditor’s Web site for an
explanation of the balance computation
method, or to mail written explanations
upon consumers’ request, to ease
compliance. Consumers who do not
understand the written or Web-based
explanation will likely call the creditor
in any event. However, a creditor could
choose to disclose a reference to its Web
site or provide a written explanation to
consumers, at the creditor’s option.
Current comment 7(e)–6, which refers
creditors to guidance in comment
6(a)(3)–1 about disclosing balance
computation methods is deleted as
unnecessary, as proposed. Elsewhere in
today’s Federal Register, the Board is
adopting a rule that prohibits the twocycle balance computation method as
unfair for consumer credit card
accounts. Therefore any cautionary
disclosure is largely unnecessary.
7(b)(6) Charges Imposed
As discussed in the section-by-section
analysis to § 226.6, the Board proposed
in June 2007 to reform cost disclosure
rules for open-end (not home-secured)
plans, in part, to ensure that all charges
assessed as part of an open-end (not
home-secured) plan are disclosed before
they are imposed and to simplify the
rules for creditors to identify such
charges. Consistent with the proposed
revisions at account opening, the
proposed revisions to cost disclosures
on periodic statements were intended to
simplify how creditors identify the
dollar amount of charges imposed
during the statement period.
Consumer testing conducted for the
Board prior to the June 2007 Proposal
indicated that most participants
reviewing mock periodic statements
could not correctly explain the term
‘‘finance charge.’’ The revisions
proposed in June 2007 were intended to
conform labels of charges more closely

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to common understanding, ‘‘interest’’
and ‘‘fees.’’ Format requirements were
intended to help ensure that consumers
notice charges imposed during the
statement period.
Two alternatives were proposed: One
addressed interest and fees in the
context of an effective APR disclosure,
the second assumed no effective APR is
required to be disclosed.
Charges imposed as part of the plan.
Proposed § 226.7(b)(6) would have
required creditors to disclose the
amount of any charge imposed as part
of an open-end (not home-secured) plan,
as stated in § 226.6(b)(3) (proposed as
§ 226.6(b)(1)). Guidance on which
charges are deemed to be imposed as
part of the plan is in § 226.6(b)(3) and
accompanying commentary. Although
coverage of charges was broader under
the proposed standard of ‘‘charges
imposed as part of the plan’’ than under
current standards for finance charges
and other charges, the Board stated its
understanding that creditors have been
disclosing on the statement all charges
debited to the account regardless of
whether they are now defined as
‘‘finance charges,’’ ‘‘other charges,’’ or
charges that do not fall into either
category. Accordingly, the Board did not
expect the proposed change to affect
significantly the disclosure of charges
on the periodic statement.
Interest charges and fees. For
creditors complying with the new cost
disclosure requirements proposed in
June 2007, the current requirement in
§ 226.7(f) to label finance charges as
such would have been eliminated. See
current § 226.7(f). Testing of this term
with consumers conducted prior to the
June 2007 Proposal found that it did not
help them to understand charges.
Instead, charges imposed as part of an
open-end (not home-secured) plan
would have been disclosed under the
labels of ‘‘interest charges’’ or ‘‘fees.’’
Consumer testing also supplied
evidence that consumers may generally
understand interest as the cost of
borrowing money over time and view
other costs—regardless of their
characterization under TILA and
Regulation Z—as fees (other than
interest). The Board’s June 2007
Proposal was consistent with this
evidence.
TILA Section 127(b)(4) requires
creditors to disclose on periodic
statements the amount of any finance
charge added to the account during the
period, itemized to show amounts due
to the application of periodic rates and
the amount imposed as a fixed or
minimum charge. 15 U.S.C. 1637(b)(4).
This requirement is currently
implemented in § 226.7(f), and creditors

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are given considerable flexibility
regarding totaling or subtotaling finance
charges attributable to periodic rates
and other fees. See current § 226.7(f)
and comments 7(f)–1, –2, and –3. To
improve uniformity and promote the
informed use of credit, § 226.7(b)(6)(ii)
of the June 2007 Proposal would have
required creditors to itemize finance
charges attributable to interest, by type
of transaction, labeled as such, and
would have required creditors to
disclose, for the statement period, a total
interest charge, labeled as such.
Although creditors are not currently
required to itemize interest charges by
transaction type, creditors often do so.
For example, creditors may separately
disclose the dollar interest costs
associated with cash advance and
purchase balances. Based on consumer
testing conducted prior to the June 2007
Proposal, the Board stated its belief that
consumers’ ability to make informed
decisions about the future use of their
open-end plans—primarily credit card
accounts—may be promoted by a
simply-labeled breakdown of the
current interest cost of carrying a
purchase or cash advance balance. The
breakdown enables consumers to better
understand the cost for using each type
of transaction, and uniformity among
periodic statements allows consumers to
compare one account with other openend plans the consumer may have.
Because the Board believes that
consumers benefit when interest charges
are itemized by transaction type, which
many creditors do currently, the Board
is adopting § 226.6(b)(6)(ii) as generally
proposed, with one clarification that all
interest charges be grouped together. As
a result, all interest charges on an
account, whether they are attributable to
different authorized users or subaccounts, must be disclosed together.
Under the June 2007 Proposal, finance
charges attributable to periodic rates
other than interest charges, such as
required credit insurance premiums,
would have been required to be
identified as fees and would not have
been permitted to be combined with
interest costs. See proposed comment
7(b)(4)–3. The Board did not receive
comment on this provision, and the
comment is adopted as proposed.
Current § 226.7(h) requires the
disclosure of ‘‘other charges’’ parallel to
the requirement in TILA Section
127(a)(5) and current § 226.6(b) to
disclose such charges at account
opening. 15 U.S.C. 1637(a)(5).
Consistent with current rules to disclose
‘‘other charges,’’ proposed
§ 226.7(b)(6)(iii) required that other
costs be identified consistent with the
feature or type, and itemized. The

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proposal differed from current
requirements in the following respect:
Fees were required to be grouped
together and a total of all fees for the
statement period were required.
Currently, creditors typically include
fees among other transactions identified
under § 226.7(b). In consumer testing
conducted prior to the June 2007
Proposal, consumers were able to more
accurately and easily determine the total
cost of non-interest charges when fees
were grouped together and a total of fees
was given than when fees were
interspersed among the transactions
without a total. (Proposed
§ 226.7(b)(6)(iii) also would have
required that certain fees included in
the computation of the effective APR
pursuant to § 226.14 must be labeled
either as ‘‘transaction fees’’ or ‘‘fixed
fees,’’ under one proposed approach.
This proposed requirement is discussed
in further detail in the general
discussion on the effective APR in the
section-by-section analysis to
§ 226.7(b).)
To highlight the overall cost of the
credit account to consumers, under the
June 2007 Proposal, creditors would
have been required to disclose the total
amount of interest charges and fees for
the statement period and calendar year
to date. Comment 7(b)(6)–3 would have
provided guidance on how creditors
may disclose the year-to-date totals at
the end of a calendar year. This aspect
of the proposal was based on consumer
testing that indicated that participants
noticed year-to-date cost figures and
would find the numbers helpful in
making future financial decisions. The
proposal was intended to provide
consumers with information about the
cumulative cost of their credit plans
over a significant period of time. This
requirement is discussed further below.
Format requirements. In consumer
testing conducted for the Board prior to
the June 2007 Proposal, consumers
consistently reviewed transactions
identified on their periodic statements
and noticed fees and interest charges,
itemized and totaled, when they were
grouped together with the transactions
on the statement. Some creditors also
disclose these costs in account
summaries or in a progression of figures
associated with disclosing finance
charges attributable to periodic rates.
The June 2007 Proposal did not affect
creditors’ flexibility to provide this
information in such summaries. See
Proposed Forms G–18(G) and G–18(H),
which would have illustrated, but not
required, such summaries. However, the
Board stated in the June 2007 Proposal
its belief that TILA’s purpose to promote
the informed use of credit would be

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furthered significantly if consumers are
uniformly provided, in a location they
routinely review, basic cost
information—interest and fees—that
enables consumers to compare costs
among their open-end plans. The Board
proposed that charges required to be
disclosed under § 226.7(b)(6)(i) would
be grouped together with the
transactions identified under
§ 226.7(b)(2), substantially similar to
Sample G–18(A) in Appendix G to part
226. Proposed § 226.7(b)(6)(iii) would
have required non-interest fees to be
itemized and grouped together, and a
total of fees to be disclosed for the
statement period and calendar year to
date. Interest charges would have been
required to be itemized by type of
transaction, grouped together, and a
total of interest charges disclosed for the
statement period and year to date.
Proposed Sample G–18(A) in Appendix
G to part 226 would have illustrated the
proposal.
Labeling costs imposed as part of the
plan as fees or interest. Commenters
generally supported the Board’s
approach to label costs as either ‘‘fees’’
or ‘‘interest charge’’ rather than ‘‘finance
charge’’ as aligning more closely with
consumers’ understanding.
For the reasons stated above, the
requirement in § 226.7(b)(6) to label
costs imposed as part of the plan as
either fees or interest charge is adopted
as proposed. Because the Board is
adopting the alternative to eliminate the
requirement to disclose an effective
APR, the proposed requirement to label
fees as ‘‘transaction’’ or ‘‘fixed’’ fees as
a part of the proposed alternative to
improve consumers’ understanding of
the effective APR is not included in the
final rule.
Grouping fees together, identified by
feature or type, and itemized. Some
consumer groups supported the
proposal to group fees together, and to
identify and itemize them by feature or
type. They believe that segregating and
highlighting fees is likely to make
consumers more aware of fees, and in
turn, to assist consumers in avoiding
them.
Most industry commenters opposed
this aspect of the proposal, as overly
prescriptive. As discussed in the
section-by-section analysis to
§ 226.7(b)(2) regarding the requirement
to group transactions together, many
commenters believe the proposal would
hinder rather than help consumer
understanding if transaction-related fees
are disclosed in a separate location from
the transaction itself. They assert that
consumers prefer a chronological listing
of debits and credits to the account, and
even if consumers prefer groupings,

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chronological listings are not confusing
and consumer preference does not
justify the cost to the industry to
redesign periodic statements.
Other industry commenters stated
that currently they separately display
account activity in a variety of ways,
such as by user, feature, or promotion.
They believe consumers find these
distinctions to be helpful in managing
their accounts, and urged the Board to
allow creditors to continue to display
information in this manner.
As discussed in the section-by-section
analysis to § 226.7(b)(2) above, in the
fall of 2008, the Board tested consumers’
ability to identify specific transactions
and fees on periodic statements where
transactions were grouped by
transaction type and on periodic
statements that listed transactions in
chronological order. Testing evidence
showed that the grouped periodic
statement performed better among
participants with respect to identifying
specific transactions and fees, though
the improved performance of the
grouped periodic statement was more
significant with regard to the
identification of fees.
Moreover, consumers’ ability to match
a transaction fee to the transaction
giving rise to the fee was also tested.
Among participants who correctly
identified the transaction to which they
were asked to find the corresponding
fee, a larger percentage of consumers
who saw a statement on which account
activity was arranged chronologically
were able to match the fee to the
transaction than when the statement
was grouped. However, out of the
participants who were able to identify
the transaction to which they were
asked to find the corresponding fee, the
percentage of participants able to find
the corresponding fee was very high for
both types of listings.
The Board believes that the ability to
identify all fees is important for
consumers to assess their cost of credit.
As discussed above, since the vast
majority of consumers do not appear to
comprehend the effective APR, the
Board believes highlighting fees and
interest for consumers will more
effectively inform consumers of their
costs of credit. Because consumer
testing results indicate that grouping
fees together helped consumers find
them more easily, the Board is adopting
the proposal under § 226.7(b)(6)(iii) to
require creditors to group fees together.
All fees assessed on the account must be
grouped together under one heading
even if fees may be attributable to
different users of the account or to
different sub-accounts.

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Cost totals for the statement period
and year to date. Consumer group
commenters supported the proposal to
disclose cost totals for the statement
period, as well as a year-to-date total.
One commenter urged the Board to
disclose total fees and interest charged
for the cycle, regardless of the Board’s
decision regarding the effective APR.
The commenter also stated that year-todate totals in dollars provide consumers
with the overall cost of the credit on an
annualized basis.
In general, industry commenters
opposed the requirement for year-todate totals as unnecessary and costly to
implement. Some trade associations
urged the Board to discuss with data
processors potential costs to implement
the year-to-date totals, and to provide
sufficient implementation time if the
requirement is adopted. Suggested
alternatives to the proposal included
providing the information on the first or
last statement of the year, at the end of
the year to consumers who request it, or
to provide access to year-to-date
information on-line.
The Board believes that providing
consumers with the total of interest and
fee costs, expressed in dollars, for the
statement period and year to date is a
significant enhancement to consumers’
ability to understand the overall cost of
credit for the account, and has adopted
the requirement as proposed. The
Board’s testing indicates consumers
notice and understand credit costs
expressed in dollars. Aggregated cost
information enables consumers to
evaluate how the use of an account may
impact the amount of interest and fees
charged over the year and thus promotes
the informed use of credit. Discussions
with processors indicated that
programming costs to capture year-todate information are not material.
Comment 7(b)(6)–3 has been added to
provide additional flexibility to
creditors in providing year-to-date
totals, in response to a commenter’s
request. Under the revised comment,
creditors sending monthly statements
may comply with the requirement to
provide a year-to date total using a
January 1 through December 31 time
period, or the period representing 12
monthly cycles beginning in November
and ending in December of the
following year or beginning in
December and ending in January of the
following year. This guidance also
applies when creditors send quarterly
statements.
Some commenters asked the Board to
provide guidance on creditors’ duty to
reflect refunded fees or interest in yearto-date totals. Comment 7(b)(6)–5 has
been added to reflect that creditors may,

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but are not required to, reflect the
adjustment in the year-to-date totals,
nor, if an adjustment is made, to provide
an explanation about the reason for the
adjustment, to ease compliance. Such
adjustments should not affect the total
fees or interest charges imposed for the
current statement period.
7(b)(7) Change-in-terms and Increased
Penalty Rate Summary for Open-end
(not Home-secured) Plans
A major goal of the Board’s review of
Regulation Z’s open-end credit rules is
to address consumers’ surprise at
increased rates (and/or fees). In the June
2007 Proposal, the Board sought to
address the issue in § 226.9(c)(2) and (g)
to give more time before new rates and
changes to significant costs become
effective. The Board and other federal
banking agencies further proposed in
May 2008, subject to certain exceptions,
a prohibition on increasing the APR
applicable to balances outstanding at
the end of the fourteenth day after a
notice disclosing the change in the APR
is provided to the consumer.
As part of the June 2007 Proposal, the
Board also proposed new § 226.7(b)(14),
which would have required a summary
of key changes to precede transactions
when a change-in-terms notice or a
notice of a rate increase due to
delinquency or default or as a penalty
is provided on or with a periodic
statement. Samples G–20 and G–21 in
Appendix G to part 226 illustrated the
proposed format requirement under
§ 226.7(b)(14) and the level of detail
required for the notice under
§ 226.9(c)(2)(iii) and (g)(3). Proposed
Sample Forms G–18(G) and G–18(H)
would have illustrated the placement of
these notices on a periodic statement.
The summary would have been required
to be displayed in a table, in no less
than 10-point font. See
§ 226.9(c)(2)(iii)(B) and (g)(3)(ii),
§ 226.5(a)(3). The proposed format rule
was intended to enable consumers to
notice more easily changes in their
account terms. Increasing the time
period to act is ineffective if consumers
do not see the change-in-terms notice. In
consumer testing conducted prior to the
June 2007 Proposal, consumers who
participated in testing conducted for the
Board consistently set aside change-interms notices in inserts that
accompanied periodic statements.
Research conducted for the Board
indicated that consumers do look at the
front side of periodic statements and do
look at transactions.
Consumer groups supported the
proposed format requirements, as being
more readable and pertinent than
current change-in-term notices provided

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with periodic statements. Industry
commenters opposed the proposal for a
number of reasons. Many commenters
stated that creditors use pre-printed
forms and have limited space to place
non-recurring messages on the front of
the statement. These commenters
asserted that the proposed requirement
to place a change-in-term notice or a
penalty rate increase notice preceding
the transactions would be costly to
implement. Some commenters asked the
Board to permit creditors to refer
consumers to an insert where the
change-in-term or penalty increase
could be described, if the requirement
for a summary table was adopted.
Others asked for more flexibility, such
as by requiring the disclosures to
precede transactions, without a further
requirement to provide disclosures in a
form substantially similar to proposed
Forms G–18(G) and G–18(H), and
Samples G–20 and G–21. One
commenter urged the Board to require
that the summary table be printed in a
font size that is consistent with TILA’s
general ‘‘clear and conspicuous’’
standard, rather than require a 10-point
font. Others noted that proposed Forms
G–18(G) and G–18(H) were designed in
a portrait format, with the summary
table directly above the transactions,
and asked that the Board clarify whether
creditors could provide the table in a
landscape format, with the summary
table to the right or left of the
transactions. One commenter asked the
Board to provide guidance in the event
both a change-in-terms notice and a
penalty rate increase notice are included
in a periodic statement. One commenter
suggested the effect of the proposal will
be to drive creditors to use separate
mailings, to reduce redesign costs.
As discussed in more detail in the
section-by-section analysis to § 226.9(c)
and 226.9(g), the final rule requires that
a creditor include on the front of the
periodic statement a tabular summary of
changes to certain key terms, when a
change-in-terms notice or notice of the
imposition of a penalty rate is included
with the periodic statement. However,
consistent with the results of the
consumer testing conducted on behalf of
the Board, this tabular summary is not
required to appear on the front of the
first page of the statement prior to the
list of transactions, but rather may
appear anywhere on the front of the
periodic statement. Conforming changes
have been made to § 226.7(b)(7) in the
final rule. The summary table on the
model forms continues to be disclosed
on the front of the first page of the
periodic statement; however, this is not
required under the final rule. See Forms

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G–18(F) and G–18(G) (proposed as
Forms G–18(G) and G–18(H)). In a
technical change, proposed
§ 226.7(b)(14) has been renumbered as
§ 226.7(b)(7) in the final rule.
7(b)(9) Address for Notice of Billing
Errors
Consumers who allege billing errors
must do so in writing. 15 U.S.C. 1666;
§ 226.13(b). Creditors must provide on
or with periodic statements an address
for this purpose. See current § 226.7(k).
Currently, comment 7(k)–2 provides
that creditors may also provide a
telephone number along with the
mailing address as long as the creditor
makes clear a telephone call to the
creditor will not preserve consumers’
billing error rights. In many cases, an
inquiry or question can be resolved in
a phone conversation, without requiring
the consumer and creditor to engage in
a formal error resolution procedure.
In June 2007, the Board proposed to
update comment 7(k)–2, renumbered as
comment 7(b)(9)–2, to address
notification by e-mail or via a Web site.
The proposed comment would have
provided that the address is deemed to
be clear and conspicuous if a
precautionary instruction is included
that telephoning or notifying the
creditor by e-mail or via a Web site will
not preserve the consumer’s billing
rights, unless the creditor has agreed to
treat billing error notices provided by
electronic means as written notices, in
which case the precautionary
instruction is required only for
telephoning. See also comment 13(b)–2,
which addresses circumstances under
which electronic notices are deemed to
satisfy the written billing error
requirement. Commenters generally
supported the proposal. Some consumer
groups urged the Board to discourage
creditors’ policies not to accept
electronic delivery of dispute notices,
and that if a creditor accepts electronic
dispute notices, the creditor should be
required to accept these electronic
submissions as preserving billing rights.
The final rule adopts comment 7(b)(9)–
2, as proposed. The rule provides
consumers with flexibility to attempt to
resolve inquiries or questions about
billing statements informally, while
advising them that if the matter is not
resolved in a telephone call or via email, the consumer must submit a
written inquiry to preserve billing error
rights.
7(b)(10) Closing Date of Billing Cycle;
New Balance
Creditors must disclose the closing
date of the billing cycle and the account
balance outstanding on that date. As a

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part of the June 2007 Proposal to
implement TILA amendments in the
Bankruptcy Act regarding late payments
and the effect of making minimum
payments, the Board proposed to
require creditors to group together, as
applicable, disclosures of related
information about due dates and
payment amounts, including the new
balance. The comments received on
these proposed formatting requirements
are discussed in the section-by-section
analysis to § 226.7(b)(11) and (b)(13)
below.
Some consumer commenters urged
the Board to require credit card issuers
to disclose the amount required to pay
off the account in full (the ‘‘payoff
balance’’) on each periodic statement
and pursuant to a consumer’s request by
telephone or through the issuer’s Web
site. The Board’s final rule does not
contain such a requirement. At the time
the payoff balance would be disclosed,
the issuer may not be aware of some
transactions that are still being
processed and that have not yet been
posted to the account. In addition,
finance charges can continue to accrue
after the payoff balance is disclosed. If
a consumer relies on the disclosure to
submit a payment for that amount, the
account still may not be paid off in full.
7(b)(11) Due Date; Late Payment Costs
TILA Section 127(b)(12), added by
Section 1305(a) of the Bankruptcy Act,
requires creditors that charge a latepayment fee to disclose on the periodic
statement (1) the payment due date or,
if different, the earliest date on which
the late-payment fee may be charged,
and (2) the amount of the late-payment
fee. 15 U.S.C. 1637(b)(12). The June
2007 Proposal would have implemented
those requirements in § 226.7(b)(11) by
requiring creditors to disclose the
payment due date on the front side of
the first page of the periodic statement
and, closely proximate to the due date,
any cut-off time if the time is before 5
p.m. Further, the amount of any latepayment fee and any penalty APR that
could be triggered by a late payment
would have been required to be in close
proximity to the due date.
Home-equity plans. The Board stated
in the June 2007 Proposal its intent to
implement the late payment disclosure
for HELOCs as a part of its review of
rules affecting home-secured credit.
Creditors offering HELOCs may comply
with § 226.7(b)(11), at their option.
Charge card issuers. TILA Section
127(b)(12) applies to ‘‘creditors.’’ TILA’s
definition of ‘‘creditor’’ includes card
issuers and other persons that offer
consumer open-end credit. Issuers of
‘‘charge cards’’ (which are typically

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products where outstanding balances
cannot be carried over from one billing
period to the next and are payable when
a periodic statement is received) are
‘‘creditors’’ for purposes of specifically
enumerated TILA disclosure
requirements. 15 U.S.C. 1602(f);
§ 226.2(a)(17). The new disclosure
requirement in TILA Section 127(b)(12)
is not among those specifically
enumerated.
The Board proposed in June 2007 that
the late payment disclosure
requirements contained in the
Bankruptcy Act and to be implemented
in new § 226.7(b)(11) would not apply
to charge card issuers because the new
requirement is not specifically
enumerated to apply to charge card
issuers. The Board noted that for some
charge card issuers, payments are not
considered ‘‘late’’ for purposes of
imposing a fee until a consumer fails to
make payments in two consecutive
billing cycles. It would be undesirable
to encourage consumers who in January
receive a statement with the balance due
upon receipt, for example, to avoid
paying the balance when due because a
late-payment fee may not be assessed
until mid-February; if consumers
routinely avoided paying a charge card
balance by the due date, it could cause
issuers to change their practice with
respect to charge cards.
One industry commenter that offers a
charge card account with a revolving
feature supported the proposal. The
commenter further asked the Board to
clarify how card issuers with such
products may comply with the late
payment disclosure requirement.
Creditors are required to provide the
disclosures set forth in § 226.7 as
applicable. Section § 226.7(b)(11)(ii) has
been revised to make clear the
exemption is for periodic statements
provided solely for charge card
accounts; periodic statements provided
for accounts with charge card and
revolving features must comply with the
late fee disclosure provision as to the
revolving feature. Comment app. G–9
has been added to provide that creditors
offering card accounts with a charge
card feature and a revolving feature may
revise the late payment (and minimum
payment) disclosure to make clear the
feature to which the disclosures apply.
For creditors subject to § 226.7(b)(11),
the late payment disclosure is not
required to be made on a statement
where no payment is due (and no late
payment could be triggered), because
the disclosure would not apply.
Payment due date. Under the June
2007 Proposal, creditors must disclose
the due date for a payment if a latepayment fee or penalty rate could be

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imposed under the credit agreement, as
discussed in more detail as follows.
This rule is adopted, as proposed.
Courtesy periods. In the June 2007
Proposal, the Board interpreted the due
date to be a date that is required by the
legal obligation. This would not
encompass informal ‘‘courtesy periods’’
that are not part of the legal obligation
and that creditors may observe for a
short period after the stated due date
before a late-payment fee is imposed, to
account for minor delays in payments
such as mail delays. Proposed comment
7(b)(11)–1 would have provided that
creditors need not disclose informal
‘‘courtesy periods’’ not part of the legal
obligation.
Commenters generally supported this
aspect of the proposal, which is adopted
as proposed.
Laws affecting assessment of late fees.
Under the Bankruptcy Act, creditors
must disclose on periodic statements
the payment due date or, if different, the
earliest date on which the late-payment
fee may be charged. Some state laws
require that a certain number of days
must elapse following a due date before
a late-payment fee may be imposed.
Under such a state law, the later date
arguably would be required to be
disclosed on periodic statements. The
Board was concerned, however, that
such a disclosure would not provide a
meaningful benefit to consumers in the
form of useful information or protection
and would result in consumer
confusion. For example, assume a
payment is due on March 10 and state
law provides that a late-payment fee
cannot be assessed before March 21.
Highlighting March 20 as the last date
to avoid a late-payment fee may mislead
consumers into thinking that a payment
made any time on or before March 20
would have no adverse financial
consequences. However, failure to make
a payment when due is considered an
act of default under most credit
contracts, and can trigger higher costs
due to interest accrual and perhaps
penalty APRs.
The Board considered additional
disclosures on the periodic statement
that would more fully explain the
consequences of paying after the due
date and before the date triggering the
late-payment fee, but such an approach
appeared cumbersome and overly
complicated. For those reasons, under
the June 2007 Proposal, creditors would
have been required to disclose the due
date under the terms of the legal
obligation, and not a later date, such as
when creditors are required by state or
other law to delay imposing a latepayment fee for a specified period when
a payment is received after the due date.

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Consumers’ rights under state laws to
avoid the imposition of late-payment
fees during a specified period following
a due date were unaffected by the
proposal; that is, in the above example,
the creditor would disclose March 10 as
the due date for purposes of
§ 226.7(b)(11), but could not, under state
law, assess a late-payment fee before
March 21.
Commenters supported the Board’s
interpretation, and for the reasons stated
above, the proposal is adopted. In
response to a request for guidance, the
substance of the above discussion
regarding the due date disclosure when
state or other laws affect the assessment
of a late-payment fee is added in a new
comment 7(b)(11)–2.
Cut-off time for making payments. As
discussed in the section-by-section
analysis to § 226.10(b) to the June 2007
Proposal, creditors would have been
required to disclose any cut-off time for
receiving payments closely proximate to
each reference of the due date, if the
cut-off time is before 5 p.m. on the due
date. If cut-off times prior to 5 p.m.
differ depending on the method of
payment (such as by check or via the
Internet), the proposal would have
required creditors to state the earliest
time without specifying the method to
which it applies, to avoid information
overload. Cut-off hours of 5 p.m. or later
could continue to be disclosed under
the existing rule (including on the
reverse side of periodic statements).
Comments were divided on the
proposed cut-off hour disclosure for
periodic statements. Industry
representatives that have a cut-off hour
earlier than 5 p.m. for an infrequently
used payment means expressed concern
about consumer confusion if the more
commonly used payment method is
later than 5 p.m. Consumer groups
urged the Board also to adopt a
‘‘postmark’’ date on which consumers
could rely to demonstrate their payment
was mailed sufficiently in advance for
the payment to be timely received, or to
eliminate cut-off hours altogether. Both
consumer groups and industry
representatives asked the Board to
clarify by which time zone the cut-off
hour should be measured.
As discussed in the section-by-section
analysis to § 226.10(b) to the May 2008
Proposal, the Board proposed that to
comply with the requirement in
§ 226.10 to provide reasonable payment
instructions, a creditor’s cut-off hour for
receiving payments by mail can be no
earlier than 5 p.m. in the location where
the creditor has designated the payment
to be sent. The Board requested
comment on whether there would
continue to be a need for creditors to

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disclose cut-off hours before 5 p.m. for
payments made by telephone or
electronically.
Consumer groups suggested the Board
should require a cut-off hour no earlier
than 5 p.m. for all methods of payment.
They stated that different cut-off hours
are confusing for consumers. Moreover,
they argue that consumers have no
control over the time electronic
payments are posted. They suggested
having a uniform cut-off hour would not
require creditors to process and post
payments on the same day or to change
processing systems; such a rule would
merely prohibit the creditor from
imposing a late fee.
Industry commenters generally
opposed a requirement to disclose any
cut-off hour for receiving payments
made other than by mail closely
proximate to each reference of the due
date. They stated that such a disclosure
is unnecessary because creditors
disclose cut-off times with other
payment channels, such as the
telephone or Internet. If a cut-off hour
were to be required on the front side of
periodic statements, one trade
association suggested permitting a
reference to cut-off hours on the back of
the statement, to avoid cluttering the
statement with information that, in their
view, would not be helpful to many
consumers in any event. Others
suggested moving the timing and
location of cut-off hour disclosures to
account-opening, below the accountopening box, or disclosing the cut-off
time for each payment channel on the
periodic statement. One service
provider suggested as an alternative to
a cut-off hour disclosure, a substantive
rule requiring a one-day period
following the due date before the
payment could be considered late.
In the two rounds of testing following
the May 2008 Proposal, the Board
conducted additional testing on cut-off
hour disclosures for receiving payments
other than by mail. Consumers were
shown mock periodic statements which
disclosed near the due date a 2 p.m. cutoff time for electronic payments and a
reference to the back of the statement for
cut-off times for other payment
methods. The disclosure on the back of
the statement stated that mailed
payments must be received by 5 p.m. on
the due date. When asked what time a
mailed payment would be due, about
two-thirds of the participants
incorrectly named 2 p.m., the cut-off
hour identified for electronic payments.
Although the mock statement referred
the reader to the back of the statement
for more information about cut-off
hours, only one participant in each
round was able to locate the

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information. Most other participants
understood that cut-off hours may differ
for various payment channels, but they
were unable to locate more specific
information on the statement.
Based on the comments received and
on the Board’s consumer testing, the
Board is not adopting an additional
requirement to disclose any cut-off hour
for receiving payments made other than
by mail closely proximate to each
reference of the due date. Testing
showed that abbreviated disclosures
were not effective. The Board believes
that fully explaining each cut-off hour is
too cumbersome for the front of the first
side of the periodic statement. Creditors
currently disclose relevant cut-off hours
when consumers use the Internet or
telephone to make a payment, and the
Board expects creditors will continue to
do so. See section-by-section analysis to
§ 226.10 regarding substantive rules
regarding cut-off hours, generally.
Fee or rate triggered by multiple
events. Some industry commenters
asked for guidance on complying with
the late payment disclosure if a late fee
or penalty rate is triggered after multiple
events, such as two late payments in six
months. Comment 7(b)(11)–3 has been
added to provide that in such cases, the
creditor may, but is not required to,
disclose the late payment and penalty
rate disclosure each month. The
disclosures must be included on any
periodic statement for which a late
payment could trigger the late payment
fee or penalty rate, such as after the
consumer made one late payment in this
example.
Amount of late payment fee; penalty
APR. Creditors must disclose the
amount of the late-payment fee and the
payment-due date on periodic
statements, under TILA amendments
contained in the Bankruptcy Act. The
purpose of the new late payment
disclosure requirement is to ensure
consumers know the consequences of
paying late. To fulfill that purpose, the
June 2007 Proposal would have required
that the amount of the late-payment fee
be disclosed in close proximity to the
due date. If the amount of the latepayment fee is based on outstanding
balances, the proposal would have
required the creditor to disclose the
highest fee in the range.
In addition, the Board proposed to
require creditors to disclose any
increased rate that may apply if
consumers’ payments are received after
the due date. The proposal was
intended to address the Board’s concern
about a potential increase in APRs as a
consequence of paying late. If, under the
terms of the account agreement, a late
payment could result in the loss of a

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promotional rate, the imposition of a
penalty rate, or both, the proposal
would have required the creditor to
disclose the highest rate that could
apply, to avoid information overload.
The June 2007 Proposal would have
required creditors to disclose the
increased APR closely proximate to the
fee and due date to fulfill Congress’s
intent to warn consumers about the
effects of paying late. See proposed
§ 226.7(b)(13).
Some consumer groups and a member
of Congress generally supported the
Board’s proposal to require creditors to
disclose any penalty rate, as well as a
late payment fee, that could be imposed
if a consumer makes an untimely
payment. One trade association and a
number of industry commenters noted
that under the proposal, consumers are
warned about the consequences of
paying late on or with the application or
solicitation for a credit or charge card
and at account-opening, and thus
repeating disclosures each month was
unnecessary. As an alternative, the trade
association suggested requiring an
annual reminder about triggers for
penalty pricing or a preprinted
statement on the back of the periodic
statement. Some industry commenters
opposed the proposal as overly
burdensome.
The Board continues to believe that
the late-payment warning should
include a disclosure of any penalty rate
that may apply if the consumer makes
a late payment. For some consumers,
the increase in rate associated with a
late payment may be more costly than
the imposition of a fee. Disclosing only
the fee to these consumers would not
inform them of one of the primary costs
of making late payment. Accordingly,
the Board believes that disclosure of
both the penalty rate and fee should be
required. For the reasons stated above,
the proposal is adopted.
Scope of penalties disclosed. Some
consumer groups urged the Board also
to require disclosure of the earliest date
after which a creditor could impose
‘‘any negative consequence,’’ as a catchall to address new fees and terms that
are not specifically addressed in the
proposal. The Board is concerned that a
requirement to disclose the amount of
‘‘any other negative consequence’’ is
overly broad and unclear and would
increase creditors’ risk of litigation and
thus is not included in the final rule.
Many consumers, consumer groups,
and others also urged the Board to ban
‘‘excessive’’ late fees and penalty rates.
Elsewhere in today’s Federal Register,
the Board is adopting a rule that
prohibits institutions from increasing
the APR on outstanding balances, with

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some exceptions. The Board is also
adopting a rule that requires institutions
to provide consumers with a reasonable
amount of time to make their payments,
which should help consumers avoid late
fees and penalty rates resulting from late
payment. No action is taken under this
rulemaking that affects the amount of
fees or rates creditors may impose.
Range of fees and rates. An industry
commenter asked for more flexibility in
disclosing late-payment fees and
penalty rates that could be imposed
under the account terms but could vary,
for example, based on the outstanding
balance. In other cases, the creditor may
have the contractual right to impose a
specified penalty rate but may choose to
impose a lower rate based on the
consumer’s overall behavior. The
commenter suggested permitting
creditors to disclose the range of fees or
rates, or ‘‘up to’’ the maximum latepayment fee or rate that may be imposed
on the account. In the commenter’s
view, this approach would provide
more accurate disclosures and provide
consumers with a better understanding
of the possible outcome of a late
payment. Modified from the proposal,
§ 226.7(b)(11)(i)(B) provides that if a
range of late-payment fees or penalty
rates could be imposed on the account,
creditors may disclose the highest latepayment fee and rate and at creditors’
option, an indication (such as using the
phrase ‘‘up to’’) that lower fees or rates
may be imposed. Comment 7(b)(11)–4
has been added to illustrate the
requirement. The final rule also permits
creditors to disclose a range of fees or
rates. This approach recognizes the
space constraints on periodic statements
about which industry commenters
express concern, but gives creditors
more flexibility in disclosing possible
late-payment fees and penalty rates.
Some creditors are subject to state law
limitations on the amount of latepayment fees or interest rates that may
be assessed. Currently, where
disclosures are required but the amount
is determined by state law, such
creditors typically disclose a matrix
disclosing which rates and fees are
applicable to residents of various states.
Under the June 2007 Proposal, creditors
would have been required to disclose
the late-payment fee applicable to the
consumer’s account. To ease burden,
one commenter urged the Board to
permit these creditors to disclose the
highest late-payment fee (or penalty
rate) that could apply in any state. The
Board is mindful of compliance costs
associated with customizing the
disclosure to reflect disclosure
requirements of various states; however,
the Board believes the purposes of TILA

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would not be served if a consumer
received a late-payment fee disclosure
for an amount that exceeded, perhaps
substantially, the amount the consumer
could be assessed under the terms of the
legal obligation of the account. For that
reason, § 226.7(b)(11)(i)(B) provides that
ranges or the highest fee must be those
applicable to the consumer’s account.
Accordingly, a creditor may state a
range only if all fee amounts in that
range would be permitted to be imposed
on the consumer’s account under
applicable state law, for example if the
state law permits a range of late fees that
vary depending on the outstanding
account balance.
Penalty rate in effect. Industry
commenters asked the Board to clarify
the penalty rate disclosure requirements
when a consumer’s untimely payment
has already triggered the penalty APR.
Comment 7(b)(11)–5 is added to provide
that if the highest penalty rate has
previously been triggered on an account,
the creditor may, but is not required to,
delete as part of the late payment
disclosure the amount of the penalty
rate and the warning that the rate may
be imposed for an untimely payment, as
not applicable. Alternatively, the
creditor may, but is not required to,
modify the language to indicate that the
penalty rate has been increased due to
previous late payments, if applicable.
7(b)(12) Minimum Payment
The Bankruptcy Act amends TILA
Section 127(b) to require creditors that
extend open-end credit to provide a
disclosure on the front of each periodic
statement in a prominent location about
the effects of making only minimum
payments. 15 U.S.C. 1637(b)(11). This
disclosure must include: (1) A
‘‘warning’’ statement indicating that
making only the minimum payment will
increase the interest the consumer pays
and the time it takes to repay the
consumer’s balance; (2) a hypothetical
example of how long it would take to
pay off a specified balance if only
minimum payments are made; and (3) a
toll-free telephone number that the
consumer may call to obtain an estimate
of the time it would take to repay his or
her actual account balance.
Under the Bankruptcy Act, depository
institutions may establish and maintain
their own toll-free telephone numbers or
use a third party. In order to standardize
the information provided to consumers
through the toll-free telephone numbers,
the Bankruptcy Act directs the Board to
prepare a ‘‘table’’ illustrating the
approximate number of months it would
take to repay an outstanding balance if
the consumer pays only the required
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other advances are made. The Board is
directed to create the table by assuming
a significant number of different APRs,
account balances, and minimum
payment amounts; instructional
guidance must be provided on how the
information contained in the table
should be used to respond to
consumers’ requests. The Board is also
required to establish and maintain, for
two years, a toll-free telephone number
for use by customers of creditors that are
depository institutions having assets of
$250 million or less.19 The Federal
Trade Commission (FTC) must maintain
a toll-free telephone number for
creditors that are subject to the FTC’s
authority to enforce TILA and
Regulation Z as to the card issuer. 15
U.S.C. 1637(b)(11)(A)–(C).20
The Bankruptcy Act provides that
creditors, the Board and the FTC may
use a toll-free telephone number that
connects consumers to an automated
device through which they can obtain
repayment information by providing
information using a touch-tone
telephone or similar device. The
Bankruptcy Act also provides that
consumers who are unable to use the
automated device must have the
opportunity to speak with an individual
from whom the repayment information
may be obtained. Creditors, the Board
and the FTC may not use the toll-free
telephone number to provide consumers
with repayment information other than
the repayment information set forth in
the ‘‘table’’ issued by the Board. 15
U.S.C. 1637(b)(11)(F)–(H).
Alternatively, a creditor may use a
toll-free telephone number to provide
the actual number of months that it will
take consumers to repay their
outstanding balance instead of
providing an estimate based on the
Board-created table. A creditor that does
so need not include a hypothetical
example on its periodic statements, but
must disclose the warning statement
and the toll-free telephone number on
its periodic statements. 15 U.S.C.
1637(b)(11)(J)–(K).
19 The Board expects to activate its toll-free
telephone number for use by small depository
institutions by April 1, 2009, even though
institutions are not required to include a telephone
number on periodic statements issued before the
rule’s mandatory compliance date. The Board will
subsequently issue a press release announcing the
toll-free number and its activation date.
20 The FTC also expects to activate its toll-free
telephone number for use by entities under its
jurisdiction by April 1, 2009, even though these
entities are not required to include a telephone
number on periodic statements issued before the
rule’s mandatory compliance date. The FTC also
expects to subsequently issue a press release
announcing the toll-free number and the exact date
on which it will be activated.

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For ease of reference, this
supplementary information will refer to
the above disclosures about the effects
of making only the minimum payment
as ‘‘the minimum payment disclosures.’’
Proposal to limit the minimum
payment disclosure requirements to
credit card accounts. Under the
Bankruptcy Act, the minimum payment
disclosure requirements apply to all
open-end accounts (such as credit card
accounts, HELOCs, and general purpose
credit lines). The Act expressly states
that these disclosure requirements do
not apply, however, to any ‘‘charge
card’’ account, the primary aspect of
which is to require payment of charges
in full each month.
In the June 2007 Proposal, the Board
proposed to exempt open-end credit
plans other than credit card accounts
from the minimum payment disclosure
requirements. This would have
exempted, for example, HELOCs
(including open-end reverse mortgages),
overdraft lines of credit and other
general purpose personal lines of credit.
In response to the June 2007 Proposal,
industry commenters generally
supported exempting open-end credit
plans other than credit card accounts
from the minimum payment disclosure
requirements. Several consumer group
commenters urged the Board to require
the minimum payment disclosures for
HELOCs, as well as credit card
accounts.
The final rule limits the minimum
payment disclosures to credit card
accounts, as proposed pursuant to the
Board’s authority under TILA Section
105(a) to make adjustments that are
necessary to effectuate the purposes of
TILA. 15 U.S.C. 1604(a). The
Congressional debate on the minimum
payment disclosures indicates that the
principal concern of Congress was that
consumers may not be fully aware of the
length of time it takes to pay off their
credit card accounts if only minimum
monthly payments are made. For
example, Senator Grassley, a primary
sponsor of the Bankruptcy Act, in
discussing the minimum payment
disclosures, stated:
[The Bankruptcy Act] contains significant
new disclosures for consumers, mandating
that credit card companies provide key
information about how much [consumers]
owe and how long it will take to pay off their
credit card debts by only making the
minimum payment. That is very important
consumer education for every one of us.
Consumers will also be given a toll-free
number to call where they can get
information about how long it will take to
pay off their own credit card balances if they
only pay the minimum payment. This will
educate consumers and improve consumers’

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understanding of what their financial
situation is.

Remarks of Senator Grassley (2005),
Congressional Record (daily edition),
vol. 151, March 1, p. S 1856.
With respect to HELOCs, the Board
understands that most HELOCs have a
fixed repayment period. Thus, for those
HELOCs, consumers could learn from
the current disclosures the length of the
draw period and the repayment period.
See current § 226.6(e)(2). The minimum
payment disclosures would not appear
to provide additional information to
consumers that is not already disclosed
to them. The cost of providing this
information a second time, including
the costs to reprogram periodic
statement systems and to establish and
maintain a toll-free telephone number,
appears not to be justified by the limited
benefit to consumers. Thus, the final
rule exempts HELOCs from the
minimum payment disclosure
requirements as not necessary to
effectuate the purposes of TILA, using
the Board’s TILA Section 105(a)
authority.
As proposed, the final rule also
exempts overdraft lines of credit and
other general purpose credit lines from
the minimum payment disclosure
requirements for several reasons. First,
these lines of credit are not in wide use.
The 2004 Survey of Consumer Finances
data indicates that few families—1.6
percent—had a balance on lines of
credit other than a home-equity line or
credit card at the time of the interview.
(In terms of comparison, 74.9 percent of
families had a credit card, and 58
percent of these families had a credit
card balance at the time of the
interview.)21 Second, these lines of
credit typically are neither promoted,
nor used, as long-term credit options of
the kind for which the minimum
payment disclosures are intended.
Third, the Board is concerned that the
operational costs of requiring creditors
to comply with the minimum payment
disclosure requirements with respect to
overdraft lines of credit and other
general purpose lines of credit may
cause some institutions to no longer
provide these products as
accommodations to consumers, to the
detriment of consumers who currently
use these products. For these reasons,
the Board is using its TILA Section
105(a) authority to exempt overdraft
lines of credit and other general purpose
credit lines from the minimum payment
disclosure requirements, because in this
21 Brian Bucks, et al., Recent Changes in U.S.
Family Finances: Evidence from the 2001 and 2004
Survey of Consumer Finances, Federal Reserve
Bulletin (March 2006).

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context the Board believes the minimum
payment disclosures are not necessary
to effectuate the purposes of TILA.
7(b)(12)(i) General Disclosure
Requirements
In response to the June 2007 Proposal,
several commenters suggested revisions
to the structure of the regulatory text in
§ 226.7(b)(12) to make the regulatory
text in this section easier to read and
understand. In the final rule,
§ 226.7(b)(12) is restructured to
accomplish these goals. The final rule in
§ 226.7(b)(12)(i) clarifies that issuers can
choose one of three ways to comply
with the minimum payment disclosure
requirements: (1) Provide on the
periodic statement a warning about
making only minimum payments, a
hypothetical example, and a toll-free
telephone number where consumers
may obtain generic repayment estimates
as described in Appendix M1 to part
226; (2) provide on the periodic
statement a warning about making only
minimum payments, and a toll-free
telephone number where consumers
may obtain actual repayment
disclosures as described in Appendix
M2 to part 226; or (3) provide on the
periodic statement the actual repayment
disclosure as described in Appendix M2
to part 226.
7(b)(12)(ii) Generic Repayment Example
and Establishment of a Toll-Free
Telephone Number
The final rule in § 226.7(b)(12)(ii) sets
forth requirements that credit card
issuers must follow if they choose to
comply with the minimum payment
disclosure provisions by providing on
the periodic statement a warning about
making only minimum payments, a
hypothetical example, and a toll-free
telephone number where consumers
may obtain generic repayment
estimates. Under the Bankruptcy Act,
the hypothetical example that creditors
must disclose on periodic statements
varies depending on the creditor’s
minimum payment requirement.
Generally, creditors that require
minimum payments equal to 4 percent
or less of the account balance must
disclose on each statement that it takes
88 months to pay off a $1000 balance at
an interest rate of 17 percent if the
consumer makes a ‘‘typical’’ 2 percent
minimum monthly payment. Creditors
that require minimum payments
exceeding 4 percent of the account
balance must disclose that it takes 24
months to pay off a balance of $300 at
an interest rate of 17 percent if the
consumer makes a ‘‘typical’’ 5 percent
minimum monthly payment (but a
creditor may opt instead to disclose the

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statutory example for 2 percent
minimum payments). The 5 percent
minimum payment example must be
disclosed by creditors for which the
FTC has the authority under TILA to
enforce the act and this regulation.
Creditors also have the option to
substitute an example based on an APR
that is greater than 17 percent. The
Bankruptcy Act authorizes the Board to
periodically adjust the APR used in the
hypothetical example and to recalculate
the repayment period accordingly. 15
U.S.C. 1637(b)(11)(A)–(E).
Wording of the examples. The
Bankruptcy Act sets forth specific
language for issuers to use in disclosing
the applicable hypothetical example on
the periodic statement. In the June 2007
Proposal, the Board proposed to modify
the statutory language to facilitate
consumers’ use and understanding of
the disclosures, pursuant to its authority
under TILA Section 105(a) to make
adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1604(a). First, the Board
proposed to require that issuers disclose
the payoff periods in the hypothetical
examples in years, rounding fractional
years to the nearest whole year, rather
than in months as provided in the
statute. Thus, issuers would have
disclosed that it would take over 7 years
to pay off the $1,000 hypothetical
balance, and about 2 years for the $300
hypothetical balance. The Board
believes that the modification of the
examples will further TILA’s purpose to
assure a meaningful disclosure of credit
terms. 15 U.S.C. 1601(a). The final rule
adopts the examples as proposed. The
Board believes that disclosing the payoff
period in years allows consumers to
better comprehend the repayment
period without having to convert it
themselves from months to years.
Participants in the consumer testing
conducted for the Board reviewed
disclosures with the estimated payoff
period in years, and they indicated they
understood the length of time it would
take to repay the balance if only
minimum payments were made.
Second, the statute requires that
issuers disclose in the examples the
minimum payment formula used to
calculate the payoff period. In the
$1,000 example above, the statute
would require issuers to indicate that a
‘‘typical’’ 2 percent minimum monthly
payment was used to calculate the
repayment period. In the $300 example
above, the statute would require issuers
to indicate that a 5 percent minimum
monthly payment was used to calculate
the repayment period. In June 2007, the
Board proposed to eliminate the specific
minimum payment formulas from the

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examples. The references to the 2
percent minimum payment in the
$1,000 example, and a 5 percent
minimum payment in the $300
example, are incomplete descriptions of
the minimum payment requirement. In
the $1,000 example, the minimum
payment formula used to calculate the
repayment period is the greater of 2
percent of the outstanding balance, or
$20. In the $300 example, the minimum
payment formula used to calculate the
repayment period is the greater of 5
percent of the outstanding balance, or
$15. In fact, in each example, the
hypothetical consumer always pays the
absolute minimum ($20 or $15,
depending on the example).
In response to the June 2007 Proposal,
several consumer group commenters
suggested that the Board include in the
example the statutory reference to the
‘‘typical’’ minimum payment formula
(either 2 percent or 5 percent as
described above), because without this
reference, the example implies that
minimum payment formulas do not vary
from creditor to creditor.
Like the proposal, the final rule does
not include in the examples a reference
to the minimum payment formula used
to calculate the repayment period given
in the examples. The Board believes that
including the entire minimum payment
formula, including the floor amount, in
the disclosure could make the example
too complicated. Also, the Board did not
revise the disclosures to indicate that
the repayment period in the $1,000
balance was calculated based on a $20
payment, and the repayment period in
the $300 balance was calculated based
on a $15 payment. The Board believes
that revising the statutory requirement
in this way would change the disclosure
to focus consumers on the effects of
making a fixed payment each month as
opposed to the effects of making
minimum payments. Moreover,
disclosing the minimum payment
formula is not necessary for consumers
to understand the essential point of the
examples—that it can take a significant
amount of time to pay off a balance if
only minimum payments are made. In
testing conducted for the Board, the
$1,000 balance example was tested
without including the 2 percent
minimum payment disclosure required
by the statute. Consumers appeared to
understand the purpose of the
disclosure—that it would take a
significant amount of time to repay a
$1,000 balance if only minimum
payments were made. For these reasons,
the final rule requires the hypothetical
examples without specifying the
minimum payment formulas used to
calculate repayment periods in the

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examples. The Board believes that the
modification of the examples will
further TILA’s purpose to assure a
meaningful disclosure of credit terms.
15 U.S.C. 1601(a).
In response to the June 2007 Proposal,
one industry commenter suggested that
if an issuer already includes on the first
page of the periodic statement a toll-free
customer service telephone number, the
Board should permit the issuer to
reference that telephone number within
the minimum payment disclosure,
rather than having to repeat that number
again in the minimum payment
disclosure. The final rule requires
issuers to state the toll-free telephone
number in the minimum payment
disclosure itself, even if the same tollfree telephone number is listed in other
places on the first page of the periodic
statement. The Board believes that
listing the toll-free telephone number in
the minimum payment disclosure itself
makes the disclosure easier for
consumers to use.
The final regulatory language for the
examples is set forth in new
§ 226.7(b)(12)(ii). As proposed in June
2007, in addition to the revisions
mentioned above, the final rule also
adopts several stylistic revisions to the
statutory language, based on plain
language principles, in an attempt to
make the language of the examples more
understandable to consumers.
Furthermore, the language has been
revised to reflect comments from the
Board’s consultation with the other
federal banking agencies, the NCUA,
and the FTC, pursuant to Section 1309
of the Bankruptcy Act, as discussed
immediately below.
Clear and conspicuous disclosure of
examples. The Bankruptcy Act requires
the Board, in consultation with the
other federal banking agencies, the
NCUA, and the FTC, to provide
guidance on clear and conspicuous
disclosure of the examples the Board is
requiring under § 226.7(b)(12)(ii)(A)(1),
(b)(12)(ii)(A)(2), and (b)(12)(ii)(B) to
ensure that they are reasonably
understandable and designed to call
attention to the nature and significance
of the information in the notice. 15
U.S.C. 1637 note (Regulations). In the
June 2007 Proposal, the Board set forth
exact wording for creditors to use for the
examples based on language provided in
the Bankruptcy Act, as discussed
immediately above. The Board also
proposed that the headings for the
notice be in bold text and that the notice
be placed closely proximate to the
minimum payment due on the periodic
statement, as discussed below in the
supplementary information to
§ 226.7(b)(13).

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The other federal banking agencies,
the NCUA, and the FTC generally
agreed with the Board’s approach. These
agencies, however, suggested that the
heading be changed from ‘‘Notice about
Minimum Payments’’ to ‘‘Minimum
Payment Warning,’’ consistent with the
heading provided in the Bankruptcy
Act. The agencies the Board consulted
were concerned that without the term
‘‘warning’’ in the heading, the Board’s
proposed heading would not
sufficiently call attention to the nature
and significance of the information
contained in the notice. The Board
agrees with the agencies, and the final
rule adopts the ‘‘Minimum Payment
Warning’’ heading.
One of the agencies the Board
consulted also suggested that the
wording in the examples be modified to
refer to the example balance amount a
second time in order to clarify to which
balance the time period to repay refers.
Thus, in the example under
§ 226.7(b)(12)(ii)(A)(1), the agency
suggested that the phrase ‘‘of $1,000’’ be
added to the end of the sentence in the
notice that states, ‘‘For example, if you
had a balance of $1,000 at an interest
rate of 17% and always paid only the
minimum required, it would take over
7 years to repay this balance.’’ The
agency suggested similar amendments
to the examples under
§ 226.7(b)(12)(ii)(A)(2) and (b)(12)(ii)(B).
The Board believes that including a
second reference to the example balance
in the notice would be redundant and
would unnecessarily extend the length
of the notice. Therefore, the Board
declines to amend the notice to add the
second reference.
Adjustments to the APR used in the
examples. The Bankruptcy Act
specifically authorizes the Board to
periodically adjust the APR used in the
hypothetical example and to recalculate
the repayment period accordingly. In
the June 2007 Proposal, the Board
proposed not to adjust the APR used in
the hypothetical examples. The final
rule adopts this approach. The Board
recognizes that the examples are
intended to provide consumers with an
indication that it can take a long time to
pay off a balance if only minimum
payments are made. Revising the APR
used in the example to reflect the
average APR paid by consumers would
not significantly improve the disclosure,
because for many consumers an average
APR would not be the APR that applies
to the consumer’s account. Moreover,
consumers will be able to obtain a more
tailored disclosure of a repayment
period based on the APR applicable to
their accounts by calling the toll-free

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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Rules and Regulations
telephone number provided as part of
the minimum payment disclosure.
Small depository institutions. Under
the Bankruptcy Act, the Board is
required to establish and maintain, for
two years, a toll-free telephone number
for use by customers of creditors that are
depository institutions having assets of
$250 million or less. The FTC must
maintain a toll-free telephone number
for creditors that are subject to the FTC’s
authority to enforce TILA and
Regulation Z as to the card issuer. 15
U.S.C. 1637(b)(11)(F). Like the proposal,
the final rule defines ‘‘small depository
institution issuers’’ as card issuers that
are depository institutions (as defined
by section 3 of the Federal Deposit
Insurance Act), including federal credit
unions or state-chartered credit unions
(as defined in section 101 of the Federal
Credit Union Act), with total assets not
exceeding $250 million. The final rule
clarifies the determination whether an
institution’s assets exceed $250 million
should be made as of December 31,
2009. 15 U.S.C. 1637(b)(11)(F)(ii).
Generally, small depository institution
issuers may disclose the Board’s tollfree telephone number on their periodic
statements. Nonetheless, some card
issuers may fall within the definition of
‘‘small depository institution issuers’’
and be subject to the FTC’s enforcement
authority, such as small state-chartered
credit unions. New comment
7(b)(12)(ii)(A)(3)–1 clarifies that those
card issuers must disclose the FTC’s
toll-free telephone number on their
periodic statements.
Web site address. In response to the
June 2007 Proposal, one industry
commenter suggested that the Board
provide the option to include in the
minimum payment disclosure a Web
site address (in addition to the toll-free
telephone number) where consumers
may obtain the generic repayment
estimates or actual repayment
disclosures, as applicable. New
comment 7(b)(12)–4 is added to allow
issuers at their option to include a
reference to a Web site address (in
addition to the toll-free telephone
number) where its customers may
obtain generic repayment estimates or
actual repayment disclosures as
applicable, so long as the information
provided on the Web site complies with
§ 226.7(b)(12), and Appendix M1 or M2
to part 226, as applicable. The Web site
link disclosed must take consumers
directly to the Web page where generic
repayment estimates or actual
repayment disclosures may be obtained.
The Board believes that some
consumers may find it more convenient
to obtain the repayment estimate

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through a Web site rather than calling a
toll-free telephone number.
New § 226.7(b)(12)(ii)(A)(3) sets forth
the disclosure that small depository
institution issuers must provide on their
periodic statements if the issuers use the
Board’s toll-free telephone number. New
§ 226.7(b)(12)(ii)(B) sets forth the
disclosure that card issuers subject to
the FTC’s enforcement authority must
provide on their periodic statements.
These disclosure statements include two
toll-free telephone numbers: one that is
accessible to hearing-impaired
consumers and one that is accessible to
other consumers. In addition, the
disclosures include a reference to the
Board’s Web site, or the FTC’s Web site
as appropriate, where generic
repayment estimates may be obtained.
Toll-free telephone numbers. Under
Section 1301(a) of the Bankruptcy Act,
depository institutions generally must
establish and maintain their own tollfree telephone numbers or use a third
party to disclose the repayment
estimates based on the ‘‘table’’ issued by
the Board. 15 U.S.C. 1637(b)(11)(F)(i).
At the issuer’s option, the issuer may
disclose the actual repayment disclosure
through the toll-free telephone number.
The Bankruptcy Act also provides
that creditors, the Board and the FTC
may use a toll-free telephone number
that connects consumers to an
automated device through which they
can obtain repayment information by
providing information using a touchtone telephone or similar device, but
consumers who are unable to use the
automated device must have the
opportunity to speak with an individual
from whom the repayment information
may be obtained. Unless the issuer is
providing an actual repayment
disclosure, the issuer may not provide
through the toll-free telephone number
a repayment estimate other than
estimates based on the ‘‘table’’ issued by
the Board. 15 U.S.C. 1637(b)(11)(F).
These same provisions apply to the
FTC’s and the Board’s toll-free
telephone numbers as well.
In the June 2007 Proposal, the Board
proposed to add new § 226.7(b)(12)(iv)
and accompanying commentary to
implement the above statutory
provisions related to the toll-free
telephone numbers. In addition,
proposed comment 7(b)(12)(iv)–3 would
have provided that once a consumer has
indicated that he or she is requesting the
generic repayment estimate or the actual
repayment disclosure, as applicable,
card issuers may not provide
advertisements or marketing
information to the consumer prior to
providing the repayment information

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required or permitted by Appendix M1
or M2 to part 226, as applicable.
The final rule moves these provisions
to § 226.7(b)(12)(ii) and comments
7(b)(12)–1, 2 and 5, with several
revisions. In addition, comment
7(b)(12)–3 is added to clarify that an
issuer may provide as part of the
minimum payment disclosure a toll-free
telephone number that is designed to
handle customer service calls generally,
so long as the option to select to receive
the generic repayment estimate or actual
repayment disclosure, as applicable,
through that toll-free telephone number
is prominently disclosed to the
consumer. For automated systems, the
option to select to receive the generic
repayment estimate or actual repayment
disclosure is prominently disclosed if it
is listed as one of the options in the first
menu of options given to the consumer,
such as ‘‘Press or say ‘3’ if you would
like an estimate of how long it will take
you to repay your balance if you make
only the minimum payment each
month.’’ If the automated system
permits callers to select the language in
which the call is conducted and in
which information is provided, the
Board has amended comment 7(b)(12)–
3 to state that the menu to select the
language may precede the menu with
the option to receive the repayment
disclosure.
In addition, proposed comment
7(b)(12)(iv)–3 dealing with
advertisements and marketing
information has been moved to
comment 7(b)(12)–5. This comment is
revised to specify that once a consumer
has indicated that he or she is
requesting the generic repayment
estimate or the actual repayment
disclosure, as applicable, card issuers
may not provide advertisements or
marketing information (except for
providing the name of the issuer) to the
consumer prior to providing the
repayment information required or
permitted by Appendix M1 or M2 to
part 226, as applicable. Furthermore,
new comment 7(b)(12)–5 clarifies that
educational materials that do not solicit
business are not considered
advertisements or marketing materials
for purposes of § 226.7(b)(12). Also,
comment 7(b)(12)–5 contains examples
of how the prohibition on providing
advertisements and marketing
information applies in two contexts. In
particular, comment 7(b)(12)–5 provides
an example where the issuer is using a
toll-free telephone number that is
designed to handle customer service
calls generally and the option to select
to receive the generic repayment
estimate or actual repayment disclosure
is given as one of the options in the first

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menu of options given to the consumer.
Comment 7(b)(12)–5 clarifies in that
context that once the consumer selects
the option to receive the generic
repayment estimate or the actual
repayment disclosure, the issuer may
not provide advertisements or marketing
materials to the consumer (except for
providing the name of the issuer) prior
to providing the information required or
permitted by Appendix M1 or M2 to
part 226, as applicable. In addition, if an
issuer discloses a link to a Web site as
part of the minimum payment
disclosure on the periodic statement,
the issuer may not provide
advertisements or marketing materials
(except for providing the name of the
issuer) on the Web page accessed by the
link, including pop-up marketing
materials or banner marketing materials,
prior to providing the information
required or permitted by Appendix M1
or M2 to part 226, as applicable.
In response to the June 2007 Proposal,
several consumer groups suggested that
the Board prohibit issuers from
providing advertisements or marketing
materials even after the repayment
information has been given, if the issuer
is providing generic repayment
estimates through the toll-free telephone
number. Nonetheless, if the issuer is
providing actual repayment disclosures
through the toll-free telephone number,
these commenters suggested that the
Board allow the issuer to provide
advertisements or marketing materials
after the repayment information is
given, to encourage creditors to provide
actual repayment disclosures instead of
generic repayment estimates. The final
rule does not adopt this approach. The
Board believes that allowing
advertisements or marketing materials
after the repayment information is given
is appropriate regardless of whether the
repayment information provided are
generic repayment estimates or actual
repayment disclosures, because
consumers could end the telephone call
(or exit the Web page) if they were not
interested in listening to or reviewing
the advertisements or marketing
materials given.
7(b)(12)(iii) Actual Repayment
Disclosure Through Toll-free Telephone
Number
Under the Bankruptcy Act, a creditor
may use a toll-free telephone number to
provide consumers with the actual
number of months that it will take
consumers to repay their outstanding
balance instead of providing an estimate
based on the Board-created table.
Creditors that choose to give the actual
number via the telephone number need
not include a hypothetical example on

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their periodic statements. Instead, they
must disclose on periodic statements a
warning statement that making the
minimum payment will increase the
interest the consumer pays and the time
it takes to repay the consumer’s balance,
along with a toll-free telephone number
that consumers may use to obtain the
actual repayment disclosure. 15 U.S.C.
1637(b)(11)(I) and (K). In the June 2007
Proposal, the Board proposed to
implement this statutory provision in
new § 226.7(b)(12)(ii)(A). The final rule
moves this provision to
§ 226.7(b)(12)(iii), with one revision
described below.
Wording of disclosure on periodic
statement. Under the Bankruptcy Act, if
a creditor chooses to provide the actual
repayment disclosure through the tollfree telephone number, the statute
provides specific language that issuers
must disclose on the periodic statement.
In particular, this statutory language
reads: ‘‘Making only the minimum
payment will increase the interest you
pay and the time it takes to repay your
balance. For more information, call this
toll-free number: lllll.’’ In the
June 2007 Proposal, the Board proposed
that issuers use this statutory
disclosure language. See proposed
§ 226.7(b)(12)(ii)(A). In response to the
June 2007 Proposal, several consumer
groups suggested that the Board revise
the disclosure language to communicate
more clearly to consumers the type of
information that consumers will receive
through the toll-free telephone number.
The final rule in § 226.7(b)(12)(iii)
revises the disclosure language to read:
‘‘For an estimate of how long it will take
to repay your balance making only
minimum payments, call this toll-free
telephone number: lllll.’’ The
Board adopts this change to the
disclosure language pursuant to its
authority under TILA Section 105(a) to
make adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1604(a). The Board believes that
this change will further TILA’s purpose
of assuring a meaningful disclosure of
credit terms. 15 U.S.C. 1601(a).
7(b)(12)(iv) Actual Repayment
Disclosure on the Periodic Statement
In the June 2007 Proposal, the Board
proposed to provide that if card issuers
provide the actual repayment disclosure
on the periodic statement, they need not
disclose the warning, the hypothetical
example or a toll-free telephone number
on the periodic statement, nor need
they maintain a toll-free telephone
number to provide the actual repayment
disclosure. See proposed
§ 226.7(b)(12)(ii)(B). In the
supplementary information to the June

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2007 Proposal, the Board strongly
encouraged card issuers to provide the
actual repayment disclosure on periodic
statements, and solicited comments on
whether the Board could take other
steps to provide incentives to card
issuers to use this approach.
In response to the June 2007 Proposal,
several consumer group commenters
suggested that the Board should require
issuers to disclose the actual repayment
disclosure on the periodic statement in
all cases. Industry commenters generally
supported the option to provide the
actual repayment disclosure on the
periodic statement.
As proposed in June 2007, the final
rule in new § 226.7(b)(12)(iv) provides
that an issuer may comply with the
minimum payment requirements by
providing the actual repayment
disclosure on the periodic statement.
Consistent with the statutory
requirements, the Board is not requiring
that issuers provide the actual
repayment disclosure on the periodic
statement.
The Board is adopting an exemption
from the requirement to provide on
periodic statements a warning about the
effects of making minimum payments, a
hypothetical example, and a toll-free
telephone number consumers may call
to obtain repayment periods, and to
maintain a toll-free telephone number
for responding to consumers’ requests, if
the card issuer instead provides the
actual repayment disclosure on the
periodic statement.
The Board adopts this approach
pursuant to its exception and exemption
authorities under TILA Section 105.
Section 105(a) authorizes the Board to
make exceptions to TILA to effectuate
the statute’s purposes, which include
facilitating consumers’ ability to
compare credit terms and helping
consumers avoid the uniformed use of
credit. 15 U.S.C. 1601(a), 1604(a).
Section 105(f) authorizes the Board to
exempt any class of transactions (with
an exception not relevant here) from
coverage under any part of TILA if the
Board determines that coverage under
that part does not provide a meaningful
benefit to consumers in the form of
useful information or protection. 15
U.S.C. 1604(f)(1). Section 105(f) directs
the Board to make this determination in
light of specific factors. 15 U.S.C.
1604(f)(2). These factors are (1) the
amount of the loan and whether the
disclosure provides a benefit to
consumers who are parties to the
transaction involving a loan of such
amount; (2) the extent to which the
requirement complicates, hinders, or
makes more expensive the credit
process; (3) the status of the borrower,

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including any related financial
arrangements of the borrower, the
financial sophistication of the borrower
relative to the type of transaction, and
the importance to the borrower of the
credit, related supporting property, and
coverage under TILA; (4) whether the
loan is secured by the principal
residence of the borrower; and (5)
whether the exemption would
undermine the goal of consumer
protection. The Board has considered
each of these factors carefully, and
based on that review, believes it is
appropriate to provide this exemption
for card issuers that provide the actual
repayment disclosure on the periodic
statement.
As discussed in the supplementary
information to the June 2007 Proposal,
the Board believes that certain
cardholders would find the actual
repayment disclosures more helpful
than the generic repayment estimates, as
suggested by a recent study conducted
by the GAO on minimum payments. For
this study, the GAO interviewed 112
consumers and collected data on
whether these consumers preferred to
receive on the periodic statement (1)
customized minimum payment
disclosures that are based on the
consumers’ actual account terms (such
as the actual repayment disclosure), (2)
generic disclosures such as the warning
statement and the hypothetical example
required by the Bankruptcy Act; or (3)
no disclosure.22 According to the GAO’s
report, in the interviews with the 112
consumers, most consumers who
typically carry credit card balances
(revolvers) found customized
disclosures very useful and would
prefer to receive them in their billing
statements. Specifically, 57 percent of
the revolvers preferred the customized
disclosures, 30 percent preferred the
generic disclosures, and 14 percent
preferred no disclosure. In addition, 68
percent of the revolvers found the
customized disclosure extremely useful
or very useful, 9 percent found the
disclosure moderately useful, and 23
percent found the disclosure slightly
useful or not useful. According to the
GAO, the consumers that expressed a
preference for the customized
disclosures preferred them because such
disclosures: would be specific to their
accounts; would change based on their
22 United States Government Accountability
Office, Customized Minimum Payment Disclosures
Would Provide More Information to Consumers, but
Impact Could Vary, 06–434 (April 2006). (The GAO
indicated that the sample of 112 consumers was not
designed to be statistically representative of all
cardholders, and thus the results cannot be
generalized to the population of all U.S.
cardholders.)

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transactions; and would provide more
information than generic disclosures.
GAO Report on Minimum Payments,
pages 25, 27.
In addition, the Board believes that
disclosing the actual repayment
disclosure on the periodic statement
would simplify the process for
consumers and creditors. Consumers
would not need to take the extra step to
call the toll-free telephone number to
receive the actual repayment disclosure,
but instead would have that disclosure
each month on their periodic
statements. Card issuers (other than
issuers that may use the Board or the
FTC toll-free telephone number) would
not have the operational burden of
establishing a toll-free telephone
number to receive requests for the actual
repayment disclosure and the
operational burden of linking the tollfree telephone number to consumer
account data in order to calculate the
actual repayment disclosure. Thus, the
final rule has the potential to better
inform consumers and further the goals
of consumer protection and the
informed use of credit for credit card
accounts.
7(b)(12)(v) Exemptions
As explained above, the final rule
requires the minimum payment
disclosures only for credit card
accounts. See § 226.7(b)(12)(i). Thus,
creditors would not need to provide the
minimum payment disclosures for
HELOCs (including open-end reverse
mortgages), overdraft lines of credit or
other general purpose personal lines of
credit. For the same reasons as
discussed above, the final rule exempts
these products even if they can be
accessed by a credit card device as
discussed in the June 2007 Proposal,
pursuant to the Board’s authority under
TILA Section 105(a) to make
adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1604(a). Specifically, new
§ 226.7(b)(12)(v) would exempt the
following types of credit card accounts:
(1) HELOCs that are subject to § 226.5b,
even if the HELOC is accessible by
credit cards; (2) overdraft lines of credit
tied to asset accounts accessed by
check-guarantee cards or by debit cards;
and (3) lines of credit accessed by
check-guarantee cards or by debit cards
that can be used only at automated teller
machines. See new § 226.7(b)(12)(v)(A)–
(C). The final rule also exempts charge
cards from the minimum payment
disclosure requirements, to implement
TILA Section 127(b)(11)(I). 15 U.S.C.
1637(b)(11)(I); see new
§ 226.7(b)(12)(v)(D).

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Exemption for credit card accounts
with a fixed repayment period. In the
June 2007 Proposal, the Board proposed
to exempt credit card accounts where a
fixed repayment period for the account
is specified in the account agreement
and the required minimum payments
will amortize the outstanding balance
within the fixed repayment period. See
proposed § 226.7(b)(12)(iii)(E).
In response to the June 2007 Proposal,
several consumer group commenters
urged the Board not to provide an
exemption for credit with a defined
fixed repayment period. These
commenters believed that the Board
should develop a special warning for
these types of loans, indicating that
paying more than the required
minimum payment will result in paying
off the loan earlier than the date of final
payment and will save the consumer
interest charges. Industry commenters
generally supported the exemption for
credit card accounts with a specific
repayment period.
The final rule in § 226.7(b)(12)(v)(E)
adopts the exemption for credit card
accounts with a specific repayment
period as proposed, with several
technical edits, pursuant to the Board’s
authority under TILA Section 105(a) to
make adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1604(a). The minimum payment
disclosure does not appear to provide
additional information to consumers
that they do not already have in their
account agreements. In addition, as
discussed below, this exemption will
typically be used with respect to
accounts that have been closed due to
delinquency and the required monthly
payment has been reduced or the
balance decreased to accommodate a
fixed payment for a fixed period of time
designed to pay off the outstanding
balance. In these cases, consumers will
likely be aware of the fixed period of
time to repay because it has been
specifically negotiated with the card
issuer.
In order for this proposed exemption
to apply, a fixed repayment period must
be specified in the account agreement.
As discussed above, this exemption
would be applicable to, for example,
accounts that have been closed due to
delinquency and the required monthly
payment has been reduced or the
balance decreased to accommodate a
fixed payment for a fixed period of time
designed to pay off the outstanding
balance. See comment 7(b)(12)(v)–1.
This exemption would not apply where
the credit card may have a fixed
repayment period for one credit feature,
but an indefinite repayment period on
another feature. For example, some

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retail credit cards have several credit
features associated with the account.
One of the features may be a general
revolving feature, where the required
minimum payment for this feature does
not pay off the balance in a specific
period of time. The card also may have
another feature that allows consumers to
make specific types of purchases (such
as furniture purchases, or other large
purchases), and the required minimum
payments for that feature will pay off
the purchase within a fixed period of
time, such as one year. Comment
7(b)(12)(v)–1 makes clear that the
exemption relating to a fixed repayment
period for the entire account does not
apply to the above situation, because the
retail card account as a whole does not
have a fixed repayment period, although
the exemption under § 226.7(b)(12)(v)(F)
might apply as discussed below.
Exemption where balance has fixed
repayment period. In the June 2007
Proposal, the Board proposed to exempt
credit card issuers from providing the
minimum payment disclosures on
periodic statements in a billing cycle
where the entire outstanding balance
held by consumers in that billing cycle
is subject to a fixed repayment period
specified in the account agreement and
the required minimum payments
applicable to that balance will amortize
the outstanding balance within the fixed
repayment period. See proposed
§ 226.7(b)(12)(iii)(G). This exemption
was meant to cover the retail cards
described above in those cases where
the entire outstanding balance held by
a consumer in a particular billing cycle
is subject to a fixed repayment period
specified in the account agreement. On
the other hand, this exemption would
not have applied in those cases where
all or part of the consumer’s balance for
a particular billing cycle is held in a
general revolving feature, where the
required minimum payment for this
feature does not pay off the balance in
a specific period of time set forth in the
account agreement. The final rule in
§ 226.7(b)(12)(v)(F) adopts this
exemption as proposed, with one
technical edit, pursuant to the Board’s
authority under TILA Section 105(a) to
make adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1604(a). See also comment
7(b)(12)(v)–2. The minimum payment
disclosures would not appear to provide
additional information to consumers in
this context because consumers would
be able to determine from their account
agreements how long it would take to
repay the balance. In addition, these
fixed repayment features are often
promoted in advertisements by retail

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card issuers, so consumers will typically
be aware of the fixed repayment period
when using these features.
Exemption where cardholders have
paid their accounts in full for two
consecutive billing cycles. In the June
2007 Proposal, the Board proposed to
provide that card issuers are not
required to include the minimum
payment disclosure in the periodic
statement for a particular billing cycle if
a consumer has paid the entire balance
in full in that billing cycle and the
previous billing cycle. See proposed
§ 226.7(b)(12)(iii)(F).
In response to the June 2007 Proposal,
several consumer groups suggested that
the Board not adopt this exemption and
not provide any exemption based on
consumers’ payment habits. Several
industry commenters suggested that the
Board broaden this exemption. Some
industry commenters suggested that
issuers should only be required to
comply with minimum payment
disclosure requirements for a particular
billing cycle if the consumer has made
minimum payments for the past three
consecutive billing cycles. Other
industry commenters suggested that
issuers should only by required to
comply with the minimum payment
disclosure requirements for a particular
billing cycle if the consumer has made
at least three minimum payments in the
past 12 months. Another industry
commenter suggested that there should
be an exemption for any consumer who
has paid his or her account in full
during the past 12 months, or has
promotional balances that equal 50
percent or more of his or her total
account balance.
The final rule adopts in
§ 226.7(b)(12)(v)(G) the exemption as
proposed, with one technical edit,
pursuant to the Board’s authority under
TILA Section 105(a) to make
adjustments that are necessary to
effectuate the purposes of TILA. 15
U.S.C. 1604(a). The final rule exempts
card issuers from the requirement to
provide the minimum payment
disclosures in the periodic statement for
a particular billing cycle immediately
following two consecutive billing cycles
in which the consumer paid the entire
balance in full, had a zero balance or
had a credit balance. The Board believes
this approach strikes an appropriate
balance between benefits to consumers
of the disclosures, and compliance
burdens on issuers in providing the
disclosures. Consumers who might
benefit from the disclosures will receive
them. Consumers who carry a balance
each month will always receive the
disclosure, and consumers who pay in
full each month will not. Consumers

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who sometimes pay their bill in full and
sometimes do not will receive the
minimum payment disclosures if they
do not pay in full two consecutive
months (cycles). Also, if a consumer’s
typical payment behavior changes from
paying in full to revolving, the
consumer will begin receiving the
minimum payment disclosures after not
paying in full one billing cycle, when
the disclosures would appear to be
useful to the consumer. In addition,
creditors typically provide a grace
period on new purchases to consumers
(that is, creditors do not charge interest
to consumers on new purchases) if
consumers paid both the current
balance and the previous balance in full.
Thus, creditors already currently
capture payment history for consumers
for two consecutive months (or cycles).
The Board notes that card issuers are
not required to use this exemption. A
card issuer may provide the minimum
payment disclosures to all of its
cardholders, even to those cardholders
that fall within this exemption. If
issuers choose to provide voluntarily
the minimum payment disclosures to
those cardholders that fall within this
exemption, the Board encourages
issuers to follow the disclosures rules
set forth in § 226.7(b)(12), the
accompanying commentary, and
Appendices M1–M3 to part 226 (as
appropriate) for those cardholders.
Exemption where minimum payment
would pay off the entire balance for a
particular billing cycle. In response to
the June 2007 Proposal, several
commenters requested that the Board
add an exemption where issuers would
not be required to comply with the
minimum payment disclosure
requirements for a particular billing
cycle where paying the minimum
payment due for that billing cycle will
pay the outstanding balance on the
account for that billing cycle. For
example, if the entire outstanding
balance on an account for a particular
billing cycle is $20 and the minimum
payment is $20, an issuer would not
need to comply with the minimum
payment disclosure requirements for
that particular billing cycle. The final
rule contains this exemption in new
§ 226.7(b)(12)(v)(H), pursuant to the
Board’s authority under TILA Section
105(a) to make adjustments that are
necessary to effectuate the purposes of
TILA. 15 U.S.C. 1604(a).
Other exemptions. In response to the
June 2007 Proposal, several commenters
suggested other exemptions to the
minimum payment requirements, as
discussed below. For the reasons
discussed below, the final rule does not
include these exemptions.

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1. Exemption for discontinued credit
card products. In response to the June
2007 Proposal, one industry commenter
asked the Board to provide an
exemption for discontinued products for
which no new accounts are being
opened, and for which existing accounts
are closed to new transactions. The
commenter indicated that the number of
accounts that are discontinued are
usually very small and the computer
systems used to produce the statements
for the closed accounts are being phased
out. The Board does not believe that this
exception is warranted. Issuers will
need to make changes to their periodic
statement systems as a result of changes
to other periodic statement
requirements in this final rule and
issuers could make changes to the
periodic statement system to
incorporate the minimum payment
disclosure on the periodic statement at
the same time they make other changes
required by the final rule.
2. Exemption for credit card accounts
purchased within the last 18 months. In
response to the June 2007 Proposal,
several commenters urged the Board to
provide an exemption for accounts
purchased by a credit card issuer. With
respect to these purchased accounts,
one commenter urged the Board to
exempt issuers from providing the
minimum payment disclosures during a
transitional period (up to 18 months)
while the purchasing issuer converts the
new accounts to its statement system. In
this situation, the commenters indicated
that the purchase of credit card accounts
is often followed by a change-in-terms
notice, which may include a change in
the minimum payment formula. If this
occurs, disclosing one estimated
repayment period immediately after the
account is purchased and then
disclosing a different repayment period
for the same balance after the change in
terms becomes effective would be
confusing to many consumers. The
Board does not believe that such an
exemption is warranted. A consumer
may be alerted that his or her minimum
payment has changed, either through
reading the change-in-terms notice, or
seeing different minimum payment
amounts disclosed on his or her
periodic statement. Thus, consumers
may be aware that their minimum
payment has changed, and as a result,
may not be confused about receiving a
different repayment period for the same
or similar balance.
3. Promotional plans. One industry
commenter suggested that the Board
exempt any account where there is a
balance in a promotional credit plan,
such as a deferred interest plan, until
expiration of the promotional plan.

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Another industry commenter suggested
that the Board not require an issuer to
provide the minimum payment
disclosures to any consumer that has
promotional balances that equal 50
percent or more of his or her total
account balance. The final rule does not
include these exemptions for
promotional plans. Not all consumers
will necessarily pay off the promotional
balances by the end of the promotional
periods. Thus, the Board believes that
some consumers that have taken
advantage of promotional plans may
still find the minimum payment
disclosures useful.
4. General purpose lines of credit.
One commenter suggested that the final
rule include an exemption for general
purpose lines of credit. This commenter
indicated that general purpose lines can
be accessed by check or credit union
share draft, by personal request at a
branch, or via telephone or Internet. The
Board notes that § 226.7(b)(12)(i) makes
clear that the minimum payment
disclosure requirements only apply to
credit card accounts. Thus, to the extent
that a general purpose line of credit is
not accessed by a credit card, it is not
subject to the requirements in
§ 226.7(b)(12).
7(b)(13) Format Requirements
Under the June 2007 Proposal,
creditors would have been required to
group together disclosures regarding
when a payment is due (due date and
cut-off time if before 5 p.m.), how much
is owed (minimum payment and ending
balance), the potential costs for paying
late (late-payment fee, and penalty APR
if triggered by a late payment), and the
potential costs for making only
minimum payments. Proposed Samples
G–18(E) and G–18(F) in Appendix G to
part 226 would have illustrated the
proposed requirements. The proposed
format requirements were intended to
fulfill Congress’s intent to have the new
late payment and minimum payment
disclosures enhance consumer
understanding of the consequences of
paying late or making only minimum
payments, and were based on consumer
testing conducted for the Board that
indicated improved understanding
when related information is grouped
together.
Consumer group commenters, a
member of Congress and one trade
association supported the format
requirements, as being helpful to
consumers.
Industry commenters generally
opposed the requirements as being
overly prescriptive. They urged the
Board to permit additional flexibility, or
instead to retain the current requirement

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5337

to provide ‘‘clear and conspicuous’’
disclosures. They asked the Board to
require a ‘‘closely proximate’’ standard
that would allow additional flexibility
in how creditors design their
statements, and to eliminate any
requirement that creditors’ disclosures
be substantially similar to model forms
or samples. They stated that there is no
evidence that under the current ‘‘clear
and conspicuous’’ standard consumers
are unable to locate or understand the
due date, balances, and minimum
payment amount.
Some industry commenters opposed
the requirement to place the late
payment disclosures on the front of the
first page. Some commenters asserted
that locating that disclosure on the top
of the first page places a
disproportionate emphasis on the
disclosure.
The Board tested the formatting of
information regarding payments in two
rounds of consumer testing conducted
after May 2008. Participants were
presented with two different versions of
the periodic statement, in which the
information was grouped, but the
formatting was varied. These changes
had no noticeable impact on how easily
participants could locate the warning
regarding the potential costs for paying
late and the potential costs for making
only minimum payments.
The Board also tested different
formats for the grouped information in
the quantitative testing conducted in
September and October 2008.
Participants were shown versions of the
periodic statement in which the
information was grouped, but formatted
in three different ways. In order to
assess whether formatting had an
impact on consumers’ ability to locate
these disclosures, the Board’s testing
consultant focused on whether the
format in which payment information
was provided impacted consumer
awareness of the late payment warning.
Participants were asked whether there
was any information on the statement
about what would happen if they made
a late payment. Participants who
noticed the late payment warning were
then asked a series of questions about
what would happen if they made a late
payment. Consistent with the prior
rounds of consumer testing, the results
of the quantitative testing demonstrated
that the formatting of the grouped
payment information does not have a
statistically significant impact on
consumers’ ability to locate or
understand the late payment warning.
Because the Board’s consumer testing
demonstrated that formatting of the
information about payments does not
have an impact on consumer awareness

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of these disclosures if the information is
grouped together, § 226.7(b)(13) as
adopted does not require that
disclosures regarding when a payment
is due, how much is owed, the potential
costs for paying late, and the potential
costs for making only minimum
payments be ‘‘substantially similar’’ to
Sample G–18(D) or G–18(E) (proposed
as Samples G–18(E) and G–18(F)). The
final rule does require, however, that
these terms be grouped together, in
close proximity, consistent with the
proposal. For the reasons discussed in
the supplementary information to
§ 226.7(b)(11), the final rule does not
require a disclosure of the cut-off time
on the front of the periodic statement,
and the reference to a cut-off time
disclosure that was included in
proposed § 226.7(b)(13) has been
deleted.
In response to a request for guidance,
comment app. G–10 is added to clarify
that although the payment disclosures
appear in the upper right-hand corner of
Forms G–18(F) and G–18(G) (proposed
as Forms G–18(G) and G–18(H)), the
disclosures may be located elsewhere,
as long as they appear on the front side
of the first page.
Combined deposit account and credit
account statements. Some financial
institutions provide information about
deposit account and open-end credit
account activity on one periodic
statement. Industry commenters asked
for guidance on how to comply with
format requirements requiring
disclosures to appear on the ‘‘front of
the first page’’ for these combined
statements. Comment 7(b)(13)–1 is
added to clarify that for purposes of
providing disclosures on the front of the
first page of the periodic statement
pursuant to § 226.7(b)(13), the first page
of such a combined statement shall be
deemed to be the page on which credit
transactions first appear. For example,
assume a combined statement where
credit transactions begin on the third
page and deposit account information
appears on pages one and two. For
purposes of providing disclosures on
the front of the first page of the periodic
statement under Regulation Z, this
comment clarifies that page three is
deemed to be the first page of the
periodic statement.
Technical revisions. A number of
technical revisions are made for clarity,
as proposed. For the reasons set forth in
the section-by-section analysis to
§ 226.6(b)(2)(v), the Board is updating
references to ‘‘free-ride period’’ as
‘‘grace period’’ in the regulation and
commentary, without any intended
substantive change. Current comment
7–2, which addresses open-end plans

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involving more than one creditor, is
deleted as obsolete and unnecessary.
Section 226.8 Identifying Transactions
on Periodic Statements
TILA Section 127(b)(2) requires
creditors to identify on periodic
statements credit extensions that
occurred during a billing cycle. 15
U.S.C. 1637(b)(2). The statute calls for
the Board to implement requirements
that are sufficient to identify the
transaction or to relate the credit
extension to sales vouchers or similar
instruments previously furnished. The
rules for identifying transactions are
implemented in § 226.8, and vary
depending on whether: (1) The sales
receipt or similar credit document is
included with the periodic statement,
(2) the transaction is sale credit
(purchases) or nonsale credit (cash
advances, for example), and (3) the
creditor and seller are the ‘‘same or
related.’’ TILA’s billing error protections
include consumers’ requests for
additional clarification about
transactions listed on a periodic
statement. 15 U.S.C. 1666(b)(2);
§ 226.13(a)(6).
‘‘Descriptive billing’’ statements. In
June 2007, the Board proposed revisions
to the rules for identifying sales
transactions when the sales receipt or
similar document is not provided with
the periodic statement (so called
‘‘descriptive billing’’), which is typical
today. The proposed revisions reflect
current business practices and
consumer experience, and were
intended to ease compliance. Currently,
creditors that use descriptive billing are
required to include on periodic
statements an amount and date as a
means to identify transactions. As an
additional means to identify
transactions, current rules contain
description requirements that differ
depending on whether the seller and
creditor are ‘‘same or related.’’ For
example, a retail department store with
its own credit plan (seller and creditor
are same or related) sufficiently
identifies purchases on periodic
statements by providing the department
such as ‘‘jewelry’’ or ‘‘sporting goods’’;
item-by-item descriptions are not
required. Periodic statements provided
by issuers of general purpose credit
cards, where the seller and creditor are
not the same or related, identify
transactions by the seller’s name and
location.
The June 2007 Proposal would have
permitted all creditors to identify sales
transactions (in addition to the amount
and date) by the seller’s name and
location. Thus, creditors and sellers that
are the same or related could, at their

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option, identify transactions by a brief
identification of goods or services,
which they are currently required to do
in all cases, or they could provide the
seller’s name and location for each
transaction. Guidance on the level of
detail required to describe amounts,
dates, the identification of goods, or the
seller’s name and location would have
remained unchanged under the
proposal.
Commenters addressing this aspect of
the June 2007 Proposal generally
supported the proposed revisions. For
the reasons stated below, the final rule
provides additional flexibility to
creditors that use descriptive billing to
identify transactions on periodic
statements.
The Board’s revisions are guided by
several factors. The standard set forth by
TILA for identifying transactions on
periodic statements is quite broad. 15
U.S.C. 1637(b)(2). Whether a general
description such as ‘‘sporting goods’’ or
the store name and location would be
more helpful to a consumer can depend
on the situation. Many retailers permit
consumers to purchase in a single
transaction items from a number of
departments; in that case, the seller’s
name and location may be as helpful as
the description of a single department
from which several dissimilar items
were purchased. Also, the seller’s name
and location has become the more
common means of identifying
transactions, as the use of general
purpose cards increases and the number
of store-only cards decreases. Thus,
retailers that commonly accept general
purpose credit cards but also offer a
credit card account or other open-end
plan for use only at their store would
not be required to maintain separate
systems that enable different
descriptions to be provided, depending
on the type of card used. Moreover,
consumers are likely to carefully review
transactions on periodic statements and
inquire about transactions they do not
recognize, such as when a retailer is
identified by its parent company on
sales slips which the consumer may not
have noticed at the time of the
transaction. Moreover, consumers are
protected under TILA with the ability to
assert a billing error to seek clarification
about transactions listed on periodic
statements, and are not required to pay
the disputed amount while the card
issuer obtains the necessary
clarification. Maintaining rules that
require more standardization and detail
would be costly, and likely without
significant corresponding consumer
benefit. Thus, the revisions are intended
to provide flexibility for card issuers
without reducing consumer protection.

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The Board notes, however, that some
retailers offering their own open-end
credit plans tie their inventory control
systems to their systems for generating
sales receipts and periodic statements.
In these cases, purchases listed on
periodic statements may be described
item by item, for example, to indicate
brand names such as ‘‘XYZ Sweater.’’
This item-by-item description, while not
required under current or revised rules,
remains permissible.
To implement the approach described
above, § 226.8 is revised, as proposed, as
follows. Section 226.8(a)(1) sets forth
the rule providing flexibility in
identifying sales transactions, as
discussed above as well as the content
of footnote 19. Section 226.8(a)(2)
contains the existing rules for
identifying transactions when sales
receipts or similar documents
accompany the periodic statement.
Section 226.8(b) is revised for clarity. A
new § 226.8(c) is added to set forth rules
now contained in footnote 16; and,
without references to ‘‘same or related’’
parties, footnotes 17 and 20. The
substance of footnote 18, based on a
statutory exception where the creditor
and seller are the same person, is
deleted as unnecessary. The title of the
section is revised for clarity.
The commentary to § 226.8 is
reorganized and consolidated but is not
substantively changed, as proposed.
Comments 8–1, 8(a)(1)–1, and 8(a)(2)–4
are deleted as duplicative. Similarly,
comments 8–6 through 8–8, which
provide creditors with flexibility in
describing certain specific classes of
transactions regardless of whether they
are ‘‘related’’ or ‘‘nonrelated’’ sellers or
creditors, are deleted as unnecessary.
Revised § 226.8(a)(1)(ii) and comments
8(a)–3 and 8(a)–7, which provide
guidance for identifying mail or
telephone transactions, are updated to
refer to Internet transactions.
Examples of sale credit. Proposed
comment 8(a)–1 republished an existing
example of sales credit—a funds transfer
service (such as a telegram) from an
intermediary— and proposed a new
example—expedited payment service
from a creditor. One commenter
addressed the proposed comment,
suggesting that the entire comment be
deleted. The commenter asserted
creditors should have the flexibility to
post a funds transfer service as a cash
advance but that the comment forces
creditors to post the transaction as a
purchase, and, similarly, creditors
should have discretion in how to post
fees for creditors’ services.
The requirements of § 226.8 are
limited to how creditors must identify
transactions on periodic statements and

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do not impact how creditors may
otherwise characterize transactions,
such as for purposes of pricing. The
Board believes a consumer’s purchase of
a funds transfer service from a third
party is properly characterized as sales
credit for purposes of identifying
transactions on a card issuer’s periodic
statement. Consumers are likely to
recognize the name of the funds transfer
merchant, as would be the typical case
where the card issuer and funds transfer
merchant are not the same or related.
Thus, the example is retained although
a more current illustration (wire
transfer) replaces the existing
illustration (telegram).
Additional guidance is added to
comment 8(a)–1 regarding permissible
identification of creditors’ services that
are purchased by the consumer and are
‘‘costs imposed as part of the plan,’’ in
response to the commenter’s concerns.
The comment provides that for the
purchase of such services (for example,
a fee to expedite a payment), card
issuers and creditors comply with the
requirements for identifying
transactions under § 226.8 by disclosing
the fees in accordance with the
requirements of § 226.7(b)(6)(iii). The
example of voluntary credit insurance
premiums as ‘‘sale credit’’ is deleted,
because such premiums are costs
imposed as part of the plan under
§ 226.6(b)(3)(ii)(F). To ease compliance,
the comment further provides that for
purchases of services that are not costs
imposed as part of the plan, card issuers
and creditors may, at their option,
identify transactions under this section
or in accordance with the requirements
of § 226.7(b)(6)(iii). This flexibility is
intended to avoid technical compliance
violations.
Aggregating small dollar purchases.
One commenter urged the Board to
permit card issuers to aggregate, for
billing purposes, small dollar purchases
at the same merchant. Aggregating such
purchases, in the view of the
commenter, could enhance consumers’
ability to track small dollar spending at
particular merchants in a more
meaningful way.
The Board believes further study is
desirable to consider the potential
ramifications of permitting card issuers
to aggregate small dollar transactions on
periodic statements. Furthermore,
consistent rules should be considered
under Regulation E (Electronic Fund
Transfer). 12 CFR part 205. Thus, the
final revisions do not include rules
permitting aggregation of small dollar
purchases.
Receipts accompany statements.
Rules for identifying transactions where
receipts accompany the periodic

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statement were not affected by the June
2007 Proposal, and are retained.
Comments 8–4 and 8(a)(2)–3, which
provide guidance when copies of credit
or sales slips accompany the statement,
are deleted, as proposed. The Board
believes this practice is no longer
common, and to the extent sales or
similar credit documents accompany
billing statements, additional guidance
seems unnecessary.
Section 226.9 Subsequent Disclosure
Requirements
Section 226.9 currently sets forth a
number of disclosure requirements that
apply after an account is opened,
including a requirement to provide
billing rights statements annually, a
requirement to provide at least 15 days’
advance notice whenever a term
required to be disclosed in the accountopening disclosures is changed, and a
requirement to provide finance charge
disclosures whenever credit devices or
features are added on terms different
from those previously disclosed.
9(a) Furnishing Statement of Billing
Rights
Section 226.9(a) requires creditors to
mail or deliver a billing error rights
statement annually, either to all
consumers or to each consumer entitled
to receive a periodic statement. See 15
U.S.C. 1637(a)(7). Alternatively,
creditors may provide a shorter billing
rights statement on each periodic
statement. Regulation Z contains model
forms creditors may use to satisfy the
notice requirements under § 226.9(a).
See Model Forms G–3 and G–4.
The June 2007 Proposal would have
revised both the regulation and
commentary under § 226.9(a) to conform
to other changes elsewhere in the
proposal, but otherwise would have left
the provision unchanged substantively.
In addition, the Board proposed new
Model Forms G–3(A) (long form billing
rights notice) and G–4(A) (short form
alternative billing rights notice) in the
June 2007 Proposal to improve the
readability of the current notices. For
HELOCs subject to the requirements of
§ 226.5b, the June 2007 Proposal would
have given creditors the option of using
the current Model Forms G–3 and G–4,
or the revised forms.
One industry commenter opposed the
proposed changes in Model Forms G–
3(A) and G–4(A), largely due to the
increased compliance burden from
having separate forms for HELOCs and
for other open-end plans. This
commenter further noted that the Board
did not conduct consumer research on
the readability of the proposed notices.
Another industry commenter opposed

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the revised language in Model Forms G–
3(A) and G–4(A) regarding the merchant
claims and defenses under § 226.12(c),
stating that mere dissatisfaction with the
good or service would not be enough to
trigger the consumer’s rights. Consumer
groups generally supported the revised
forms, but urged the Board to add
additional language in the short form
billing rights notice (Model Form G–
4(A)) to note that a consumer need not
pay any interest if the error is resolved
in the consumer’s favor, consistent with
language in the long-form notice (Model
Form G–3(A)). Consumer groups also
suggested that the Board add optional
language in the event a creditor allows
a cardholder to provide billing error
notices electronically.
The final rule retains Model Forms G–
3(A) and G–4(A), largely as proposed.
To address concerns about potential
compliance burdens from using
multiple forms, the final rule permits
creditors to use Model Forms G–3(A)
and G–4(A) in all cases to comply with
their disclosure obligations for all openend products. Thus, for open-end (not
home-secured) plans, creditors may use
Model Forms G–3(A) and G–4(A). For
HELOCs subject to the requirements of
§ 226.5b, creditors may use the revised
forms, or continue to use Model Forms
G–3 and G–4. In addition, while the
new model forms were not tested with
individual consumers, the forms were
reviewed by the Board’s testing
consultant which enabled the Board to
draw upon the consultant’s experience,
both from the insights obtained through
the testing of other notices in
connection with this rulemaking, as
well as from working with plain
language disclosures in other contexts.
To address consumer group concerns,
language has been added to Model Form
G–4(A) (the short form alternative
billing rights notice for open-end (not
home-secured) plans) to inform the
consumer that he or she need not pay
any interest if the error is resolved in
the consumer’s favor, consistent with
identical language used in the long form
(Model Form G–3(A)). In addition, each
of the model forms has been revised to
include optional language a creditor
may use if it permits a cardholder to
provide billing error notices
electronically. As discussed below in
the section-by-section analysis to
§ 226.13, if a creditor indicates that it
will accept notices submitted
electronically, it must treat notices
received in such manner as preserving
billing error rights. See § 226.13(b);
comment 13(b)–2, discussed below.
Lastly, both Model Forms G–3(A) and
G–4(A) have been revised in the final
rule to clarify that for merchant claims

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(see § 226.12(c)), the consumer must
first attempt in good faith to correct the
problem with the merchant before
asserting the claim with the issuer.
9(b) Disclosures for Supplemental
Credit Access Devices and Additional
Features
Section 226.9(b) currently requires
certain disclosures when a creditor adds
a credit device or feature to an existing
open-end plan. When a creditor adds a
credit feature or delivers a credit device
to the consumer within 30 days of
mailing or delivering the accountopening disclosures under current
§ 226.6(a), and the device or feature is
subject to the same finance charge terms
previously disclosed, the creditor is not
required to provide additional
disclosures. If the credit feature or credit
device is added more than 30 days after
mailing or delivering the accountopening disclosures, and is subject to
the same finance charge terms
previously disclosed in the accountopening agreement, the creditor must
disclose that the feature or device is for
use in obtaining credit under the terms
previously disclosed. However, if the
added credit device or feature has
finance charge terms that differ from the
disclosures previously given under
§ 226.6(a), then the disclosures required
by § 226.6(a) that are applicable to the
added feature or device must be given
before the consumer uses the new
feature or device.
In June 2007, the Board proposed to
retain the current rules set forth in
§§ 226.9(b)(1) and (b)(2) for all credit
devices and credit features except
checks that access a credit card account.
With respect to checks that access a
credit card account, the Board proposed
to create a new § 226.9(b)(3) that would
require certain information to be
disclosed each time checks that access
a credit card account are mailed to a
consumer, for checks mailed more than
30 days following the delivery of the
account-opening disclosures.
The June 2007 Proposal would have
required the following key terms to be
disclosed on the front of the page
containing the checks: (1) Any
discounted initial rate, and when that
rate will expire, if applicable; (2) the
type of rate that will apply to the checks
after expiration of any discounted initial
rate (such as whether the purchase or
cash advance rate applies) and the
applicable APR; (3) any transaction fees
applicable to the checks; and (4)
whether a grace period applies to the
checks, and if one does not apply, that
interest will be charged immediately.
The disclosures would have been
required to be accurate as of the time the

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disclosures are given. The June 2007
Proposal provided that a variable APR is
accurate if it was in effect within 30
days of when the disclosures are given.
Proposed § 226.9(b)(3) would have
required that these key terms be
disclosed in a tabular format
substantially similar to Sample G–19 in
Appendix G to part 226. The Board
solicited comment on the operational
burden associated with customizing the
checks to disclose the actual APR, and
on alternatives, such as whether
providing a reference to the type of rate
that will apply, accompanied by a tollfree telephone number that a consumer
could call to receive additional
information, would provide sufficient
benefit to consumers while limiting the
burden on creditors.
In the May 2008 Proposal, the Board
proposed to add to the summary table
in § 226.9(b)(3) another disclosure that
would have required additional
information regarding the expiration
date of any offer of a discounted initial
rate. The additional disclosure was set
forth in proposed § 226.9(b)(3)(i)(C),
pursuant to the Board’s authority under
TILA Section 105(a). 15 U.S.C. 1604(a).
Specifically, the disclosure would have
been required to include any date by
which the consumer must use the
checks in order to receive the
discounted initial rate. Furthermore, if
the creditor will honor the checks if
they are used after the disclosed date
but will apply to the advance a rate
other than the discounted rate, proposed
§ 226.9(b)(3)(i)(C) would have required
the creditor to disclose that fact and the
type of rate that will apply under those
circumstances. The Board also proposed
to revise proposed § 226.9(b)(3)(i)(E)
(proposed in June 2007 as
§ 226.9(b)(3)(i)(D)) regarding disclosure
of any grace period applicable to the
checks and to add a new comment
9(b)(3)(i)(E)–1 which set forth language
that creditors could have used to
describe in the tabular disclosure any
grace period (or lack of a grace period)
offered on check transactions.
APRs. The Board received several
comments on the proposal to require
disclosure of the actual APR or APRs
applicable to the checks. Several
industry commenters noted that there
would be operational burdens
associated with disclosing the actual
rate applicable to the checks that access
a credit card account. These
commenters encouraged the Board to
consider alternatives, such as providing
a reference to the type of rate that will
apply or providing a toll-free number
that consumers can use to get
customized information. One issuer
noted that all cardholders do not receive

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the same rate and/or fees even if they
receive checks at the same time and
stated that convenience check printing
would have to be done in batches,
raising the production costs. Another
issuer noted that it has only one rate
that applies to all features (purchases,
cash advances, and balance transfers)
under a given pricing plan, so its
cardholders were unlikely to be
confused about the rate that will apply
after the expiration of a promotional
rate. That commenter stated that
redisclosing the rate applicable to the
account on the page containing the
checks would require customization by
pricing plan. One issuer commented
that the burden of customizing checks
would fall disproportionately on smaller
issuers because they would not be able
to obtain efficiencies of scale if
customization was required. Finally,
one commenter also stated that, in
addition to being operationally
burdensome, the disclosure of the actual
‘‘go-to’’ rate could be confusing for
consumers, because it may be inaccurate
by the time any promotional offer
expires.
Consumer groups, a trade association
for community banks, and a credit
union trade association supported the
disclosure of the actual rate applicable
to the checks. These commenters stated
that it is important that consumers be
aware of the costs associated with using
checks that access a credit card account
and that consumers should not have to
use a toll-free number to receive the
information. One commenter pointed
out that the testing conducted on behalf
of the Board indicated that consumers
generally did not notice or pay attention
to a cross reference contained in the
convenience check disclosure.
The final rule requires that the tabular
disclosure accompanying checks that
access a credit card account include a
disclosure of the actual rate or rates
applicable to the checks, consistent with
the June 2007 Proposal. The Board
believes that disclosing the actual rate
that will apply to checks once any
promotional rate expires is a crucial
piece of information necessary to assist
consumers in deciding whether, and in
what manner, to use the checks. While
the actual post-promotional rate
disclosed at the time the checks are sent
to a consumer may be inaccurate by the
time the promotional offer expires, due,
for example, to fluctuations in the index
used to determine a variable rate, the
Board notes that this is not materially
different from the situation where a
post-promotional rate is disclosed in the
disclosures provided to a consumer
with an application or solicitation under
§ 226.5a or with the account-opening

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disclosures given pursuant to § 226.6. In
either case, the exact post-promotional
rate may differ from the rate disclosed
by the time it becomes applicable to the
consumer’s account; however, the Board
believes that disclosure of the actual
post-promotional rate in effect at the
time that the checks are sent to the
consumer is an important piece of
information for the consumer to use in
making an informed decision about
whether to use the checks.
The requirement to disclose the actual
rate applicable to the checks also is
consistent with the policy
considerations underlying TILA Section
127(c)(6)(A), as added by Section
1303(a) of the Bankruptcy Act. 15 U.S.C.
1637(c)(6)(A). As discussed in the
supplementary information to
§ 226.16(g), TILA Section 127(c)(6)(A)
requires in connection with credit card
direct mail applications and
solicitations or accompanying
promotional materials that a creditor
disclose the time period in which the
introductory period will end and the
APR that will apply after the end of the
introductory period. The requirements
in TILA Section 127(c)(6)(A) do not
apply to checks that access a credit card
account because such checks are
generally provided in connection with
an existing account, not in connection
with an application or solicitation for a
new credit card account. However, the
Board believes, consistent with the
intent of TILA Section 127(c)(6)(A), that
requiring creditors to disclose with
access checks the actual rate that will
apply upon expiration of any
promotional rate will ensure that
consumers to whom an initial
discounted rate is being promoted also
receive, with the materials promoting
the initial discounted rate, a disclosure
of the actual rate that will apply after
that promotional rate expires.
Testing conducted on behalf of the
Board also suggests that a disclosure of
the actual rate, rather than a toll-free
telephone number, will help to enhance
consumer understanding of the rate that
will apply when the promotional rate
expires. Consumer testing conducted
after the June 2007 Proposal supports
the notion that consumers tend to look
for a rate rather than a narrative
disclosure when identifying the APR
applicable to the checks. In March 2008,
the form of access check disclosures
tested contained a disclosure of the
actual APR that would apply upon
expiration of the promotional rate. All
of the participants who noticed the
disclosures 23 in the March 2008
23 As discussed below, in the March 2008 testing,
some consumers did not notice the disclosures that

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interviews successfully identified the
rate that would apply after the
promotional rate expired. In July and
August 2008, however, participants
were presented with disclosures on the
front of the page containing the checks
that did not disclose the actual APR, but
rather stated the type of rate that would
apply (the cash advance rate) and a tollfree number that the consumer could
call to learn the current APR. Almost all
of the participants in the July and
August 2008 testing were able to
identify either the type of rate that
would apply or the toll-free number.
However, several consumers in the July
and August 2008 testing who looked for
a rate rather than a narrative disclosure
mistakenly identified the fee for use of
the checks, which was presented as a
numerical rate, as the rate that would
apply after expiration of the
promotional rate. In addition, several
participants who were presented with
forms that did not provide an actual rate
commented that this information could
be obtained only by calling the creditor.
Finally, the Board also has reduced
the operational burden associated with
printing the disclosure of the actual rate
applicable to the checks by adopting a
60-day accuracy requirement for the
disclosure of a variable rate rather than
the 30-day accuracy requirement that
was proposed in June 2007. The June
2007 Proposal would have provided in
§ 226.9(b)(3)(ii) that a variable APR
disclosed pursuant to § 226.9(b)(3)(i) is
accurate if it was in effect within 30
days of when the disclosures are given.
Several commenters stated that mailed
convenience checks should be subject to
the same 60-day accuracy requirement
that applies to other mailed offers as
contemplated in § 226.5a(c)(2)(i) for
direct mail applications and
solicitations. The commenters stated
that card issuers may have trouble
complying with the 30-day requirement,
because the APR applicable to
transactions in a given billing cycle
sometimes is not determined until the
end of a billing cycle, for example, if an
issuer defines its index as of the last day
of the cycle. Consequently, for those
issuers, if the checks are printed several
days before the checks are mailed, the
APR obtained from the issuer’s system
may not be one in effect within 30 days
of the mail date for some subset of that
issuer’s customers. The final rule in
§ 226.9(b)(3)(ii) incorporates the 60-day
accuracy provisions requested by these
commenters. The Board believes that it
accompanied the checks that access a credit card
account when they were included on an insert with
the periodic statement and not on the front of the
page containing the checks.

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is appropriate to have the same timing
provision for convenience checks as for
direct mail credit card applications and
solicitations, and that a 60-day period
will effectively balance consumer
benefit against the burden on issuers.
One commenter noted that the
proposed wording in § 226.9(b)(3)(ii)
that refers to when the account-opening
disclosures ‘‘are given’’ creates
confusion in the context of mailed
disclosures, because it is unclear when
a mailed disclosure is ‘‘given’’ even
though it may be known when it is
mailed. Sections 226.9(b)(3)(i) and (ii) of
the final rule refer to when the accountopening disclosures ‘‘are mailed or
delivered.’’ The Board believes that this
will provide useful clarification to
issuers, and is consistent with the
existing provision for other
supplemental credit access devices,
which is retained in the final rule as
§ 226.9(b)(1) and (b)(2).
Location and format. Many industry
commenters on the June 2007 Proposal
urged the Board to provide flexibility
regarding the required location of the
tabular disclosure for checks that access
a credit card account. Several
commenters asked the Board to relax the
location requirement for the
§ 226.9(b)(3) disclosures. One
commenter stated that a creditor should
be permitted to provide the table on the
first page of a multiple-page advertising
offer, even if the checks are printed on
the second page. Another commenter
stated that creditors should be permitted
to provide a cross reference to the
disclosures when the checks are
included with a periodic statement.
Finally, another commenter asked that
the location requirements be relaxed for
single checks inserted as standalone
inserts in mailings. Several commenters
opposed prescriptive location
requirements more generally and
advocated that the Board adopt only a
clear and conspicuous standard, as
opposed to the more specific standard
proposed, for location of the tabular
disclosures.
Proposed § 226.9(b)(3) stated that the
disclosures were required on the front of
the page containing the checks.
Consumer testing conducted on behalf
of the Board prior to the issuance of the
June 2007 Proposal showed that
consumers were more aware of the
information included in the tabular
disclosure when it was located on the
front of the page containing the checks
rather than on the back. In addition,
approximately half of the participants in
a round of testing conducted in March
2008 failed to notice the tabular
disclosure when it was included as an
insert with the periodic statement rather

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than on the page containing the checks.
With several clarifications discussed
below for multiple-page check offers,
the final rule retains the location
requirement as proposed because testing
has shown that consumers are more
likely to notice and pay attention to the
disclosures when they are located on
the front of the page containing the
checks.
Several commenters asked the Board
to clarify how the location requirement
would apply in situations where checks
are printed on multiple pages rather
than a single page. For example, one
commenter asked the Board to clarify
that redundant disclosures are not
required when the offer contains checks
on multiple pages. A second commenter
asked the Board to provide flexibility for
checks printed in a mini-book or
accordion-fold multi-panel booklet
containing checks. New comment
9(b)(3)(i)–1 is adopted to clarify that for
an offer with checks on multiple pages,
the tabular disclosure need only be
provided on the front of the first page
containing checks. Similarly, for a minibook or accordion-fold multi-panel
booklet, comment 9(b)(3)(i)–1 clarifies
that the tabular disclosures need only be
provided on the front of the mini-book
or accordion-fold booklet. The proposed
requirement that disclosures be
provided on the front of the page
containing the checks was intended to
draw a consumer’s attention to the
disclosures. The Board believes that the
clarifications for multiple-page offers
and mini-books included in the
commentary will achieve the goal of
attracting consumer attention while
mitigating burden on creditors that
would be associated with providing the
disclosures on each page containing
checks.
One commenter requested
clarification that the tabular disclosure
could be printed on the solicitation
letter if the checks were on the same
page as the letter, separated only by
perforations. Comment 9(b)(3)(i)–1
provides the requested clarification.
Another commenter stated that a
creditor should be permitted to disclose
the required terms within the same table
with respect to multiple APRs applying
to different checks within the same
offer. Such a situation would arise, for
example, where a consumer receives a
single offer that gives the consumer a
choice between checks with a higher
APR for a longer promotional period or
a lower APR for a shorter promotional
period. The Board believes that
§ 226.9(b)(3) as proposed would have
permitted a single tabular disclosure of
multiple APRs applicable to checks
within the same offer, provided that the

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disclosure is provided on the front of
the page containing the checks;
therefore, such a single disclosure as
described by the commenter also is
permitted by the final rule. The Board
believes that no additional clarification
is necessary in the regulation or the
commentary.
Use-by date. As discussed above, the
May 2008 Proposal included a new
§ 226.9(b)(3)(i)(C), which would have
required additional disclosures
regarding the date by which the
consumer must use the checks in order
to receive any discounted initial rate
offered on the checks. This requirement
is adopted as proposed, renumbered as
§ 226.9(b)(3)(i)(A)(3) in the final rule, as
discussed below. Both industry and
consumer commenters generally
supported this proposal, and several
large issuers indicated that they already
provide a disclosure of a date by which
access checks must be used. In addition,
consumer testing conducted on behalf of
the Board suggests that consumers who
see the disclosure tend to understand
the use-by date, while consumers who
do not see the disclosure are unaware
that there may be a use-by date. More
than half of the participants in
consumer testing conducted after the
May 2008 Proposal noticed the use-by
date disclosure and understood from the
disclosure that if they used the check
after the ‘‘use-by’’ date the introductory
rate would not apply. Most participants
that did not see the use-by date
disclosure assumed that no use-by date
existed, and they could use the check,
and obtain the discounted initial rate,
until the end of the promotional period.
The results of this testing suggest that
consumers are not generally aware from
their own experience that the offer of a
promotional rate for access checks
might be subject to a use-by date.
One industry commenter stated that
its checks often are offered through a
seasonal program, and that checks are
pre-printed with a disclosure that the
checks are ‘‘good for only 90 days’’
rather than with a disclosure of a date
certain by which the checks must be
used to qualify for a promotional rate.
The commenter indicated that the
proposed changes could increase the
costs associated with check printing.
New § 226.9(b)(3)(i)(A)(3), consistent
with the proposal, requires however that
the creditor disclose the date on which
the offer of the discounted initial rate
expires. A consumer may have no way
of knowing on exactly what date the
checks were mailed and the Board
believes, therefore, that a general
statement such as ‘‘good for only 90
days’’ is not sufficient to inform a
consumer of when the promotional rate

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offer expires. A creditor would still be
free to specify a number of days for
which the promotional rate will be in
effect (e.g., 90 days from the date of use)
rather than a particular calendar date on
which the promotional rate will end.
Grace period disclosure. In the May
2008 Proposal, the Board proposed to
revise proposed § 226.9(b)(3)(i)(E)
(proposed in June 2007 as
§ 226.9(b)(3)(i)(D)) and to add a new
comment 9(b)(3)(i)(E)–1 which set forth
language that creditors could have used
to describe in the tabular disclosure any
grace period (or lack of grace period)
offered on check transactions, consistent
with the grace period disclosures
proposed under § 226.5a. For the
reasons discussed in the supplementary
information to § 226.5a(b)(5),
§ 226.9(b)(3)(i)(D) and comment
9(b)(3)(i)(D)–1 (proposed as
§ 226.9(b)(3)(i)(E) and comment
9(b)(3)(i)(E)–1) are adopted as proposed.
New comment app. G–11 is added to
provide guidance on the headings that
must be used when describing in the
tabular disclosure a grace period (or lack
of a grace period) offered on check
transactions that access a credit card
account.
Terminology. In June 2007, the Board
proposed in new § 226.9(b)(3)(i)(A) to
require creditors to use the term
‘‘introductory’’ or ‘‘intro’’ in immediate
proximity to the listing of any
discounted initial rate in the access
check disclosures. The May 2008
Proposal would have deleted this
requirement, consistent with changes to
terminology in proposed § 226.16(e)(2),
and would have revised Sample G–19
accordingly. Consistent with the May
2008 Proposal, the final rule does not
require creditors to use the term
‘‘introductory’’ or ‘‘intro’’ in access
check disclosures, and Sample G–19 is
adopted as proposed. See § 226.16(g)(2)
and (g)(3) (proposed as § 226.16(e)(2)
and (e)(3)).
Additional disclosures. One
commenter asked that the Board include
an additional disclosure in the table
describing the payment allocation
applicable to the checks. As noted in the
supplementary information to the
proposal published in May 2008 and in
the supplementary information to the
final rule issued by the Board and other
federal banking agencies published
elsewhere in today’s Federal Register,
the Board and other agencies originally
sought to address payment allocation
issues by developing disclosures
explaining payment allocation and the
impact of payment allocation on
accounts with multiple balances at
different APRs. However, despite
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for the Board, a significant percentage of
consumers still did not comprehend
how payment allocation can affect the
amount of interest assessed. As a result,
the Board and other agencies are
addressing payment allocation through
a substantive rule, and no disclosure
regarding payment allocation has been
added to the tabular disclosure provided
with checks that access a credit card
account.
One consumer group commenter
suggested that the Board require
creditors to disclose on each check that
accesses a credit card account the
following statement: ‘‘The use of this
check will trigger immediate interest
and fees.’’ The final rule does not
require this disclosure on the checks.
The Board believes that the final rule
already addresses fees and the possible
lack of a grace period by means of the
disclosures under § 226.9(b)(3)(i)(C) and
(b)(3)(i)(D). In consumer testing
conducted for the Board, most
consumers saw these disclosures
presented on the front of the page
containing the checks and understood
them.
A federal banking agency stated that
the Board should require a disclosure
with checks that access a credit card
account that certain substantive
protections that apply to credit cards do
not apply to the checks. The final rule
does not require such a disclosure. As
discussed above with regard to
§ 226.2(a)(15), the Board believes that
existing provisions under state UCC law
governing checks, coupled with the
billing error provisions under § 226.13,
provide consumers with sufficient
protections from the unauthorized use
of access checks. Thus, the Board has
declined to extend TILA’s protections
for credit cards to such checks.
Similarly, the Board believes that a
disclosure that certain substantive
protections applicable to credit cards do
not apply to the checks is not necessary
and may contribute to ‘‘information
overload.’’
Exceptions. Some commenters asked
the Board to require the tabular
disclosure only if the checks were not
specifically requested by the customer.
These commenters indicated that
customers may, and do, request checks,
and that these checks may be supplied
through third-party check printers that
do not have access to the information
required to be included in the new
§ 226.9(b)(3) tabular disclosure. The
final rule, as proposed, requires that the
tabular disclosure accompany the
checks that access a credit card account,
even if those checks were specifically
requested by the consumer. The Board
believes that consumer requests for

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access checks are uncommon for most
credit card accounts. The Board believes
that regardless of whether a consumer
requests the checks that access a credit
card account, the consumer should
receive disclosures of the costs of using
the checks, to better enable the
consumer to make an informed decision
regarding usage of the checks.
Furthermore, it is the Board’s
understanding that any third-party
processor must already receive from the
issuer some personalized information,
such as the consumer’s name and
address or a special routing number to
link the checks to the consumer’s
account, that is used in the preparation
and printing of the checks. The Board
anticipates that creditors can build on
their existing processes for providing
personalized information to a third
party processor in order to comply with
the requirement to disclose accountspecific information about rates and fees
with the checks.
Other industry commenters requested
exceptions to the disclosure
requirements when checks are sent
within a certain period of time after full
disclosures are provided, such as full
disclosures sent upon automatic card
renewal, or when checks accompanied
by the required disclosures were sent
previously within a given time frame.
The Board has not included either of
these exceptions in the final rule. The
Board believes that the tabular
disclosures accompanying the checks
are important to enable consumers to
make informed decisions regarding
check usage. For example, a consumer
may receive a set of checks in the mail
and may discard them because, at that
time, he or she has no intention of using
the checks. If that consumer receives a
second set of checks, even a short time
later, the consumer should receive a
disclosure of the terms applicable to the
second set of checks, which he or she
may have interest in using, without
having to retain and refer back to the
disclosure accompanying the first set of
checks. The Board believes that
consumers generally will benefit from
receiving the required disclosures each
time they receive checks that access a
credit card account, but has retained, for
consistency with existing language in
§ 226.9(b)(1), an exception for checks
provided during the first 30 days after
the account-opening disclosures are
mailed or delivered to that consumer.
In the June 2007 Proposal, the Board
sought comment as to whether there are
other credit devices or additional
features that creditors add to consumers’
accounts to which this proposed rule
should apply. The Board received no
comments advocating that the new

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§ 226.9(b)(3) disclosures be required for
products other than checks that access
a credit card account. Accordingly, the
final rule is limited to access checks.
Technical amendments. The Board
also made several technical revisions to
§ 226.9(b) in the final rule. First,
§ 226.9(b)(3) has been reorganized for
clarity without substantive change.
Second, § 226.9(b)(3)(i)(A) has been
amended to clarify that the term
‘‘promotional rate’’ has the meaning set
forth in § 226.16(g)(2)(i). Finally, the
Board also proposed in the June 2007
Proposal several technical revisions to
improve the clarity of § 226.9(b) and the
associated commentary. The Board
received no comments on these
technical revisions, and they are
included in the final rule.
9(c) Change in Terms
The June 2007 Proposal included
several revisions to the regulation and
commentary designed to improve
consumers’ awareness about changes in
their account terms or increased rates
due to delinquency or default or as a
penalty. The proposed revisions
generally would have applied when a
creditor changes terms that must be
disclosed in the account-opening
summary table under proposed
§ 226.6(b)(4), or increases a rate due to
delinquency or default or as a penalty.
First, the Board proposed to give
consumers earlier notice of a change in
terms, or for increased rates due to
delinquency or default or as a penalty.
Second, the Board proposed to expand
the circumstances under which
consumers receive advance notice of
changed terms, or increased rates due to
delinquency, or for default or as a
penalty. Third, the Board proposed to
introduce format requirements to make
the disclosures about changes in terms
or for increased rates due to
delinquency, default or as a penalty
more effective.
Timing. Currently, § 226.9(c)(1)
provides that whenever any term
required to be disclosed under § 226.6 is
changed or the required minimum
payment is increased, a written notice
must be mailed or delivered to the
consumer at least 15 days before that
change becomes effective. Proposed
§ 226.9(c)(2)(i) would have extended the
notice period from 15 days to 45 days.
In response to the June 2007 Proposal,
individual consumers and consumer
group commenters were generally
supportive of the extension of the notice
period for a change in terms to 45 days.
These commenters agreed with the
Board’s observation that an extended
notice period would give consumers the
opportunity to transfer or pay off their

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balances, in order to potentially avoid or
mitigate the cost associated with the
change in terms. Some consumer and
consumer group commenters urged the
Board to consider extending the notice
period even further, to as many as 90 or
180 days.
A federal banking agency that
commented on the June 2007 Proposal
supported the proposed 45-day changein-terms notice period. This commenter
suggested, however, that the notice
requirement should be supplemented
with a consumer right to opt out of
certain changes, including changes that
are made unilaterally by the creditor or
changes in the consumer’s rate under a
universal default clause.
A number of industry commenters
indicated that 45 days is too long and
would not provide financial institutions
with the ability to respond promptly to
changes in market conditions. Some
commenters suggested that the
increased period of advanced notice
would undermine the effectiveness of
risk-based pricing and would lead to
higher pricing at the outset to hedge for
the risk associated with more risky
borrowers. Some industry commenters
stated that a 45-day advance notice
requirement would, in practice, result in
many consumers receiving 60 to 90 days
advance notice, particularly when a
change-in-terms notice is included with
a periodic statement that is sent out on
a monthly cycle. Some industry
commenters stated that the notice
period should remain at 15 days, while
others advocated a 30-day or one billing
cycle notice period. These commenters
indicated that 15 or 30 days is ample
time for consumers to act to transfer or
pay off balances in advance of the
effective date of any changed term.
Finally, some commenters stated that a
45-day requirement might create an
incentive for issuers to send change-interms notices separately from the
periodic statement, which these
commenters believe consumers are less
likely to read.
Consistent with the proposal, the final
rule requires 45 days’ advance notice for
changes to terms required to be
disclosed pursuant to § 226.9(c)(2)(i).
The Board believes that the shorter
notice periods suggested by some
commenters, such as 30 days or one
billing cycle, would not provide
consumers with sufficient time to shop
for and possibly obtain alternative
financing. The 45-day advance notice
requirement refers to when the changein-terms notice must be sent, but as
discussed in the June 2007 Proposal it
may take several days for the consumer
to receive the notice. As a result, the
Board believes that the 45-day advance

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notice requirement will give consumers,
in most cases, at least one calendar
month after receiving a change-in-terms
notice to seek alternative financing or
otherwise to mitigate the impact of an
unexpected change in terms.
As discussed above, some
commenters raised concerns about
whether creditors would be able to
respond promptly to changes in market
conditions in light of the proposed 45day notice period. Notwithstanding the
45-day advance notice requirement, the
Board believes that creditors still have
the ability to respond appropriately to
changes in market conditions. First, a
creditor may choose to offer products
with variable rates, which vary with the
market in accordance with a designated
index. If the annual percentage rate
applicable to a consumer’s account
changes due to fluctuations in an index
value as set forth in the consumer’s
credit agreement, such changes can take
effect immediately without any notice
required under § 226.9(c)(2). If a creditor
chooses to offer a product with a rate
that does not vary in accordance with an
index, that creditor will be required to
wait 30 days longer than the current
rule requiring 15 days’ notice before
imposing a new, increased rate to a
consumer’s account.
The Board has declined to adopt a
longer period, such as 90 or 180 days,
as suggested by some commenters. The
Board believes that such an extended
advance notice period would
inappropriately restrict creditors’ ability
to respond to market or other conditions
and is not necessary for consumers to
have a reasonable opportunity to seek
alternative financing. The intent of
extending the advance notice period to
45 days is for consumers to have time
to avoid costly surprises; the Board
believes that a consumer having at least
one calendar month to seek alternate
financing appropriately balances burden
on creditors against benefit to
consumers. In addition, the Board notes
that final rules issued by the Board and
other federal banking agencies
published elsewhere in today’s Federal
Register provide additional substantive
protections for consumers regarding rate
increases.
The Board is aware that operational
issues associated with including
change-in-terms notices with periodic
statements may lead to certain
consumers receiving more than 45 days’
notice. As noted above, some industry
commenters specifically indicated that a
45 day notice requirement could in
practice result in consumers receiving
60 or 90 days’ notice, if the notice is
included with the periodic statement.
While the Board encourages creditors to

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include change-in-terms notices with
periodic statements, § 226.9(c) also
permits change-in-terms notices to be
sent in a separate mailing. A creditor
that does not wish to wait a longer
period before changing terms on a
consumer’s account could send the
change-in-terms notice separately from
the statement to avoid delays in changes
in terms in excess of the 45 day period.
As discussed in the supplementary
information to § 226.9(g), the Board has
adopted examples in comment 9(g)–1 to
illustrate the interaction between the
requirements of the final rules issued by
the Board and other federal banking
agencies published elsewhere in today’s
Federal Register and the subsequent
disclosure requirements under
Regulation Z. Some of those examples
also provide guidance to an issuer
providing a notice pursuant to
§ 226.9(c)(2)(i); the Board also has
adopted a new comment 9(c)(2)(i)–6
which cross references those examples.
As discussed in the June 2007
Proposal, the 45-day notice period was
only proposed for those changes in
terms that affect charges required to be
disclosed as a part of the accountopening table under proposed
§ 226.6(b)(4) or for increases in the
required minimum periodic payment. A
different disclosure requirement would
have applied when a creditor increases
any component of a charge, or
introduces a new charge, that is
imposed as part of the plan under
proposed § 226.6(b)(1) but is not
required to be disclosed as part of the
account-opening summary table under
proposed § 226.6(b)(4). Under those
circumstances, the proposal would have
required the creditor to either, at its
option (1) provide at least 45 days’
written advance notice before the
change becomes effective, or (2) provide
notice orally or in writing of the amount
of the charge to an affected consumer at
a relevant time before the consumer
agrees to or becomes obligated to pay
the charge.
Consumer groups expressed concern
that allowing any oral notice may
provide insufficient information or time
for a consumer’s consideration and that
even written notice with no advance
disclosure would be insufficient. The
comments also suggested that the
proposed disclosure regime, which
limits the 45-day advance written notice
of a change in terms to a specific, finite
list of terms, presents the possibility
that card issuers could generate new
fees or terms not in the list that will not
be subject to the advance notice
requirement.
Consistent with the proposal, and as
discussed in the supplementary

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information for § 226.5, the final rule
permits notice of the amount of a charge
that is not required to be disclosed
under § 226.6(b)(1) and (b)(2) (proposed
as § 226.6(b)(4)) to be given orally or in
writing at a relevant time 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. As discussed above, the Board
intends to continue monitoring credit
card products for the introduction of
new types of fees and costs on those
accounts. If new costs are introduced
that the Board believes are fees of which
consumers should be aware when the
account is opened, the Board would
likely add such fees to the specified
costs in § 226.6(b)(2). The Board notes
that a change-in-terms notice would be
required, however, in connection with a
change in any fee of a type that must be
disclosed in the account-opening table.
Changes in type of applicable rate.
The final rule includes new comments
9(c)(2)(iv)–3 and 9(c)(2)(iv)–4 to clarify
that if a creditor changes a rate
applicable to a consumer’s account from
a non-variable rate to a variable rate, or
from a variable rate to a non-variable
rate, a change-in-terms notice is
required under § 226.9(c), even if the
current rate at the time of the change is
higher than the new rate at the time of
the change. The Board believes that this
clarification is appropriate to clarify the
relationship between comments
9(c)(2)(iii)(A)–3 and 9(c)(2)(iii)(A)–4 and
§ 226.9(c)(2)(iv), which were proposed
in June 2007 and have been adopted in
the final rule. Comments 9(c)(2)(iii)(A)–
3 and 9(c)(2)(iii)(A)–4 set forth guidance
as to how a creditor should disclose a
change from one type of rate to another
type of rate. Section 226.9(c)(2)(iv)
states, in part, consistent with the
current rule, that a notice is not required
when a change involves the reduction of
any component of a finance or other
charge. The Board recognizes that
changing from one type of rate (e.g.,
variable or non-variable) to another type
of rate might result in a temporary
reduction in a finance charge. For
example, a creditor might change the
rate from a variable rate that is currently
16.99% to a non-variable rate of 15%.
However, over time as the value of the
index used to determine the variable
rate fluctuates, the new rate may in
some cases ultimately be higher than the
value of the rate that applied prior to the
change. In the example above, this
could occur if the value of the index
used to compute the variable rate
effective before the change decreases by
two percentage points, so that the

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variable rate that would have been
calculated using the formula effective
before the change in terms is 14.99%.
The Board notes that an issuer that is
subject to final rules issued by the Board
and other federal banking agencies
published elsewhere in today’s Federal
Register may only change rates as
permitted pursuant to those rules. For
example, those rules limit, in some
circumstances, a card issuer’s ability to
change a rate applicable to a consumer’s
credit card account from a non-variable
rate to a variable rate.
Changes in late-payment fees and
over-the-limit fees. Creditors currently
are not required to provide notice of
changes to late-payment fees and overthe-limit fees, pursuant to current
§ 226.9(c)(2). The June 2007 Proposal
would have required 45 days’ advance
notice for changes involving latepayment fees or over-the-limit fees,
other than a reduction in the amount of
the charges, which is consistent with
the inclusion of late-payment fees and
over-the-limit fees in the tabular
disclosure provided at account-opening
under proposed § 226.6(b)(4) for openend (not home-secured) plans. The
proposed amendment would have
required that 45 days’ advance notice be
given only when a card issuer changes
the amount of a late-payment fee or
over-the-limit fee that it can impose, not
when such a fee is actually applied to
a consumer’s account.
Several commenters asked the Board
to reduce or eliminate the advance
notice requirement for prospective
changes to fees, such as late-payment
fees or over-the-limit fees, and for other
changes in terms that do not affect an
existing balance (such as a change in
interest rates that will apply only
prospectively to new transactions).
These commenters indicated that
transaction-based fees, which are based
on account usage, and the assessment of
additional interest charges or fees based
on changes in terms that do not affect
an existing balance, are in the control of
the consumer and should not be
afforded a lengthy prior notice period.
Notwithstanding these comments, the
final rule requires 45 days’ advance
notice of a change in terms, even if that
change is a prospective change to fees,
or otherwise does not affect an existing
balance. The Board believes that a
consumer still may want to seek an
alternative form of financing in
anticipation of a change in terms, even
if that change only affects fees or does
not affect existing balances.
Accordingly, the final rule is designed
to give a consumer enough notice so
that the consumer has the opportunity
to avoid incurring additional interest

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charges or fees as a result of that change
in terms. For example, an increase in
the annual fee applicable to a
consumer’s account does not affect
existing balances; however, a consumer
may wish to transfer his or her balance
to a different card in order to avoid
incurring an increased annual fee on his
or her account.
Changes initially disclosed. The final
rule contains several revisions to
comment 9(c)(2)–1, which was modeled
after current comment 9(c)–1 and was
included in the June 2007 Proposal. The
comment sets forth guidance on when
change-in-terms notices are not required
if a change has been initially disclosed.
Proposed comment 9(c)(2)–1, consistent
with current comment 9(c)–1, included
examples of terms deemed to be initially
disclosed. Among these examples were
a rate increase that occurs when an
employee has been under a preferential
rate agreement and terminates
employment or an increase that occurs
when the consumer has been under an
agreement to maintain a certain balance
in a savings account in order to keep a
particular rate and the account balance
falls below the specified minimum. The
final rule deletes these two examples
from the comment.
The Board believes that an increase in
rate due to the termination of a
consumer’s employment with a
particular company or due to the
consumer’s account balance falling
below a certain level is a type of rate
increase as a penalty that must be
disclosed in advance under § 226.9(g),
even if the circumstances under which
the change may occur are set forth in the
account agreement. Accordingly, the
Board believes that retaining these
examples in comment 9(c)(2)–1 could be
inconsistent with the rules for penalty
rate increases set forth in § 226.9(g). A
creditor may, by contract, designate
many types of consumer behavior, or
changes in a consumer’s circumstances,
as events upon the occurrence of which
the consumer’s rate may increase as a
penalty. Some of these events, such as
the termination of an employment
contract, may not be typically
considered events of delinquency or
default; nonetheless, in each case the
creditor reserves the contractual right to
increase the rate applicable to the
consumer’s account, and that rate
increase is triggered by certain actions
by, or changes in the circumstances of,
the consumer. The Board believes that
the changes to comment 9(c)(2)–1 are
consistent with the requirements of
§ 226.9(g) As a result, and for the
reasons stated in the section-by-section
analysis to § 226.9(g) below, the final
rule provides that a consumer must

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receive advance notice prior to the
imposition of such rate increases so that
a consumer may seek alternative
financing or otherwise respond to the
change.
In addition, as noted below in the
section-by-section analysis to § 226.9(g),
one commenter on the proposal asked
for clarification regarding the difference
between a consumer’s ‘‘default or
delinquency’’ and a ‘‘penalty.’’ The
Board believes that the revisions to
proposed comment 9(c)(2)–1 will help
to eliminate ambiguity as to when a rate
is increased as a ‘‘penalty.’’
Format and content. Section 226.9
currently contains no restrictions or
requirements for how change-in-terms
notices are presented or formatted. For
open-end (not home-secured) plans, the
Board’s June 2007 Proposal would have
required that creditors provide a
summary table of a limited number of
key terms on the front of the first page
of the change-in-terms notice, or
segregated on a separate sheet of paper.
Creditors would have been required to
utilize the same headings as in the
account-opening tables in proposed
model forms contained in Appendix G
to part 226. If the change-in-terms notice
were included with a periodic
statement, the summary table would
have been required to appear on the
front of the first page of the periodic
statement, preceding the list of
transactions for the period. Based on
consumer testing conducted for the
Board prior to the June 2007 Proposal,
when a summary of key terms was
included on change-in-terms notices
tested, consumers tended to read the
notice and appeared to understand
better what key terms were being
changed than when a summary was not
included.
The June 2007 Proposal would have
required that creditors provide specific
information in the change-in-terms
notice, namely (1) a statement that
changes are being made to the account;
(2) 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; (3) the date the changes
described in the summary table will
become effective; (4) if applicable, an
indication that the consumer may find
additional information about the
summarized changes, and other changes
to the account, in the notice; and (5) 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 does
not apply to the consumer’s account

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until the consumer’s account balances
are no longer subject to the penalty rate.
The June 2007 Proposal specified that
this information must be placed directly
above the summary of key changes
described above. The minimum font
size requirements in proposed comment
5(a)(1)–3 also would have applied to
any tabular disclosure required to be
given pursuant to proposed
§ 226.9(c)(2)(iii)(B).
In May 2008, the Board proposed to
add an additional disclosure
requirement to the summary table
described above. For consistency with
the substantive restrictions regarding
the application of increased APRs to
preexisting balances proposed by the
Board and other federal banking
agencies in May 2008, the Board would
have required the change-in-terms
notice to disclose the balances to which
the increased rate will be applied. If the
rate increase will not apply to all
balances, the creditor would have been
required to identify the balances to
which the current rate will continue to
apply.
In response to the June 2007 Proposal,
consumers and consumer groups
suggested a number of new formatting
requirements, as well as additional
content for the summary box. For
example, some consumers requested
that changes in terms be specifically
highlighted, such as by printing the
original contract term in black and the
new term in red. Other consumers
requested that change-in-terms notices
always include a complete, updated
account agreement. Some comments
focused on the mode of delivery of the
notice, with one commenter requesting
that change-in-terms notices always be
mailed as a first-class letter and others
urging that notices of changes in terms
should be delivered both by regular mail
and electronic mail. The Board has not
incorporated any of these formatting
suggestions as requirements in the final
rule. The Board believes that some of
these suggestions, such as sending a
complete, updated account agreement
with each change in terms or
highlighting the changed term in a
different color than the original text,
would impose operational burdens and/
or significant costs on creditors that
would not be outweighed by a benefit to
consumers. Consumer testing conducted
on behalf of the Board has indicated that
including a summary table either on the
first page of the periodic statement or
the first page of the change-in-terms
notice (if the notice is sent separately
from the statement) is an effective way
to enhance consumer attention
regarding, and comprehension of,
change-in-terms notices, which is the

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approach proposed by the Board and
adopted in the final rule.
Several consumers who commented
on the June 2007 Proposal said that the
change-in-terms notice should state the
reasons for the change in terms and
should state what, if anything, the
consumer can do to reverse the increase
to the penalty rate and have the
standard rate reinstated. For several
reasons, the final rule does not include
a requirement that a change in terms
notice state the reasons for the change.
In some circumstances, the reasons may
have nothing to do with consumer
behavior, and there may be no
mechanism for the consumer to reverse
the increase. For example, if a creditor
raises interest rates generally due to a
change in market conditions, such
action is independent of the consumer’s
behavior on the account and the
consumer can only mitigate the cost of
the increase by reducing use of the card,
transferring a balance, or paying off the
balance. Under these circumstances, the
Board believes the burden for issuers to
customize the notice to refer to the
reason for the increase may exceed the
potential benefit of such a disclosure to
consumers. In addition, if the increase
in rate is due to the imposition of a
penalty rate, the consumer will receive
a disclosure indicating that the penalty
rate has been triggered, and the
circumstances, if any, under which the
delinquency or default rate or penalty
rate will cease to apply to the
consumer’s account, as discussed below
with regard to § 226.9(g).
Consumer group commenters on the
May 2008 Proposal stated that a changein-terms notice given in connection
with a rate increase should be required
to state the current rate so that
consumers will have an indication of
the magnitude of the change in terms.
The final rule does not require a creditor
to disclose the current rate. The main
purpose of the change-in-terms notice is
to inform consumers of the new rates
that will apply to their accounts. If
several rates are being changed and are
being disclosed in a single change-interms notice, the Board is concerned
that disclosure of each of the current
rates in the change-in-terms notice
could contribute to information
overload.
Finally, several consumer
commenters urged that issuers be
required to disclose the effect or
magnitude of a change in terms in dollar
terms. The Board has not included this
disclosure in the final rule, because it
would be difficult and likely misleading
to try to estimate in advance how a
changed term will affect the cost of
credit for any individual consumer. For

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some types of changes in terms, such as
a change in a transaction fee or penalty
fee, whether or not the fee will be
assessed with respect to a particular
consumer’s account depends to some
extent on that consumer’s behavior on
the account. For example, if the change
in terms being disclosed is an increase
in the late fee, it will never be assessed
if a consumer does not make a late
payment. However, for a consumer who
makes multiple late payments, the fee
could be assessed multiple times.
Therefore, it is difficult to predict in
advance the dollar cost of the change for
any given consumer. Similarly, the
dollar cost of an increased interest rate
depends on the extent to which the
consumer engages in transactions to
which that increased interest rate
applies, as well as whether the
consumer is able to take advantage of a
grace period and avoid interest on those
transactions.
In response to the June 2007 Proposal,
many industry commenters asked for
more flexibility in the formatting
requirements for the summary table
regarding a change in terms. Some
commenters stated that an issuer should
be able to include a clear and
conspicuous change-in-terms notice on
or with a periodic statement without a
requirement to summarize it in a box on
the front of the statement. Other
commenters asked the Board to allow
issuers to include with the periodic
statement a separate change-in-terms
notice as a statement stuffer or insert,
rather than including the tabular
disclosure on the front of the first page
of the statement. These commenters
stated that the requirement to include a
tabular disclosure on the front of the
first page of a periodic statement would
substantially increase the cost of
providing change-in-terms notices.
Other commenters stated that if the final
rule contained an alert on the front of
the statement, it should at most be a
simplified cross reference stating that
the statement includes important
information regarding a change in terms
and referring the consumer to the end of
the statement. One commenter asked
that the strict front-of-the-first page
location requirement be replaced by a
more general requirement that the
change-in-terms disclosure appear
before the transaction details. Finally,
one credit union asked that the Board
permit institutions to provide the
tabular disclosure of changed terms on
a newsletter mailed with the periodic
statement.
One credit union trade association
that commented on the May 2008
Proposal stated that it supported the
tabular requirement for disclosure of

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changes in terms. This commenter noted
that while the requirement would
impose a burden on credit unions, a
consumer’s need for clarity outweighs
this inconvenience or expense.
The final rule requires that the tabular
summary appear on the front of the
periodic statement, consistent with the
proposal. Consumer testing conducted
on behalf of the Board suggests that
consumers tend to set aside change-interms notices when they are presented
as a separate pamphlet inserted in the
periodic statement. In addition, testing
prior to the June 2007 Proposal also
revealed that consumers are more likely
to correctly identify the changes to their
account if the changes in terms are
summarized in a tabular format.
Quantitative consumer testing
conducted in the fall of 2008
demonstrated that disclosing a change
in terms in a tabular summary on the
statement led to a small improvement in
the percentage of consumers who were
able to correctly identify the new rate
that would apply to the account
following the change, versus a
disclosure on the statement indicating
that changes were being made to the
account and referring to a separate
change-in-terms insert. The Board
believes that as consumers become more
familiar with the new format for the
change-in-terms summary, which was
new to all testing participants, they may
become better able to recognize and
understand the information presented. It
is the Board’s understanding, which was
supported by observations in consumer
testing prior to the June 2007 Proposal,
that consumers are familiar with the
tabular formatting for the disclosures
given with applications and
solicitations under § 226.5a and that
they find this consistent formatting to be
useful. Presentation of key information
regarding changes in terms in a tabular
format also is consistent with the
Board’s approach to disclosure of terms
applicable to open-end (not homesecured) accounts, where important
information is provided to consumers
throughout the life of an account in a
consistent tabular format.
The Board also believes that as
consumers become more familiar
generally with all new disclosures and
formatting changes to the periodic
statement required by the final rule,
consumers will become better able to
distinguish between information
presented in a change-in-terms
summary table and other terms regularly
disclosed on each statement. The
Board’s consumer testing in the fall of
2008 indicated that when a change-interms summary disclosing a change in
an APR is included on the periodic

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statement, it can contribute to
‘‘information overload’’ and, for some
consumers, may make it more difficult
to locate other APRs set forth on the
periodic statement. However, the Board
believes that this finding likely reflected
the fact that consumers were
unaccustomed to the periodic statement
form that they saw during the testing,
which may have been formatted
differently and included different
content than the periodic statements
that testing participants currently
receive. The Board believes that as
consumers become more familiar with
all new Regulation Z disclosures on
their periodic statements, they will
become less likely to mistake any new
APR set forth in a change-in-terms
summary for another rate applicable to
their account.
The Board recognizes that there will
be operational costs associated with
printing the change-in-terms summary
on the front of the periodic statement,
but believes that the location
requirements are warranted to facilitate
consumer attention to, and
understanding of, the disclosures. As
discussed above, under the final rule the
minimum font size requirements of 10point font set forth in comment 5(a)(1)–
3 also apply to any tabular disclosure
given under § 226.9(c)(2)(iii)(B).
The Board has not, however, adopted
the requirement that a change-in-terms
summary appear on the first page of the
periodic statement. Quantitative
consumer testing conducted for the
Board in the fall of 2008 indicated that
consumers were as likely to notice a
change-in-terms summary or reference if
it was presented on the second page of
the statement as they were to notice it
on the first page. Given that many
industry commenters noted that there
would be substantial cost and burden
associated with reformatting the
statement to include the summary on
the first page, and consumer testing did
not show that locating the notice on the
first page of the statement improved its
noticeability, the Board believes that
such a formatting requirement is not
warranted.
One industry commenter on the June
2007 Proposal asked for clarification
whether it would be permissible to
move the table disclosing the changes in
terms to the top right corner of the
periodic statement instead of the center,
as it is presented in Model Form G–
18(F) (proposed as Form G–18(G)). The
Board believes that this would have
been permissible pursuant to the
proposed rules, and that it also is
permissible under the final rule,
particularly given that creditors are not
required to include the change-in-terms

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summary on the first page of the
statement. Form G–18(F) as adopted in
the final rule presents the change-interms summary on the front of the first
page of the periodic statement prior to
the transactions list, consistent with the
proposal. However, there is no
requirement that a creditor’s periodic
statement must be ‘‘substantially
similar’’ to Form G–18(F), and provided
that the periodic statement complies
with other applicable formatting
requirements, relocating the change-interms tabular disclosure to other
locations on the front of the statement
would be permissible.
One industry commenter on the June
2007 Proposal stated that the change-interms formatting requirements would
force creditors to send statements to
consumers even if there is a zero
balance, when terms are changed on
their accounts. The final rule, like the
June 2007 Proposal, does not require a
creditor to send a change-in-terms
notice with the periodic statement.
Therefore, for a consumer with a zero or
a positive balance, it is permissible to
send a standalone change-in-terms
notice that meets the requirements of
§ 226.9(c)(2)(iii)(B)(3) rather than a
periodic statement including a changein-terms notice.
For creditors that choose to send
change-in-terms notices separately from
the periodic statement, consistent with
the proposal the final rule requires that
the change-in-terms summary appear on
the front of the first page of the notice.
The Board believes that locating the
summary on the first page of such a
standalone notice does not impose the
same level of burden and cost as would
formatting changes to the periodic
statement. The results of the Board’s
quantitative consumer testing do not
directly bear on the formatting of
separate notices, but the Board believes
based on testing conducted prior to the
June 2007 Proposal that including the
tabular summary on the first page of a
standalone notice is important to
improve consumer understanding of,
and attention to, the disclosure.
Participants indicated in focus groups
and interviews conducted for the Board
prior to June 2007 that they often do not
carefully read change-in-terms notices
that they receive from their bank in the
mail, in part because the text is dense
prose and they have difficulty
identifying the information in the
document that they consider important.
The Board believes that including a
tabular summary of key changes on the
first page of a standalone notice may
make consumers more likely to read the
notice and to understand what terms are
being changed.

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Several industry commenters
remarked that change-in-terms notices
required pursuant to § 226.9(c) would be
confusing to consumers in light of the
complexity of the interaction between
the requirements of § 226.9(c) and
additional substantive requirements
regarding rate increases proposed by the
Board and other federal banking
agencies in May 2008. See 73 FR 28904,
May 19, 2008. One industry commenter
specifically stated that proposed
§ 226.9(c)(2)(iii)(A)(7), which would
require a change-in-terms notice to
disclose the balances to which any
increased rate will be applied, is a
material change to the 45 day change-interms notice proposed in the June 2007
Proposal, and would result in a notice
that is confusing to consumers. One
commenter stated that the rule forces
the use of disclosures that provide
specific dates within billing cycles to
describe when current or increased
APRs apply and which account
transactions and balances are affected
and that it would be simpler and more
understandable if transactions and
balances affected by a change in rates
applied for the entire billing cycle or
billing statement in which they appear,
rather than in reference to a specific
date.
The Board acknowledges that the
substantive restrictions on rate increases
set forth in final rules adopted by the
Board and other federal banking
agencies published elsewhere in this
Federal Register introduce additional
complexity into disclosure of changes in
terms, because rate increases may apply
only to certain balances on a consumer’s
account and not to others. In two rounds
of consumer testing conducted for the
Board after the May 2008 Proposal,
participants were shown change-interms notices that disclosed an
impending change to the interest rate on
purchases applicable to the account.
These notices formatted the information
in two different ways, but both forms
disclosed the effective date of the
change and disclosed that the rate
applicable to outstanding balances as of
a specified date earlier than the effective
date would remain at the current rate.
The notices also indicated that, if the
penalty APR was currently being
applied to the account, the change
would not go into effect at the present
time.
In the first of these two rounds, about
half of participants understood that the
new rate on purchases would apply
only to transactions made after the
specified date shown. In addition, about
half of participants also understood that
if the penalty rate was already
applicable to the account, the new rate

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on purchases would not immediately
apply. However, none of the
participants could correctly identify the
date when the changes would begin to
apply.
Based on the results of this consumer
testing, changes were made to the form
which were tested in a subsequent
round of testing. These formatting
changes generally improved consumer
understanding of the impending
changes. In this second round, all but
one participant understood that the new
APR on purchases would only apply to
transactions made after the date
specified, and that the current APR
would continue to apply to transactions
made before that date. In addition, all
but one participant also understood that
if the penalty rate was in effect, the new
APR on purchases would not
immediately apply. Consumers still had
the most difficulty identifying the
effective date of the changes.
Approximately half of participants
correctly identified the effective date of
the changes, while the other
participants mistakenly thought that the
changes would apply as of the earliest
date disclosed in the notice, which was
the cut-off date for determining which
transactions would be impacted by the
changes disclosed.
Form G–18(F) (proposed as Form G–
18(G)) and Sample G–20 have
accordingly been revised to reflect the
formatting changes introduced in this
second round of testing, because they
improved consumer comprehension of
the notice.
The Board also proposed in May 2008
a clarification to comment 9(c)(2)(ii)–1
(which applies to changes in fees not
required to be disclosed in the summary
table) to clarify that electronic notice
may be provided without regard to the
notice and consent requirements of the
E-Sign Act when a consumer requests a
service in electronic form (for example,
requests the service on-line via the
creditor’s Web site). The Board received
no comments addressing the changes to
comment 9(c)(2)(ii)–1, which are
adopted as proposed.
Reduction in credit limit. The June
2007 Proposal included a new
§ 226.9(c)(2)(v), for open-end (not homesecured) plans, providing that if a
creditor decreases the credit limit on an
account, advance notice of the decrease
would be required to be provided before
an over-the-limit fee or a penalty rate
can be imposed solely as a result of the
consumer exceeding the newly
decreased credit limit. Under the
proposal, notice would have been
required to be provided in writing or
orally at least 45 days prior to imposing
an over-the-limit fee or penalty rate and

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to state that the credit limit on the
account has been or will be decreased.
The June 2007 Proposal stated that this
requirement would apply only when the
over-the-limit fee or penalty rate is
imposed solely as a result of a reduction
in the credit limit; if the over-the-limit
fee or penalty rate would have been
charged notwithstanding the reduction
in a credit limit, no advance notice
would have been required. Under the
June 2007 Proposal, the reduction in the
credit limit could have taken effect
immediately, but 45 days’ notice would
have been required before an over-thelimit fee or penalty rate could be
applied based solely on exceeding the
newly decreased credit limit.
The final rule adopts § 226.9(c)(2)(v)
as proposed. One industry commenter
on the June 2007 Proposal asked the
Board to clarify whether an adverse
action letter under Regulation B would
constitute sufficient notice to the
consumer, or whether the reduced
credit limit appearing on the periodic
statement would be sufficient notice.
The new § 226.9(c)(2)(v) does not
contain any format requirements for the
notice informing the consumer that his
or her credit limit has or will be
decreased. Any written or oral
notification that contains the content
specified in § 226.9(c)(2)(v) would be
permissible. A creditor could combine a
notice required pursuant to
§ 226.9(c)(2)(v) with an adverse action
notice under Regulation B provided that
the requirements of both rules are met.
Simply showing a reduced credit limit
on the periodic statement, however,
without a statement that the credit limit
has been or will be decreased, would
not meet the requirements of
§ 226.9(c)(2)(v).
The same commenter asked the Board
to consider permitting written notice on
one statement and permitting the
imposition of over-the-limit fees after
the next account cycle. The final rule,
consistent with the proposal, continues
to require 45 days advance notice. The
Board believes that 45 days is the
appropriate length of time, for the same
reasons discussed above in connection
with change-in-terms notices more
generally. Sending the notice 45 days in
advance gives a consumer, in most
cases, at least one month to bring his or
her balance under the new, reduced
credit limit, either by paying down the
balance or by transferring all or a
portion of it to another card.
In addition, as discussed in the
supplementary information to
§ 226.9(g)(4)(ii), the Board is adopting
additional guidance to clarify how to
comply with § 226.9(g) when a creditor

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also is providing a notice pursuant to
§ 226.9(c)(2)(v).
Rules affecting home-equity plans.
The final rule retains in § 226.9(c)(1),
without intended substantive change,
the current provisions regarding the
circumstances, timing, and content of
change-in-terms notices for HELOCs.
These provisions will be reviewed when
the Board reviews the provisions of
Regulation Z addressing open-end
(home-secured) credit.
The Board proposed in June 2007 to
make several deletions in proposed
§ 226.9(c)(1) and the related
commentary with respect to HELOCs in
order to promote consistency between
§ 226.9(c)(1) and the substantive
restrictions imposed by § 226.5b. The
Board solicited comment on whether
there were any remaining references in
§ 226.9(c)(1) and the related
commentary to changes in terms that
would be impermissible for open-end
(home-secured) credit pursuant to
§ 226.5b. The Board received no
comment on the proposed deletions or
on any additional references that should
be deleted; accordingly, the changes to
§ 226.9(c)(1) are adopted as proposed.
Substantive restrictions on changes in
terms. Several consumer and consumer
group commenters urged the Board to
adopt substantive restrictions on
changes in terms in connection with
credit card accounts in addition to the
disclosure-related requirements
described above. For example, some
commenters stated that credit
agreements should remain in force,
without any changed terms, for the life
of the credit account, until the
expiration of the card, or for a fixed
period such as 24 months. Other
comments suggested that the Board
should ban ‘‘any time, any reason’’
repricing or universal default clauses.
Finally, other commenters advocated
the creation of a federal opt-out right for
certain increases in interest rates
applicable to a consumer’s account. The
Board has not included any such
substantive restrictions in § 226.9(c) or
(g) of the final rule. With regard to
changes in terms, Regulation Z and
TILA primarily address how and when
those changes should be disclosed to
consumers. The final rule issued by the
Board and federal banking agencies and
published elsewhere in today’s Federal
Register addresses substantive
restrictions on certain types of changes
in credit card terms.
Technical correction. One commenter
noted that a cross reference in
§ 226.9(c)(2)(iii)(B)(2) referred to the
wrong paragraph. That technical error
has been corrected in the final rule.

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9(e) Disclosures Upon Renewal of Credit
or Charge Card
TILA Section 127(d), which is
implemented in § 226.9(e), requires card
issuers that assess an annual or other
periodic fee, including a fee based on
activity or inactivity, on a credit card
account of the type subject to § 226.5a
to provide a renewal notice before the
fee is imposed. 15 U.S.C. 1637(d). The
creditor must provide disclosures
required for credit card applications and
solicitations (although not in a tabular
format) and must inform the consumer
that the renewal fee can be avoided by
terminating the account by a certain
date. The notice must generally be
provided at least 30 days or one billing
cycle, whichever is less, before the
renewal fee is assessed on the account.
However, there is an alternative delayed
notice procedure where the fee can be
assessed provided the fee is reversed if
the consumer is given notice and
chooses to terminate the account.
Creditors are given considerable
flexibility in the placement of the
disclosures required under § 226.9(e).
For example, the notice can be
preprinted on the periodic statement,
such as on the back of the statement.
See § 226.9(e)(3) and comment 9(e)(3)–
2. However, creditors that place any of
the disclosures on the back of the
periodic statement must include on the
front of the statement a reference to
those disclosures. See § 226.9(e)(3). In
June 2007, the Board proposed a model
clause that creditors could, but would
not have been required to, use to
comply with the delayed notice method.
See comment 9(e)(3)–1. The final rule
adopts this model clause as proposed.
The Board also proposed in June 2007
comment 9(e)–4, which addresses
accuracy standards for disclosing rates
on variable rate plans. The comment
provides that if the card issuer cannot
determine the rate that will be in effect
if the cardholder chooses to renew a
variable-rate account, the card issuer
may disclose the rate in effect at the
time of mailing or delivery of the
renewal notice or may use the rate as of
a specified date within the last 30 days
before the disclosure is provided. The
final rule adopts this comment as
proposed, for the same reasons and
consistent with the accuracy standard
for account-opening disclosures. See
section-by-section analysis to
§ 226.6(b)(4)(ii)(G). Other minor changes
to § 226.9(e), with no intended
substantive change, are adopted as
proposed. For example, footnote 20a,
dealing with format, is deleted as
unnecessary, while comment 9(e)–2,

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which generally repeats the substance of
footnote 20a, is retained.
Comment 9(e)(3)–1 contains guidance
that if a single disclosure is used to
comply with both §§ 226.9(e) and 226.7,
the periodic statement must comply
with the rules in §§ 226.5a and 226.7.
One example listed in the comment is
the current requirement to use the
words ‘‘grace period.’’ That guidance is
revised in the final rule to conform to
the Board’s new terminology
requirements with respect to any grace
period (or lack of grace period) in
connection with disclosures required
under § 226.5a.
9(f) Change in Credit Card Account
Insurance Provider
Section 226.9(f) requires card issuers
to provide notices if the issuer changes
the provider of insurance (such as credit
life insurance) for a credit card account.
The June 2007 Proposal did not include
any changes to § 226.9(f). A commenter
suggested that the Board provide, by
amending either the regulation or the
commentary to § 226.9(f), that a
conversion of credit insurance coverage
to debt cancellation coverage or debt
suspension coverage may be treated the
same as a change from one credit
insurance provider to another. The
result would be that the card issuer
would not be required to comply with
§ 226.4(d)(3) (in particular, the
requirement that the consumer sign or
initial an affirmative written request for
the debt cancellation or debt suspension
coverage), provided the issuer notified
the consumer of the conversion
following the procedures set forth in
§ 226.9(f). The commenter stated that
credit insurance and debt cancellation
coverage are essentially functionally
equivalent from the consumer’s
perspective, and that if an affirmative
written request from the consumer were
required, many consumers might
unintentionally lose coverage because
they might neglect to sign and return the
request form.
The final rule does not include any
amendments to § 226.9(f) (other than
minor technical changes to correct
grammatical errors). The Board believes
that the current rule provides better
consumer protection than would be
afforded under the approach suggested
by the commenter, in that consumers
are given an opportunity to decide
whether they wish to have credit
insurance converted to debt cancellation
or debt suspension coverage, rather than
having the conversion occur
automatically unless the consumer takes
affirmative action to reject it. In
addition, under the new provision in
§ 226.4(d)(4) permitting telephone sales

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of credit insurance and debt
cancellation or debt suspension
coverage, creditors would not have to
obtain an affirmative written request
from the consumer for debt cancellation
or suspension coverage to replace credit
insurance, but could instead obtain an
affirmative oral request by telephone.
(See the section-by-section analysis to
§ 226.4(d)(4) for a discussion of the
telephone sales rule with respect to
credit insurance and debt cancellation
or debt suspension coverage.)
9(g) Increase in Rates Due to
Delinquency or Default or Penalty
Pricing
In the June 2007 Proposal, the Board
proposed that disclosures be provided
prior to the imposition of penalty
pricing on a consumer’s account
balances. With respect to open-end (not
home-secured) plans, the Board
proposed a new § 226.9(g)(1) to require
creditors to provide 45 days’ advance
notice when a rate is increased due to
a consumer’s delinquency or default, or
if a rate is increased as a penalty for one
or more events specified in the account
agreement, such as a late payment or an
extension of credit that exceeds the
credit limit. This notice would be
required even if, as is currently the case,
the creditor specifies the penalty rate
and the specific events that may trigger
the penalty rate in the account-opening
disclosures.
In the supplementary information to
its June 2007 Proposal, the Board
expressed concern that the imposition
of penalty pricing may come as a costly
surprise to consumers who are not
aware of, or do not understand, what
behavior constitutes a ‘‘default’’ under
their agreement. One way in which the
June 2007 Proposal addressed penalty
pricing was through improved
disclosures regarding the conditions
under which penalty pricing may be
imposed. The Board proposed, in
connection with the disclosures given
with credit card applications and
solicitations and at account opening, to
enhance disclosures about penalty
pricing and revise terminology to
address consumer confusion regarding
the meaning of ‘‘default.’’ In addition, in
light of the fact that rates may be
increased for relatively minor
contractual breaches, such as a payment
late by one day, the Board also proposed
to require advance notice of such rate
increases, which consumers otherwise
may not expect. The Board proposed
that the notice be provided at least 45
days before the increase takes effect.
In response to the June 2007 Proposal,
some credit card issuers advocated a
shorter notice period, such as 30 or 15

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days. These commenters noted that,
unlike other changes in terms, an
increase in a consumer’s rate to the
penalty rate is driven by the consumer’s
failure to meet the account terms. In
addition, the comments noted that a
consumer will have received prior
notice in the account-opening
disclosures that such a rate increase
could occur. Another commenter stated
that the notice period prior to the
imposition of a penalty rate should vary
from 15 to 45 days depending on the
length of grace period offered by the
issuer. Commenters also stated that 45
days’ advance notice might confuse
consumers, because it would come so
far in advance that consumers will not
be able to relate their behavior to the
increase in rate, when that increase
eventually takes effect.
Industry commenters, however,
opposed more generally any additional
prior notice before imposition of a
penalty rate, when the penalty APR has
already been disclosed to the consumer
at account-opening and constitutes part
of the consumer’s account terms. These
commenters indicated that consumers
will not forget about the penalty APR
and the circumstances under which the
penalty rate might be imposed, because
they will be reminded of it each month
by the new late payment warning
required to be included on the periodic
statement pursuant to § 226.7(b)(11). In
addition, these comments noted that the
penalty APR will be disclosed in the
revised application and solicitation
table and new account-opening table
more clearly than it is currently. Other
comments indicated that the proposed
advance notice was effectively a price
control that goes beyond TILA’s main
purpose of assuring meaningful
disclosure of credit terms.
Some commenters suggested that a
requirement to give advance notice
before raising a consumer’s rate to the
penalty rate would cause issuers to
change their pricing practices in ways
that might be detrimental to consumers.
First, the commenters indicated that
creditors will have an incentive to
remove penalty APRs from advertising,
account-opening disclosures, and billing
statement disclosures, because they will
in effect be required to treat the
imposition of penalty pricing as a
change in terms anyway. Second,
commenters indicated that if creditors
are prevented from promptly imposing
penalty pricing, they may be forced to
consider other means to price for risk
such as setting a higher penalty APR,
reducing credit limits, charging higher
fees, closing accounts, imposing tighter
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to compensate for the delay in changing
rates for higher-risk customers.
Some commenters distinguished
between ‘‘on us’’ defaults, where the
consumer’s act of default under the
contract pertains directly to the account
being repriced (e.g., a late payment on
the credit card for which the interest
rate is being increased) and ‘‘off us’’
defaults, where the consumer’s act of
default pertains to an account with a
different creditor. These commenters
noted that consumers will be well aware
of the circumstances that may cause an
account to be repriced based on ‘‘on us’’
behaviors, because, as discussed above,
those triggers will be disclosed in the
application and solicitation disclosures,
the account-opening disclosures, and in
the case of late payments as a trigger, on
the periodic statement itself. The
comments indicated that consumers
may have different expectations
between ‘‘on us’’ and ‘‘off us’’ repricing,
with the latter having more potential for
surprise and a sense of perceived
unfairness. Industry commenters
differed as to whether an act of default
pertaining to a different account held by
the same issuer constituted an ‘‘on us’’
or ‘‘off us’’ default.
Several commenters suggested that
the Board introduce a disclosure on
each periodic statement reminding the
consumer of the circumstances in which
penalty pricing may be applied, rather
than requiring 45 days’ advance notice
of a rate increase. One issuer suggested
an exception for issuers with penalty
APRs and triggers that meet five
conditions, namely: (1) Triggers are
limited to actions on the specific credit
card account; (2) triggers are within the
consumer’s knowledge and control; (3)
triggers are specifically disclosed in the
application and solicitation and
account-opening disclosure tables; (4)
triggers are clearly and conspicuously
disclosed on each periodic statement;
and (5) the penalty APR is specifically
disclosed, along with the index and
margin used to calculate the penalty
APR. This issuer stated that this
exception will avoid costly surprise to
consumers arising from the imposition
of penalty APRs by encouraging issuers
to use sharply-defined, ‘‘on us’’ penalty
rate triggers. The commenter also
indicated that the monthly disclosure
would be more effective in enhancing
awareness of penalty APRs and their
triggers than the proposed after-the-fact
penalty APR notice.
Consumers and consumer groups
were supportive of the proposal’s
requirement to give 45 days’ advance
notice of the imposition of a penalty
rate, noting that the proposal
represented a substantial improvement

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over the current rule. Some, however,
urged the Board to increase the notice
period to 60 days or 90 days. The Board
also received comments from individual
consumers, consumer groups, another
federal banking agency, and a member
of Congress stating that notice alone was
not sufficient to protect consumers from
the expense caused by rate increases.
The final rule adopts § 226.9(g)(1)
generally as proposed, although as
discussed below the Board has created
several exceptions to the notice
requirement in § 226.9(g) to address
concerns raised by commenters and to
clarify the relationship between
§ 226.9(g) and final rules adopted by the
Board and other federal banking
agencies published elsewhere in today’s
Federal Register.
The final rule generally requires
creditors to provide 45 days’ advance
notice before rate increases due to the
consumer’s delinquency or default or as
a penalty, as proposed. Notwithstanding
the fact that final rules adopted by the
Board and other federal banking
agencies published elsewhere in today’s
Federal Register will prohibit, in most
cases, the application of penalty rates to
existing balances, the Board believes
that allowing creditors to apply the
penalty rate, even if only to new
transactions, immediately upon the
consumer triggering the rate would
nonetheless lead to undue surprise and
insufficient time for the consumer to
consider alternative options regarding
use of the card.
The final rule elsewhere enhances the
disclosure of the circumstances under
which the penalty rate may apply in the
solicitation and application table as well
as at account opening. Such improved
up-front disclosure of the circumstances
in which penalty pricing may be
imposed on a consumer’s account may
enable some consumers to avoid
engaging in certain behavior that would
give rise to penalty pricing. However,
the Board believes generally that
consumers will be the most likely to
notice and be motivated to act if they
receive a specific notice alerting them of
an imminent rate increase, rather than a
general disclosure stating the
circumstances when a rate might
increase.
In focus groups conducted for the
Board prior to the June 2007 Proposal,
consumers were asked to identify the
terms that they looked for when
shopping for a credit card or at accountopening. The terms most often
identified by consumers were the
interest rate on purchases, interest rate
on balance transfers, credit limit, fees,
and incentives or rewards such as
frequent flier miles or cash back.

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Consumers did not frequently mention
the penalty rate or penalty rate triggers.
It is possible that some consumers do
not find this information relevant when
shopping for or opening an account
because they do not anticipate that they
will trigger penalty pricing. Because
many consumers are looking for terms
other than the penalty rate and penalty
triggers, they may not recall this
information later, after they have begun
using the account, and may be surprised
when penalty pricing is subsequently
imposed.
For similar reasons, the Board also
believes that a notice appearing on each
monthly statement informing a
consumer of the ‘‘on us’’ behaviors that
can trigger a penalty rate would not be
as effective as a more specific notice
provided after a rate increase has been
triggered but before it has been imposed.
Consumers already will receive a notice
under new § 226.7(b)(11) on the
periodic statement generally informing
them that they may be subject to a late
fee and/or penalty rate if they make a
late payment. This will alert consumers
generally that making a late payment
may have adverse consequences, but
that Board does not believe that a
general notice about the circumstances
in which penalty pricing may be
applied is as effective as a more specific
notice that a penalty rate is in fact about
to be imposed.
In addition, the Board believes that
the notice required by § 226.9(g) is the
most effective time to inform consumers
of the circumstances under which
penalty rates can be applied to their
existing balances consistent with final
rules adopted by the Board and other
federal banking agencies published
elsewhere in today’s Federal Register.
Pursuant to those rules, under limited
circumstances a penalty rate can be
applied to all of a consumer’s balances,
specifically if the consumer fails to
make a required minimum periodic
payment within 30 days after the due
date for the payment.
As discussed elsewhere in the
section-by-section analysis to § 226.5a,
due to concerns about ‘‘information
overload,’’ the final rule does not
require a creditor to distinguish, in the
disclosures given with an application or
solicitation or at account-opening,
between those penalty rate triggers that
apply to existing balances and more
general contractual penalty triggers that
may apply only to new balances. While
the Board anticipates that creditors will
disclose in the account agreement for
contractual reasons the distinction
between triggers applicable to existing
balances and new balances, those
disclosures will not be highlighted in a

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tabular format. The notice given under
§ 226.9(g) will, therefore, be for many
consumers, the best opportunity for
disclosure that penalty pricing may
apply only to new balances and that, if
the consumer pays late once by more
than 30 days, the penalty rate may be
applied to all of his or her balances.
Disclosure content and format. With
respect to open-end (not home-secured)
plans, under the Board’s June 2007
Proposal, which was amended by the
May 2008 Proposal for consistency with
proposal by the Board and other federal
banking agencies published in May
2008 (See 73 FR 28904, May 19, 2008),
if a creditor is increasing the rate due to
delinquency or default or as a penalty,
the creditor would have been required
to provide a notice with the following
information: (1) A statement that the
delinquency or default rate or penalty
rate has been triggered, as applicable; (2)
the date as of which the delinquency or
default rate or penalty rate will be
applied to the account, as applicable; (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; and
(4) a statement indicating to which
balances on the account the
delinquency or default rate or penalty
rate will be applied, including, if
applicable, the balances that would be
affected if a consumer fails to make a
required minimum periodic payment
within 30 days from the due date for
that payment; and (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
required minimum periodic payment
within 30 days from the due date for
that payment.
If the notice regarding increases in
rates due to delinquency, default or
penalty pricing were included on or
with a periodic statement, the June 2007
Proposal would have required the notice
to be in a tabular format. Under the
proposal, the notice also would have
been required to appear on the front of
the first page of the periodic statement,
directly above the list of transactions for
the period. If the notice were not
included on or with a periodic
statement, the information described
above would have been required to be
disclosed on the front of the first page
of the notice. As discussed above, the
minimum font size requirements of 10point font set forth in proposed
comment 5(a)(1)–3 also would have

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applied to any tabular disclosure given
under § 226.9(g)(3).
One consumer group commenter on
the May 2008 Proposal supported the
requirements in proposed
§ 226.9(g)(3)(i)(D) and (g)(3)(i)(E), which
were added for consistency with the
proposal by the Board and other federal
banking agencies published in May
2008 (see 73 FR 28904, May 19, 2008),
to disclose the balances to which a
delinquency or default rate or penalty
rate would be applied and to describe,
if applicable, any balances to which the
current rate would continue to apply as
of the effective date of the rate increase
(unless the consumer’s account becomes
more than 30 days late). This
commenter believes that disclosure does
not alter the unfairness of applying
penalty, delinquency, or default rates to
existing balances, but that the additional
information would be useful to
consumers.
Commenters on the content and
formatting of penalty rate notices
generally raised the same or similar
issues as commenters on the content
and formatting of change-in-terms
notices required under § 226.9(c). See
section-by-section analysis to § 226.9(c)
for a discussion of these comments. For
the reasons described in the section-bysection analysis to § 226.9(c), the
content and formatting requirements for
notices of penalty rate increases in
§ 226.9(g)(3) are adopted generally as
proposed, except that if the notice is
included with a periodic statement, the
summary table is required to appear on
the front of the periodic statement, but
is not required to appear on the first
page. In addition, a technical change has
been made to § 226.9(g)(3)(i)(D) to delete
a substantively duplicative requirement
included in both proposed
§ 226.9(g)(3)(i)(D) and (E).
The final rule also contains a
technical amendment to clarify that a
notice given under § 226.9(g)(1) may be
combined with a notice given pursuant
to new § 226.9(g)(4)(ii), described below.
Form G–18(G) (proposed as Form G–
18(H)) and Sample G–21 have been
revised to reflect formatting changes
designed to make these notices more
understandable to consumers. Similar to
the testing conducted for change-interms notices described above in the
section-by-section analysis to § 226.9(c),
the Board also conducted two rounds of
consumer testing of notices of penalty
rate increases. Consumers generally
understood the key dates disclosed in
these notices. Specifically, of
participants who saw statements that
indicated that the penalty rate would be
applied to the account, all participants
in both rounds of testing understood

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that the penalty rate would only apply
to transactions made after the specified
date shown. All participants also
understood that if they became 30 days
late on their account the penalty rate
would apply to earlier transactions as
well.
Sample G–21 also has been revised to
conform with substantive restrictions on
rate increases applicable to promotional
rate balances included in final rules
issued by the Board and other federal
banking agencies published elsewhere
in today’s Federal Register. As
proposed in May 2008, Sample G–21
would have contained a disclosure
indicating that the consumer’s
promotional rate balances would be
subject to the standard rate on the
effective date of the penalty rate
increase. The final rules published
elsewhere in today’s Federal Register
regarding the applicability of rate
increases to outstanding balances
prohibit a creditor from repricing a
consumer’s outstanding balances from a
promotional rate to a higher rate, unless
the consumer’s account is more than 30
days late. Accordingly, the disclosure
regarding loss of a promotional rate has
been deleted from final Sample G–21.
The dates used in the example in
Sample G–21 also have been amended
for consistency with the definition of
‘‘outstanding balance’’ in the final rules
published elsewhere in today’s Federal
Register. In addition, a technical
correction also has been made to final
Sample G–21 to clarify that a consumer
must make a payment that is more than
30 days late in order for the penalty rate
to apply to outstanding balances; as
proposed, Sample G–21 referred to a
payment that is 30 days late. These
changes to Sample G–21 also are
reflected in final Model Form G–18(G).
Examples. In order to facilitate
compliance with the advance notice
requirements set forth in § 226.9(g), the
Board’s May 2008 Proposal included a
new comment 9(g)–1.ii that set forth
several illustrations of how the advance
notice requirement would have applied
in light of the substantive rules
regarding rate increases proposed by the
Board and other federal banking
agencies published in May 2008 (See 73
FR 28904, May 19, 2008). Several
industry commenters remarked on these
illustrations, particularly on proposed
comment 9(g)–1.ii.D. Proposed
comment 9(g)–1.ii.D indicated that an
issuer would be required, in some
circumstances, to give a second advance
notice, after the consumer’s account
became more than 30 days late, 45 days
prior to imposing a penalty rate to
outstanding balances as permitted under
the Board’s and agencies’ proposed

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substantive rule. Many of these industry
commenters stated that the creditor
should not be required to provide an
additional 45 days’ notice to the
consumer if: (i) A creditor has already
provided 45 days’ advance notice
regarding the imposition of a penalty
rate that applies only to new balances;
and (ii) that notice states that such rate
will apply to outstanding balances if the
consumer becomes more than 30 days
delinquent while the increased rate is in
effect. Other commenters stated that an
additional 45 days’ notice should not be
required if the consumer has already
received within the last 12 months a
notice regarding the consequences of
making a payment more than 30 days
late. One commenter indicated that if
the Board retains the requirement to
send a second notice in these
circumstances, proposed comment 9(g)–
1, in particular, 9(g)–1.ii.D should be
revised to clarify that if a second trigger
event occurs after the initial penalty rate
notice is provided, the creditor should
not be required to wait until the
consumer is more than 30 days
delinquent to provide the second
penalty APR notice.
The Board has adopted a set of
revised examples in comment 9(g)–1
that have been modified to conform
with the final rules adopted by the
Board and other federal banking
agencies published elsewhere in today’s
Federal Register. These examples,
among other things, clarify that a
creditor is not required to provide a
consumer with a second notice when
the creditor has already sent a notice
pursuant to § 226.9(g) and during the
period between when that notice is sent
and the effective date of the change, the
consumer pays more than 30 days late.
A second notice would, however, be
required if the consumer were to pay
more than 30 days late, if such a
subsequent default by the consumer
occurred after the effective date of the
first notice sent by the creditor pursuant
to § 226.9(g). The Board believes that a
second notice is appropriate in these
circumstances because the subsequent
late payment or payments may occur
months or years after the first notice
pursuant to § 226.9(g) has been sent. At
such a later date, the consumer may not
recall the events that will cause the
penalty rate to be applied to his or her
existing balances; because such
repricing may come as a surprise to the
consumer, the Board believes that the
consumer should receive advance notice
in order to have an opportunity to seek
alternative financing or to pay off his or
her balances.
In addition to amending the
examples, the Board also has clarified in

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5353

new § 226.9(g)(4)(iii), discussed below,
that a creditor need not send a second
notice pursuant to § 226.9(g) prior to
increasing the rate applicable to
outstanding balances, in the limited
circumstances where the creditor has
already sent a notice disclosing a rate
increase applicable to new transactions
and during the period between when
that notice is sent and the effective date
of the change, if the consumer pays
more than 30 days late. This exception
is consistent with the examples
described above.
Multiple triggers for penalty rate. In
response to the June 2007 Proposal,
several industry commenters requested
a limited exception to the 45-day notice
requirement for increases to penalty or
default rates that are clearly disclosed in
the account-opening disclosures and
that involve behavior by the consumer
that must occur in two or more billing
cycles before the default rate is
triggered. Under these circumstances,
these commenters suggested that issuers
should be permitted to provide the
required notice after the first of the
multiple triggering events has occurred,
rather than waiting until the final trigger
event. For example, if a creditor were to
impose penalty pricing but only upon
two late payments, the comments
suggest that the creditor should be
permitted to send the notice upon the
consumer’s first late payment. The
creditor would then be free to impose
the penalty rate immediately upon the
consumer’s second late payment,
provided that 45 days has elapsed since
the notice was provided. The
commenters suggest that, under these
circumstances, the consumer will have
45 days of advance notice to avoid the
second triggering event.
Some commenters also suggested that
creditors should be permitted to include
on each periodic statement after the first
triggering event a notice informing the
consumer of the circumstances under
which penalty pricing will be imposed.
If the consumer engages in the behavior
disclosed on the periodic statement,
these creditors suggested that a creditor
should be permitted to impose penalty
pricing immediately, without additional
advance notice given to the consumer.
For penalty pricing with multiple
triggering events, the final rule
continues to require 45 days’ notice
after the occurrence of the final
triggering event. The Board believes that
a notice of an impending rate increase
may have the most utility to a consumer
immediately prior to when the rate is
increased. Depending on the particular
triggers used by a creditor, the period of
time between the first triggering event
and the final triggering event could be

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quite long, and a consumer may have
forgotten about the notice he or she
received many months earlier. For
example, if a creditor imposed penalty
pricing based on the consumer
exceeding his or her credit limit twice
in a twelve-month period, a consumer
might exceed the credit limit in January,
and pursuant to the exception requested
by commenters, would receive a notice
of the possible imposition of penalty
pricing shortly thereafter. If the
consumer subsequently exceeded the
credit limit again in December, that
consumer’s account could immediately
be subject to penalty pricing with no
additional advance notice given
specifically informing that the consumer
that he or she has, in fact, triggered the
penalty rate. The Board believes that
many consumers may not retain or
recall the specific details set forth on a
notice delivered in January, when
penalty pricing is eventually imposed in
December, particularly because different
creditors’ practices can vary. In
addition, a notice given in January
could in many cases state only that the
consumer’s account may be repriced
upon the occurrence of subsequent
events. The Board believes that a notice
that states clearly that the interest rate
applicable to a consumer’s account is in
fact being increased is important in
order to avoid costly surprise in these
circumstances.
The Board also believes that a notice
included on each periodic statement
after the first triggering event informing
the consumer of the circumstances
under which penalty pricing will be
imposed would not be as effective as a
notice informing the consumer of a
specific impending rate increase. An
institution may choose to provide a
statement on each periodic informing
the consumer of the circumstances
under which penalty pricing will be
imposed, but the institution still would
be required to provide a notice prior to
actually imposing the penalty rate
pursuant to § 226.9(g).
Promotional rate increased as a
penalty. In response to both the June
2007 and May 2008 Proposals, a number
of industry commenters advocated an
exception to the 45-day advance notice
requirement when the rate is being
changed from a promotional rate to a
higher rate, such as a standard rate, as
a penalty triggered by an event such as
a late payment. These commenters
suggested that a standard rate is not a
true penalty rate and that consumers are
aware that a promotional rate is
temporary in nature. The comment
letters also questioned whether creditors
would continue to make promotional
rates available if they were required to

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give notice 45 days in advance of
repricing a consumer’s account.
Commenters also noted that the
proposed rules regarding rate increases
issued by the Board and other federal
banking agencies in May 2008 contained
an exception for repricing from a
promotional rate to a standard rate. See
73 FR 28904, May 19, 2008.
The final rule does not contain an
exception to the 45-day advance notice
requirement for repricing from a
promotional rate to any higher rate upon
an event of default by the consumer.
The Board believes that the rationales
discussed above for the 45-day advance
notice apply equally when a consumer’s
account is repriced from a promotional
rate to a higher rate, prior to the end of
the term for which the promotional rate
was offered. The loss of a promotional
rate before the end of a promotional
period can be a costly surprise to the
consumer, and in some cases even more
costly than other types of interest rate
increases. A consumer may have an
expectation that a zero percent or other
promotional rate will apply to
transactions made for a certain fixed
period, for example one year, and may
purchase large ticket items or transfer a
significant balance to that account
during the period in reliance on the
promotional rate. Under these
circumstances, the Board believes that
the consumer should have the
opportunity to seek alternative sources
of financing before the account is
repriced to the higher rate. This
outcome is consistent with final rules
issued by the Board and other federal
banking agencies and published
elsewhere in this Federal Register,
which do not contain an exception for
repricing from a promotional rate to a
standard rate prior to the expiration of
the promotional period.
There is no obligation to provide a
notice under § 226.9(g) if the increase
from a promotional rate to the standard
rate occurs at the end of the term for
which the promotional rate was offered,
not based on any event of default by the
consumer. One industry commenter
asked for guidance as to what a creditor
must do under § 226.9(g) when the
promotional rate is set to expire in less
than 45 days and the consumer triggers
penalty pricing. Under those
circumstances, the Board anticipates
that a creditor would not send a notice
under § 226.9(g), but rather would let
the promotional rate expire under its
original terms. At the end of the
promotional period, the rate would
revert to the standard rate and no notice
need be given to the consumer because
a rate increase from the promotional rate
to the standard rate upon the expiration

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of the period set forth in the original
agreement would not constitute a
change in terms or penalty repricing.
Raise in rate due to violation of terms
of a workout plan. Industry commenters
on the June 2007 Proposal also
requested an exception for the situation
where a rate is increased due to a
violation of the terms of a special
collection plan or workout plan. Some
creditors may offer payment relief or a
temporary reduction in a consumer’s
interest rate for a consumer who is
having difficulty making payments,
with the understanding that the
consumer will return to standard
contract terms if he or she does not
make timely payments. For example, a
consumer might be having difficulty
making payments on an account to
which a penalty rate of 30 percent
applies. Under the terms of a workout
arrangement, a creditor might reduce
the rate to 20 percent, provided that if
the consumer fails to make timely
minimum payments, the 30 percent rate
will be reimposed. One commenter
noted that workout arrangements are
generally offered to consumers who are
so delinquent on their accounts that
other or better financing options may
not be available to them. Commenters
also noted that the availability of
workout programs was likely to be
limited or reduced if a creditor were
required to give 45 days’ advance notice
prior to reinstating a consumer’s preexisting contract terms if that consumer
fails to abide by the terms of the
workout arrangement.
The final rule contains a new
§ 226.9(g)(4)(i), which generally
provides that a creditor is not required
to give advance notice pursuant to
§ 226.9(g)(1) if a rate applicable to a
consumer’s account is increased as a
result of the consumer’s default,
delinquency, or as a penalty, in each
case for failure to comply with the terms
of a workout arrangement between the
creditor and the consumer. The
exception is only applicable if the new
rate being applied to the category of
transactions does not exceed the rate
that applied to that category of
transactions prior to commencement of
the workout arrangement, or 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
arrangement. The Board believes that
workout arrangements provide a clear
benefit to consumers who are otherwise
having difficulty making payments and
that the rule should not limit the
continued availability of such
arrangements. A consumer who is
otherwise in default on his or her

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account and is offered a reduced interest
rate for a period of time in order to
facilitate the making of payments, and
who has recently been in contact with
his or her creditor regarding the terms
of the workout arrangement, generally
should not be surprised by the
revocation of the reduced rate if he or
she defaults under that workout
arrangement.
Decrease in credit limit. The final rule
contains a new exception in
§ 226.9(g)(4)(ii) that clarifies the
relationship between the notice
requirements in §§ 226.9(c)(2)(v) and
226.9(g)(1)(ii) when the creditor
decreases a consumer’s credit limit and
under the terms of the credit agreement
a penalty rate may be imposed for
extensions of credit that exceed that
newly decreased limit.
As discussed above, § 226.9(c)(2)(v)
requires that a creditor give advance
notice of a decrease in a consumer’s
credit limit in writing or orally at least
45 days before an over-the-limit fee or
penalty rate can be imposed solely as a
result of the consumer exceeding the
newly decreased credit limit. The
purpose of this provision is to give the
consumer an opportunity to reduce
outstanding balances to below the
newly-decreased credit limit before
penalty fees or rates can be imposed. In
addition, § 226.9(g)(1)(ii) requires a
creditor to give 45 days’ advance written
notice prior to increasing a rate as a
penalty for one or more events specified
in the account agreement, including for
obtaining an extension of credit that
exceeds the credit limit.
Without clarification, the Board is
concerned that § 226.9(c)(2)(v) and
(g)(1)(ii) could be read together to
require 90 days’ notice prior to
imposing a penalty rate for a consumer
exceeding a newly-decreased credit
limit (i.e., that the 45-day cure period
contemplated in § 226.9(c)(2)(v) would
need to elapse before a consumer could
be deemed to have triggered a penalty
rate, only after which point the notice
under § 226.9(g)(1)(ii) could be given). It
was not the Board’s intent for
§ 226.9(c)(2)(v) to extend the notice
period prior to imposing a penalty rate
for a consumer’s having exceeded the
credit limit to 90 days, but rather only
to ensure that a consumer had a
reasonable opportunity to avoid
penalties for exceeding a newly
decreased credit limit.
In order to clarify the relationship
between § 226.9(c)(2)(v) and (g)(1)(ii),
the final rule contains new
§ 226.9(g)(4)(ii), which permits a
creditor to send, at the time that the
creditor decreases the consumer’s credit
limit, a single notice (in writing) that

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would satisfy both the requirements of
§§ 226.9(c)(2)(v) and (g)(1). The
combined notice would be required to
be sent at least 45 days in advance of
imposing the penalty rate and would be
required to contain the content set forth
in § 226.9(c)(2)(v), as well as additional
content that generally tracks the
requirements in § 226.9(g)(3)(i). The
content of the notice would differ from
the requirements in § 226.9(g)(3)(i) in
order to accurately reflect the fact that
a consumer may avoid imposition of the
penalty rate by reducing his or her
balance below the newly decreased
credit limit by the date specified in the
notice.
Consistent with the intent of
§ 226.9(c)(2)(v), new § 226.9(g)(4)(ii)
provides that a creditor is not permitted
to impose the penalty rate if the
consumer’s balance does not exceed the
newly decreased credit limit on the date
set forth in the notice for the imposition
of the penalty rate (which date must be
at least 45 days from when the notice is
sent). However, if the consumer’s
balance does exceed the credit limit on
the date specified in the notice, the
creditor would be permitted to impose
the penalty rate on that date, with no
additional advance notice required. For
example, assume that a creditor
decreased the credit limit applicable to
a consumer’s account and sent a notice
pursuant to § 226.9(g)(4)(ii) on January
1, stating among other things that the
penalty rate would apply if the
consumer’s balance exceeded the new
credit limit as of February 16. If the
consumer’s balance exceeded the credit
limit on February 16, the creditor could
impose the penalty rate on that date.
However, a creditor could not apply the
penalty rate if the consumer’s balance
did not exceed the new credit limit on
February 16, even if the consumer’s
balance had exceeded the new credit
limit on several dates between January
1 and February 15. If the consumer’s
balance did not exceed the new credit
limit on February 16 but the consumer
conducted a transaction on February 17
that caused the balance to exceed the
new credit limit, the general rule in
§ 226.9(g)(1)(ii) would apply and the
creditor would be required to give an
additional 45 days’ notice prior to
imposition of the penalty rate (but
under these circumstances the
consumer would have no ability to cure
the over-the-limit balance in order to
avoid penalty pricing).
New § 226.9(g)(4)(ii)(C) sets forth the
formatting requirements for notices
given pursuant to § 226.9(g)(4)(ii),
which conform with the formatting
requirements for notices provided under
§ 226.9(g)(1).

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Certain rate increases applicable to
outstanding balances. The final rule
contains a new exception in
§ 226.9(g)(4)(iii) intended to clarify the
relationship between the notice
requirements under § 226.9(g) and rules
regarding the application of rate
increases to outstanding balances issued
by the Board and other federal banking
agencies published elsewhere in today’s
Federal Register. Under the exception,
a creditor is not required, under certain
conditions, to provide an additional
notice pursuant to paragraph § 226.9(g)
prior to increasing the rate applicable to
an outstanding balance, if the creditor
previously provided a notice under
§ 226.9(g) disclosing that the rate
applicable to new transactions was
going to be increased. The exception
only applies if, after the § 226.9(g)
notice disclosing the rate increase for
new transactions is provided but prior
to the effective date of the rate increase
or rate increases disclosed in the notice
pursuant, the consumer pays more than
30 days late. Under those
circumstances, a creditor may increase
the rate applicable to both new and
outstanding balances on the effective
date set forth in the notice that was
previously provided to the consumer.
This exception is meant to conform
the requirements of the rule to the
examples set forth in comment 9(g)–1,
which clarify the interaction between
the notice requirements of § 226.9(g)
and rules regarding the application of
rate increases to outstanding balances
issued by the Board and other federal
banking agencies published elsewhere
in today’s Federal Register. The Board
believes that a limited exception to the
notice requirements of § 226.9(g) is
appropriate in these circumstances
because the consumer will have
received a notice disclosing the rate
increase applicable to new transactions,
which also will disclose the
circumstances under which the rate
increase will apply to outstanding
balances if the consumer fails to make
timely payments prior to the effective
date of the change.
Terminology. One commenter
commented that the use of the terms
‘‘delinquency or default rate,’’ and
‘‘penalty rate’’ is confusing and not
necessarily consistent with industry
usage. The commenter asked for
clarification regarding the meaning of
‘‘delinquency or default rate’’ versus
‘‘penalty rate.’’ The Board included both
terms in the proposed rules, and has
retained both terms in the final rule, in
order to capture any situation in which
a consumer’s rate is increased in
response to a violation or breach by the
consumer of any term set forth in the

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contract. The term ‘‘delinquency or
default rate’’ has historically appeared
in Regulation Z, and the Board has
added ‘‘penalty rate’’ in recognition that
there may be contractual provisions that
permit an increase in the rate applicable
to a consumer’s account for behavior
that falls short of being a delinquency or
default.
Section 226.10
Payments

Prompt Crediting of

Section 226.10, which implements
TILA Section 164, generally requires a
creditor to credit to a consumer’s
account a payment that conforms to the
creditor’s instructions (also known as a
conforming payment) as of the date of
receipt, except when a delay in
crediting the account will not result in
a finance or other charge. 15 U.S.C.
1666c; § 226.10(a). Section 226.10 also
requires a creditor that accepts a nonconforming payment to credit the
payment within five days of receipt. See
§ 226.10(b). The Board has interpreted
§ 226.10 to permit creditors to specify
cut-off times indicating the time when
a payment is due, provided that the
requirements for making payments are
reasonable, to allow most consumers to
make conforming payments without
difficulty. See current comments 10(b)–
1 and –2. Pursuant to § 226.10(b) and
current comment 10(b)–1, if a creditor
imposes a cut-off time, it must be
disclosed on the periodic statement;
many creditors put the cut-off time on
the back of statements.

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10(b) Specific Requirements for
Payments
Reasonable requirements for cut-off
times. In the June 2007 Proposal, the
Board sought to address concerns that
cut-off times may effectively result in a
due date that is one day earlier in
practice than the due date disclosed.
The Board did not propose in June 2007
to require a minimum cut-off time.
Rather, the Board proposed a disclosurebased approach, which would have
created a new § 226.7(b)(11) to require
that for open-end (not home-secured)
plans, creditors must disclose the
earliest of their cut-off times for
payments in close proximity to the due
date on the front page of the periodic
statement, if that earliest cut-off time is
before 5 p.m. on the due date. In
recognition of the fact that creditors may
have different cut-off times depending
on the type of payment (e.g., mail,
Internet, or telephone), the Board’s
proposal would have required that
creditors disclose only the earliest cutoff time, if earlier than 5 p.m. on the due
date.

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Although some consumer commenters
on the June 2007 Proposal supported the
proposed cut-off time disclosure, other
consumers and consumer groups
thought that the proposed disclosure
would provide only a minimal benefit to
consumers. These commenters
recommended that the Board consider
other approaches to more effectively
address cut-off times. Consumer groups
recommended that the Board adopt a
postmark rule, under which the
timeliness of a consumer’s payment
would be evaluated based on the date
on which the payment was postmarked.
Some consumers commented that cutoff times are unfair and should be
abolished, while other consumers
suggested that the Board establish
minimum cut-off times.
Industry commenters expressed
concern that the proposed disclosure
would be confusing to consumers. They
noted that many creditors vary their cutoff times by payment channel and that
disclosure of only the earliest cut-off
hour would be inaccurate and
misleading. They suggested that, if the
Board were to adopt this requirement, a
creditor should be permitted to identify
to which payment method the cut-off
time relates, disclose the cut-off hours
for all payment channels, or disclose the
cut-off hour for the payment method
used by the consumer, if known.
Industry commenters also asked that the
Board relax the location requirement for
the cut-off time disclosure on the
periodic statement.
Both consumer groups and industry
commenters urged the Board to clarify
which time zone should be considered
when determining if the cut-off time is
prior to 5 p.m.
In light of comments received on the
June 2007 Proposal, the Board proposed
in May 2008 to address cut-off times for
mailed payments by providing guidance
as to the types of requirements that
would be reasonable for creditors to
impose for payments received by mail.
In part, the Board proposed to move
guidance currently contained in the
commentary to the regulation. Current
comment 10(b)–1 provides examples of
specific payment requirements creditors
may impose and current comment
10(b)–2 states that payment
requirements must be reasonable, in
particular that it should not be difficult
for most consumers to make conforming
payments. The Board proposed in May
2008 to move the substance of
comments 10(b)–1 and 10(b)–2 to
§ 226.10(b)(1) and (b)(2) of the
regulation. Under the May 2008
Proposal, § 226.10(b)(1) would have
stated the general rule, namely that a
creditor may specify reasonable

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requirements that enable most
consumers to make conforming
payments. The Board would have
expanded upon the example in
comment 10(b)–1.i.B as proposed in
June 2007 in new proposed
§ 226.10(b)(2)(ii), which would have
stated that it would not be reasonable
for a creditor to set a cut-off time for
payments by mail that is earlier than
5:00 p.m. at the location specified by the
creditor for receipt of such payments.
The language in current comment
10(b)–2 stating that it should not be
difficult for most consumers to make
conforming payments would not have
been included in the regulatory text
under the May 2008 Proposal. As noted
in the May 2008 Proposal, the Board
believes that this language is in
substance duplicative of the
requirement that any payment
requirements be reasonable and enable
most consumers to make conforming
payments.
The Board did not propose a postmark
rule as suggested by consumer group
commenters on the June 2007 Proposal.
In part, this is because the Board and
other federal banking agencies proposed
in May 2008 a rule that would have
required a creditor to provide
consumers with a reasonable time to
make payments. As discussed in the
May 2008 Proposal, the Board also
believes that it would be difficult for
consumers to retain proof of when their
payments were postmarked, in order to
challenge the prompt crediting of
payments under such a rule. In
addition, a mailed payment may not
have a legible postmark date when it
reaches the creditor or creditor’s service
provider. Finally, the Board believes
there would be significant operational
costs and burdens associated with
capturing and recording the postmark
dates for payments.
Consumer groups, one state treasurer,
one federal banking agency, several
industry commenters and several
industry trade associations supported
the proposal that it would not be
reasonable to set a cut-off time for
payments received by mail prior to 5
p.m. on the due date at the location
specified by the creditor for the receipt
of mailed payments. Several consumer
groups, credit unions, and two members
of Congress suggested that the Board
expand the proposed rule to apply to all
forms of payment, including payments
made by telephone and on-line. Several
consumer groups urged that the rule
should be dependent on the local time
of the consumer’s billing address, not
the local time of the issuer’s payment
facility. Several consumer groups
suggested that the Board establish a

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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Rules and Regulations
uniform rule establishing a cut-off time
of either 5 p.m. or the close of business,
if it is later than 5 p.m. One of these
commenters noted that a uniform,
minimum 5 p.m. cut-off time would not
require creditors to process and post the
payments on the same day, or to change
their systems, but would only require
that creditors not treat payments
received before 5 p.m. as late.
One industry commenter that
supported the 5 p.m. rule stated that it
should only apply to mailed payments.
This commenter stated that a consumer
who makes payments on-line, by
telephone, or at a bank branch controls
and is aware of the exact time a
payment is made. An industry trade
association noted that its support of the
5 p.m. cut-off time was conditioned on
the understanding that there would be
no requirement for creditors to process
payments within certain time frames.
This commenter indicated its
understanding that the May 2008
Proposal would only prohibit assessing
a late fee, or otherwise considering the
payment late, if it is received on or
before the due date, and would not
dictate when the payment actually
needed to be processed.
The majority of industry commenters
opposed the proposed rule that would
have provided that cut-off times prior to
5 p.m. for mailed payments are not
reasonable. Many of these commenters
raised operational issues with the
proposed rule. One industry trade
association stated that banks need
sufficient time after retrieving mail to
update accounts and produce accurate
periodic statements. This commenter
indicated that remittance processing
requires time to confirm transactions
and detect and remedy errors. This
commenter noted that if a bank is
unable to complete any necessary
updates prior to generation of the
consumer’s statement, the payment may
be subsequently revised and backdated,
but the payment will not be reflected in
the statement sent to the consumer,
which would make the statement
inaccurate. Other industry commenters
noted that they use a lockbox to process
payments. These commenters indicated
that currently their lockbox personnel
cannot open, process, and credit
payments on the date received unless
they are received by a time certain that
may be in the morning, or at the latest,
midday.
Several industry commenters stated
that the proposed 5 p.m. cut-off time
rule in effect would impose a
requirement for all open-end creditors
to adopt a 5 p.m. post office run or to
do a ‘‘last mail call’’ at 4:59 p.m. One
commenter noted that 5 p.m. is rush

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hour, which could lead to significant
delays in delivering the payments in
metropolitan areas. Several industry
commenters further noted that some
post offices may officially close prior to
5 p.m. but continue to process mail and
insert mail into mail boxes.
One trade association for credit
unions noted that some smaller credit
unions may only be open several days
a week and may have limited business
hours, for example, a faith-based credit
union chartered to serve the members of
a church congregation that is only open
on Sundays or weekends for several
hours. This commenter indicated that
for such a creditor, it should be
reasonable to impose a cut-off time that
is consistent with that particular
institution’s closing time.
One large bank and one industry trade
association suggested that a deadline of
2 p.m. for mailed payments should be
considered reasonable, due to
operational and logistical challenges
that make a 5 p.m. cut-off time too early.
Several industry commenters noted that
Regulation CC (Availability of Funds
and Collections of Checks) permits
earlier cut-offs for access to deposits of
2 p.m. or later, or 12 p.m. or later if the
deposit is received at an ATM. 12 CFR
229.19(a)(5)(ii) Several other industry
commenters stated that the Board had
not articulated its reasons for selecting
a 5 p.m. cut-off time, and that there is
no evidence that consumers expect a 5
p.m. deadline.
Other industry commenters stated
that it is consistent with consumer
expectations that a customer needs to
provide the bank with a reasonable time
to process a transaction. These
commenters noted that it is especially
important that open-end creditors have
a reasonable time to process payments
received by mail in light of the fact that
such creditors are required to credit a
borrower’s account as of the day the
payment is received, even if the creditor
does not receive funds after depositing
the check for one or more days.
Finally, two industry commenters
expressed concern about the proposal’s
classification of cut-off times prior to 5
p.m. as ‘‘unreasonable.’’ These
commenters indicated that the
characterization of certain cut-off times
as ‘‘unreasonable’’ might give rise to
litigation risk for creditors that used
earlier cut-off times prior to this rule
that were permissible under the
Regulation Z requirements at that time.
In light of comments received, the
Board is adopting in the final rule a
modified version of proposed
§ 226.10(b)(2)(ii), which describes a 5
p.m. cut-off time for mailed payments as
an example of a reasonable requirement

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5357

for payments, but does not state that
earlier cut-off times would be
unreasonable in all circumstances. The
Board believes that the establishment of
a safe harbor for a 5 p.m. cut-off time for
mailed payments, rather than declaring
earlier cut-off times to be per se
unreasonable, should help to alleviate
commenters’ concerns about litigation
risk while helping to ensure that
consumers receive a reasonable period
of time to pay on the due date. The
Board intends for this rule to apply only
prospectively, and believes that
providing a safe harbor rather than
defining certain cut-off times as
unreasonable reinforces the fact that the
rule does not apply to past practices.
The Board notes that if a creditor
adopts a 5 p.m. cut-off time for
payments received by mail, neither the
current rule nor the revised rule would
mandate that the creditor pick up its
mail at 5 p.m. on the payment due date.
Section 10(a) addresses only the date as
of which a creditor is required to credit
a payment to a consumer’s account, but
does not impose any requirements as to
when the creditor actually must process
or post the payment. It would be
permissible under the final rule for a
creditor that has a 5 p.m. cut-off time on
the due date for payments by mail to, for
example, backdate and credit payments
received in its first pick-up of the
following morning as of the due date,
assuming that its previous pick-up was
not made at or after 5 p.m. on the due
date. The Board understands that
backdating of payments is relatively
common and that some servicers have
platforms that provide for automated
backdating. A creditor that prefers not to
backdate its payments for operational
reasons could, however, arrange for a 5
p.m. mail pick-up.
The final rule adopts the 5 p.m. safe
harbor only for mailed payments and
does not address other payment
channels. Payments made by other
methods, such as electronic payments or
payments by telephone, are however
subject to the general rule that
requirements for payments must be
reasonable. The Board will continue to
monitor cut-off times for non-mailed
payments in the future in order to
determine whether a safe harbor or
similar guidance for such payments is
necessary. The Board believes that a safe
harbor for payments by mail is
important because it is the payment
mechanism over which consumers have
the least direct control. A consumer is
more aware of, and better able to
control, the time at which he or she
makes an electronic, telephone, or inperson payment, but is not able to

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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Rules and Regulations

control or monitor the exact time at
which mail is received by a creditor.
The safe harbor, consistent with the
proposal, refers to the time zone of the
location specified by the creditor for the
receipt of payments. The Board believes
that this clarification is necessary to
provide creditors with certainty
regarding compliance with the safe
harbor, and that a rule requiring a
creditor to process payments differently
based on the time zone at the
consumer’s billing address could
impose significant operational burdens
on creditors. The safe harbor also refers
to 5 p.m., consistent with the proposal.
The Board believes that many
consumers expect that payments
received by the creditor by 5 p.m.,
which corresponds to the end of a
standard business day, will be credited
on that day. This also is consistent with
the results of consumer testing
conducted prior to the June 2007
Proposal, which showed that most
consumers assume payment is due by
midnight or by the close of business on
the due date.
Under the June 2007 Proposal,
§ 226.10(b) contained a cross reference
to § 226.7(b)(11), regarding the
disclosure of cut-off hours on periodic
statements. In the May 2008 Proposal,
the Board solicited comment on
whether disclosure of cut-off hours near
the due date for payment methods other
than mail (e.g., telephone or Internet)
should be retained. As discussed in the
section-by-section analysis to
§ 226.7(b)(11), the final rule does not
adopt the formatting requirements for
disclosing the cut-off time on the
periodic statement that were proposed
in the June 2007 Proposal. A creditor
must, however, continue to specify on
or with the periodic statement any
applicable cut-off times pursuant to
§ 226.10(b)(3) (formerly § 226.10(b)), as
renumbered in the final rule.
Receipt of electronic payments made
through a creditor’s Web site. The Board
also proposed in the June 2007 Proposal
to add an example to comment 10(a)–2
that states that for payments made
through a creditor’s Web site, the date
of receipt is the date as of which the
consumer authorizes the creditor to
debit that consumer’s account
electronically. The proposed comment
would have referred to the date on
which the consumer authorizes the
creditor to effect the electronic payment,
not the date on which the consumer
gives the instruction. The consumer
may give an advance instruction to
make a payment and some days may
elapse before the payment is actually
made; accordingly, the Board’s
proposed comment 10(a)–2 would have

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referred to the date on which the
creditor is authorized to debit the
consumer’s account. If the consumer
authorized an immediate payment, but
provided the instruction after a
creditor’s cut-off time, the relevant date
would have been the following business
day. For example, a consumer may go
on-line on a Sunday evening and
instruct that a payment be made;
however, the creditor might not transmit
the request for the debit to the
consumer’s account until the next day,
Monday. Under proposed comment
10(a)–2 the date on which the creditor
was authorized to effect the electronic
payment would have been deemed to be
Monday, not Sunday. Proposed
comment 10(b)–1.i.B would have
clarified that the creditor may, as with
other means of payment, specify a cutoff time for an electronic payment to be
received on the due date in order to be
credited on that date. As discussed in
the June 2007 Proposal, the Board’s
proposed clarification of comment
10(a)–2 is limited to electronic
payments made through the creditor’s
own Web site, over which the creditor
has control.
Two industry commenters supported
the proposed changes to comments
10(a)–2 and 10(b)–1.i.B regarding
electronic payments made via the
creditor’s Web site. One of these
commenters noted that the proposed
changes were consistent with consumer
expectations, and stated that it was
appropriate that the changes were
limited to electronic payments made at
the creditor’s own Web site, over which
the creditor has control, rather than
being expanded to include all types of
electronic payments. Several individual
consumers also commented that
electronic payments should be credited
on the day on which they are
authorized. Comment 10(a)–2 is adopted
as proposed. The clarification to
comment 10(b)–1.i.B proposed in June
2007 has been adopted in
§ 226.10(b)(2)(ii).
Promotion of payment via the
creditor’s Web site. In the June 2007
Proposal, the Board proposed to update
the commentary to clarify that if a
creditor promotes electronic payments
via its Web site, then payments made
through the creditor’s Web site would
be considered conforming payments for
purposes of § 226.10(b). Many creditors
now permit consumers to make
payments via their Web site. Payment
on the creditor’s Web site may not be
specified on or with the periodic
statement as conforming payments, but
it may be promoted in other ways, such
as in the account-opening agreement,
via e-mail, in promotional material, or

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on the Web site itself. As discussed in
the June 2007 Proposal, the Board
believes it would be reasonable for a
consumer who receives materials from
the creditor promoting payment on the
creditor’s Web site to believe that it
would be a conforming payment and
credited on the date of receipt. For these
reasons, the Board also proposed in June
2007 to amend comment 10(b)–2 to
clarify that if a creditor promotes that it
accepts payments via its Web site (such
as disclosing on the Web site itself or on
the periodic statement that payments
can be made via the Web site), such a
payment is considered a conforming
payment for purposes of § 226.10(b).
One industry commenter noted that
there could be operational issues
associated with treating payments made
via the creditor’s Web site as
conforming, because most banks use
third-party processors to process their
electronic payments. This commenter
stated that an issuer may not be in
control of its processing system and may
not be able to credit its payments on the
same day they are authorized. This
commenter further stated that a creditor
may have one Web site that offers
several different means of making
payments, for example a portal solely
for making credit card payments as well
as a portal for making bill payments
through a third-party bill payment
processor, and that payments could be
sent either way by the consumer. This
commenter noted that there may be
additional delay in processing the
payment depending on which electronic
payment mechanism the consumer uses.
The Board believes that consumer
expectation is that a payment made via
the creditor’s Web site is a conforming
payment, and that a creditor that
promotes and accepts payment via its
Web site should treat such payment as
conforming. As noted above, individual
consumers who commented on the June
2007 Proposal stated that electronic
payments should receive same-day
crediting. The Board notes that creditors
may use third-party processors not just
for electronic payments, but also for
mailed payments that are treated as
conforming. Thus, the use of a thirdparty processor may give rise to delays
in processing payments regardless of the
payment mechanism used. The Board
notes that a creditor need not post a
payment made via its Web site on the
same day for which the consumer
authorized payment, but need only
credit the payment as of that date.
Comment 10(b)–2 is adopted as
proposed.

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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Rules and Regulations
10(d) Crediting of Payments When
Creditor Does Not Receive or Accept
Payments on Due Date
Holiday and weekend due dates. The
Board’s June 2007 Proposal did not
address the practice of setting due dates
on dates on which a creditor does not
accept payments, such as weekends or
holidays. A weekend or holiday due
date might occur, for example, if a
creditor sets its payment due date on the
same day (the 25th, for example) of each
month. While in most months the 25th
would fall on a business day, in other
months the 25th might be a weekend
day or holiday, due to fluctuations in
the calendar. The Board received a
number of comments in response to the
June 2007 Proposal from consumer
groups, individual consumers, and a
member of Congress criticizing weekend
or holiday due dates. The comment
letters expressed concern that a
consumer whose due date falls on a date
on which the creditor does not accept
payments must pay one or several days
early in order to avoid the imposition of
fees or other penalties that are
associated with a late payment.
Comment letters from consumers
indicated that, for many consumers,
weekend and holiday due dates are a
common occurrence. Some of these
commenters suggested that the Board
mandate an automatic grace period until
the next business day for any such
weekend or holiday due dates. Other
commenters recommended that the
Board prohibit weekend or holiday due
dates.
In response to these comments, the
Board proposed in May 2008 a new
§ 226.10(d) that would have required a
creditor to treat a payment received by
mail the next business day as timely, if
the due date for the payment is a day
on which the creditor does not receive
or accept payment by mail, such as a
day on which the U.S. Postal Service
does not deliver mail. Thus, if a due
date falls on a Sunday on which a
creditor does not receive or accept
payment by mail, the payment could not
have been subjected to late payment fees
or increases in the interest rate
applicable to the account due to late
payment if the payment were received
by mail on the next day that the creditor
does receive or accept payment by mail.
The Board proposed this rule using its
authority to regulate the prompt posting
of payments under TILA Section 164,
which states that ‘‘[p]ayments received
from an obligor under an open end
consumer credit plan by the creditor
shall be posted promptly to the obligor’s
account as specified in regulations of
the Board.’’ 15 U.S.C. 1666c.

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The proposed rule in § 226.10(d) was
limited to payments made by mail. The
Board noted its particular concern about
payments by mail because the
consumer’s time to pay, as a practical
matter, is the most limited for those
payments, since a consumer paying by
mail must account for the time that it
takes the payment to reach the creditor.
The Board solicited comment in the
May 2008 Proposal as to whether this
rule also should address payments made
by other means, such as telephone
payments or payments made via the
Internet.
Consumer groups, several industry
commenters, one industry trade group,
a state treasurer, several credit union
trade associations, and several state
consumer protection agencies supported
the Board’s proposed rule regarding
weekend or holiday due dates. Several
industry commenters indicated that
they were already in compliance with
the proposed rule. Consumer groups
stated that the proposed rule should be
expanded to all forms of payment,
including payments made
electronically, by personal delivery, and
by telephone.
Several other industry trade groups
and industry commenters objected to
the proposed rule regarding weekend or
holiday due dates, stating that it would
impose operational challenges and costs
for banks, including additional systems
processing. These commenters
questioned the necessity of the
proposed rule, in light of the proposal
by the Board and other federal banking
agencies in May 2008, which would
have prohibited institutions from
treating a payment as late for any
purpose unless the consumer has been
provided a reasonable amount of time to
make payment. See 73 FR 28904, May
19, 2008. One industry commenter
supported prohibiting creditors from
charging a late payment fee if the due
date falls on a weekend or holiday and
the payment is received on the next
business day, but indicated that
creditors should not be required to
backdate interest associated with the
payment. One industry commenter that
opposed the proposal stated that the
Board should require a creditor to
disclose in the account-opening table
the dates that are considered business
days for purposes of payments.
Several commenters commented on
the example offered by the Board, ‘‘for
example if the U.S. Postal Service does
not deliver mail on that date,’’ to
describe a day on which the creditor
does not receive or accept payments by
mail. One industry commenter
indicated that it accepts and receives
mail from the U.S. Postal Service every

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hour, 365 days a year, and indicated
that the example may be misleading in
light of its actual practices. Another
industry commenter commented more
generally that issuers who receive and
process mail on Sundays and holidays
should be permitted to rely on payment
due dates that fall on those days.
The final rule adopts § 226.10(d) as
proposed, with one minor clarification
discussed below. The Board believes
that it is important for consumers to
have adequate time to make payment on
their accounts, and that it is reasonable
for consumers to expect that their
mailed payments actually can be
received and processed on the due date.
Consumers should not be required to
account for the fact that the due date for
a mailed payment in practice is in effect
one day earlier than the due date
disclosed due to a weekend or holiday.
While the rule may impose operational
burden on some issuers, the Board
believes that this burden is outweighed
by the benefit to consumers of having
their payments posted in accordance
with their expectations that payments
need not be delivered prior to the due
date in order to be timely. The Board
also notes that several industry
commenters indicated that they were
already in compliance with the rule and
that it would impose no additional
operational burden on those
institutions.
The example in proposed § 226.10(d)
regarding a date on which the U.S.
Postal Service does not deliver mail has
been moved to a new comment 10(d)–
1, to emphasize that it is an example
only. A creditor that accepts and
receives mail on weekends and holidays
may rely on payment due dates that fall
on those days.
The final rule adopts the rule
regarding weekend or holiday due dates
only for mailed payments and does not
address other payment mechanisms.
The Board will continue to monitor due
dates for non-mailed payments in the
future in order to determine whether a
similar rule for such payments is
necessary.
One commenter stated that
§ 226.10(d) should refer to dates on
which a creditor does not ‘‘receive or
process’’ payments rather than dates on
which a creditor does not ‘‘receive or
accept’’ payments. The creditor stated
that receipt or acceptance, absent actual
processing, could create the appearance
of prompt crediting of payments where
there is none. The final rule does not
adopt this change. The rules in § 226.10
do not address when a creditor must
process payments, only the date as of
which a creditor must credit the
payment to a consumer’s account.

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Crediting a payment to a consumer’s
account as of the date of receipt does
not require that the creditor actually
process the payment on that date; a
creditor that does not process and post
the payment on the date of receipt could
comply with § 226.10(a) by backdating
the payment and computing all charges
applicable to the consumer’s account
accordingly.
The Board believes that its final rule
under Regulation Z regarding weekend
or holiday due dates will complement
the final rule issued by the Board and
other federal banking agencies
published elsewhere in today’s Federal
Register to require banks to provide a
consumer with a reasonable amount of
time to make payments.

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Section 226.11 Treatment of Credit
Balances; Account Termination
11(a) Credit Balances
TILA Section 165, implemented in
§ 226.11, sets forth specific steps that a
creditor must take to return any credit
balance in excess of $1 on a credit
account, including refunding any
remaining credit balance within seven
business days after receiving a written
request from the consumer or making a
good faith effort to refund any credit
balance that remains in the consumer’s
account for more than six months. 15
U.S.C. 1666d. Although the substance of
these provisions remains unchanged,
the final rule implements a number of
amendments proposed in June 2007.
In June 2007, the Board proposed
moving the provisions in § 226.11
regarding credit balances to a new
paragraph (a) and renumbering the
commentary accordingly. The Board
also proposed adding a new paragraph
(b) implementing the prohibition in
Section 1306 of the Bankruptcy Act on
terminating accounts under certain
circumstances (further discussed
below). See TILA Section 127(h); 15
U.S.C. 1637(h). Furthermore, the Board
proposed amending the section title to
reflect the new subject matter. Finally,
the Board proposed revising the
commentary to provide that a creditor
may comply with § 226.11(a) by
refunding any credit balance upon
receipt of a consumer’s oral or
electronic request. See proposed
comment 11(a)–1.
In response to proposed comment
11(a)–1, some consumer groups
requested that creditors be required to
inform consumers that, unlike
compliance with a written refund
request under § 226.11(a)(2), compliance
with an oral or electronic refund request
is not mandatory. The Board believes
that this disclosure is not necessary. A

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creditor that requires requests for refund
of a credit balance to be in writing is
unlikely to accept an oral or electronic
request for such a refund of a credit
balance and then refuse to comply
without notifying the consumer that a
written request is required.
Furthermore, § 226.11(a)(3) requires
creditors to refund credit balances in
excess of $1 after six months even if no
request is made.
The Board is amending the credit
balance provisions in § 226.11 as
proposed in June 2007, with minor
technical and clarifying revisions.
11(b) Account Termination
TILA Section 127(h), added by the
Bankruptcy Act, prohibits creditors that
offer open-end consumer credit plans
from terminating an account prior to its
expiration date solely because the
consumer has not incurred finance
charges on the account. 15 U.S.C.
1637(h). A creditor is not, however,
prohibited from terminating an account
for inactivity in three or more
consecutive months.
In June 2007, the Board proposed to
implement TILA Section 127(h) in the
new § 226.11(b). The general prohibition
in TILA Section 127(h) was stated in
proposed § 226.11(b)(1). The proposed
commentary to § 226.11(b)(1) would
have clarified that the underlying credit
agreement, not the credit card,
determines if there is a stated expiration
(maturity) date. Thus, creditors offering
accounts without a stated expiration
date would not be permitted to
terminate those accounts solely because
the consumer uses the account and does
not incur a finance charge. See proposed
comment 11(b)(1)–1.
Proposed § 226.11(b)(2) provided that,
consistent with TILA Section 127(h), the
prohibition in proposed § 226.11(b)(1)
would not have prevented creditors
from terminating an account that is
inactive for three consecutive months.
Under proposed § 226.11(b)(2), an
account would have been inactive if
there had been no extension of credit
(such as by purchase, cash advance, or
balance transfer) and if the account had
no outstanding balance.
One comment on proposed comment
11(b)(1)–1 requested that the phrase
‘‘uses the account’’ be removed because
it does not appear in TILA Section
127(h) or proposed § 226.11(b). The June
2007 Proposal included this phrase
because, under proposed § 226.11(b)(2),
a creditor would be permitted to
terminate an account for inactivity. To
clarify this point, the Board has revised
comment 226.11(b)(1)–1 to reference
§ 226.11(b)(2) explicitly. Otherwise,
§ 226.11(b) is adopted as proposed in

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June 2007, with minor technical and
clarifying revisions.
Section 226.12 Special Credit Card
Provisions
Section 226.12 contains special rules
applicable to credit cards and credit
card accounts, including conditions
under which a credit card may be
issued, liability of cardholders for
unauthorized use, and cardholder rights
to assert merchant claims and defenses
against the card issuer.
12(a) Issuance of Credit Card
TILA Section 132, which is
implemented by § 226.12(a) of
Regulation Z, generally prohibits
creditors from issuing credit cards
except in response to a request or
application. Section 132 explicitly
exempts from this prohibition credit
cards issued as renewals of or
substitutes for previously accepted
credit cards. 15 U.S.C. 1642. While the
June 2007 Proposal did not propose
changes to the current renewal and
substitution rules, the May 2008
Proposal set forth certain limitations on
a card issuer’s ability to issue a new
card as a substitute for an accepted card
for card accounts that have been
inactive for a significant period of time.
Specifically, a card issuer would not
have been permitted to substitute a new
card for a previously accepted card if
the merchant base would be changed
(for example, from a card that is
honored by a single merchant to a
general purpose card) and if the account
has been inactive for a 24-month period
preceding the issuance of the substitute
card. See proposed comment 12(a)(2)–
2.v.
Consumer groups supported the
proposal but urged the Board to expand
the scope of the proposed revision, to
prohibit any replacement of a retail card
by a general-purpose credit card if the
substitution was not specifically
requested by the consumer. In contrast,
the majority of industry commenters
commenting on the issue stated that the
proposed revision would
inappropriately restrict an issuer’s
ability to upgrade cards for consumers
who want a product that provides
greater merchant acceptance than their
existing retail card. These commenters
also generally believed that any
potential concerns about cardholder
security or identity theft are already
adequately addressed through market
practices designed to prevent fraud
(such as card activation requirements)
and other regulatory requirements (for
example, change-in-terms notice
requirements under Regulation Z and
identity theft ‘‘Red Flag’’ requirements

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under the FCRA). See e.g. 12 CFR part
222. One industry commenter urged the
Board to consider adding exceptions
where the general-purpose credit card
carries similar branding as the retail
card (for example, where ‘‘Department
store X retail card’’ is replaced with
‘‘Department store X general-purpose
card’’), or where the retailer goes out of
business.
Industry commenters also urged the
Board to extend the time period for
inactivity from 24 to 36 months after
which a general purpose credit card
could no longer be substituted for a
retail card on an unsolicited basis.
These industry commenters stated that
private label credit cards, particularly
those used to make major purchases,
tend to have long life-cycles and
sporadic usage patterns. One industry
commenter also noted that 36 months
aligned with current card expiration and
renewal time frames. Consumer groups
in contrast believed that 24 months was
excessive, because a consumer may no
longer remember having the particular
retail card, or may have moved during
that time period. Instead, consumer
groups urged the Board to adopt a time
frame of 180 days. Alternatively,
consumer groups suggested that the
Board could permit substitutions only if
the creditor has sent a periodic
statement within the prior three-month
period.
The final rule adopts the revisions to
comment 12(a)(2)–2.v, as proposed.
While some consumers may benefit
from receiving a card that could be used
at a wider number of merchants
compared to their current retail card,
other consumers may have only signed
up for the retail card to receive a benefit
unique to that retailer or group of
retailers, such as an initial purchase
discount, and may not want a card with
greater merchant acceptance. Although
consumers in some cases can elect not
to activate the substitute card and to
destroy the unwanted device, others
may have moved in the interim period,
leading to potential card fraud and
identity theft concerns as the cards will
be sent to an invalid address. Some
consumers may not remember having
opened the retail card account in the
first place, leading to possible consumer
confusion when the new card arrives in
the mail.
Accordingly, the Board believes that
the revised comment as adopted,
including the 24-month period, strikes a
reasonable balance between the
potential benefits to consumers of using
an accepted card at a wider number of
merchants and consumer concerns
arising from an unsolicited card being
sent for an account that has been

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inactive for a significant period of time,
particularly when the card is issued by
a creditor with whom the consumer may
have no prior relationship. The final
comment also deletes as unnecessary
the reference to situations where ‘‘the
consumer has not obtained credit with
the existing merchant base within 24
months prior to the issuance of the new
card’’ because, as noted by one
commenter, this concept is already
incorporated into the definition of
‘‘inactive account’’ in the comment.
In light of the revised comment’s
narrow scope, the Board also believes it
is unnecessary to add any exceptions to
the provision as adopted. The final rule
does not affect creditors’ ability to send
a general-purpose card to replace a retail
card that has been inactive for more
than 24 months if the consumer
specifically requests or applies for the
general-purpose card.
12(b) Liability of Cardholder for
Unauthorized Use
TILA and Regulation Z provide
protections to consumers against losses
due to unauthorized transactions on an
open-end plan. See TILA Section 133(a);
15 U.S.C. 1643, § 226.12(b); TILA
Section 161(b)(1); 15 U.S.C. 1666(b)(1),
§ 226.13(a)(1). Significantly, under
§ 226.12(b), a cardholder’s liability for
an unauthorized use of a credit card is
limited to no more than $50 for
transactions that occur prior to
notification of the card issuer that an
unauthorized use has occurred or may
occur as the result of loss, theft or
otherwise. 15 U.S.C. 1643. Before a card
issuer may impose liability for an
unauthorized use of a credit card, it
must satisfy certain conditions: (1) The
card must be an accepted credit card; (2)
the issuer must have provided adequate
notice of the cardholder’s maximum
liability and of the means by which the
issuer may be notified in the event of
loss or theft of the card; and (3) the
issuer must have provided a means to
identify the cardholder on the account
or the authorized user of the card. The
June 2007 and May 2008 Proposals set
forth a number of revisions that would
have clarified the scope of § 226.12(b)
and updated the regulation to address
current business practices. In addition,
the Board proposed to move the
guidance that is currently set forth in
footnotes to the regulation or
commentary, as appropriate.
Scope. As proposed in the June 2007
Proposal, the definition of
‘‘unauthorized use’’ currently found in
footnote 22 is moved to the regulation.
See § 226.12(b)(1)(i). This definition
provides that unauthorized use is use of
a credit card by a person who lacks

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‘‘actual, implied, or apparent authority’’
to use the credit card. In the June 2007
Proposal, the Board proposed two new
commentary provisions, comments
12(b)(1)(ii)–3 and –4, to parallel existing
commentary provisions under
Regulation E (Electronic Fund
Transfers) regarding unauthorized
electronic fund transfers.
Comment 12(b)(1)(ii)–3, as proposed,
would have clarified that if a cardholder
furnishes a credit card to another person
and that person exceeds the authority
given, the cardholder is liable for that
credit transaction unless the cardholder
has notified the creditor (in writing,
orally, or otherwise) that use of the
credit card by that person is no longer
authorized. See also comment
205.2(m)–2 of the Official Staff
Commentary to Regulation E. Two
industry commenters, one card issuer
and one trade association, supported the
proposed comment, stating that it
provided helpful guidance on an issue
that frequently arises in disputes
between card issuers and cardholders.
Consumer groups, however, asserted
that the scope of the proposed comment
should be limited to misuse by persons
that a cardholder has added as an
authorized user on the account.
The Board adopts the comment as
proposed. The Board believes that
limiting the comment to authorized
users would be too narrow as it would
potentially allow cardholders to avoid
liability for certain transactions simply
because the cardholder did not
undertake the procedural steps
necessary to add an authorized user. In
addition, as noted by one commenter in
support of the proposed comment, the
cardholder is in the best position to
control the persons to whom they have
provided a card for use. Lastly, the
Board believes that to the extent
feasible, it is appropriate to have
consistent rules under Regulation Z and
Regulation E, particularly where the
underlying statutory requirements are
similar.
The June 2007 Proposal also would
have added comment 12(b)(1)(ii)–4 to
provide that unauthorized use includes
circumstances where a person has
obtained a credit card, or otherwise has
initiated a credit card transaction,
through robbery or fraud (for example,
if the person holds the consumer at
gunpoint and forces the consumer to
initiate a transaction). See also
comments 205.2(m)–3 and –4 of the
Official Staff Commentary to Regulation
E. Because ‘‘unauthorized use’’ under
Regulation Z includes the use of a credit
card by a person other than the
cardholder who does not have ‘‘actual,

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implied, or apparent authority,’’ 24 some
commenters agreed with the Board’s
observation in the supplementary
information to the June 2007 Proposal
that cases of robbery or fraud were
likely to be adequately addressed under
the existing regulation. Nonetheless,
these commenters welcomed the
additional guidance as it provided
certainty to the issue. Consumer groups
expressed concern that the proposed
comment was too narrow and could
leave consumers vulnerable to liability
for unauthorized use in other similar
circumstances, such as theft, burglary
and identity theft. Consequently, these
groups urged the Board to expand the
scope of the proposed comment to cover
additional circumstances. The Board
adopts comment 12(b)(1)(ii)–4 generally
as proposed, with a minor revision to
clarify that unauthorized use is not
limited to instances of robbery or fraud.
As discussed previously under
§ 226.2(a)(15), the term ‘‘credit card’’
does not include a check that accesses
a credit card account. Thus, in June
2007, the Board proposed to add
comment 12(b)–4 to provide that the
liability limits established in § 226.12(b)
do not apply to unauthorized
transactions involving the use of these
checks. Consumer groups in response
asserted that even if the Board declined
to expand the definition of ‘‘credit card’’
to include access checks, it should not
necessarily follow that any
unauthorized transactions involving the
use of these checks should be exempt
from the protections afforded by
§ 226.12(b). In particular, consumer
groups observed that this outcome
would lead to the anomalous result that
the consumer’s use of the credit card
number alone would receive the
protections of § 226.12(b), but the
consumer’s use of an access check
would not, even though in both cases,
the transaction is ultimately charged to
the consumer’s credit card account.
The Board adopts comment 12(b)–4 as
proposed, and thus does not extend
application of § 226.12(b) to access
checks in light of the statutory language
in TILA Section 133 requiring that the
unauthorized use involve the use of a
credit card. Nonetheless, as noted in the
June 2007 Proposal, the consumer may
still assert the billing error protections
under § 226.13 with respect to any
24 By contrast, ‘‘unauthorized electronic fund
transfer’’ under Regulation E is defined as an
electronic fund transfer from a consumer’s account
initiated by a person other than a consumer
‘‘without actual authority’’ to initiate the transfer
and from which the consumer receives no benefit,
but excludes a transfer initiated by a person who
was furnished the access device by the consumer.
See 12 CFR 205.2(m).

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unauthorized transaction using an
access check. Comment 12(b)–4 in the
final rule contains this clarification as
proposed.
Some industry commenters urged the
Board to adopt a time period within
which consumers must make claims for
unauthorized transactions made through
use of a credit card. The Board declines
to adopt such a time period. As noted
in the June 2007 Proposal, in contrast to
TILA Section 161 which requires
consumers to assert a billing error claim
within 60 days after a periodic
statement reflecting the error has been
sent, TILA Section 133 does not
prescribe a time frame for asserting an
unauthorized use claim. See 15 U.S.C.
1643.
Conditions for imposing liability.
Before a card issuer may impose any
liability for an unauthorized use of a
credit card, § 226.12(b) requires, among
other things, that the card issuer first
provide a means to identify the
cardholder on the account or the
authorized user of the card, such as a
signature, photograph, or fingerprint on
the card. As proposed in the June 2007
Proposal, comment 12(b)(2)(iii)–1 would
have updated the examples of the means
that a card issuer may provide for
identifying the cardholder on the
account or the authorized user of the
card to include additional biometric
means of identification. See
§ 226.12(b)(2). No commenters opposed
this proposed comment, and it is
adopted as proposed.
In addition, the June 2007 Proposal
would have revised comment
12(b)(2)(iii)–3 to clarify that a card
issuer may not impose liability for an
unauthorized use when merchandise is
ordered by telephone or Internet if the
person using the card without the
cardholder’s authority provides the
credit card number by itself or with
other information that appears on the
card. For example, in many instances, a
credit card will bear a separate 3- or 4digit number, which is typically printed
on the back of the card on the signature
block or in some cases on the front of
the card above the card number. Other
information on the card that may be
provided is the card expiration date.
While the provision of such information
may suggest that the person providing
the number is in possession of the card,
it does not enable the issuer to
determine that the person providing the
number is in fact the cardholder or the
authorized user. Consumer groups
supported this proposal, and no
commenter opposed the proposed
revision. Accordingly, comment
12(b)(2)(iii)–3 is adopted as proposed.

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As noted above, a creditor must
provide adequate notice of the
consumer’s maximum liability before it
may impose liability for an
unauthorized use of a credit card. In the
June 2007 Proposal, the Board proposed
Model Clause G–2(A), which can be
used to explain the consumer’s liability
for unauthorized use. No commenters
addressed the proposed model clause.
The final rule revises the language of
Model Clause G–2(A) to incorporate
optional language that an issuer may
provide in the event it allows a
consumer to provide notice of the
unauthorized use electronically. For
HELOCs subject to § 226.5b, at the
creditor’s option, the creditor may use
either Model Clause G–2 or G–2(A).
Reasonable investigation. Comment
12(b)–3 provides that a card issuer may
not automatically deny an unauthorized
use claim based solely on the
consumer’s failure or refusal to comply
with a particular request. In the May
2008 Proposal, the Board proposed to
amend the comment to specifically
provide that the issuer may not require
the cardholder to submit an affidavit or
to file a police report as a condition of
investigating an unauthorized use claim.
The proposed addition reflected the
Board’s concerns that such card issuer
requests could cause a chilling effect on
a cardholder’s ability to assert his or her
right to avoid liability for an
unauthorized transaction. The proposed
addition also would have codified in the
commentary guidance that had
previously only been stated in the
supplementary information
accompanying prior Board rulemakings.
See 59 FR 64351, 64352, December 14,
1994; 60 FR 16771, 16774, April 3,
1995.
While a few industry commenters
supported the proposal, most industry
commenters asserted that card issuer
requirements for affidavits or police
reports served a useful purpose in
deterring false or fraudulent assertions
of unauthorized use. In addition,
industry commenters also noted that
such documentation may be necessary
to help validate and appropriately
resolve a dispute, as well as to convince
local authorities to prosecute the person
responsible for the unauthorized
transaction. At a minimum, industry
commenters asked the Board to permit
card issuers to require cardholders to
provide a signed statement regarding the
unauthorized use.
Consumer groups strongly supported
the proposed provision, stating that
paperwork requirements and notary fees
could deter consumers from filing
legitimate unauthorized use claims. In
addition, consumer groups noted that

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some consumers continue to have
difficulty obtaining police reports in
connection with identity theft claims,
making it impossible to comply with
creditor requirements for police reports.
In such cases, consumer groups asserted
that a creditor should not be permitted
to impose liability on a victim of fraud
or identity theft because of the police’s
reluctance to take the report.
The final rule adopts the comment,
generally as proposed. As stated in prior
rulemakings and in the May 2008
Proposal, the Board is concerned that
certain card issuer requests could cause
a chilling effect on a cardholder’s ability
to assert his or her right to avoid
liability for an unauthorized transaction.
However, the Board recognizes that in
some cases, a card issuer may need to
provide some form of certification
indicating that the cardholder’s claim is
legitimate, for example, to obtain
documentation from a merchant
relevant to the claim or to pursue
chargeback rights. Accordingly, the
Board is revising the final comment to
clarify that a card issuer may require the
cardholder to provide a signed
statement supporting the asserted claim,
provided that the act of providing the
signed statement would not subject the
cardholder to potential criminal
penalty. For example, the card issuer
may include a signature line on the
billing error rights form that the
cardholder may send in to provide
notice of the claim, so long as the
signature is not accompanied by a
statement that the cardholder is
providing the notice under penalty of
perjury (or the equivalent). See
comment 12(b)–3.vi. The Board further
notes that notwithstanding the
prohibition on requiring an affidavit or
the filing of a police report as a
condition of investigating a claim of
unauthorized use, if the cardholder
otherwise does not provide sufficient
information to allow a card issuer to
investigate the matter, the card issuer
may reasonably terminate the
investigation as a result of the lack of
information.
Business use of credit cards. Section
226.12(b)(5) generally provides that a
card issuer and a business may agree to
liability for unauthorized use beyond
the limits established by the regulation
if 10 or more credit cards are issued for
use by the employees of that business.
Liability on an individual cardholder,
however, may only be imposed subject
to the $50 limitation established by
TILA and the regulation. The Board did
not propose guidance on this issue in
either the June 2007 or the May 2008
Proposal.

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One commenter in response to the
June 2007 Proposal urged the Board to
clarify the meaning of the term
‘‘employee’’ to include temporary
employees, independent contractors,
and any other individuals permitted by
an organization to participate in its
corporate card program, in addition to
traditional employees. The final rule
leaves § 226.12(b)(5) unchanged. The
Board notes that to the extent such
persons meet the definition of
‘‘employee’’ under state law, they could
be permissibly included in determining
whether an organization meets the 10 or
more employee threshold for imposing
additional liability.
12(c) Right of Cardholder To Assert
Claims or Defenses Against Card Issuer
Under TILA Section 170, as
implemented in § 226.12(c) of
Regulation Z, a cardholder may assert
against the card issuer a claim or
defense for defective goods or services
purchased with a credit card. The claim
or defense applies only as to unpaid
balances for the goods or services, and
if the merchant honoring the card fails
to resolve the dispute. The right is
further limited to disputes exceeding
$50 for purchases made in the
consumer’s home state or within 100
miles of the cardholder’s address. See
15 U.S.C. 1666i.25 In the June 2007
Proposal, the Board proposed to update
the regulation to address current
business practices and move guidance
currently in the footnotes to the
regulation or commentary as
appropriate.
In order to assert a claim under
§ 226.12(c), a cardholder must have
used a credit card to purchase the goods
or services associated with the dispute.
In the June 2007 Proposal, the Board
proposed to update the examples in
comment 12(c)(1)–1 of circumstances
that are covered by § 226.12(c) to
include Internet transactions charged to
the credit card account. No commenters
opposed this revision, which is adopted
as proposed.
Comment 12(c)(1)–1 also provides
examples of circumstances for which
the protections under § 226.12(c) do not
apply. In the June 2007 Proposal, the
Board proposed to delete the reference
to ‘‘paper-based debit cards’’ in
comment 12(c)(1)–1.iv. However, the
final rule retains this example of a type
of transaction excluded from § 226.12(c)
to address circumstances in which a
debit card transaction is submitted by
25 Certain merchandise disputes, such as the nondelivery of goods, may also be separately asserted
as a ‘‘billing error’’ under § 226.13(a)(3). See
comment 12(c)–1.

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paper-based means, such as when a
merchant takes an imprint of a debit
card and submits the sales slip in paper
to obtain payment.
Currently, footnote 24 and comment
12(c)(1)–1 provide that purchases
effected by a debit card when used to
draw upon an overdraft credit line are
exempt from coverage under § 226.12(c).
In the June 2007 Proposal, the Board
proposed to move the substance of
footnote 24 to comment 12(c)–3 and to
make a technical revision to comment
12(c)(1)–1. Consumer groups opposed
the substance of these provisions,
asserting that any debit card transaction
that accesses some form of credit should
be accorded the protections under
Regulation Z, whether the debit card
transaction accesses a traditional
overdraft line of credit covered by
Regulation Z or an overdraft service
covered instead by Regulation DD
(Truth in Savings). In their view, the
protections under Regulation Z are
stronger than those provided under
Regulation E (Electronic Funds
Transfer), which generally governs
rights and responsibilities for debit card
transactions. See 12 CFR parts 230 and
205. The Board continues to believe that
given potential operational difficulties
in applying the merchant claims and
defense provisions under § 226.12(c) to
what are predominantly electronic fund
transfers covered by Regulation E and
the Electronic Fund Transfer Act, an
exemption for such transactions from
Regulation Z coverage remains
appropriate. See 46 FR 20848, 20865
(Apr. 7, 1981). Accordingly, the
language previously contained in
footnote 24 is moved to comments
12(c)–3 and 12(c)(1)–1, as proposed.
As stated above, a disputed
transaction must meet certain
requirements before the consumer may
assert a claim or defense under
§ 226.12(c), including that the
cardholder first make a good faith
attempt to seek resolution with the
person honoring the credit card, and
that the transaction has occurred in the
same state as the cardholder’s current
designated address, or, if different,
within 100 miles from that address. See
§ 226.12(c)(3); TILA Section 170. The
Board proposed in June 2007 to
redesignate these conditions to
§ 226.12(c)(3)(i)(A) and (c)(3)(i)(B). No
comments were received on the
proposed change, and it is adopted as
proposed. Section 226.12(c)(3)(ii),
which sets forth the provision
previously contained in footnote 26
regarding the applicability of some of
the conditions, is also adopted as
proposed in the June 2007 Proposal.

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Because many telephone and Internet
transactions may involve merchants that
are based far from a cardholder’s
residence, consumer groups urged the
Board to amend the regulation to
explicitly provide that telephone and
Internet transactions are deemed to have
been made in the consumer’s home state
for purposes of the 100-mile geographic
limitation. The Board believes, however,
that the location where a telephone or
Internet transaction takes place remains
a matter best left to state law. Moreover,
the Board is not aware of widespread
incidences in which a merchant claim
asserted under § 226.12(c) has been
denied due to the merchant’s location.
Thus, if applicable state law provides
that a mail, telephone, or Internet
transaction occurs at the cardholder’s
address, such transactions would be
covered under § 226.12(c), even if the
merchant is physically located more
than 100 miles from the cardholder’s
address.
Guidance regarding how to calculate
the amount of the claim or defense that
may be asserted by the cardholder under
§ 226.12(c), formerly found in footnote
25, is moved to the commentary in
comment 12(c)–4 as proposed in the
June 2007 Proposal.
12(d) Offsets by Card Issuer Prohibited
TILA Section 169 prohibits card
issuers from taking any action to offset
a cardholder’s credit card indebtedness
against funds of the cardholder held on
deposit with the card issuer. 15 U.S.C.
1666h. The statutory provision is
implemented by § 226.12(d) of the
regulation. Section 226.12(d)(2)
currently provides that card issuers are
permitted to ‘‘obtain or enforce a
consensual security interest in the
funds’’ held on deposit. Comment
12(d)(2)–1 provides guidance on the
security interest provision. For example,
the security interest must be
affirmatively agreed to by the consumer,
and must be disclosed as part of the
account-opening disclosures under
§ 226.6. In addition, the comment
provides that the security interest must
not be ‘‘the functional equivalent of a
right of offset.’’ The comment states that
the consumer ‘‘must be aware that
granting a security interest is a
condition for the credit card account (or
for more favorable account terms) and
must specifically intend to grant a
security interest in a deposit account.’’
The comment gives some examples of
how this requirement can be met, such
as use of separate signature or initials to
authorize the security interest,
placement of the security agreement on
a separate page, or reference to a
specific amount or account number for

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the deposit account. The comment also
states that the security interest must be
‘‘obtainable and enforceable by creditors
generally. If other creditors could not
obtain a security interest in the
consumer’s deposit accounts to the
same extent as the card issuer, the
security interest is prohibited by
§ 226.12(d)(2).’’
In the June 2007 Proposal, the Board
requested comment on whether
additional guidance was needed and, if
so, the specific issues the guidance
should address. Several consumer
groups commented that any guidance
should explicitly require strong
measures to manifest a consumer’s
consent to grant a security interest,
specifically a separate written document
that must be independently signed by
the consumer and that references a
specific account. These commenters
also suggested that issuers should be
required to show that they are not
routinely taking security interests in
deposit accounts as the functional
equivalent of an offset, for example, by
either falling under a numerical
threshold (only a small percentage of
accounts have a security interest) or by
establishing a special program for
accounts with a security interest.
The Board is not aware of evidence
that would suggest that creditors are
routinely taking security interests in
deposit accounts as the functional
equivalent of offsets, and therefore
believes that it is unnecessary to require
measures such as numerical thresholds
or special programs. However, comment
12(d)(2)–1 is amended to state that
indicia of the consumer’s intent to grant
a security interest in a deposit account
include at least one of the procedures
listed in the comment (i.e., separate
signature or initials to authorize the
security interest, placement of the
security agreement on a separate page,
and reference to a specific amount of
funds or to a specific account number),
or a procedure that is substantially
similar in evidencing the consumer’s
intent. As stated in the June 2007
Proposal, questions have been raised
with the Board whether creditors must
follow all of the procedures specified in
the comment; while the Board believes
it is unnecessary to require creditors to
use all of these procedures to ensure the
consumer’s awareness of and intent to
create a security interest, it is reasonable
to expect creditors to follow at least one
of them.
No other changes to § 226.12(d) and
associated commentary were proposed,
and no other comments were received.
Therefore, other than the change to
comment 12(d)(2)–1 discussed above,
§ 226.12(d) and the associated

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commentary remain unchanged in the
final rule.
12(e) Through 12(g)
Sections § 226.12(e), (f), and (g)
address, respectively: The prompt
notification of returns and crediting of
refunds; discounts and tie-in
arrangements; and guidance on the
applicable regulation (Regulation Z or
Regulation E) in instances involving
both credit and electronic fund transfer
aspects. The Board did not propose any
changes to these provisions or the
associated commentary, and no
comments were received on them.
These provisions and the associated
commentary remain unchanged in the
final rule.
Section 226.13 Billing Error Resolution
TILA Section 161, as implemented in
§ 226.13 of the regulation, sets forth
error resolution procedures for billing
errors, and requires a consumer to
provide written notice of an error within
60 days after the first periodic statement
reflecting the alleged error is sent. 15
U.S.C. 1666. The written notice triggers
a creditor’s duty to investigate the claim
within prescribed time limits. In
contrast to the consumer protections in
§ 226.12 of the regulation, which are
limited to transactions involving the use
of a credit card, the billing error
procedures apply to any extension of
credit that is made in connection with
an open-end account.
13(a) Definition of Billing Error
Section 226.13(a) defines a ‘‘billing
error’’ for purposes of the error
resolution procedures. Under
§ 226.13(a)(3), the term ‘‘billing error’’
includes disputes about property or
services that are not delivered to the
consumer as agreed. See § 226.13(a)(3).
As originally proposed in June 2007,
comment 13(a)(3)–2 would have
provided that a consumer may assert a
billing error under § 226.13(a)(3) with
respect to property or services obtained
through any extension of credit made in
connection with a consumer’s use of a
third-party payment service.
In some cases, a consumer might pay
for merchandise purchased through an
Internet site using an Internet payment
service, with the funds being provided
through an extension of credit from the
consumer’s credit card or other openend account. For example, the consumer
may purchase an item from an Internet
auction site and use the payment service
to fund the transaction, designating the
consumer’s credit card account as the
funding source. As in the case of
purchases made using a check that
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account, there may not be a direct
relationship between the merchant
selling the merchandise and the card
issuer when an Internet payment service
is used. Because a consumer has billing
error rights with respect to purchases
made with access checks, the June 2007
Proposal would have provided that the
billing error provisions would similarly
apply when a consumer makes a
purchase using a third-party payment
intermediary funded using the same
credit card account.
Consumer groups strongly supported
the Board’s proposal, stating that it
would help to resolve a number of
problems involving transactions
processed by third-party intermediary
payment services in which goods are
not received. Industry commenters
largely opposed the proposed comment,
however, urging the Board to treat
extensions of credit involving thirdparty payment intermediaries similarly
to transactions in which a consumer
uses an access check or credit card to
obtain a cash advance, and then uses
that cash to pay for a good or service.
Under such circumstances, a consumer
would be able to assert a billing error if
the wrong amount was funded, but not
if the good purchased with the funds
was not delivered as agreed.
Industry commenters also stated that
the proposed comment inappropriately
puts the burden of investigating billing
errors involving third-party payment
services on the card issuer, rather than
on the third-party payment intermediary
itself, even though the intermediary will
have more direct access to information
about the transaction. Industry
commenters were particularly
concerned about the lack of privity
between the card issuer and the end
merchant because in many cases the
merchant in a third-party intermediary
arrangement will not have agreed to
meet the requirements of participating
in the credit card network. Thus, a card
issuer would be unable to contact the
merchant or to charge back a transaction
in the event the consumer asserts a
billing error, thereby exposing the issuer
to considerably more risk for the
transaction. In this regard, some
industry commenters drew a contrast
between the use of third-party payment
services and the use of access checks,
noting that creditors are able to control
for risks for access check transactions by
either pricing those transactions
differently or by restricting the checks
that may be issued to the cardholder.
Industry commenters also raised a
number of operational considerations.
For example, commenters stated that
some consumers may use their credit
cards to fund their third-party

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intermediary accounts, but then not use
those funds for some time. In those
circumstances, issuers would be unable
to trace a disputed transaction back to
the purchased good or service because
the issuer would not receive any
information about that subsequent
transaction. Consequently, while they
opposed the proposed comment in
principle, a few industry commenters
suggested that the proposed comment
might be workable only if it were
limited to circumstances in which the
credit card account is used specifically
for a particular purchase that can be
identified (for example, where funds
from the card are used
contemporaneously, the amount of the
purchase and ‘‘funding’’ are the same,
and they can be traced and tracked).
Another industry commenter asked for
guidance on how the proposed
comment would apply where the
purchase of a good or service results
from the commingling of funds, only a
portion of which can be attributed to an
extension of credit from a credit card
account.
The Board continues to believe that it
is appropriate to apply the billing error
provisions to transactions made through
a third-party intermediary using a credit
card account 26 just as they would apply
to purchases made with checks that
access the same credit card account.
However, in light of certain operational
issues raised by commenters, the final
rule limits the applicability of comment
13(a)(3)–2 to extensions of credit that (1)
are obtained at the time the consumer
purchases the good or service through
the third-party payment intermediary;
and (2) match the amount of the
purchase transaction for the good or
service including any ancillary taxes
and fees (such as shipping and handling
costs and/or taxes).
From the consumer’s perspective,
there is likely to be little difference
between his or her use of a credit card
to make a payment directly to the
merchant on a merchant’s Internet Web
site or to make a payment to the
merchant through a third-party
intermediary. Indeed, in some cases, the
merchant may not otherwise accept
credit cards, making the use of the thirdparty intermediary service the
consumer’s most viable option of paying
for the good or service. In other cases,
the consumer may not want to provide
his or her credit card number or other
26 Although the billing error provisions apply to
extensions of credit made through open-end credit
plans more generally, the Board is not aware of any
circumstances in which a transaction made to fund
a third-party intermediary transaction is initiated
with any open-end credit plan other than a credit
card.

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information to the merchant for security
reasons. Nonetheless, the consumer may
reasonably expect that transactions
made using his or her credit card
account would be afforded the billing
error protections just as if the consumer
used an access check to purchase the
good or service. To the extent that such
transactions may pose additional risk to
the creditor due to the lack of privity
between the creditor and the merchant,
nothing in the rule would prohibit the
creditor from pricing the transaction
differently, just as access check
transactions are often priced differently
from other purchases made using a
credit card.
As noted above, comment 13(a)(3)–2
is limited to extensions of credit that are
obtained in connection with the
consumer’s purchase of a good or
service using the third-party payment
intermediary and where the purchase
amount of the transaction including any
ancillary taxes and fees (such as
shipping and handling costs and/or
taxes) matches the amount of the
extension of credit. In those
circumstances, the Board understands
that credit card network rules generally
require that specific information about
the extension of credit, including the
name of the merchant from whom the
consumer has purchased the good or
service and the purchase amount, be
passed through to the creditor, which
would allow the creditor to identify the
particular purchase. The final rule does
not extend billing error rights to
extensions of credit that are made to
fund an account held by a third-party
payment intermediary if the consumer
does not contemporaneously use those
funds to purchase a good or service at
that time. For example, a consumer may
use his or her credit card to fund the
consumer’s account held at a third-party
payment intermediary for $100, but then
some time later purchase a good or
service using some or all of the $100 in
funds in that account. Under those
circumstances, the creditor would not
have any information about subsequent
transactions made using the funds from
the $100 extension of credit to enable
the creditor to investigate the claim. The
Board considers the $100 extension of
credit in that scenario to be equivalent
to a cash advance, which would allow
the consumer to assert a billing error if
the wrong amount is funded, but any
problems with the delivery of that good
or service would not be considered a
billing error for purposes of
§ 226.13(a)(3).
The revised comment also does not
cover extensions of credit that are made
to fund only a portion of the purchase
amount, where the consumer may use

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another source of funds to fund the
remaining amount. For example, the
consumer may make a $50 purchase
using a third-party payment
intermediary service, but have $20 in
his or her account held by the payment
intermediary. The consumer may in this
case use a credit card account to cover
the remaining $30 of the purchase. In
this ‘‘split tender’’ example where the
purchase is funded by a commingling of
multiple payment sources, including a
credit card account, the Board believes
that the operational challenges in
resolving any disputes arising from the
purchased good or service, including
how to credit the purchase amount back
to the consumer, outweigh any resulting
benefits to the consumer in treating any
disputes regarding the delivery of the
good purchased as a billing error under
§ 225.13(a)(3).
The Board’s adoption of a final rule
providing consumers error resolution
rights when they use their credit card
account in connection with third-party
payment intermediary services in some
circumstances does not preclude a
future possible change to the regulation
extending these rights to additional
circumstances in which purchases made
through a third-party payment
intermediary service are funded in
whole or in part using a credit card
account. The Board intends to continue
to study this issue, and other issues
related to third-party payment
intermediaries more generally, and may
consider in the future whether
additional protections under Regulation
Z and other consumer financial services
regulations are necessary with respect to
consumer usage of these services.
The June 2007 Proposal also proposed
a new comment 13(a)(3)–3 to clarify that
prior notice to the merchant is not
required before the consumer can assert
a billing error that the good or service
was not accepted or delivered as agreed.
One industry commenter urged the
Board to reconsider the proposed
comment, stating that in many cases,
such as in the event of non-delivery, a
dispute might be more efficiently
resolved if the consumer contacted the
merchant first before asserting a billing
error claim with the creditor. Consumer
groups supported the proposed
comment. In adopting the comment as
proposed, the Board notes that in
contrast to claims or defenses asserted
under TILA Section 170 and § 226.12(c)
of the regulation, which require that the
cardholder first make a good faith
attempt to resolve a disagreement or
problem with the person honoring the
credit card, the billing error provisions
under TILA do not require the consumer
to first notify and attempt to resolve the

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dispute with the person honoring the
credit card before asserting a billing
error directly with the creditor. See 15
U.S.C. 1666i.
13(b) Billing Error Notice
To assert a billing error, a consumer
must provide a written notice of the
error to the creditor no later than 60
days after the creditor transmitted the
first periodic statement that reflects the
alleged error. See § 226.13(b). The June
2007 Proposal would have revised
comment 13(b)–1 to incorporate
guidance currently in footnote 28 stating
that a creditor need not comply with the
requirements of § 226.13(c) through (g)
if the consumer voluntarily withdraws
the billing error notice. In addition, the
June 2007 Proposal would have added
new comment 13(b)–2 to incorporate
guidance currently in footnote 29 stating
that the creditor may require that the
written billing error notice not be made
on the payment coupon or other
material accompanying the periodic
statement if the creditor so states in the
billing rights statement on the accountopening disclosure and annual billing
rights statement. Proposed comment
13(b)–2 further would have provided
that billing error notices submitted
electronically would be deemed to
satisfy the requirement that billing error
notices be provided in writing, provided
that the creditor has stated in its billing
rights statement that it will accept
notices submitted electronically,
including how the consumer can submit
billing error notices in this manner.
No commenters opposed the proposed
revisions to the commentary under
§ 226.13(b), and these comments are
adopted as proposed. In addition, the
Board is revising Model Forms G–2, G–
2(A), G–3, G–3(A), G–4 and G–4(A) to
add optional language creditors can use
if they elect to accept billing error
notices (or notices of loss or theft of
credit cards) electronically.
13(c) Time for Resolution; General
Procedures
Section 226.13(c) generally requires a
creditor to mail or deliver written
acknowledgement to the consumer
within 30 days of receiving a billing
error notice, and to complete the billing
error investigation procedures within
two billing cycles (but no later than 90
days) after receiving a billing error
notice. To ensure that creditors
complete their investigations in the time
period set forth under TILA, in June
2007 the Board proposed to add new
comment 13(c)(2)–2 which would have
provided that a creditor must complete
its investigation and conclusively
determine whether an error occurred

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within the error resolution timeframes.
Once this period has expired, the
proposed comment further provided
that the creditor may not reverse any
corrections it has made related to the
asserted billing error, including any
previously credited amounts, even if the
creditor subsequently obtains evidence
indicating that the billing error did not
occur as asserted.
In response to the June 2007 Proposal,
consumer groups urged the Board to
adopt the comment to prevent
unwelcome consumer surprise when a
creditor reverses an error finding
months later. Industry commenters in
contrast asserted that the proposed
comment unreasonably prevented
creditors from considering evidence that
is presented after the error timeframes.
Industry commenters noted, moreover,
that disputes today are much more
numerous and complex to investigate
and resolve, thus supporting the case for
a longer, rather than shorter, timeframe.
In this regard, industry commenters
urged the Board, at a minimum, to
provide exceptions for instances of
consumer fraud or bad faith in asserting
a billing error.
Industry commenters also stated that
the proposed comment would
effectively nullify the statutory
forfeiture penalty provision under TILA
Section 161(e) which, they stated, caps
the amount that may be forfeited by a
creditor for failure to comply with the
billing error provisions at $50. 15 U.S.C.
1666(e). In their view, TILA Section
161(e) reflects the intent of Congress to
balance the need for timely
investigations against potential unjust
enrichment to consumers. Thus,
commenters stated that if a creditor
receives information about a disputed
transaction after the two-billing-cycle
investigation period which indicates
that an error did not occur as alleged,
TILA Section 161(e) would permit the
creditor to reverse the credit, minus the
statutory $50 penalty.
Comment 13(c)(2)–2 as adopted states
that the creditor must comply with the
error resolution procedures and
complete its error investigation within
the time period under § 226.13(c)(2). For
example, if the creditor determines that
an error did not occur as asserted after
the error resolution time frame has
expired, it generally may not reverse
funds that were previously credited to
the consumer’s account. Similarly, if a
creditor fails to comply with a billing
error requirement, such as mailing or
delivering a written explanation stating
why an error did not occur as asserted,
within the billing error period, the
creditor generally must credit the
consumer’s account in the amount of

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the disputed error as well as related
finance or other charges, as applicable.
Like the proposal, the final comment
does not reflect the statutory forfeiture
provision in TILA § 161(c).
The purpose of the billing error
resolution time frame set forth in TILA
Section 161 is to enable consumers to
have their error claims investigated and
resolved promptly. In short, TILA
Section 161, as implemented by
§ 226.13, is intended to bring finality to
the billing error resolution process, and
avoid the potential of undue surprise for
consumers caused by the reversal of
previously credited funds when a
creditor fails to complete their
investigation in a timely manner. Thus,
the Board does not interpret the
statutory forfeiture penalty under TILA
Section 161(e) as being intended to
override Section 161’s overall
protections. In this regard, the Board
notes that TILA’s administrative and
civil liability provisions in TILA
Sections 108 and 130, respectively,
support this reading of Section 161.
That is, if a creditor does not comply
with the substantive requirements of
TILA Section 161 and complete their
investigation in the established
timeframe (i.e., two complete billing
cycles), the creditor also may be subject
to administrative or civil penalties.
These provisions serve to facilitate
finality in the billing error process by
ensuring that the investigation is closed
within the time period set forth in the
statute.
The final comment is also revised to
clarify that creditors have two complete
billing cycles to investigate after
receiving a consumer’s notice of a
billing error. Thus, if a creditor receives
a billing error notice mid-cycle, it would
have the remainder of that cycle plus
the next two full billing cycles to
resolve the error. See comment 13(c)(2)–
1. Comment 13(e)–3, which cross
references comment 13(c)(2)–2, is also
adopted as proposed in the June 2007
Proposal.
13(d) Rules Pending Resolution
Once a consumer asserts a billing
error, the creditor is prohibited under
§ 226.13(d) from taking certain actions
with respect to the dispute in order to
ensure that the consumer is not
otherwise discouraged from exercising
his or her billing error rights. For
example, the creditor may not take
action to collect any disputed amounts,
including related finance or other
charges, or make or threaten to make an
adverse report, including reporting that
the amount or account is delinquent, to
any person about the consumer’s credit
standing arising from the consumer’s

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failure to pay the disputed amount or
related finance or other charges.
Currently, § 226.13(d) prohibits a card
issuer from deducting through an
automated payment plan, any part of the
disputed amount or related charges from
a cardholder’s deposit account if the
deposit account is also held by the card
issuer, provided that the cardholder has
provided a billing error notice at least
three business days before the
scheduled payment date. To reflect
current payment processing practices,
the Board proposed in June 2007 to
extend the prohibition to all automatic
deductions from any consumer deposit
account where the deduction is
pursuant to the consumer’s enrollment
in a card issuer’s automatic payment
plan. See proposed § 226.13(d)(1) and
comment 13(d)(1)–4. The intent of the
proposal was to ensure that a cardholder
whose payments are automatically
debited (via the card issuer’s automatic
payment service) from a deposit account
maintained at a different financial
institution would have the same
protections afforded to a cardholder
whose deposit account is maintained by
the card issuer. For example, if the
cardholder has agreed to pay a
predetermined amount each month and
subsequently disputes one or more
transactions that appear on a statement,
the card issuer must ensure that it does
not debit the consumer’s deposit
account for any part of the amount in
dispute, provided that the card issuer
has received sufficient notice.
In response to the June 2007 Proposal,
some industry commenters stated that
the proposal reflected a reasonable
balance. Other industry commenters
stated that the proposal introduced
operational challenges which could
result in significant inconvenience for
the customer and the creditor. For
example, once a dispute related to a
transaction is received, a creditor would
have to recalculate the required
payment amount to exclude the
disputed charges and cause the next
automatic debit of the customer’s
deposit account to include only that
recalculated payment amount. Industry
commenters stated that the process of
analyzing the dispute and
communicating this information to the
area which manages payments could
delay the receipt of the payment to the
detriment of the consumer. Consumer
groups supported the proposal, stating
that the change would ensure that all
consumers who use automatic payment
plans offered by their card issuer to pay
their credit card bills have a meaningful
ability to invoke their billing error
rights.

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The revisions to § 226.13(d)(1) are
adopted, as proposed. Although a few
industry commenters raised certain
operational issues, these concerns
would also appear to apply to automatic
debits from accounts held by the card
issuer itself. Accordingly, the Board is
not persuaded there is a need to
distinguish automatic payment plans
that debit a cardholder’s deposit
account held at the card issuer from
plans that debit a cardholder’s deposit
account held at a different financial
institution. Cardholders should not have
different billing error rights as a
consequence of enrolling in an
automated payment plan offered by the
card issuer based on where their deposit
accounts are held. Section 226.13(d)(1)
as revised applies whether the card
issuer operates the automatic payment
plan itself or outsources the service to
a third-party service provider, but
would not apply where the cardholder
has enrolled in a third-party bill
payment service that is not offered by
the card issuer. Thus, for example, the
revised rule does not apply where the
consumer uses his or her deposit
account-holding institution’s billpayment service to pay his or her credit
card bill (unless the deposit accountholding institution has also issued the
credit card). Comment 13(d)(1)–4 is also
revised to reflect the adopted change as
proposed.
Section 226.13(d)(3) is adopted as
proposed in the June 2007 Proposal to
incorporate the text of footnote 27
prohibiting a creditor from accelerating
a consumer’s debt or restricting or
closing the account because the
consumer has exercised billing error
rights. In addition, the Board is
retaining portions of comment 13–1,
which it had proposed to delete, to
retain the reference to the statutory
forfeiture penalty under TILA Section
161(e) in the event a creditor fails to
comply with any of the billing error
requirements under § 226.13.
Accordingly, comment 13–2, which was
proposed to be redesignated as comment
13–1, is retained in place in the
commentary. No comments were
received on these provisions.
13(f) Procedures if Different Billing
Error or not Billing Error Occurred
Section 226.13(f) sets forth procedures
for resolving billing error claims if the
creditor determines that no error or a
different error occurred. A creditor must
first conduct a reasonable investigation
before a creditor may deny a consumer’s
claim or conclude that the billing error
occurred differently than as asserted by
the consumer. See TILA Section
161(a)(3)(B)(ii); 15 U.S.C.

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1666(a)(3)(B)(ii). Footnote 31 currently
provides that to resolve allegations of
nondelivery of property or services,
creditors must determine whether
property or services were actually
delivered, mailed, or sent as agreed. To
resolve allegations of incorrect
information on a periodic statement due
to an incorrect report, creditors must
determine that the information was
correct.
The June 2007 Proposal proposed to
delete footnote 31 as unnecessary in
light of the general creditor obligation
under § 226.13(f) to conduct a
reasonable investigation. Consumer
advocates, however, urged the Board to
retain the substance of the footnote,
noting that it requires issuers to take
concrete steps for resolving claims of
non-delivery such as obtaining delivery
records or contacting merchants.
Without this guidance, advocates
expressed concern that issuers would
conduct more perfunctory
investigations, which, in their view, has
been the case with respect to some
creditors applying the same ‘‘reasonable
investigation’’ standard in investigations
into allegations of errors on credit
reports under the FCRA. 15 U.S.C. 1681
et seq.
In light of these concerns, the Board
proposed in May 2008 to add comment
13(f)–3 which would have contained the
substance of footnote 31. The proposed
comment also would have included
guidance on conducting a reasonable
investigation of a claim of an
unauthorized transaction to harmonize
the standards under both § 226.12(b)
and § 226.13(a)(1). Specifically, the
Board proposed to include applicable
guidance currently provided for
unauthorized transaction claims under
§ 226.12(b) in proposed comment 13(f)–
3. See comment 12(b)–3. The proposed
comment also would have paralleled
proposed guidance under comment
12(b)–3 to provide that a creditor may
not automatically deny a claim based
solely on the consumer’s failure or
refusal to comply with a particular
request, including a requirement that
the consumer submit an affidavit or file
a police report. Lastly, the proposed
comment included illustrations on the
procedures that may be followed in
investigating different types of alleged
billing errors.
Both industry and consumer group
commenters generally supported the
proposed comment. Consumer groups
stated that retaining the text of footnote
31 in the proposed comment would
help to ensure that creditors conduct
substantive investigations of billing
disputes, and urged the Board to
provide guidance for all types of billing

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error disputes, including specified steps
that a creditor should take to conduct a
reasonable investigation. One trade
association urged the Board to revise the
commentary language requiring
creditors to confirm that services or
property were actually delivered when
there is a claim of non-performance
because the merchant, and not the
creditor, is in the best place to make this
determination. This commenter also
urged the Board to provide additional
guidance to outline the parameters of
what constitutes a ‘‘reasonable
investigation’’ to avoid potential
disputes between issuers, consumers,
and examiners.
Industry commenters opposing the
proposed comment primarily raised the
same concerns they had previously
raised with respect to the proposed
commentary revisions to § 226.12(b)
which explicitly stated that a card issuer
could not require a consumer to provide
an affidavit or file a police report as a
condition of investigating a claim of
unauthorized use.
The final rule adopts comment 13(f)–
3 generally as proposed, with revisions
to conform to the parallel comment
adopted under § 226.12(b) with respect
to unauthorized use, which would
prohibit a card issuer from requiring an
affidavit or the filing of a police report.
See comment 12(b)–3, discussed above.
The Board believes that incorporating
all of the prior guidance pertaining to
the investigation of billing errors in a
single place would facilitate compliance
for creditors. In addition, as stated in
the supplementary information
accompanying the May 2008 Proposal,
adoption of the guidance currently set
forth under § 226.12(b) with respect to
unauthorized transactions under
§ 226.13 would harmonize the standards
under the two provisions. However,
because what might constitute a
‘‘reasonable investigation’’ is necessarily
a case-by-case determination, the Board
declines to prescribe a specific series of
steps or measures that a creditor must
undertake in investigating a particular
billing error claim.
13(g) Creditor’s Rights and Duties After
Resolution
Section 226.13(g) specifies the
creditor’s rights and duties once it has
determined, after a reasonable
investigation under § 226.13(f), that a
consumer owes all or a portion of the
disputed amount and related finance or
other charges. In the June 2007
Proposal, the Board proposed guidance
to clarify the length of time the
consumer would have to repay the
amount determined still to be owed
without incurring additional finance

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charges (i.e., the grace period) that
would apply under these circumstances.
Specifically, the Board proposed to
revise comment 13(g)(2)–1 to provide
that before a creditor may collect any
amounts owed related to a disputed
charge that is determined to be proper,
the creditor must provide the consumer
a period of time equivalent to any grace
period disclosed under proposed
§§ 226.6 or 226.7, as applicable, to pay
the disputed amount as well as related
finance or other charges (assuming that
the consumer was entitled to a grace
period at the time the consumer asserted
the alleged error). As explained in the
supplementary information to the June
2007 Proposal, this interpretation was
necessary to ensure that consumers are
not discouraged from asserting their
statutory billing rights by putting the
consumer in the same position (that is,
with the same grace period) as if the
consumer had not disputed the
transaction in the first place. No
comments were received on the
proposed change, and comment
13(g)(2)–1 is adopted as proposed.
13(i) Relation to Electronic Fund
Transfer Act and Regulation E
Section 226.13(i) is designed to
facilitate compliance when financial
institutions extend credit incident to
electronic fund transfers that are subject
to the Board’s Regulation E, for
example, when the credit card account
is used to advance funds to prevent a
consumer’s deposit account from
becoming overdrawn or to maintain a
specified minimum balance in the
consumer’s account. See 12 CFR part
205. The provision provides that under
these circumstances, the creditor should
comply with the error resolution
procedures of Regulation E, rather than
those in Regulation Z (except that the
creditor must still comply with
§ 226.13(d) and (g)). In the June 2007
Proposal, the Board proposed to revise
the examples in comment 13(i)–2 of
incidental credit that is governed solely
by the error resolution procedures in
Regulation E to specifically refer to
overdraft protection services that are not
subject to the Board’s Regulation Z
when there is no agreement between the
creditor and the consumer to extend
credit when the consumer’s account is
overdrawn.
No industry commenters addressed
this provision. However, consumer
groups asserted that the Board should
reconsider its prior determination not to
cover overdraft loan products under
Regulation Z and remove the example
entirely. The Board has determined that
it remains appropriate to exclude
overdraft services under Regulation Z,

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and instead address concerns about this
product under Regulations DD and E.
Consistent with this determination, the
Board is adopting comment 13(i)–2
generally as proposed, with a minor
revision to amend the example to refer
to overdraft services, instead of
overdraft protection plans.
In the June 2007 Proposal, the Board
also solicited comment as to whether it
should include any additional examples
of incidental credit that should be
addressed under the error resolution
procedures of Regulation E, rather than
those of Regulation Z. See comment
13(i)–2. Consumer groups opposed the
addition of new examples, asserting that
Regulation E provides less protection
than Regulation Z with respect to error
resolution. No other commenters
provided any additional examples, and
the provision is unchanged.
Technical revisions. In addition to
moving the substance of footnotes 27
and 31 as discussed above, the Board is
also adopting technical revisions which
move the substance of footnotes 28–30
in the current rule to the regulation or
commentary, as appropriate. (See
redesignation table below.) References
to ‘‘free-ride period’’ in the regulation
and commentary are replaced with
‘‘grace period,’’ without any intended
substantive change, for the reasons set
forth in the section-by-section analysis
to § 226.6(b)(3).
Section 226.14 Determination of
Annual Percentage Rate
As discussed in the section-by-section
analysis to § 226.7 above, Regulation Z
currently requires disclosure on
periodic statements of both the effective
APR and the corresponding APR. The
regulation also requires disclosure of the
corresponding APR in account-opening
disclosures, change-in-terms notices,
advertisements, and other documents.
The computation methods for both the
corresponding APR and the effective
APR are implemented in § 226.14 of
Regulation Z. Section 226.14 also
provides tolerances for accuracy in APR
disclosures.
As also discussed in the section-bysection analysis to § 226.7, the June
2007 Proposal contained two alternative
approaches regarding the computation
and disclosure of the effective APR.
Under the first alternative, the Board
proposed to retain the requirement that
the effective APR be disclosed on
periodic statements, with modifications
to the rules for computing and
disclosing the effective APR to reflect an
approach tested with consumers. See
proposed §§ 226.7(b)(7) and 226.14(d).
For home-equity plans subject to
§ 226.5b, the Board proposed to allow a

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creditor to comply with the current
rules applicable to the effective APR;
thus, creditors offering home-equity
plans would not be required to make
changes in their periodic statement
systems for such plans at this time. See
proposed §§ 226.7(a)(7) and 226.14(c).
Alternatively, the Board proposed that
at the creditor’s option, it could instead
calculate and disclose an effective APR
for its home-equity plans under any
revised rules adopted for disclosure of
the effective APR for open-end (not
home-secured) credit.
The second alternative proposed by
the Board was to eliminate the
requirement to disclose the effective
APR on the periodic statement. Under
the second alternative, for a homeequity plan subject to § 226.5b, the
Board proposed that a creditor would
have the option to disclose the effective
APR according to current rules or not to
disclose an effective APR. The Board’s
proposed alternative versions of
§ 226.14 reflected these two proposed
alternatives.
Under either alternative, the Board
did not propose to revise substantively
the current provisions in § 226.14(a)
(dealing with APR tolerances) and (b)
(guidance on calculating the APR for
certain disclosures other than the
periodic statement), but minor technical
changes were proposed to reflect
changes in terminology and to eliminate
footnotes, moving their substance into
the text of the regulation. No comments
were received on these changes, and
they are adopted in the final rule as
proposed.
For the reasons discussed in the
section-by-section analysis to § 226.7,
the Board is eliminating the requirement
to disclose the effective APR on periodic
statements. Consistent with the
proposal, for a home-equity plan subject
to § 226.5b, a creditor has the option to
disclose an effective APR (according to
the current rules in Regulation Z for
computing and disclosing the effective
APR, set forth in § 226.14(c)), or not to
disclose an effective APR. The option to
continue to disclose the effective APR
allows creditors offering home-equity
plans to avoid making changes in their
periodic statement systems at this time.
As discussed earlier, the Board is
undertaking a review of home-secured
credit, including HELOCs; the rules for
computing and disclosing the APR for
HELOCs could be the subject of
comment during the review of rules
affecting HELOCs.
As stated in the June 2007 Proposal,
no guidance is given for disclosing the
effective APR on open-end (not homesecured) plans, since the requirement to
provide the effective APR on such plans

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is eliminated. Proposed §§ 226.14(d)
and (e), which would have set forth the
revised rules for calculating an effective
APR for open-end (not home-secured)
credit, are withdrawn. Section 226.14(d)
is retained in its current form, rather
than being redesignated as § 226.14(c)(5)
as proposed. Minor technical changes
are made to § 226.14(c) and the
accompanying commentary as
proposed, including redesignation of
comments to assist users in locating
comments relevant to the applicable
regulatory provisions.
Section 226.16 Advertising
TILA Section 143, implemented by
the Board in § 226.16, governs
advertisements of open-end credit
plans. 15 U.S.C. 1663. The statutory
provisions apply to the advertisement
itself, and therefore, the statutory and
regulatory requirements apply to any
person advertising an open-end credit
plan, whether or not such person meets
the definition of creditor. See comment
2(a)(2)–2. The Board proposed several
changes to the advertising rules in
§ 226.16 in the June 2007 Proposal.
Changes were proposed in order to
ensure meaningful disclosure of
advertised credit terms, alleviate
compliance burden for certain
advertisements, and implement
provisions of the Bankruptcy Act. The
Board’s proposals related to trigger term
disclosures generally and additional
disclosures for minimum monthly
payment advertising, introductory rates,
alternative disclosures for television and
radio advertisements, and guidance on
use of the word ‘‘fixed’’ in connection
with an APR. Based in part on
comments to the June 2007 Proposal,
the Board proposed additional changes
to the advertising rules in the May 2008
Proposal related to promotional rates
(referred to as introductory rates in the
June 2007 Proposal) and deferred
interest offers.
Deferred interest offers. Many
creditors offer deferred interest plans
where consumers may avoid paying
interest on purchases if the outstanding
balance is paid in full by the end of the
deferred interest period. If the
outstanding balance is not paid in full
when the deferred interest period ends,
these deferred interest plans often
require the consumer to pay interest that
has accrued during the deferred interest
period. Moreover, these plans typically
also require the consumer to pay
interest accrued from the date of
purchase if the consumer defaults on
the credit agreement. Some deferred
interest plans define default under the
card agreement to include failure to
make a minimum payment during the

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deferred interest period while other
plans do not. Advertisements often
prominently disclose the possibility of
financing the purchase of goods or
services at no interest.
In May 2008, the Board proposed to
use its authority under TILA Section
143(3) to add a new § 226.16(h) to
address the Board’s concern that the
disclosures currently required under
Regulation Z may not adequately inform
consumers of the terms of deferred
interest offers. 15 U.S.C. 1663(3).
Specifically, the Board proposed to
require that the deferred interest period
be disclosed in immediate proximity to
each statement regarding interest or
payments during the deferred interest
period. The Board also proposed that
certain information about the terms of
the deferred interest offer be disclosed
in close proximity to the first statement
regarding interest or payments during
the deferred interest period.
The final rules adopted by the Board
and other federal banking agencies
published elsewhere in today’s Federal
Register do not permit issuers subject to
those rules to establish deferred interest
plans in which creditors can
retroactively charge interest on prior
transactions. Accordingly, the Board is
withdrawing proposed § 226.16(h).
Clear and conspicuous standard. In
June 2007, the Board proposed to
implement Section 1309 of the
Bankruptcy Act, which requires the
Board to provide guidance on the
meaning of ‘‘clear and conspicuous’’ as
it applies to certain disclosures required
by Section 1303(a) of the Bankruptcy
Act. Under Section 1303(a) of the
Bankruptcy Act, when an introductory
rate is stated in a direct mail application
or solicitation for credit cards or
accompanying promotional materials,
the time period in which the
introductory period will end and the
rate that will apply after the end of the
introductory period must be stated ‘‘in
a clear and conspicuous manner’’ in a
prominent location closely proximate to
the first listing of the introductory rate.
The statute requires these disclosures to
be ‘‘reasonably understandable and
designed to call attention to the nature
and significance of the information in
the notice.’’
The Board proposed in the June 2007
Proposal that creditors clearly and
conspicuously disclose when the
introductory period will end and the
rate that will apply after the end of the
introductory period if the information is
equally prominent to the first listing of
the introductory rate to which it relates.
The Board also proposed in comment
16–2 that if these disclosures are the
same type size as the first listing of the

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introductory rate, they will be deemed
to be equally prominent.
As discussed more fully below in the
section-by-section analysis to
§ 226.16(g), the Board amended
proposed comment 16–2 in the May
2008 Proposal to apply the standard to
‘‘promotional rates.’’ Furthermore, in
the May 2008 Proposal, the Board
proposed additional requirements for
deferred interest offers. As part of these
requirements, the Board proposed to
apply the same clear and conspicuous
standard for certain disclosures related
to deferred interest offers as the Board
proposed to require for promotional rate
advertisements.
The Board received a few comments
on the June 2007 proposed comment
16–2. In addition, the Board consulted
with the other federal banking agencies,
the NCUA, and the FTC, consistent with
Section 1309 of the Bankruptcy Act.
Consumer group commenters and one of
the federal banking agencies the Board
consulted suggested that the safe harbor
for complying with the ‘‘equally
prominent’’ requirement be amended to
require terms to have the same
‘‘highlighting.’’ The consumer group
commenters further suggested that the
equal prominence safe harbor be a
requirement that applied to all
advertising terms and not just
promotional rate information.
Presumably, the commenters believed
that the equal prominence standard
should be applied to all requirements in
§ 226.16 where a term triggers some
additional disclosures; that is, the
additional disclosures would be
required to be equally prominent to the
term that triggered such disclosures.
The Board is adopting proposed
comment 16–2, renumbered as comment
16–2.ii., as proposed in May 2008,
except references to provisions related
to deferred interest offers have been
deleted due to the Board’s decision to
withdraw the advertising disclosure
requirements related to deferred interest
plans. As discussed in the June 2007
Proposal, the Board believes that
requiring equal prominence for certain
information calls attention to the nature
and significance of such information by
ensuring that the information is at least
as significant as the terms to which it
relates. In the June 2007 Proposal, the
Board noted that an equally prominent
standard currently applies to
advertisements for HELOCs under
§ 226.16(d)(2) with respect to certain
information related to an initial APR.
Consequently, the Board believes this is
the appropriate standard for information
related to promotional rates and
deferred interest offers as well. In terms
of the safe harbor, the Board believes

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that type size provides a bright line
standard to determine whether terms are
equally prominent. To require similar
‘‘highlighting’’ would be an ambiguous
standard. Furthermore, requiring the
text of the terms to be identical may be
overly prescriptive and may not provide
sufficient flexibility to advertisers. For
example, if an advertiser presented a
promotional rate in 16-point font in
green text and disclosed a promotional
period in 16-point font in blue text
closely proximate to the rate, the terms
would not be identical, but the
promotional period may be equally
prominent to the promotional rate.
Furthermore, comment 16–2.ii.
(proposed as comment 16–2 in the May
2008 Proposal) clarifies that the equally
prominent standard will apply only to
written and electronic advertisements.
As discussed in more detail in the
section-by-section analysis to
§ 226.16(g)(1) below, the Board is
expanding the types of advertisements
to which the requirements of § 226.16(g)
would apply to include non-written,
non-electronic advertisements, such as
telephone marketing, radio and
television advertisements. However,
because equal prominence is a difficult
standard to measure outside the context
of written and electronic
advertisements, the Board believes that
the guidance on clear and conspicuous
disclosures, as set forth in comment 16–
2.ii. (proposed as comment 16–2 in the
May 2008 Proposal), should apply
solely to written and electronic
advertisements. Disclosures required
under § 226.16(g)(4) for non-written,
non-electronic advertisements, while
not required to meet the clear and
conspicuous standard in comment 16–
2.ii. (proposed as comment 16–2 in the
May 2008 Proposal), are required to
meet the general clear and conspicuous
standard as set forth in comment 16–1.
Other Technical Changes. Comment
16–2, as adopted in the July 2008 Final
HOEPA Rule, has been renumbered as
comment 16–2.i. Moreover, technical
changes proposed to comment 16–1 are
adopted as proposed in the May 2008
Proposal. Comments 16–3 through 16–7,
as adopted in the July 2008 Final
HOEPA Rule, remain unchanged. 73 FR
44522, 44605, July 30, 2008.
16(b) Advertisement of Terms That
Require Additional Disclosures
Under § 226.16(b), certain terms
stated in an advertisement require
additional disclosures. In the June 2007
Proposal, the Board proposed to move
the substance currently in § 226.16(b) to
§ 226.16(b)(1), with some amendments,
and proposed a new requirement for
additional disclosures when a minimum

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monthly payment is stated in an
advertisement.
Paragraph 16(b)(1)
Negative terms as triggering terms.
Triggering terms are specific terms that,
if disclosed in an advertisement,
‘‘trigger’’ the disclosure under
§ 226.16(b) (which is renumbered as
§ 226.16(b)(1) in the final rule for
organizational purposes) of (1) any
minimum, fixed, transaction, activity or
similar charge that could be imposed;
(2) any periodic rate that may be applied
expressed as an APR; and (3) any
membership or participation fee that
could be imposed. The June 2007
Proposal would have made triggering
terms consistent for all open-end credit
advertisements by expanding
§ 226.16(b) to include terms stated
negatively (for example, ‘‘no interest’’)
for advertisements of open-end (not
home-secured) plans. Under TILA
Section 147(a) (15 U.S.C. 1665b(a)),
triggering terms for advertisements of
HELOCs include both positive and
negative terms while under current
comment 16(b)–2, triggering terms for
advertisements of open-end (not homesecured) plans only include terms that
are expressed as a positive number.
The Board received few comments on
the proposal. Consumer groups
supported the Board’s proposal. One
industry commenter opposed the
proposal stating that advertisements of
‘‘no annual fee’’ should not trigger
additional disclosures. As discussed in
the June 2007 Proposal, the Board
believes that including negative terms as
triggering terms for open-end (not homesecured) plans is necessary in order to
provide consumers with a more accurate
picture of possible costs that may apply
to plans that advertise negative terms,
such as ‘‘no interest’’ or ‘‘no annual
fee.’’ In addition, the requirement
ensures similar treatment of
advertisements of all open-end plans.
For these reasons and pursuant to its
authority under TILA Section 143(3),
the Board adopts proposed comment
16(b)–1 as proposed, and renumbers the
comment as comment 16(b)(1)–1. As
proposed, current comment 16(b)–7 is
consolidated in the new comment for
organizational purposes and for clarity,
without substantive change.
Membership fees. Membership and
participation fees that could be imposed
are among the additional information
that must be disclosed if a creditor
states a triggering term in an
advertisement. For consistency, new
comment 16(b)(1)–6 is added to provide
that for open-end (not home-secured)
plans, ‘‘membership fee’’ shall have the
same meaning as in § 226.5a(b)(2).

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Other changes to § 226.16(b)(1). In the
June 2007 Proposal, the Board proposed
certain technical amendments to
§ 226.16(b) and associated commentary.
These changes are adopted largely as
proposed in the June 2007 Proposal.
Specifically, § 226.16(b) (renumbered as
§ 226.16(b)(1)) is revised to reflect the
new cost disclosure rules for open-end
(not home-secured) plans while
preserving existing cost disclosure rules
for HELOCs. Footnote 36d (stating that
disclosures given in accordance with
§ 226.5a do not constitute advertising
terms) is deleted as unnecessary since
‘‘advertisements’’ do not include notices
required under federal law, including
disclosures required under § 226.5a. See
comment 2(a)(2)–1.ii. Guidance in
current comments 16(b)–1 and 16(b)–8
has been moved to § 226.16(b)(1), with
some revisions. Current comment 16(b)–
6 is eliminated as duplicative of the
requirements under § 226.16(g), as
discussed below.
Paragraph 16(b)(2)
The Board proposed in June 2007 to
require additional disclosures for
advertisements that state a minimum
monthly payment for an open-end credit
plan that would be established to
finance the purchase of goods or
services. Under the Board’s proposal, if
a minimum monthly payment is
advertised, the advertisement would be
required to state, in equal prominence to
the minimum payment, the time period
required to pay the balance and the total
dollar amount of payments assuming
only minimum payments are made.
Consumer group and consumer
commenters, a state regulatory
association commenter, and a member
of Congress were supportive of the
proposal. Several industry commenters
opposed the Board’s proposal regarding
minimum payment advertising and
suggested that the Board not adopt the
provision. Industry commenters
indicated that the disclosure is
inherently speculative because
determining how long it would take a
consumer to pay off the balance and the
total dollar amount of payments would
depend on a particular consumer’s other
purchases and use of the account in
general as well as other external factors
that may affect the account. To illustrate
their point, some industry commenters
gave examples of promotional programs
in which a minimum payment amount
advertised relates to a promotional rate
that is in effect for a certain period of
time (e.g., ‘‘$49 for 2 years’’). If paying
the minimum payment amount
advertised does not fully amortize the
purchase price over the period of time
in which the promotional rate is in

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effect, the balance is then transferred to
the general account and combined with
other non-promotional balances.
Depending on other promotional and
non-promotional balances the consumer
may have on the account, calculating
the total of payments and time period to
repay could prove difficult. Another
commenter noted that any APR changes
could affect the balance and hence alter
the total of payments and time period to
repay.
Other industry commenters offered
suggestions to address these concerns
with minimum payment advertising.
One industry commenter suggested that
a table be disclosed with sample
payments and repayment periods. That
commenter also suggested an alternative
of providing a telephone number for
consumers to call to obtain that
information. A few other industry
commenters suggested that the Board
specify a set of assumptions that
advertisers may make in providing the
disclosure. One of these industry
commenters also suggested that the
Board provide model language to
include in the advertisement to disclose
these assumptions to consumers.
As the Board stated in the June 2007
Proposal, the Board believes that for
advertisements stating a minimum
monthly payment, requiring the
advertisement to disclose the total
dollar amount of payments the
consumer would make and the amount
of time needed to pay the balance if
only the minimum payments are made
will provide consumers with a clearer
picture of the costs of financing the
purchase of a good or service than if
only the minimum monthly payment
amount is advertised. While the Board
acknowledges that a disclosure of the
total of payments and time period to
repay the purchase cannot be calculated
with certainty without knowing how a
particular consumer may use the
account in the future or what other
changes may affect the account, the
Board believes the additional
information would be helpful to
consumers. Even if the disclosure may
not reflect the actual total costs and time
period to repay for a particular
consumer, the disclosure provides
useful information to the consumer in
evaluating the offer. This will help
ensure that consumers are not surprised
later by the amount of time it may take
to pay the debt and how much the credit
could cost them over that time period by
only making the payments advertised.
Therefore, the Board is adopting
§ 226.16(b)(2) as proposed with minor
modifications, as discussed below. In
response to industry concerns, the
Board is also adopting comment

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16(b)(2)–1 to provide a list of
assumptions advertisers may make in
providing these disclosures. Advertisers
may assume that: (i) Payments are made
timely so as not to be considered late by
the creditor; (ii) payments are made
each period, and no debt cancellation or
suspension agreement, or skip payment
feature applies to the account; (iii) no
interest rate changes will affect the
account; (iv) no other balances are
currently carried or will be carried on
the account; (v) no taxes or ancillary
charges are or will be added to the
obligation; (vi) goods or services are
delivered on a single date; and (vii) the
consumer is not currently and will not
become delinquent on the account. The
Board, however, declines to adopt
model language concerning these
assumptions. The Board believes
advertisers should have flexibility to
determine if, and how, they may want
to convey these assumptions to
consumers. In addition, advertisers may
make further assumptions in making the
disclosures required by § 226.16(b)(2)
beyond those specified in comment
16(b)(2)–1. If the Board were to provide
model language, such assumptions may
not be sufficiently captured by that
language.
Industry commenters also pointed out
that the minimum monthly payment
advertised may not always be the same
as the minimum payment amount on a
consumer’s billing statement.
Furthermore, a consumer group
commenter stated that the word
‘‘minimum’’ should be deleted so that
any time a payment amount is
advertised, the disclosure should be
provided. In response to these concerns,
the Board is replacing the term
‘‘minimum monthly payment’’ with
‘‘periodic payment amount.’’ Therefore,
an advertisement that states any
periodic payment amount (e.g., $45 per
month, $20 per week) would be
required to provide the disclosures in
§ 226.16(b)(2). Furthermore, using the
term ‘‘periodic payment amount’’
instead of ‘‘minimum monthly
payment’’ disassociates the term from
the concept of ‘‘minimum payment,’’
and makes clear that the amount
advertised need not be the same amount
as the minimum payment on a
consumer’s billing statement to trigger
the disclosures.
Several industry commenters also
suggested that advertisements of ‘‘no
payment’’ for a specified period of time
should be excluded from the
requirements of § 226.16(b)(2). The
Board agrees, assuming there is no other
periodic payment amount advertised.
Because advertisers would not know the
periodic payment amount a consumer

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would pay after the ‘‘no payment’’
period passes (and are not otherwise
suggesting a specific periodic payment
amount by advertising one), they would
be unable to determine the total of
payments and time period to repay the
obligation. To address this concern, the
final rule adds comment 16(b)(2)–2 to
provide that a periodic payment amount
must be a positive number to trigger the
disclosure requirements under
§ 226.16(b)(2).
16(c) Catalogs or Other Multiple-Page
Advertisements; Electronic
Advertisements
Technical amendments to § 226.16(c)
and comments 16(c)(1)–1 and 16(c)(1)–
2 were previously adopted in the
November 2007 Final Electronic
Disclosure Rule, and are republished as
a part of this final rule. 72 FR 63462,
Nov. 9, 2007; 72 FR 71058, Dec. 14,
2007.
16(d) Additional Requirements for
Home-equity Plans
Revisions to the advertising rules
under § 226.16(d) were adopted in the
July 2008 Final HOEPA Rule, and are
republished as a part of this final rule.
73 FR 44522, 44599, July 30, 2008.
Technical amendments to comments
16(d)–1 and 16(d)–8 to conform
citations and other descriptions to
revisions being adopted today have been
made, without intended substantive
change.
16(e) Alternative Disclosures—
Television or Radio Advertisements
For radio and television
advertisements, the June 2007 Proposal
would have allowed alternative
disclosures to those required by
§ 226.16(b) if a triggering term is stated
in the advertisement. Radio and
television advertisements would still
have been required to disclose any APR
applicable to the plan; however, instead
of requiring creditors also to describe
minimum or fixed payments, and
annual or membership fees, an
advertisement would have been able to
provide a toll-free telephone number
that the consumer may call to receive
more information.
Industry commenters were supportive
of this proposal. Consumer groups
opposed the proposal arguing that
consumers tend to miss cross references
and that creditors may use the toll-free
number to engage in ‘‘hard-sell’’
marketing tactics. As the Board
discussed in the June 2007 Proposal,
given the space and time constraints on
radio and television advertisements,
disclosing information such as
minimum or fixed payments may go

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unnoticed by consumers or be difficult
for them to retain and would therefore
not provide a meaningful benefit to
consumers. In the Board’s view, given
the nature of television and radio media,
an alternative means of disclosure may
be more effective in many cases than
requiring all the information currently
required to be included in the
advertisement. As noted in the June
2007 Proposal, this approach is
consistent with the approach taken in
the advertising rules for Regulation M.
See 12 CFR § 213.7(f). Furthermore, a
consumer who is interested in the credit
product advertised in a radio or
television advertisement would likely
call for information regardless of
whether additional required disclosures
(minimum or fixed payments, and
annual or membership fees) appear or
are stated in the advertisement.
Therefore ‘‘hard sell’’ marketing tactics
could arguably be present whether or
not the alternative disclosures are used
and may be addressed in some cases by
the FTC Telemarketing Sales Rule. 16
CFR part 310.
A similar rule to the one proposed by
the Board in the June 2007 Proposal to
provide alternative disclosures for
television and radio advertisements was
adopted in the July 2008 Final HOEPA
Rule for home-equity plans as
§ 226.16(e). 73 FR 44522, July 30, 2008.
Therefore, the Board amends
§ 226.16(e), as adopted under the July
2008 HOEPA Rule, to apply to all other
open-end plans. Comments 16(e)–1 and
16(e)–2, as adopted in the July 2008
Final HOEPA Rule, have remained
unchanged.
16(f) Misleading Terms
In order to avoid consumer confusion
and the uninformed use of credit, the
Board proposed § 226.16(g) in June 2007
to restrict use of the term ‘‘fixed’’ in
advertisements to instances where the
rate will not change for any reason. 15
U.S.C. 1601(a), 1604(a). Under the
proposal, advertisements would have
been prohibited from using the term
‘‘fixed’’ or any similar term to describe
an APR unless that rate will remain in
effect unconditionally until the
expiration of any advertised time
period. If no time period was advertised,
then the term ‘‘fixed’’ or any similar
term would not have been able to be
used unless the rate would remain in
effect unconditionally until the plan is
closed.
Consumer and consumer group
commenters overwhelmingly supported
the Board’s proposal. Industry
commenters that addressed the issue
opposed the Board’s proposal stating
that using the word ‘‘fixed’’ when a rate

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could change is not misleading if all the
conditions of the APR are clearly
disclosed.
The Board has found through
consumer testing conducted prior to the
June 2007 Proposal that consumers
generally believe a ‘‘fixed’’ rate does not
change, such as with ‘‘fixed-rate’’
mortgage loans. Numerous consumer
commenters have also supported this
finding. In the consumer testing
conducted for the Board prior to the
June 2007 Proposal, a significant
number of participants did not appear to
understand that creditors often reserve
the right to increase a ‘‘fixed’’ rate upon
the occurrence of certain events (such as
when a consumer pays late or goes over
the credit limit) or for other reasons.
Therefore, although creditors often use
the term ‘‘fixed’’ to describe an APR that
is not tied to an index, consumers do
not understand the term in this manner.
For these reasons, the Board adopts the
provision as proposed; however, for
organizational purposes, the provision
is adopted as § 226.16(f).
One retail industry commenter
requested that the restriction on the
term ‘‘fixed’’ under § 226.16(f) not apply
to oral disclosures. The commenter
indicated that in a retail environment, a
sales associate could, in response to a
consumer inquiry about whether a rate
is variable, respond that a rate is
‘‘fixed,’’ despite the retailer’s efforts to
train the sales associate not to use the
word. The Board declines to provide an
exception for oral disclosures to the
restriction on the use of the term
‘‘fixed.’’ The Board notes, however, that
in the situation described by the retail
industry commenter above, the sales
associate’s conversation with the
consumer is likely not considered an
‘‘advertisement’’ subject to the
provisions of § 226.16. Under existing
comment 2(a)(2)–1.ii.A., the term
‘‘advertisement’’ does not include
‘‘direct personal contacts, * * * or oral
or written communication relating to
the negotiation of a specific
transaction.’’
16(g) Promotional Rates
In the June 2007 Proposal, the Board
proposed to implement TILA Sections
127(c)(6) and 127(c)(7), as added by
Sections 1303(a) and 1304(a) of the
Bankruptcy Act, respectively, in
§ 226.16(e) (which the Board is moving
to § 226.16(g) in the final rule for
organizational purposes). TILA Section
127(c)(6) requires that if a credit card
issuer states an introductory rate in a
direct mail credit card application,
solicitation, or any of the accompanying
promotional materials, the issuer must
use the term ‘‘introductory’’ clearly and

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conspicuously in immediate proximity
to each mention of the introductory rate.
15 U.S.C. 1637(c)(6). In addition, TILA
Section 127(c)(6) requires credit card
issuers to disclose, in a prominent
location closely proximate to the first
mention of the introductory rate, other
than the listing of the rate in the table
required for credit card applications and
solicitations, the time period when the
introductory rate expires and the rate
that will apply after the introductory
rate expires. TILA Section 127(c)(7)
further applies these requirements to
‘‘any solicitation to open a credit card
account for any person under an openend consumer credit plan using the
Internet or other interactive computer
service.’’ 15 U.S.C. 1637(c)(7). The
Board proposed in the June 2007
Proposal to expand the types of
disclosures to which these rules would
apply. Among other things, the Board
proposed to extend these requirements
for the presentation of introductory rates
to other written or electronic
advertisements for open-end credit
plans that may not accompany an
application or solicitation (other than
advertisements of home-equity plans
subject to § 226.5b, which were
addressed in the Board’s July 2008 Final
HOEPA Rule; see § 226.16(d)(6)).
In response to concerns from industry
commenters that the Board’s proposed
use of the term ‘‘introductory rate’’ and
required use of the word ‘‘introductory’’
or ‘‘intro’’ was overly broad in some
cases, the Board proposed in the May
2008 Proposal to revise § 226.16(e)(2) to
define ‘‘promotional’’ and
‘‘introductory’’ rates separately.
Conforming revisions to § 226.16(e)(4)
and to commentary provisions to
§ 226.16(e) were also proposed in the
May 2008 Proposal. The Board adopts
proposed § 226.16(e), with revisions
discussed below, and renumbers this
paragraph as § 226.16(g) for
organizational purposes.
16(g)(1) Scope
The Bankruptcy Act amendments
regarding ‘‘introductory’’ rates apply to
direct mail credit card applications and
solicitations, and accompanying
promotional materials. 15 U.S.C.
1637(c)(6). The Board proposed to
expand these requirements to
applications or solicitations to open a
credit card account, and all
accompanying promotional materials,
that are publicly available (‘‘take-ones’’).
15 U.S.C. 1601(a); 15 U.S.C. 1604(a); 15
U.S.C. 1637(c)(3)(A). In the June 2007
Proposal, the Board proposed to expand
the requirements to electronic
applications even though the
Bankruptcy Act amendments applied

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these requirements only to electronic
solicitations. 15 U.S.C. 1637(c)(7).
Pursuant to its authority under TILA
Section 143, the Board also proposed in
the June 2007 Proposal to extend some
of the introductory rate requirements in
Section 1303 of the Bankruptcy Act to
other written advertisements for openend credit plans that may not
accompany an application or
solicitation, other than advertisements
of home-equity plans subject to
§ 226.5b, in order to promote the
informed use of credit. Therefore, the
Board proposed that the requirements
under § 226.16(g) (proposed as
§ 226.16(e)) apply to all written or
electronic advertisements.
The Board received few comments on
expanding the scope of the rules
regarding promotional rates in the
manner proposed in the June 2007
Proposal, and the comments received
supported the proposal. As discussed in
the June 2007 Proposal, the Board
believes consumers will benefit from
these enhanced disclosures and
advertisers will benefit from the
consistent application of promotional
rate requirements for all written and
electronic open-end advertisements.
In the May 2008 Proposal, the Board
solicited comment on whether all or any
of the information required under
§ 226.16(g) (proposed as § 226.16(e)) to
be provided with the disclosure of a
promotional rate would be helpful in a
non-written, non-electronic context,
such as telephone marketing, or radio or
television advertisements. The guidance
originally proposed in June 2007 on
complying with § 226.16(g) (proposed as
§ 226.16(e)) had addressed written and
electronic advertisements.
Consumer group commenters urged
the Board to apply the requirements
under § 226.16(g) (proposed as
§ 226.16(e)) to non-written, nonelectronic advertisements. Many
industry commenters opposed
expanding the requirements to nonwritten, non-electronic advertisements
citing the space and time constraints of
such media and concern that there
would be information overload.
Nevertheless, several industry
commenters suggested that if the Board
did decide to expand the requirements
to non-written, non-electronic
advertisements, the Board should
provide flexibility in how the required
disclosures may be made. Some
industry commenters recommended that
the alternative method of disclosure
available to television and radio
advertisements for disclosing triggered
terms under § 226.16(b)(1), as would be
permitted under § 226.16(e), should be

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available for promotional rate
disclosures.
Current comment 16(b)–6, which the
Board had proposed to delete in the
June 2007 Proposal as duplicative of the
requirements under § 226.16(g)
(proposed as § 226.16(e)), requires
advertisements that state a ‘‘discounted
variable rate’’ to include ‘‘the initial rate
(with the statement of how long it will
remain in effect) and the current
indexed rate (with the statement that
this second rate may vary).’’ The
requirement applies to all
advertisements, regardless of media.
Because current comment 16(b)–6
imposes requirements similar, though
not identical, to those required in
§ 226.16(g) (proposed as § 226.16(e)) to
non-written, non-electronic
advertisements, the Board believes that
the requirements of § 226.16(g)
(proposed as § 226.16(e)) should also
apply to such advertisements.
Therefore, § 226.16(g)(1) has been
amended to apply to any advertisement,
and current comment 16(b)–6 has been
deleted as proposed. However, as
further discussed in the section-bysection analysis to comment 16–2.ii
above and § 226.16(g)(4) below, the
Board is providing flexibility in how the
required information may be presented
in a non-written, non-electronic context.
Finally, one industry commenter
noted that the term ‘‘consumer credit
card account,’’ as used in § 226.16(g), is
not defined. The commenter suggested
that the Board either define ‘‘consumer
credit card account’’ specifically to
exclude home equity lines of credit
subject to § 226.5b or replace the term
with the phrase ‘‘open-end plan not
subject to § 226.5b.’’ To address this
concern, the Board is clarifying in
§ 226.16(g)(1) that the requirements of
§ 226.16(g) apply to any ‘‘open-end (not
home-secured) plan,’’ as proposed in
June 2007. A similar change has been
made to the definition of ‘‘promotional
rate’’ in § 226.16(g)(2). As discussed in
the June 2007 Proposal, the Board did
not intend to cover advertisements of
open-end, home-secured plans subject
to § 226.5b, but did intend to cover
advertisements of all open-end plans
that are not home-secured under these
requirements.
16(g)(2) Definitions
In the June 2007 Proposal, the Board
proposed to define the term
‘‘introductory rate’’ as any rate of
interest applicable to an open-end plan
for an introductory period if that rate is
less than the advertised APR that will
apply at the end of the introductory
period. In addition, the Board defined
an ‘‘introductory period’’ as ‘‘the

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maximum time period for which the
introductory rate may be applicable.’’ In
response to the June 2007 Proposal,
several industry commenters were
critical of the use of these terms as
applied to special rates offered to
consumers with an existing account.
Commenters noted that the phrase
‘‘introductory rate’’ commonly refers to
promotional rates offered in connection
with the opening of a new account only.
Commenters also noted the use of the
term ‘‘advertised’’ in the definition of
‘‘introductory rate’’ might imply that the
APR in effect after the introductory
period would have to be ‘‘advertised’’
before the requirements under
§ 226.16(e)(3) and (e)(4) in the June 2007
Proposal would apply.
Since the Board’s June 2007 proposed
definition for ‘‘introductory rate’’ would
have encompassed special rates that
may be offered to consumers with
existing accounts, the Board proposed
in May 2008 to refer to these rates more
broadly as ‘‘promotional rates.’’ The
May 2008 Proposal would have defined
the term ‘‘promotional rates’’ to include
any APR applicable to one or more
balances or transactions on a consumer
credit card account for a specified
period of time that is lower than the
APR that will be in effect at the end of
that period. In addition, consistent with
definitions proposed by the Board and
other federal banking agencies in May
2008, the proposed definition under
§ 226.16(g) (proposed as § 226.16(e))
also would have included any rate of
interest applicable to one or more
transactions on a consumer credit card
account that is lower than the APR that
applies to other transactions of the same
type. This definition was meant to
capture ‘‘life of balance’’ offers where a
special rate is offered on a particular
balance for as long as any portion of that
balance exists. Proposed comment
16(e)–2) would have provided an
illustrative example of a ‘‘life of
balance’’ offer similar to a comment
proposed by the Board and other federal
banking agencies in May 2008. 73 FR
28904, May 19, 2008.
Furthermore, the definition proposed
in May 2008 would have removed the
term ‘‘advertised’’ from the definition,
as commenters asserted this would
imply that the APR in effect after the
introductory period had to have been
‘‘advertised’’ before the requirements
under § 226.16(g)(3) and (g)(4)
(proposed as § 226.16(e)(3) and (e)(4))
would have applied. This was not the
Board’s intention. The use of the term
‘‘advertised’’ in the June 2007 proposed
definition was intended to refer to the
advertising requirements regarding
variable rates and the accuracy

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requirements for such rates. The May
2008 Proposal would have addressed
these requirements in a new comment
16(e)–1.
Comment 16(e)–1, as proposed in May
2008, provided that if a variable rate
will apply at the end of the promotional
period, the post-promotional rate is the
rate that would have applied at the time
the promotional rate was advertised if
the promotional rate had not been
offered. In direct mail credit card
applications and solicitations (and
accompanying promotional materials),
this rate is one that must have been in
effect within 60 days before the date of
mailing, as required under proposed
§ 226.5a(c)(2)(i) (and currently under
§ 226.5a(b)(1)(ii)). For variable-rate
disclosures provided by electronic
communication, this rate is one that was
in effect within 30 days before mailing
the disclosures to a consumer’s
electronic mail address, or within the
last 30 days of making it available at
another location such as a card issuer’s
Web site, as required under proposed
§ 226.5a(c)(2)(ii) (and currently under
§ 226.5a(b)(1)(iii)).
The Board also proposed a new
definition for ‘‘introductory rate’’ to
conform more closely to how the term
is most commonly used. Section
226.16(e)(2)(ii) in the May 2008
Proposal defined ‘‘introductory rate’’ as
a promotional rate that is offered in
connection with the opening of an
account. As a result of the proposal,
only ‘‘introductory rates’’ (and not other
promotional rates) would have been
subject to the requirement in
§ 226.16(e)(3) to state the term
‘‘introductory’’ in immediate proximity
to the rate.
Commenters were generally
supportive of providing separate
definitions for ‘‘promotional’’ rates as
distinguished from ‘‘introductory’’ rates.
Several industry commenters, however,
suggested that the Board’s definition for
‘‘promotional rate’’ may be overbroad
and cause certain rates that are not
traditionally categorized as
‘‘promotional rates’’ to be considered
‘‘promotional rates.’’ These commenters
provided similar comments to rules
proposed by the Board and other federal
banking agencies in May 2008, in which
a similar definition was proposed for
‘‘promotional rate.’’ Some of these
commenters also suggested specific
language changes to the Board’s
proposed definition.
Based on these comments, the Board
is adopting the definition of
‘‘introductory rate’’ as proposed in the
May 2008 Proposal, renumbered as
§ 226.16(g)(2)(ii), and amending the
definition of ‘‘promotional rate,’’ which

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has been renumbered as
§ 226.16(g)(2)(i). Specifically, the Board
is inserting in the definition of
‘‘promotional rate’’ the phrase ‘‘on such
balances or transactions,’’ to address
commenters’ concerns about the breadth
of the definition by clarifying to which
balances and transactions the rate that
will be in effect after the end of the
promotional period applies. In addition,
the Board is replacing the phrase
‘‘consumer credit card account’’ in the
definition with ‘‘open-end (not homesecured) plan’’ to be consistent with the
scope of the requirements as set forth in
§ 226.16(g)(1) and as discussed in the
supplementary information to
§ 226.16(g)(1). The Board is also
adopting comment 16(e)–1, as proposed,
renumbered as comment 16(g)–2.
In addition, the Board is deleting the
provision in the definition of
‘‘promotional rate’’ that was meant to
capture life-of-balance offers, as well as
proposed comment 16(e)–2 from the
May 2008 Proposal, which would have
provided an illustrative example of a
life-of-balance offer. The Board had
included the provision in the May 2008
Proposal in order to be consistent with
the definition of ‘‘promotional rate’’ in
rules proposed by the Board and other
federal banking agencies in May 2008.
Since the advertising disclosure
requirements the Board had proposed
relating to promotional rates would
generally not apply for life-of-balance
offers, the Board had proposed in May
2008 to exempt life-of-balance offers
from many of these requirements. See
proposed § 226.16(e)(2)(i)(B) and (e)(4)
in the May 2008 Proposal. As a result,
the only requirement under the
advertising rules for promotional rates
to which life-of-balance offers were
subject under the proposal was the
requirement to state the term
‘‘introductory’’ within immediate
proximity of the rate. The Board
believes this requirement would not be
especially helpful to consumers for
offers where the rate would not change
for the life of the balance except on
default. Since the minimal benefit to
consumers does not seem to warrant the
burden on advertisers of distinguishing
what types of offers fit the definition,
the Board has decided instead to
eliminate life-of-balance offers from the
definition of ‘‘promotional rate’’ for ease
of compliance.
Moreover, the Board believes that
further amendments suggested by
commenters to the definition of
‘‘promotional rate’’ are unnecessary. In
particular, some industry commenters
recommended adding the concept of a
‘‘standard’’ rate in the definition. The
Board believes that inserting this

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concept in the definition may generate
further confusion instead of providing
clarity since there may not be consensus
on what would be considered a
‘‘standard’’ rate among all issuers.
Furthermore, with respect to some of
the examples commenters provided to
illustrate why they thought the May
2008 proposed definition was
overbroad, the definition of
‘‘promotional rate’’ as proposed would
likely not cover these examples. For
example, one industry commenter
stated that a standard rate could be
considered a ‘‘promotional rate’’ when
the rate that will be ‘‘in effect’’ is a
penalty rate. Pursuant to the definition
of ‘‘promotional rate,’’ that standard rate
would have to be in effect for a specified
period of time before the penalty rate
applies in order to be considered a
‘‘promotional rate.’’ Typically, penalty
rates are applied upon the occurrence of
a specific event or action by the
consumer rather than the passage of a
specified time period. As a result, this
type of standard rate would not have
been considered a ‘‘promotional rate’’
under the proposal, and similarly is not
a ‘‘promotional rate’’ under the final
rule.
The Board also proposed to define
‘‘promotional period’’ in
§ 226.16(e)(2)(iii) in the May 2008
Proposal. The definition proposed in
May 2008 was similar to one previously
proposed for ‘‘introductory period’’ in
the June 2007 Proposal, consistent with
the definition in TILA Section
127(c)(6)(D)(ii). No comments were
received on this definition, and
§ 226.16(e)(2)(iii) is adopted as proposed
and renumbered as § 226.16(g)(2)(iii).
16(g)(3) Stating the Term ‘‘Introductory’’
The Board proposed in the June 2007
Proposal to implement TILA Section
127(c)(6)(A), as added by section
1303(a) of the Bankruptcy Act, in
§ 226.16(e)(3) (which the Board moves
to § 226.16(g)(3) for organizational
purposes). TILA Section 127(c)(6)(A)
requires the term ‘‘introductory’’ to be
used in immediate proximity to each
listing of the temporary APR in the
application, solicitation, or promotional
materials accompanying such
application or solicitation. 15 U.S.C.
1637(c)(6)(A).
Requirement. As discussed above,
industry commenters expressed concern
about requiring use of the word
‘‘introductory’’ to describe special rates
offered to consumers with an existing
account. However, with the revised
definition of ‘‘introductory rate’’ under
§ 226.16(g)(2) (proposed as
§ 226.16(e)(2)), as discussed above, only
promotional rates offered in connection

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with the opening of an account would
be covered under § 226.16(g)(3), which
the Board believes addresses
commenters’ concerns.
Some industry commenters also
requested that the Board clarify that the
term ‘‘introductory’’ be used only in
relation to rates that are available
exclusively to new customers. These
commenters believe that advertisements
that state a rate that is offered to both
new and existing customers should not
be required to be labeled as
‘‘introductory.’’ Alternatively, one
industry commenter suggested that the
Board allow advertisers to choose
whether to label a rate as ‘‘introductory’’
or ‘‘promotional’’ if an advertisement
applies to both new and existing
accounts. The Board notes that there is
no requirement to use the term
‘‘promotional’’ with respect to a
promotional rate stated in an
advertisement. The Board believes that
there are several terms that may be used
to convey the concept of a promotional
rate to existing customers, and
flexibility should be provided to
advertisers. Consistent with the
requirements of TILA Section
127(c)(6)(A), however, the Board
believes that as long as the rate offered
in an advertisement could be considered
an ‘‘introductory rate,’’ the term
‘‘introductory’’ must be used. Therefore,
the Board declines to amend
§ 226.16(g)(3) (proposed as
§ 226.16(e)(3)) to apply only to rates
advertised exclusively to new customers
or to permit advertisers to choose
whether to label a rate as ‘‘introductory’’
if an advertisement applies to both new
and existing accounts.
Abbreviation. The Board proposed in
the June 2007 Proposal to allow
advertisers to use the word ‘‘intro’’ as an
alternative to the requirement to use the
term ‘‘introducto