View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Tuesday,
November 2, 2010

Part II

Federal Reserve
System

srobinson on DSKHWCL6B1PROD with PROPOSALS2

12 CFR Part 226
Truth in Lending; Proposed Rule

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

PO 00000

Frm 00001

Fmt 4717

Sfmt 4717

E:\FR\FM\02NOP2.SGM

02NOP2

67458

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
FOR FURTHER INFORMATION CONTACT:
Stephen Shin, Attorney, or Amy
Henderson or Benjamin K. Olson,
Counsels, Division of Consumer and
Community Affairs, Board of Governors
of the Federal Reserve System, at (202)
452–3667 or 452–2412; for users of
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
SUPPLEMENTARY INFORMATION:

FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R–1393]
RIN No. 7100–AD55

Truth in Lending
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Proposed rule; request for
public comment.

I. Background

On February 22, 2010 and
June 29, 2010, the Board published in
the Federal Register final rules
amending Regulation Z’s provisions that
apply to open-end (not home-secured)
credit plans, in each case in order to
implement provisions of the Credit Card
Accountability Responsibility and
Disclosure Act of 2009. The Board
believes that clarification is needed
regarding compliance with certain
aspects of the final rules. Accordingly,
to facilitate compliance, the Board
proposes to amend specific portions of
the regulations and official staff
commentary.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

SUMMARY:

DATES: Comments must be received on
or before January 3, 2011.
ADDRESSES: You may submit comments,
identified by Docket No. R–1393 and
RIN No. 7100–AD55, by any of the
following methods:
• Agency Web site: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• E-mail:
regs.comments@federalreserve.gov.
Include the docket number and RIN
number in the subject line of the
message.
• Facsimile: (202) 452–3819 or (202)
452–3102.
• Mail: Jennifer J. Johnson, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551.
All public comments are available
from the Board’s Web site at http://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons.
Accordingly, your comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed electronically or in
paper form in Room MP–500 of the
Board’s Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m.
on weekdays.

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

The Credit Card Act
The Credit Card Accountability
Responsibility and Disclosure Act of
2009 (Credit Card Act) was signed into
law on May 22, 2009. Public Law 111–
24, 123 Stat. 1734 (2009). The Credit
Card Act primarily amended the Truth
in Lending Act (TILA) and established
a number of new substantive and
disclosure requirements to establish fair
and transparent practices pertaining to
open-end consumer credit plans.
The requirements of the Credit Card
Act that pertain to credit cards or other
open-end credit for which the Board has
rulemaking authority became effective
in three stages. First, provisions
generally requiring that consumers
receive 45 days’ advance notice of
interest rate increases and significant
changes in terms (new TILA Section
127(i)) and provisions regarding the
amount of time that consumers have to
make payments (revised TILA Section
163) became effective on August 20,
2009 (90 days after enactment of the
Credit Card Act). A majority of the
requirements under the Credit Card Act
for which the Board has rulemaking
authority, including, among other
things, provisions regarding interest rate
increases (revised TILA Section 171),
over-the-limit transactions (new TILA
Section 127(k)), and student cards (new
TILA Sections 127(c)(8), 127(p), and
140(f)) became effective on February 22,
2010 (9 months after enactment).
Finally, two provisions of the Credit
Card Act addressing the reasonableness
and proportionality of penalty fees and
charges (new TILA Section 149) and reevaluation by creditors of rate increases
(new TILA Section 148) became
effective on August 22, 2010 (15 months
after enactment).
Implementation of Credit Card Act
The Board issued rules to implement
the provisions of the Credit Card Act in
stages, consistent with the statutory
timeline established by Congress. On
July 22, 2009, the Board published an
interim final rule to implement the
provisions of the Credit Card Act that
became effective on August 20, 2009.
See 74 FR 36077. On January 12, 2010,

PO 00000

Frm 00002

Fmt 4701

Sfmt 4700

the Board issued a final rule adopting in
final form the requirements of the July
2009 interim final rule and
implementing the provisions of the
Credit Card Act that became effective on
February 22, 2010. See 75 FR 7658
(February 2010 Final Rule). On June 15,
2010, the Board issued a final rule
implementing the provisions of the
Credit Card Act that became effective on
August 22, 2010. See 75 FR 37526 (June
2010 Final Rule).
Since publication of the February
2010 and June 2010 Final Rules, the
Board has become aware that
clarification is needed to resolve
confusion regarding how institutions
will comply with particular aspects of
those rules. Accordingly, in order to
provide guidance and facilitate
compliance with the final rules, the
Board proposes to amend portions of the
regulations and the accompanying staff
commentary. These proposed
amendments are discussed in detail in
Section III of this SUPPLEMENTARY
INFORMATION.
Although comment is requested on
the proposed amendments, the Board
emphasizes that the purpose of this
rulemaking is to clarify and facilitate
compliance with the consumer
protections contained in the February
2010 and June 2010 Final Rules, not to
reconsider the need for—or the extent
of—the protections implemented in
those rules. Thus, commenters are
encouraged to limit their submissions
accordingly.
II. Statutory Authority
In the SUPPLEMENTARY INFORMATION for
the February 2010 and June 2010 Final
Rules, the Board set forth the sources of
its statutory authority under the Truth
in Lending Act and the Credit Card Act.
See 75 FR 7662 and 75 FR 37528. For
purposes of these proposed rules, the
Board continues to rely on this legal
authority.
III. Section-by-Section Analysis
Section 226.2
Construction

Definitions and Rules of

2(a) Definitions
2(a)(15) Credit Card
2(a)(15)(ii) Credit Card Account Under
an Open-End (Not Home-Secured)
Consumer Credit Plan
In the February 2010 Final Rule, the
Board retained the pre-existing
definition of ‘‘credit card’’ as any card,
plate, or other single credit device that
may be used from time to time to obtain
credit. See § 226.2(a)(15)(i). However,
the Board also defined a new, somewhat
narrower term in order to implement the

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
provisions of the Credit Card Act that
apply to ‘‘credit card account[s] under
an open end consumer credit plan.’’
Specifically, in a new § 226.2(a)(15)(ii),
the Board defined the term ‘‘credit card
account under an open-end (not homesecured) consumer credit plan’’ as
meaning any open-end credit account
accessed by a credit card except a homeequity plan subject to the requirements
of § 226.5b accessed by a credit card or
an overdraft line of credit accessed by
a debit card.
The Board declined requests from
industry commenters to exempt all lines
of credit accessed solely by an account
number from the definition in
§ 226.2(a)(15)(ii), noting Congress’
apparent intent to apply the Credit Card
Act broadly to products that meet the
definition of ‘‘credit card.’’ See 75 FR
7664–7665. However, the Board
understands that this determination has
caused uncertainty about whether all
credit products accessed by an account
number are subject to TILA’s credit card
provisions.
In particular, some institutions offer
general purpose open-end lines of credit
that are linked to a checking or other
asset account with the same institution.
The consumer can use the line’s account
number to request an extension of
credit, which is then deposited into the
asset account. The Board understands
that there has been some confusion as
to whether, in these circumstances, the
account number is a ‘‘credit card’’ for
purposes of § 226.2(a)(15)(i) and
therefore a ‘‘credit card account under
an open-end (not home-secured)
consumer credit plan’’ for purposes of
§ 226.2(a)(15)(ii). Because most if not all
credit accounts can be accessed in some
fashion by an account number, the
Board does not believe that Congress
generally intended to treat account
numbers as credit cards for purposes of
TILA. However, the Board is concerned
that, when an account number can be
used to access an open-end line of credit
to purchase goods or services, it would
be inconsistent with the purposes of the
Credit Card Act to exempt the line of
credit from the protections provided for
credit card accounts. For example,
creditors may offer open-end credit
accounts designed for online purchases
that function like a traditional credit
card account but can only be accessed
using an account number. In these
circumstances, the Board believes that
TILA’s credit card protections should
apply.
Accordingly, the Board proposes to
clarify the application of
§ 226.2(a)(15)(i) and (a)(15)(ii) to
account numbers by amending comment
2(a)(15)–2, which provides illustrative

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

examples of credit devices that are and
are not credit cards. Specifically, the
Board would add an additional example
clarifying that an account number that
accesses a credit account is not credit
card, unless the account number can
access an open-end line of credit to
purchase goods or services. The
comment would further clarify that, if,
for example, a creditor provides a
consumer with an open-end line of
credit that can be accessed by an
account number in order to transfer
funds into another account (such as an
asset account), the account number is
not a credit card for purposes of
§ 226.2(a)(15)(i). However, if the account
number can also access the line of credit
in order to purchase goods or services
(such as an account number that can be
used to purchase goods or services on
the Internet), the account number is a
credit card for purposes of
§ 226.2(a)(15)(i). Furthermore, if the line
of credit can also be accessed by a card
(such as a debit card or prepaid card),
then that card is a credit card for
purposes of § 226.2(a)(15)(i).
In addition, the Board proposes to
adopt a new comment 2(a)(15)–4, which
would clarify the test used for
determining whether an account is a
credit card account under an open-end
(not home-secured) consumer credit
plan for purposes of § 226.2(a)(15)(ii).
The Board would also amend the
exception in § 226.2(a)(15)(ii)(B) to
clarify that—like an overdraft line of
credit accessed by a debit card—an
overdraft line of credit accessed by an
account number (such as when a debit
card number or checking account
number is used to make an online
purchase that overdraws the asset
account) is excluded from the definition
of ‘‘credit card account under an openend (not home-secured) consumer credit
plan.’’ Finally, for clarity and
consistency, the Board would make
non-substantive revisions to the
exception for home-equity plans in
§ 226.2(a)(15)(ii)(A).
2(a)(15)(iii) Charge Card
The Board understands that there has
been some confusion as to whether a
charge card is a ‘‘credit card account
under an open-end (not home-secured)
consumer credit plan,’’ as defined in
§ 226.2(a)(15)(ii). Section
226.2(a)(15)(iii) defines a ‘‘charge card’’
as a credit card on an account for which
no periodic rate is used to compute a
finance charge. The Board has
historically applied the same
requirements to credit and charge cards,
unless otherwise stated. See
§ 226.2(a)(15); comment 2(a)(15)–3.
Therefore, as discussed in the February

PO 00000

Frm 00003

Fmt 4701

Sfmt 4700

67459

2010 Final Rule, the Board adopted a
similar approach when implementing
the provisions of the Credit Card Act.
See 75 FR 7672–7673. Nevertheless, for
clarity and consistency, the Board
proposes to amend comment 2(a)(15)–3
to state that references to a credit card
account under an open-end (not homesecured) consumer credit plan in
Subpart B (Open-End Credit) and
Subpart G (Special Rules Applicable to
Credit Card Accounts and Open-End
Credit Offered to Students) include
charge cards unless otherwise stated.
The Board would also update the list
of provisions in comment 2(a)(15)–3
that distinguish charge cards from credit
cards. In addition, the Board would
remove the statement in the comment
that, when the term ‘‘credit card’’ is used
in the listed provisions, it refers to
credit cards other than charge cards.
While generally accurate, this statement
may be overbroad in certain
circumstances. For example, the
exemption in § 226.7(b)(12)(v)(A) and
the safe harbor in § 226.52(b)(1)(ii)(C)
are limited to charge card accounts that
require payment of outstanding balances
in full at the end of each billing cycle.
Accordingly, the applicability of a
particular provision should be
determined based on a review of that
provision and the relevant staff
commentary.
Section 226.5 General Disclosure
Requirements
5(b) Time of Disclosures
5(b)(2) Periodic Statements
Prior to the Credit Card Act, TILA
Section 163 generally required creditors
to send periodic statements for openend consumer credit plans at least 14
days before the expiration of any period
within which any credit extended may
be repaid without incurring a finance
charge (i.e., a ‘‘grace period’’). See 15
U.S.C. 1666b (2008). The Board’s
Regulation Z, however, extended this
14-day requirement to apply even if no
grace period was provided. Specifically,
prior to the 2009 amendments
implementing the Credit Card Act,
§ 226.5(b)(2)(ii) required that creditors
mail or deliver periodic statements at
least 14 days before the date by which
payment was due for purposes of
avoiding not only finance charges as a
result of the loss of a grace period but
also any other charges (such as late
payment fees). See also former comment
5(b)(2)(ii)–1 (2008). Thus, before the
Credit Card Act, creditors were
generally required to provide consumers
with at least 14 days to make payments
for all open-end consumer credit
accounts.

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

67460

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

Effective August 20, 2009, the Credit
Card Act amended TILA Section 163 to
generally prohibit a creditor from
treating a payment as late or imposing
additional finance charges with respect
to open-end consumer credit plans
unless the creditor mailed or delivered
the periodic statement at least 21 days
before the payment due date and the
expiration of any grace period. See
Credit Card Act § 106(b)(1). The Board’s
July 2009 interim final rule made
corresponding amendments to
§ 226.5(b)(2)(ii) and the accompanying
official staff commentary. See 74 FR
36077 (July 22, 2009). Because amended
TILA 163 required that periodic
statements be mailed at least 21 days
before the payment due date for all
open-end consumer credit accounts
even if no grace period was provided,
the amendments to § 226.5(b)(2)(ii)
removed the pre-existing 14-day
requirement as unnecessary.
However, in November 2009, the
Credit CARD Technical Corrections Act
of 2009 (Technical Corrections Act)
further amended TILA Section 163.
Public Law 111–93, 123 Stat. 2998 (Nov.
6, 2009). The Technical Corrections Act
narrowed the requirement that
statements be mailed or delivered at
least 21 days before the payment due
date to apply only to credit card
accounts, rather than to all open-end
consumer credit plans. However, openend consumer credit plans that provide
a grace period remain subject to the 21day requirement in Section 163(b). In its
February 2010 Final Rule, the Board
narrowed the application of
§ 226.5(b)(2)(ii) for consistency with the
Technical Corrections Act. However, in
doing so, the Board inadvertently failed
to reinsert the 14-day requirement for
open-end consumer credit plans
without a grace period.
The Board believes that it would be
inconsistent with the purposes of the
Credit Card Act for consumers to receive
less time to make payments after its
implementation than they did
beforehand. Accordingly, pursuant to its
authority under Section 105(a) of TILA
and Section 2 of the Credit Card Act, the
Board proposes to amend
§ 226.5(b)(2)(ii) to reinsert the 14-day
requirement for open-end consumer
credit plans that are not subject to the
Credit Card Act’s 21-day requirements.
Specifically, the Board would revise
§ 226.5(b)(2)(ii) to require that, when an
open-end account is not accessed by a
credit card and does not provide a grace
period, creditors must adopt reasonable
procedures designed to ensure that
periodic statements are mailed or
delivered at least 14 days prior to the
date on which the required minimum

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

periodic payment must be made to
avoid being treated as late. In addition,
creditors would be required to adopt
reasonable procedures designed to
ensure that required minimum periodic
payments received within 14 days after
mailing or delivery of the periodic
statement are not treated as late for any
purpose. The Board would also revise
the commentary to § 226.5(b)(2)(ii) for
consistency with these proposed
revisions.
Finally, the proposed rule would
delete comment 5(b)(2)(iii)–1, which
implemented the pre-Credit Card Act
version of TILA Section 163 and was
inadvertently retained in the February
2010 Final Rule.
Section 226.5a Credit and Charge Card
Applications and Solicitations
5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
Limitations on Rate Decreases
Section 226.5a(b)(1) requires that the
tabular disclosure provided with credit
and charge card applications and
solicitations state each periodic rate that
may be used to compute the finance
charge on an outstanding balance for
purchases, a cash advance, or a balance
transfer, expressed as an annual
percentage rate. Section 226.5a(b)(1)(i)
clarifies this disclosure requirement
when a rate is a variable rate. In part,
§ 226.5a(b)(1)(i) provides that a card
issuer may not disclose any applicable
limitations on rate increases or
decreases in the table.
Section 226.55 sets forth limitations
on rate increases applicable to credit
card accounts under an open-end (not
home-secured) consumer credit plan.
Section 226.55(b)(2) provides that a card
issuer may increase an annual
percentage rate when (1) the rate varies
according to an index that is not under
the card issuer’s control and is available
to the general public, and (2) the rate
increase is due to an increase in that
index. In the February 2010 Final Rule,
the Board adopted comment 55(b)(2)–2
that clarified that a card issuer exercises
control over the operation of an index
if the variable rate based on that index
is subject to a fixed minimum rate or
similar requirement that does not permit
the variable rate to decrease consistent
with reductions in the index.
The Board is proposing to amend
§ 226.5a(b)(1)(i) for conformity with
comment 55(b)(2)–2. The Board is aware
that, as a practical matter, § 226.55(b)(2)
and comment 55(b)(2)–2 preclude card
issuers from imposing a variable rate
that is subject to a fixed minimum rate.
Accordingly, the Board is proposing to

PO 00000

Frm 00004

Fmt 4701

Sfmt 4700

delete as unnecessary language in
§ 226.5a(b)(1)(i) providing that a card
issuer may not disclose any applicable
limitations on rate decreases in the
table. The Board notes that
§ 226.6(b)(2)(i)(A) contains analogous
language regarding limitations on rate
decreases. However, § 226.55(b)(2)
applies only to credit card accounts
under an open-end (not home-secured)
consumer credit plan while § 226.6(b)
applies to all open-end (not homesecured) credit. Therefore, the Board is
not proposing to delete the reference to
limitations on rate decreases from
§ 226.6(b)(2)(i)(A). But see the
discussion in the supplementary
information to § 226.9(c)(2)(v)(C)
regarding the notice requirements that
apply to an open-end (not homesecured) plan with a variable rate that
is subject to a fixed minimum rate.
Loss of Employee Preferential Rates
If a rate may increase as a penalty for
one or more events specified in the
account agreement, § 226.5a(b)(1)(iv)
requires that the card issuer disclose the
increased rate that may apply, a brief
description of the event or events that
may result in the increased rate, and a
brief description of how long the
increased rate will remain in effect. This
disclosure generally must appear in the
§ 226.5a table; however,
§ 226.5a(b)(1)(iv)(B) provides that, for
introductory rates as defined in
§ 226.16(g)(2)(ii), the card issuer must
briefly disclose directly beneath the
table the circumstances, if any, under
which the introductory rate may be
revoked, and the type of rate that will
apply after the introductory rate is
revoked. The Board adopted this format
requirement for the disclosure regarding
loss of an introductory rate in part due
to concerns that including this
information in the tabular disclosure
could lead to ‘‘information overload.’’
See 74 FR 5244, 5286.
The Board is aware that some issuers
may offer preferential or reduced rates
at account opening that are not
‘‘introductory rates’’ as defined in
§ 226.16(g)(2)(ii). For example, an issuer
may offer a preferential rate to its
employees. Eligibility for the
preferential or reduced rate is
conditioned upon the consumer’s
continued employment with the issuer.
Accordingly, if the consumer’s
employment is terminated, the contract
provides that the rate will increase from
the reduced preferential rate to a higher
rate, such as the standard rate on the
account.1
1 The Board notes that 45 days’ advance notice is
required pursuant to § 226.9(g) prior to imposition

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
The Board is proposing a new
§ 226.5a(b)(1)(iv)(C), which would
require that disclosures regarding the
loss of an employee preferential rate be
placed directly below the tabular
disclosure. New § 226.5a(b)(1)(iv)(C)
would generally mirror
§ 226.5a(b)(1)(iv)(B) and would provide
that if a card issuer discloses in the table
a preferential annual percentage rate for
which only employees of the creditor or
employees of a third party are eligible,
the card issuer must briefly disclose
directly beneath the table the
circumstances under which such
preferential rate may be revoked, and
the rate that will apply after such
preferential rate is revoked. The Board
believes that this placement
requirement is appropriate in order to
prevent ‘‘information overload’’ and to
focus consumers’ attention on the
disclosures that they find the most
important.
The Board is proposing a new
comment 5a(b)(1)–5.iv to provide
guidance regarding the disclosure below
the table of the circumstances under
which an employee preferential rate
may be revoked. Comment 5a(b)(1)–5.iv
would generally mirror relevant
portions of the guidance set forth in
comment 5a(b)(1)–5.iii regarding the
revocation of introductory rates. In
addition, proposed comment 5a(b)(1)–
5.iv would clarify that the description of
the circumstances in which an
employee preferential rate could be
revoked should be brief. For example, if
an issuer may increase an employee
preferential rate based upon termination
of the employee’s employment
relationship with the issuer or a third
party, the comment would clarify that
an issuer may describe this
circumstance as ‘‘if your employment
with [issuer or third party] ends.’’
Proposed § 226.5a(b)(1)(iv)(C) would
apply only to loss of employee
preferential rates. The Board solicits
comment on whether there are other
types of preferential or reduced rates
that are not introductory rates as
defined in § 226.16(g)(2)(ii) but for
which similar treatment under § 226.5a
would be appropriate.
For the reasons discussed above, the
Board also is proposing a new
§ 226.6(b)(2)(i)(D)(3) that would mirror
proposed § 226.5a(b)(1)(iv)(C) and
would require that brief disclosures
regarding the loss of an employee
preferential rate be placed directly
below the tabular disclosure provided at
account opening. The Board is also
proposing conforming amendments to
of the higher rate. See 74 FR 5346. In addition, the
limitations set forth in § 226.55 apply.

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

the formatting requirements set forth in
§§ 226.5a(a)(2)(iii) and 226.6(b)(1)(ii).
Disclosure of How Long a Penalty Rate
Will Remain in Effect
If a rate may increase as a penalty for
one or more events specified in the
account agreement, § 226.5a(b)(1)(iv)
requires that the card issuer disclose the
increased rate that may apply, a brief
description of the event or events that
may result in the increased rate, and a
brief description of how long the
increased rate will remain in effect. The
Board understands that, in light of
several provisions of the Credit Card
Act, there may be confusion regarding
how issuers must disclose the period for
which the penalty rate will remain in
effect. The Board understands that
historically some issuers’ card
agreements provided that penalty rates,
once triggered, could remain in effect
indefinitely. However, the enactment of
the Credit Card Act established certain
circumstances in which a card issuer
must reduce the rate even after penalty
pricing has been triggered. In particular,
§ 226.55(b)(4) requires a card issuer to
reduce a rate that was raised based upon
a delinquency of more than 60 days, if
the consumer makes the first six
required minimum payments on time
following the effective date of the rate
increase. In addition, § 226.59 requires a
card issuer to periodically review
accounts on which a rate increase has
been imposed and, where appropriate
based on the review, reduce the rate
applicable to the account.
As a consequence of § 226.55(b)(4)
and 226.59, the Board understands that
it may be unclear how issuers should
disclose the duration for which a
penalty rate will be in effect, for
example if the contract provides that the
penalty rate may remain in effect
indefinitely, except to the extent
otherwise required by §§ 226.55(b)(4)
and 226.59. Accordingly, the Board is
proposing to amend comment 5a(b)(1)–
5.i to clarify that a card issuer may not
disclose in the table any limitations
imposed by §§ 226.55(b)(4) and 226.59
on the duration of increased rates.
Proposed comment 5a(b)(1)–5.i would
set forth two examples. First, the
proposed comment states that if a card
issuer reserves the right to apply the
increased rate to any balances
indefinitely, to the extent permitted by
§§ 226.55(b)(4) and 226.59, the issuer
should disclose that the penalty rate
may apply indefinitely. The second
example would provide that if the issuer
generally provides that the increased
rate will apply until the consumer
makes twelve timely consecutive
required minimum periodic payments,

PO 00000

Frm 00005

Fmt 4701

Sfmt 4700

67461

except to the extent that §§ 226.54(b)(4)
and 226.59 apply, the issuer should
disclose that the penalty rate will apply
until the consumer makes twelve
consecutive timely minimum payments.
The Board believes more complex
disclosures explaining the applicability
of the rules in §§ 226.55(b)(4) and
226.59 would be confusing to
consumers, and would be of limited
assistance in shopping for credit, given
that those provisions apply to all
issuers. In addition, consumers to
whose accounts the cure right under
§ 226.55(b)(4) applies will be notified of
that right when they receive a notice
under § 226.9(c)(2) or 226.9(g)
disclosing the associated rate increase.
Other Proposed Amendments to
§ 226.5a(b)(1)
The Board is proposing an
amendment to comment 5a(b)(1)–5.ii to
correct a technical error. As discussed
above, pursuant to § 226.5a(b)(1)(iv)(B),
information regarding the revocation of
an introductory rate is required to be
disclosed directly beneath the table.
Comment 5a(b)(1)–5.ii, which discusses
the disclosures regarding the revocation
of an introductory rate, contains an
erroneous reference to a disclosure in,
rather than beneath, the table.
Accordingly, the Board is proposing a
technical amendment to comment
5a(b)(1)–5.ii for conformity with the
placement requirements in
§ 226.5a(b)(1)(iv)(B).
5a(b)(2) Fees for Issuance or Availability
Comment 5a(b)(2)–4 states that, if fees
required to be disclosed are waived or
reduced for a limited time, the
introductory fees or the fact of fee
waivers may be disclosed in the table in
addition to the required fees if the card
issuer also discloses how long the
reduced fees or waivers will remain in
effect. For the reasons discussed below,
the Board would revise this comment to
clarify that the card issuer must comply
with the disclosure requirements in
§§ 226.9(c)(2)(v)(B) and 226.55(b)(1).
5a(b)(5) Grace Period
Section 226.5a(b)(5) requires that the
tabular disclosure provided with credit
and charge card applications and
solicitations state the date by which or
the period within which any credit
extended for purchases may be repaid
without incurring a finance charge due
to a periodic interest rate and any
conditions on the availability of the
grace period. If no grace period is
provided, that fact must be disclosed.
Comment 5a(b)(5)–1 states that an
issuer that offers a grace period on all
purchases and conditions the grace

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

67462

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

period on the consumer paying his or
her outstanding balance in full by the
due date each billing cycle, or on the
consumer paying the outstanding
balance in full by the due date in the
previous and/or the current billing
cycle(s) will be deemed to meet the
requirements in § 226.5a(b)(5) by
providing the following disclosure, as
applicable: ‘‘Your due date is [at least]
___ days after the close of each billing
cycle. We will not charge you any
interest on purchases if you pay your
entire balance by the due date each
month.’’ This model language was
developed through extensive consumer
testing.
In the February 2010 Final Rule, the
Board adopted comment 5a(b)(5)–4,
which clarifies that § 226.5a(b)(5) does
not require a card issuer to disclose the
limitations on the imposition of finance
charges in § 226.54. Implementing the
Credit Card Act, § 226.54 provides that,
when a consumer pays some but not all
of the balance subject to a grace period
prior to the expiration of the grace
period, the card issuer is prohibited
from imposing finance charges on the
portion of the balance paid. In adopting
comment 5a(b)(5)–4, the Board was
concerned that the inclusion of language
attempting to describe the limitations
set forth in § 226.54 could reduce the
effectiveness of the grace period
disclosure. The Board also stated its
belief that a disclosure of the limitations
set forth in § 226.54 is not necessary
insofar as the model language set forth
in comment 5a(b)(5)–1 accurately states
that a consumer generally will not be
charged any interest on purchases if the
entire balance is paid by the due date
each month. Thus, although § 226.54
limits the imposition of finance charges
if the consumer pays less than the entire
balance shown on the periodic
statement, the model language achieves
its intended purpose of explaining
succinctly how a consumer can avoid
all interest charges on purchases.
Many issuers offer a grace period on
all purchases under which no interest
will be charged on purchases shown on
a periodic statement if a consumer pays
his or her outstanding balance shown on
the periodic statement in full by the due
date in the previous and/or the current
billing cycle(s). Many of these issuers
are using the model language set forth
in comment 5a(b)(5)–1, or substantially
similar language, to describe the grace
period and the conditions on its
availability. Nonetheless, other issuers
have chosen not to use the model
language set forth in comment 5a(b)(5)–
1, even though the issuers would be
permitted to do so. Some of the issuers
that have chosen not to use the model

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

language are disclosing the grace period
in more technical detail, including a
discussion of the limitations on
imposition of finance charges under
§ 226.54, and the impact of payment
allocation on whether interest will be
charged on purchases due to the loss of
a grace period. Other issuers are
including detailed language to explain
the conditions on the grace period, such
as an explanation that the consumer
will not be charged any interest on new
purchases, or any portion of a new
purchase, paid by the due date on the
consumer’s current billing statement if
the consumer paid his or her entire
balance on the previous billing
statement in full by the due date on that
statement.
As discussed above, the Board
believes the inclusion of language
attempting to describe the limitations
set forth in § 226.54 or the impact of
payment allocation on whether interest
will be charged on purchases due to the
loss of a grace period could reduce the
effectiveness of the grace period
disclosure. Thus, the Board proposes to
revise comment 5a(b)(5)–1 to clarify that
issuers must not disclose in the table
required by § 226.5a the limitations on
the imposition of finance charges as a
result of a loss of a grace period in
§ 226.54, or the impact of payment
allocation on whether interest is
charged on purchases as a result of a
loss of a grace period. However, issuers
would not be prohibited from disclosing
this information outside the table.
Comment 5a(b)(5)–4, which states that
card issuers are not required to disclose
the limitations set forth in § 226.54,
would be deleted.
In addition, the Board proposes to
revise comment 5a(b)(5)–1 to clarify
that, for purposes of the tabular
disclosures required by § 226.5a, certain
issuers must use the disclosure language
set forth in proposed comment 5a(b)(5)–
1. Specifically, proposed comment
5a(b)(5)–1 notes that some issuers may
offer a grace period on all purchases
under which interest will not be
charged on purchases if the consumer
pays the outstanding balance shown on
a periodic statement in full by the due
date shown on that statement for one or
more billing cycles. The proposed
comment clarifies that in these
circumstances, § 226.5a(b)(5) requires
that the issuer disclose the grace period
and the conditions for its applicability
using the following language, or
substantially similar language, as
applicable: ‘‘Your due date is [at least]
__ days after the close of each billing
cycle. We will not charge you any
interest on purchases if you pay your
entire balance by the due date each

PO 00000

Frm 00006

Fmt 4701

Sfmt 4700

month.’’ As discussed above, this
disclosure language was developed
through extensive consumer testing, and
the Board believes this disclosure
language achieves its intended purpose
of explaining succinctly how a
consumer can avoid all interest charges
on purchases.
The Board recognizes that some
issuers may structure their grace periods
differently than as described above, and
the disclosure language described above
may not be accurate for those issuers.
Proposed comment 5a(b)(5)–1 notes that
some issuers may offer a grace period on
all purchases under which interest may
be charged on purchases even if the
consumer pays the outstanding balance
shown on a periodic statement in full by
the due date shown on that statement
each billing cycle. For example, an
issuer may charge interest on purchases
if the consumer uses the account for a
cash advance, regardless of whether the
outstanding balance shown on the
periodic statement is paid in full by the
due date shown on that statement. In
these circumstances, § 226.5a(b)(5)
requires the issuer to amend the above
disclosure language to describe
accurately the conditions on the
applicability of the grace period.
Nonetheless, under the proposal, these
issuers in disclosing the grace period
and the conditions on its availability in
the § 226.5a table still may not disclose
the limitations on the imposition of
finance charges as a result of a loss of
a grace period in § 226.54, or the impact
of payment allocation on whether
interest is charged on purchases as a
result of a loss of a grace period.
5a(b)(6) Balance Computation Method
Section 226.5a(b)(6) requires that a
card issuer disclose on or with a credit
card application or solicitation
information about the method it uses to
determine the balance for purchases on
which the finance charge is computed.
Comment 5a(b)(6)–1 provides guidance
on how to comply with this requirement
to disclose balance computation
information for purchase balances. This
comment also contains a cross-reference
to the commentary to § 226.5a(g) for
guidance on particular balance
computation methods. There currently
is no commentary to § 226.5a(g), so this
cross-reference would be deleted as
obsolete.

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
Section 226.6—Account-Opening
Disclosures
6(b) Rules Affecting Open-End (Not
Home-Secured) Plans
6(b)(2) Required Disclosures for
Account-Opening Table for Open-End
(Not Home-Secured) Plans

srobinson on DSKHWCL6B1PROD with PROPOSALS2

6(b)(2)(i) Annual Percentage Rate
The Board proposes to replace the
reference to ‘‘card issuer’’ in
§ 226.6(b)(2)(i)(B) with ‘‘creditor’’ in
order to correct a typographical error
and to provide clarity and consistency
with the scope of § 226.6(b).
In addition, for the reasons discussed
in the supplementary information to
§ 226.5a(b)(1), the Board is proposing a
new § 226.6(b)(2)(i)(D)(3) that would
require that certain information
regarding revocation of an employee
preferential rate be disclosed directly
beneath the account-opening table.
6(b)(2)(v) Grace Period
Section 226.6(b)(2)(v) requires that the
account-opening summary table state
the date by which or the period within
which any credit may be repaid without
incurring a finance charge due to a
periodic interest rate and any conditions
on the availability of the grace period.
If no grace period is provided, that fact
must be disclosed.
Many creditors offer a grace period on
purchases, but do not offer a grace
period on cash advances and balance
transfers. Samples G–17(B) and G–17(C)
provide guidance on complying with
§ 226.6(b)(2)(v) when a creditor offer a
grace period on purchases but no grace
period on balance transfers and cash
advances. See comment 6(b)(2)(v)–3.
Specifically, Samples G–17(B) and
G–17(C) contain the following model
language to meet the requirements in
§ 226.6(b)(2)(v): ‘‘Your due date is [at
least] l days after the close of each
billing cycle. We will not charge you
any interest on purchases if you pay
your entire balance by the due date each
month. We will begin charging interest
on cash advances and balance transfers
on the transaction date.’’ This model
language was developed through
extensive consumer testing.
Comment 6(b)(2)(v)–1 provides model
language for creditors to use when they
provide a grace period on all types of
transactions for the account.
Specifically, this comment states that an
issuer that offers a grace period on all
types of transactions for the account and
conditions the grace period on the
consumer paying his or her outstanding
balance in full by the due date each
billing cycle, or on the consumer paying
the outstanding balance in full by the

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

due date in the previous and/or the
current billing cycle(s) will be deemed
to meet the requirements in
§ 226.6(b)(2)(v) by providing the
following disclosure, as applicable:
‘‘Your due date is [at least] l days after
the close of each billing cycle. We will
not charge you any interest on your
account if you pay your entire balance
by the due date each month.’’
In addition, for the reasons discussed
in the section-by-section analysis to
§ 226.5a(b)(5), in the February 2010
Final Rule, the Board adopted comment
6(b)(2)(v)–4, which clarifies that
§ 226.6(b)(2)(v) does not require a card
issuer to disclose the limitations on the
imposition of finance charges in
§ 226.54. Implementing the Credit Card
Act, § 226.54 provides that, when a
consumer pays some but not all of the
balance subject to a grace period prior
to the expiration of the grace period, the
card issuer is prohibited from imposing
finance charges on the portion of the
balance paid. In adopting comment
6(b)(2)–4, the Board was concerned that
the inclusion of language attempting to
describe the limitations set forth in
§ 226.54 could reduce the effectiveness
of the grace period disclosure.
As discussed above, many creditors
offer a grace period on purchases, but do
not offer a grace period on cash
advances and balance transfers. Many of
these creditors are using the model
language set forth in Samples G–17(B)
and G–17(C), or substantially similar
language, to meet the requirements in
§ 226.6(b)(2)(v). Nonetheless, other
creditors have chosen not to use this
model language, even though the
creditors would be permitted to do so.
Some of the creditors that have chosen
not to use the model language are
disclosing the grace period for
purchases in more technical detail,
including a discussion of the limitations
on imposition of finance charges under
§ 226.54, and the impact of payment
allocation on whether interest will be
charged on purchases due to the loss of
a grace period. Other creditors are
including detailed language to explain
the conditions on the grace period for
purchases, such as an explanation that
the consumer will not be charged any
interest on new purchases, or any
portion of a new purchase, paid by the
due date on the consumer’s current
billing statement if the consumer paid
his or her entire balance on the previous
billing statement in full by the due date
on that statement.
Consistent with proposed changes to
comment 5a(b)(5)–1 and for the reasons
discussed in the section-by-section
analysis to § 226.5a(b)(5), the Board
proposes to revise comment 6(b)(2)(v)–

PO 00000

Frm 00007

Fmt 4701

Sfmt 4700

67463

1 to clarify that creditors must not
disclose in the table required by
§ 226.6(b) the limitations on the
imposition of finance charges as a result
of a loss of a grace period in § 226.54,
or the impact of payment allocation on
whether interest is charged on
transactions as a result of a loss of a
grace period. The Board believes the
inclusion of language attempting to
describe the limitations set forth in
§ 226.54 and the impact of payment
allocation on whether interest will be
charged on transactions due to the loss
of a grace period could reduce the
effectiveness of the grace period
disclosure required by § 226.6(b)(2)(v).
Comment 6(b)(2)(v)–4, which states that
card issuers are not required to disclose
the limitations set forth in § 226.54,
would be deleted.
In addition, consistent with proposed
changes to comment 5a(b)(5)–1 and for
the reasons discussed in the section-bysection analysis to § 226.5a(b)(5), the
Board proposes to revise comment
6(b)(2)(v)–3 to clarify that
§ 226.6(b)(2)(v) requires certain creditors
that provide a grace period on purchases
but not on cash advances and balance
transfers to use the disclosure language
this is currently set forth in Samples
G–17(B) and G–17(C). Specifically,
proposed comment 6(b)(2)(v)–3 notes
that some creditors do not offer a grace
period on cash advances and balance
transfers, but offers a grace period for all
purchases under which interest will not
be charged on purchases if the
consumer pays the outstanding balance
shown on a periodic statement in full by
the due date shown on that statement
for one or more billing cycles. Proposed
comment 6(b)(2)(v)–3 clarifies that in
these circumstances, § 226.6(b)(2)(v)
requires that the creditor disclose the
grace period for purchases and the
conditions for its applicability, and the
lack of a grace period for cash advances
and balance transfers using the
following language, or substantially
similar language, as applicable: ‘‘Your
due date is [at least] l days after the
close of each billing cycle. We will not
charge you any interest on purchases if
you pay your entire balance by the due
date each month. We will begin
charging interest on cash advances and
balance transfers on the transaction
date.’’ This disclosure language, which
also is set forth in the ‘‘Paying Interest’’
row in Samples G–17(B) and G–17(C),
was developed through extensive
consumer testing. The Board believes
this disclosure language achieves its
intended purpose of explaining
succinctly how a consumer can avoid
all interest charges on purchases, while

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

67464

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

explaining that no grace period is
offered for cash advances and balance
transfers.
The Board recognizes that some
creditors may offer a grace period on
purchases but structure their grace
periods differently than as described
above, and the disclosure language
described above may not be accurate for
those creditors. Proposed comment
6(b)(2)(v)–3 notes that some creditors
may offer a grace period on all
purchases under which interest may be
charged on purchases even if the
consumer pays the outstanding balance
shown on a periodic statement in full by
the due date shown on that statement
each billing cycle. For example, a
creditor may charge interest on
purchases if the consumer uses the
account for a cash advance, regardless of
whether the outstanding balance shown
on the periodic statement is paid in full
by the due date shown on that
statement. Proposed comment
6(b)(2)(v)–3 clarifies that in these
circumstances, § 226.6(a)(2)(v) requires
the creditor to amend the above
disclosure language to accurately
describe the conditions on the
applicability of the grace period.
Nonetheless, under the proposal, these
creditors in disclosing the grace period
and the conditions on its availability
still may not disclose the limitations on
the imposition of finance charges as a
result of a loss of a grace period in
226.54, or the impact of payment
allocation on whether interest is
charged on purchases as a result of a
loss of a grace period.
Similarly, some creditors may not
offer a grace period on cash advances
and balance transfers, and will begin
charging interest on these transactions
from a date other than the transaction
date, such as the posting date. Proposed
comment 6(b)(2)(v)–3 clarifies that in
these circumstances, § 226.6(a)(2)(v)
requires the creditor to amend the above
disclosure language to be accurate.
Consistent with the proposed changes
to comment 6(b)(2)(v)–3, the Board also
proposes changes to comment
6(b)(2)(v)–1 which discusses
circumstances where a creditor offers a
grace period on all types of transactions
on the account, including purchases,
cash advances, and balances transfers.
Specifically, proposed comment
6(b)(2)(v)–1 notes that some creditors
may offer a grace period on all types of
transactions under which interest will
not be charged on transactions if the
consumer pays the outstanding balance
shown on a periodic statement in full by
the due date shown on that statement
for one or more billing cycles. In these
circumstances, § 226.6(b)(2)(v) requires

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

that the creditor disclose the grace
period and the conditions for its
applicability using the following
language, or substantially similar
language, as applicable: ‘‘Your due date
is [at least] __ days after the close of
each billing cycle. We will not charge
you any interest on your account if you
pay your entire balance by the due date
each month.’’ Proposed comment
6(b)(2)(v)–1 also notes that other
creditors may offer a grace period on all
types of transactions under which
interest may be charged on transactions
even if the consumer pays the
outstanding balance shown on a
periodic statement in full by the due
date shown on that statement each
billing cycle. This proposed comment
clarifies that in these circumstances,
§ 226.6(b)(2)(v) requires the creditor to
amend the above disclosure language to
describe accurately the conditions on
the applicability of the grace period.
6(b)(2)(vi) Balance Computation Method
Section 226.6(b)(2)(vi) requires that a
creditor disclose information about
balance computation methods as part of
the account-opening disclosures.
Specifically, § 226.6(b)(2)(vi) provides
that a creditor must disclose the name
of the balance computation method
listed in § 226.5a(g) that is used to
determine the balance on which the
finance charge is computed for each
feature, or an explanation of the method
used if it is not listed, along with a
statement that an explanation of the
method(s) required by § 226.6(b)(4)(i)(D)
is provided with the account-opening
disclosures. The information required
by § 226.6(b)(2)(vi) must appear directly
beneath the account-opening summary
table. See § 226.6(b)(2)(ii).
The names of the balance
computation methods listed in
§ 226.5a(g) describe balance
computation methods for purchases
(e.g., ‘‘average daily balance (including
new purchases)’’ and ‘‘average daily
balance (excluding new purchases)’’).
Nonetheless, unlike § 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. See comment 6(b)(2)(vi)–1.
Samples G–17(B) and G–17(C) disclose,
as an example, the ‘‘average daily
balance (including new purchases)’’ as
the method that is being used to
calculate the balance for all features on
the account. Thus, for simplicity, where
the balance for each feature is computed
using the same balance computation

PO 00000

Frm 00008

Fmt 4701

Sfmt 4700

method, a creditor may use the name of
the appropriate balance computation
method listed in § 226.5a(g) (e.g.,
‘‘average daily balance (including new
purchases)’’) to satisfy the requirement
to disclose the name of the method for
all features on the account, even though
the name only refers to purchases.
Questions have been asked, however,
regarding whether a creditor may revise
the names of the balance computation
methods listed in § 226.5a(g) to be more
accurate by referring more broadly to all
new transactions (rather than referring
only to ‘‘new purchases’’) when the same
method is used to calculate the balances
for all features on the account. For
example, creditors have asked whether
they can revise the name listed in
§ 226.5a(g)(i) to disclose it as ‘‘average
daily balance (including new
transactions)’’ when this method is used
to calculate the balances for all features
of the account. Also, creditors have
asked whether they may revise the
names listed in § 226.5a(g) to be
applicable to features other than
purchases. Creditors in some cases may
disclose the balance computation
methods separately for each feature,
such as when a different balance
computation method applies to
purchases than to cash advances.
To address these compliance issues
and to provide additional flexibility to
creditors, the Board proposes to revise
comment 6(b)(2)(vi)–1 to provide that in
cases where the balance for each feature
is computed using the same balance
computation method, a single
identification of the name of the balance
computation method is sufficient. In
that case, the proposed comment makes
explicitly clear that a creditor may use
an appropriate name listed in
§ 226.5a(g) (e.g., ‘‘average daily balance
(including new purchases)’’) to satisfy
the requirement to disclose the name of
the method for all features on the
account, even though the name only
refers to purchases. For example, if a
creditor uses the average daily balance
method including new transactions as
the balance computation method for all
features, a creditor may use the name
‘‘average daily balance (including new
purchases)’’ listed in § 226.5a(g)(i) to
satisfy the requirement to disclose the
name of the balance computation
method for all features. As an
alternative, the proposed comment
provides that a creditor may revise the
balance computation names listed in
§ 226.5a(g) to refer more broadly to all
new credit transactions, such as using
the language ‘‘new transactions’’ or
‘‘current transactions’’ (e.g., ‘‘average
daily balance (including new
transactions)’’), rather than simply

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
referring to new purchases when the
same method is used to calculate the
balances for all features of the account.
In addition, the Board proposes to add
comment 6(b)(2)(vi)–2 to address
situations where a creditor is disclosing
the name of the balance computation
methods separately for each feature. In
that case, in using the names listed in
§ 226.5a(g) to satisfy the requirements of
§ 226.6(b)(2)(vi) for features other than
purchases, a creditor must revise the
names listed in § 226.5a(g) to refer to the
other features. For example, when
disclosing the name of the balance
computation method applicable to cash
advances, a creditor must revise the
name listed in § 226.5a(g)(i) to disclose
it as ‘‘average daily balance (including
new cash advances)’’ when the balance
for cash advances is figured by adding
the outstanding balance (including new
cash advances and deducting payments
and credits) for each day in the billing
cycle, and then dividing by the number
of days in the billing cycle. Similarly, a
creditor must revise the name listed in
§ 226.5a(g)(ii) to disclose it as ‘‘average
daily balance (excluding new cash
advances)’’ when the balance for cash
advances is figured by adding the
outstanding balance (excluding new
cash advances and deducting payments
and credits) for each day in the billing
cycle, and then dividing by the number
of days in the billing cycle.
Section 226.7

Periodic Statement

srobinson on DSKHWCL6B1PROD with PROPOSALS2

7(b) Rules Affecting Open-End (Not
Home-Secured) Plans
7(b)(5) Balance on Which Finance
Charge Computed
Section 226.7(b)(5) provides that a
creditor must disclose on the periodic
statement the amount of the balance to
which a periodic rate was applied and
an explanation of how that balance was
determined, using the term Balance
Subject to Interest Rate. As an
alternative to providing an explanation
of how the balance was determined, a
creditor that uses a balance computation
method identified in § 226.5a(g) may, at
the creditor’s option, identify the name
of the balance computation method and
provide a toll-free telephone number
where consumers may obtain from the
creditor more information about the
balance computation method and how
resulting interest charges were
determined. If the method used is not
identified in § 226.5a(g), the creditor
shall provide a brief explanation of the
method used.
Comment 7(b)(5)–7 provides guidance
on the use of one balance computation
method explanation or name when
multiple balances are disclosed.

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

Specifically, comment 7(b)(5)–7 notes
that sometimes the creditor will disclose
more than one balance to which a
periodic rate was applied, even though
each balance was computed using the
same balance computation method. For
example, if a plan involves purchases
and cash advances that are subject to
different rates, more than one balance
must be disclosed, even though the
same computation method is used for
determining the balance for each
feature. In these cases, one explanation
or a single identification of the name of
the balance computation method is
sufficient. In addition, sometimes the
creditor separately discloses the
portions of the balance that are subject
to different rates because different
portions of the balance fall within two
or more balance ranges, even when a
combined balance disclosure would be
permitted under comment 7(b)(5)–1. In
these cases, one explanation or a single
identification of the name of the balance
computation method is also sufficient
(assuming, of course, that all portions of
the balance were computed using the
same method).
The comment does not specify,
however, whether in this case a creditor
may use the balance computation
method names listed in § 226.5a(g) (e.g.,
‘‘average daily balance (including new
purchases)’’) as the single identification
of the name of the balance computation
method used for all features, even
though the name only refers to
purchases. In addition, as discussed in
the section-by-section analysis to
§ 226.6(b)(2)(vi), questions have been
asked as to whether a creditor may
revise the names of the balance
computation methods listed in
§ 226.5a(g) to refer more broadly to all
new transactions (rather than referring
only to ‘‘new purchases’’) when the same
method is used to calculate the balances
for all features on the account. For
example, creditors have asked whether
they may revise the name listed in
§ 226.5a(g)(i) to disclose it as ‘‘average
daily balance (including new
transactions)’’ when this method is used
to calculate the balances for all features
of the account. Also, creditors have
asked whether they may revise the
names listed in § 226.5a(g) to be
applicable to features other than
purchases. Creditors in some cases may
disclose the balance computation
methods separately for each feature,
such as when a different balance
computation method applies to
purchases than for cash advances.
To address these compliance issues
and to provide additional flexibility to
creditors, consistent with proposed
guidance in comment 6(b)(2)(vi), the

PO 00000

Frm 00009

Fmt 4701

Sfmt 4700

67465

Board proposes to revise comment
7(b)(5)–7 to provide that in cases where
each balance was computed using the
same balance computation method, a
creditor may use an appropriate name
listed in § 226.5a(g) (e.g., ‘‘average daily
balance (including new purchases)’’) as
the single identification of the name of
the balance computation method
applicable to all features, even though
the name only refers to purchases. For
example, if a creditor uses the average
daily balance method including new
transactions as the balance computation
method for all features, a creditor may
use the name ‘‘average daily balance
(including new purchases)’’ listed in
§ 226.5a(g)(i) to satisfy the requirement
to disclose the name of the balance
computation method for all features. As
an alternative, the proposed comment
provides that a creditor may revise the
balance computation names listed in
§ 226.5a(g) to refer more broadly to all
new credit transactions, such as using
the language ‘‘new transactions’’ or
‘‘current transactions’’ (e.g., ‘‘average
daily balance (including new
transactions)’’), rather than simply
referring to new purchases when the
same method is used to calculate the
balances for all features of the account.
Also consistent with proposed
comment 6(b)(2)(vi)–2, the Board
proposes to add a new comment 7(b)(5)–
8 to address situations where a creditor
is disclosing the name of the balance
computation methods separately for
each feature. Proposed comment
7(b)(5)–8 provides that in those cases,
where a creditor is using the names
listed in § 226.5a(g) to satisfy the
requirements of § 226.7(b)(5) for features
other than purchases, a creditor must
revise the names listed in § 226.5a(g) to
refer to the other features. For example,
when disclosing the name of the balance
computation method applicable to cash
advances, a creditor must revise the
name listed in § 226.5a(g)(i) to disclose
it as ‘‘average daily balance (including
new cash advances)’’ when the balance
for cash advances is figured by adding
the outstanding balance (including new
cash advances and deducting payments
and credits) for each day in the billing
cycle, and then dividing by the number
of days in the billing cycle. Similarly, a
creditor must revise the name listed in
§ 226.5a(g)(ii) to disclose it as ‘‘average
daily balance (excluding new cash
advances)’’ when the balance for cash
advances is figured by adding the
outstanding balance (excluding new
cash advances and deducting payments
and credits) for each day in the billing
cycle, and then dividing by the number
of days in the billing cycle.

E:\FR\FM\02NOP2.SGM

02NOP2

67466

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

7(b)(6) Charges Imposed
Section 226.7(b)(6) generally requires
the disclosure of the amounts of any
charges imposed on a plan, which
consists of finance charges attributable
to periodic interest rates (disclosed as
Interest Charged), and charges imposed
as part of a plan other than charges
attributable to periodic interest rates
(disclosed as Fees). In addition,
calendar year to date totals for both
interest and fees must be disclosed.
Comment 7(b)(6)–3 provides guidance
for disclosing calendar-year-to-date
totals for fees. In order to avoid
inconsistency, the Board proposes to
amend comment 7(b)(6)–3 to clarify that
this guidance applies to fees as well as
interest charged.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

7(b)(12) Repayment Disclosures
Section 226.7(b)(12) requires that for
a credit card account under an open-end
(not home-secured) consumer credit
plan, card issuers generally must
disclose the following repayment
disclosures on each periodic statement:
(1) A ‘‘warning’’ statement indicating
that making only the minimum payment
will increase the interest the consumer
pays and the time it takes to repay the
consumer’s balance; (2) the length of
time it would take to repay the
outstanding balance if the consumer
pays only the required minimum
monthly payments and no further
advances are made; (3) the total cost to
the consumer of paying the balance in
full if the consumer pays only the
required minimum monthly payment
and no further advances are made; (4)
the monthly payment amount that
would be required for the consumer to
pay off the outstanding balance in 36
months, if not further advances are
made; (5) the total cost to the consumer
of paying the balance in full if the
consumer pays the balance over 36
months; (6) the total savings of paying
the balance in 36 months (rather than
making only minimum payments); and
(7) a toll-free telephone number at
which the consumer may receive
information about accessing consumer
credit counseling. See § 226.7(b)(12)(i).
To simplify the disclosures,
§ 226.7(b)(12)(i) and (ii) provide that
card issuers must round the following
disclosures to the nearest whole dollar
when disclosing them on the periodic
statement: (1) The minimum payment
total cost estimate, (2) the estimated
monthly payment for repayment in 36
months, (3) the total cost estimate for
repayment in 36 months, and (4) the
savings estimate for repayment in 36
months. See § 226.7(b)(12)(i)(C),
(b)(12)(i)(F)(1)(i), (b)(12)(i)(F)(1)(iii),

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

(b)(12)(i)(F)(1)(iv) and (b)(12)(ii)(C).
Some card issuers have requested,
however, that they be permitted to
provide these disclosures on the
periodic statement rounded to the
nearest cent to be more accurate and to
avoid potential consumer confusion that
rounding to the dollar might cause in
certain circumstances. For example,
assume that a consumer’s balance is
$3,000 and the APR on the account is
14.4%. The estimated monthly payment
to repay the balance in 36 months
would be $103.12 (rounded to the
nearest cent). A card issuer would be
required to disclose on the periodic
statement the estimated monthly
payment for repayment in 36 months as
$103, and the total cost estimate for
repayment in 36 months as $3,712. (The
total cost estimate for repayment in 36
months is calculated by multiplying
$103.12 times 36, and rounding that
result to the nearest whole dollar.)
Nonetheless, if a consumer pays $103
each month for 36 months, the
consumer will have paid only $3,708
(not the $3,712 shown on the
statement). Thus, rounding the
disclosures to whole dollars when
providing them on the periodic
statement in some cases may make the
disclosures appear to be inconsistent
with each other.
To provide additional flexibility to
card issuers, the Board proposes to
revise § 226.7(b)(12)(i) and (b)(12)(ii) to
allow card issuers, at their option, to
provide the following disclosures on the
periodic statement either rounded to the
nearest whole dollar or to the nearest
cent: (1) The minimum payment total
cost estimate, (2) the estimated monthly
payment for repayment in 36 months,
(3) the total cost estimate for repayment
in 36 months, and (4) the savings
estimate for repayment in 36 months.
Nonetheless, proposed comment
7(b)(12)–1 would provide that an
issuer’s rounding for all of these
disclosures must be consistent. An
issuer may round all of these
disclosures to the nearest whole dollar
when providing them on periodic
statements, or may round all of these
disclosures to the nearest cent. An
issuer may not, however, round some of
the disclosures to the nearest whole
dollar, while rounding other disclosures
to the nearest cent. Requiring an issuer
to be consistent in how it rounds these
disclosures helps to ensure that these
disclosures remain consistent with each
other.
7(b)(14) Deferred Interest or Similar
Transactions
Section 226.7(b)(14) generally
requires disclosure of the date by which

PO 00000

Frm 00010

Fmt 4701

Sfmt 4700

any outstanding balance subject to a
deferred interest or similar program
must be paid in full in order to avoid
finance charges on the front of each
periodic statement issued during the
deferred interest period. In order to
avoid potential confusion, the Board
proposes to amend § 226.7(b)(14) to
clarify that the disclosure required by
§ 226.7(b)(14) may be on the front of any
page of each periodic statement issued
during the deferred interest period that
reflects the deferred interest or similar
transaction. The Board believes this
clarification will ensure that consumers
continue to receive conspicuous
disclosure of the end of the deferred
interest period and also provides greater
certainty and flexibility to creditors in
order to facilitate compliance.
Accordingly, the Board also proposes to
amend the example in comment 7(b)–
1.iv for consistency with the proposed
revision.
Section 226.9 Subsequent Disclosure
Requirements
9(b) Disclosures for Supplemental Credit
Access Devices and Additional Features
9(b)(3) Checks That Access a Credit
Card Account
Section 226.9(b)(3) sets forth
requirements for disclosures that must
be provided with checks that access a
credit card account. These disclosures
set forth certain key terms, such as the
rates that will apply to the checks, any
transaction fees applicable to the
checks, and whether or not a grace
period is given within which any credit
extended by use of the checks may be
repaid without incurring interest
charges. The Board is proposing to
clarify that if any rate disclosed
pursuant to § 226.9(b)(3) is a variable
rate, the card issuer must disclose that
the rate may vary and how the rate is
determined. The Board believes that it
is appropriate that consumers be
informed if the rates that apply to
checks that access a credit card account
are variable rates, to better assist
consumers with making an informed
decision regarding use of the checks.
Proposed § 226.9(b)(3)(iii) would
generally mirror the disclosure
requirements for variable rates set forth
in §§ 226.5a(b)(1)(i) and
226.6(b)(2)(i)(A). Proposed
§ 226.9(b)(3)(iii) provides that if any
annual percentage rate required to be
disclosed pursuant to § 226.9(b)(3)(i) is
a variable rate, the card issuer must also
disclose the fact that the rate may vary
and how the rate is determined. In
describing how the applicable rate will
be determined, the card issuer must
identify the type of index or formula

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
that is used in setting the rate. The value
of the index and the amount of the
margin that are used to calculate the
variable rate shall not be disclosed in
the table. In addition, a card issuer may
not disclose any applicable limitations
on rate increases in the table. The Board
believes that the approach in
§§ 226.5a(b)(1)(i) and 226.6(b)(2)(i)(A),
which was based in part on consumer
testing conducted on behalf of the
Board, strikes the appropriate balance
between informing consumers of key
information regarding the variable rate
or rates while avoiding overly detailed
information that may be confusing to
consumers.
Section 226.9(b)(3)(i) requires that the
disclosures given in connection with
checks that access a credit card account
be in the form of a table with headings,
content, and form substantially similar
to Sample G–19. The Board has been
asked whether the ‘‘substantially
similar’’ standard would permit a card
issuer to provide a combined table that
discloses the terms applicable both to
access checks and other types of
transactions. The Board is proposing a
new comment 9(b)(3)(i)–2 to clarify that
a card issuer may include in the tabular
disclosure provided pursuant to
§ 226.9(b)(3) disclosures regarding the
terms offered on non-check transactions,
provided that such transactions are
subject to the same terms that are
required to be disclosed pursuant to
§ 226.9(b)(3)(i) for the checks that access
a credit card account. Proposed
comment 9(b)(3)(i)–2 would further
state, however, that a card issuer may
not include in the table information
regarding additional terms that are not
required disclosures for access checks
pursuant to § 226.9(b)(3).
The Board believes that if a card
issuer offers a single set of terms that
apply both to checks that access a credit
card account and to other transactions,
it is appropriate to permit the card
issuer to present one combined tabular
disclosure. For example, a card issuer
may offer a single set of promotional
terms that apply both to checks that
access a credit card account and to
balance transfers made without use of
an access check. Under these
circumstances, the Board believes that it
is unnecessary to require card issuers to
provide two substantively identical but
separate sets of disclosures, one for
check transactions and one for other
balance transfers. Accordingly, the
Board believes that proposed comment
9(b)(3)(i)–2 would ensure that
consumers continue to receive clear
disclosures regarding checks that access
a credit card account, while at the same
time minimizing the operational burden

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

that would be associated with providing
two sets of disclosures of substantively
identical terms.
9(c)(2) Rules Affecting Open-End (Not
Home-Secured) Plans
Comment 9(c)(2)–1 states that, except
as provided in § 226.9(g)(1), no notice of
a change in terms need be given if the
specific change is set forth initially,
such as rate increases under a properly
disclosed variable-rate plan in
accordance with § 226.9(c)(2)(v)(C). The
Board would revise this comment to
clarify that the initial disclosure of the
change must be provided consistent
with any applicable requirements. For
example, no notice of a change in terms
is required when a promotional rate
expires, provided that the card issuer
disclosed the terms associated with that
promotional rate consistent with
§ 226.9(c)(2)(v)(B).
9(c)(2)(i) Changes Where Written
Advance Notice Is Required
9(c)(2)(ii) Significant Changes in
Account Terms
Section 226.9(c)(2) sets forth the
change-in-terms notice requirements for
open-end consumer credit plans that are
not home-secured. Section 226.9(c)(2)(i)
states that, when a significant change in
account terms as described in
§ 226.9(c)(2)(ii) is made to a term
required to be disclosed under
§ 226.6(b)(3), (b)(4), or (b)(5), a creditor
must generally provide a written notice
at least 45 days prior to the effective
date of the change. Section 226.9(c)(2)(i)
defines a ‘‘significant change in account
terms’’ as a change to a term required to
be disclosed under § 226.6(b)(1) and
(b)(2), an increase in the required
minimum periodic payment, or the
acquisition of a security interest.
The Board is aware that some
confusion has arisen regarding the
references to § 226.6(b)(3), (b)(4), and
(b)(5) contained in § 226.9(c)(2). In
particular, given that ‘‘significant change
in account terms’’ is defined in
§ 226.9(c)(2)(ii) generally with respect to
terms required to be disclosed in the
account-opening table under
§ 226.6(b)(1) and (b)(2), several creditors
have asked the Board to clarify what
advance notice requirements apply
when a change is made to a term
required to be disclosed under
§ 226.6(b)(3), (b)(4), or (b)(5) that (1) may
impact a term required to be disclosed
in the account-opening table pursuant to
§ 226.6(b)(1) and (b)(2), but (2) is not a
term that itself is required or permitted
to be included in the account-opening
table. For example, the Board has been
asked whether 45 days’ advance notice

PO 00000

Frm 00011

Fmt 4701

Sfmt 4700

67467

is required prior to changing the
schedule on which the value of a
variable annual percentage rate is
adjusted, if the formula for computing
the value of the variable rate otherwise
remains the same (i.e., based on the
same index and margin). The Board
notes that the variable annual
percentage rate is a term required to be
disclosed pursuant to § 226.6(b)(1) and
(b)(2). In contrast, the schedule on
which the rate is computed is not
required or permitted to be disclosed in
the tabular disclosure pursuant to
§ 226.6(b)(1) and (b)(2). However, the
schedule on which the rate is computed
is required to be disclosed at account
opening outside of the table pursuant to
§ 226.6(b)(4).
The Board is proposing several
amendments to § 226.6(b)(1) and (b)(2)
to clarify the advance notice
requirements for changes to terms
specified in § 226.6(b)(3), (b)(4), or (b)(5)
that are not also terms required to be
disclosed under § 226.6(b)(1) and (b)(2).
First, the Board is proposing to delete as
unnecessary the references to
§ 226.6(b)(3), (b)(4) and (b)(5), as well as
a reference to increases in the required
minimum periodic payment, from
§ 226.9(c)(2)(i). The Board believes that
for clarity the term ‘‘significant change
in account terms’’ should be defined
exclusively in § 226.9(c)(2)(ii) and that
deletion of the references to
§ 226.6(b)(3), (b)(4) and (b)(5) and
increases in the required minimum
periodic payment in § 226.9(c)(2)(i) will
alleviate confusion regarding
compliance with the change-in-terms
notice requirements.
Second, the Board is proposing to
amend the definition of ‘‘significant
change in account terms’’ in
§ 226.9(c)(2)(ii) to clarify to which terms
the 45-day advance notice requirements
in § 226.9(c)(2) apply. Section
226.9(c)(2)(ii) would be amended to
define ‘‘significant change in account
terms’’ as a change to a term required to
be disclosed under § 226.6(b)(1) and
(b)(2), an increase in the required
minimum periodic payment, a change to
a term required to be disclosed under
§ 226.6(b)(4), or the acquisition of a
security interest.
The Board notes that proposed
§ 226.9(c)(2)(ii) would not specifically
identify changes in terms required to be
disclosed under § 226.6(b)(3) in the list
of ‘‘significant change[s] in account
terms.’’ The Board believes that a
reference to § 226.6(b)(3) is unnecessary,
for several reasons. Section 226.6(b)(3)
addresses disclosure of charges imposed
as part of an open-end (not homesecured) plan. Certain charges imposed
as part of a plan are specifically

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

67468

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

required to be disclosed in the accountopening table under § 226.6(b)(1) and
(b)(2), while other charges imposed as
part of the plan are not required or
permitted to be disclosed in the table.
Therefore, the 45-day advance notice
requirement would continue to apply to
charges that are identified in
§ 226.6(b)(3) that are also required to be
disclosed in the account-opening table
under § 226.6(b)(1) and (b)(2). In
addition, § 226.9(c)(2)(iii) sets forth a
special rule for notice of changes to
charges imposed as part of the plan that
are not required to be disclosed in the
account-opening table. In particular, for
charges imposed as part of the plan
under § 226.6(b)(3) that are not required
to be disclosed in the account-opening
table under § 226.6(b)(1) and (b)(2),
§ 226.9(c)(2)(iii) requires a creditor to
either, at its option (1) provide at least
45 days’ written advance notice before
the change becomes effective, or (2)
provide notice orally or in writing of the
amount of the charge to an affected
consumer at a relevant time before the
consumer agrees to or becomes
obligated to pay the charge. The Board
is proposing one wording change to
§ 226.9(c)(2)(iii) and comment
9(c)(2)(iii)–1; the Board proposes to
replace the word ‘‘may’’ with ‘‘must,’’ in
order to clarify that increases in, or the
introduction of new, charges imposed as
part of the plan under § 226.6(b)(3) must
be disclosed in accordance with
§ 226.9(c)(2)(iii).
Proposed § 226.9(c)(2)(ii) would
specifically categorize changes in terms
required to be disclosed under
§ 226.6(b)(4) as ‘‘significant change[s] in
account terms.’’ Section 226.6(b)(4)
requires disclosure of certain
information regarding periodic rates that
may be used to calculate interest. The
Board believes that changes in the
manner in which annual percentage
rates are computed are significant
changes because they may impact the
amount of interest imposed on a
consumer’s account, which is one of the
key costs associated with open-end (not
home-secured) credit. While certain
details regarding rates mandated by
§ 226.6(b)(4) are not required or
permitted to be disclosed in the
account-opening table, changes in the
manner in which an interest rate is
computed may have a direct impact on
the annual percentage rate expressed as
a yearly rate, which is a required
disclosure in the account-opening table
under § 226.6(b)(1) and (b)(2). For
example, for variable rates § 226.6(b)(4)
requires disclosure of the frequency
with which the rate may increase and
the circumstances under which the rate

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

may increase, both of which may impact
the computation of the rate required to
be disclosed in the account-opening
table. Thus, the Board believes that 45
days’ advance notice of such changes is
appropriate to ensure that consumers
can take actions to mitigate the potential
impact of changes in the way in which
the annual percentage rate or rates
applicable to their accounts are
computed.
Finally, unlike current § 226.9(c)(2)(i),
the definition of ‘‘significant change[s]
in account terms’’ in proposed
§ 226.9(c)(2)(ii) would not expressly
reference the disclosures required by
§ 226.6(b)(5). Section 226.6(b)(5)
requires that a creditor disclose, to the
extent applicable, certain information
regarding voluntary credit insurance,
debt cancellation or debt suspension
coverage, security interests, and a
statement regarding the consumer’s
billing rights. The disclosures regarding
voluntary credit insurance and similar
products and the statement of billing
rights set forth in § 226.6(b)(5) are not
terms of the account, but specific forms
of disclosures that must be given.
Accordingly, given that these are not
terms of the account, the Board believes
that there are no corresponding changes
in terms for which it is appropriate to
require advance notice.2 In contrast, in
the February 2010 Final Rule, the Board
expressly included the acquisition of a
security interest in the definition of
‘‘significant change in account terms’’ for
which 45 days’ advance notice must
generally be provided.
9(c)(2)(iv) Disclosure Requirements
As discussed above, the Board is
proposing to amend § 226.9(c)(2)(ii) to
expressly provide that changes to terms
required to be disclosed under
§ 226.6(b)(4) are ‘‘significant change[s] in
account terms.’’ The Board is proposing
several conforming changes to
§ 226.9(c)(2)(iv), which sets forth the
disclosure requirements for the 45-day
advance notice of a significant change in
account terms. First, the Board is
proposing to amend § 226.9(c)(iv)(A)(1)
to provide that the notice must include
a summary of changes made to terms
required to be disclosed under
§ 226.6(b)(4). Second, the Board is
proposing to amend
§ 226.9(c)(2)(iv)(D)(1) to clarify the
formatting requirements for the notice
provided in advance of a change to a
2 The Board notes that charges for voluntary
credit insurance, debt cancellation or debt
suspension coverage are ‘‘charges imposed as part
of the plan’’ under § 226.6(b)(3)(ii)(F), and
accordingly changes in the cost of such coverage
would be required to be disclosed in accordance
with § 226.9(c)(2)(iii).

PO 00000

Frm 00012

Fmt 4701

Sfmt 4700

term required to be disclosed under
§ 226.6(b)(4). Section
226.9(c)(2)(iv)(D)(1) generally requires
that the summary of changes included
with a change-in-terms notice be in a
tabular format, with headings and
format substantially similar to any of the
account-opening tables found in G–17 to
appendix G. However, terms required to
be disclosed under § 226.6(b)(4), such as
the margin for a variable rate, are not
permitted to be included in the accountopening table, and accordingly would
not be in a tabular format in the samples
in G–17 to appendix G. Accordingly, the
Board proposes to amend
§ 226.9(c)(2)(iv)(D)(1) to expressly state
that the summary of a term required to
be disclosed under § 226.6(b)(4) that is
not required to be disclosed under
§ 226.6(b)(1) and (b)(2) need not be in a
tabular format.
The Board also is proposing several
changes related to disclosure of the right
to reject certain types of changes. When
a creditor makes a significant change in
account terms on a credit card account
under an open-end (not home-secured)
consumer credit plan,
§ 226.9(c)(2)(iv)(B) generally requires
the creditor to disclose certain
information regarding the consumer’s
right to reject that change under
§ 226.9(h). Section 226.9(c)(2)(iv)(B) also
lists several types of changes to which
the right to reject does not apply,
including a change in the balance
computation method necessary to
comply with § 226.54. The Board
adopted this exemption in the February
2010 Final Rule in order to facilitate
compliance with the limitations on the
imposition of finance charges in
§ 226.54, which implemented the Credit
Card Act’s prohibition on the two-cycle
balance computation method. See 75 FR
7696, 7730.
Because § 226.54 went into effect on
February 22, 2010, the Board proposes
to remove the exemption in
§ 226.9(c)(2)(iv)(B) for changes
necessary to comply with § 226.54. In its
place, the Board is proposing to adopt
an exemption stating that, when a fee
has been reduced consistent with the
Servicemembers Civil Relief Act
(SCRA), 50 U.S.C. app. 501 et seq., or a
similar federal or state statute or
regulation, the right to reject does not
apply to an increase in that fee once the
statute or regulation no longer applies,
provided that the amount of the
increased fee does not exceed the
amount of that fee prior to the
reduction.
As discussed in greater detail below
with respect to § 226.55(b)(6), the SCRA
and some state statutes generally require
creditors to reduce interest rates and

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
fees for consumers who are engaged in
military service. When the SCRA or
similar state statute ceases to apply,
§ 226.9(c) generally requires the creditor
to provide 45 days’ advance notice of
any increase in a rate or fee. The right
to reject does not apply to rate increases,
but § 226.55(b)(6) limits the ability of a
card issuer to increase the rate that
applies to the existing balance on a
credit card account under an open-end
(not home-secured) consumer credit
plan in these circumstances.
Specifically, § 226.55(b)(6) provides
that, if the SCRA requires a card issuer
to reduce an interest rate on an existing
balance when a consumer enters
military service, the rate applied to that
balance when the consumer leaves
military service cannot exceed the rate
that applied prior to military service. In
other words, consumers cannot be
worse off once the SCRA ceases to apply
than they were before the SCRA began
to apply.
The Board understands that, in order
to comply with the SCRA and similar
federal or state statute or regulation,
many creditors reduce or cease to
impose annual fees, late payment fees,
and other types of fees while a
consumer is in military service.
Although the right to reject generally
applies to increases in fees required to
be disclosed under § 226.6(b)(1) and
(b)(2) (such as annual fees and late
payment fees), the Board believes that,
when a consumer leaves military service
and the legal requirements of the SCRA
or a similar federal or state statute or
regulation cease to apply, it is
appropriate to permit creditors to return
fees to pre-existing levels. Accordingly,
the Board would exempt such increases
from the right to reject. However, the
right to reject would continue to apply
if a creditor sought to apply a fee that
exceeded the amount of the fee prior to
the consumer entering military service.
Comments 9(c)(2)(iv)–3 and –4 and
comments 9(c)(2)(v)–3 and –4 clarify
that, if a creditor is changing a rate
applicable to a consumer’s account from
a non-variable rate to a variable rate (or
vice versa), the creditor must provide a
notice pursuant to § 226.9(c) even if the
new rate is lower than the prior rate.
The Board would revise this guidance to
clarify that notice is not required
pursuant to § 226.9(c)(2) when a lower
rate is applied in connection with a
promotional or other temporary rate
program or a workout or temporary
hardship arrangement, provided that the
terms of that program or arrangement
are disclosed consistent with
§ 226.9(c)(2)(v)(B) or (c)(2)(v)(D). In
these circumstances, the Board believes
that the 45-day notice requirement

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

would unnecessarily delay application
of a lower rate to a consumer’s account
in circumstances where
§ 226.9(c)(2)(v)(B) or (c)(2)(v)(D)
generally require that the consumer be
informed of the terms associated with
the lower rate before it is applied to the
account. Furthermore, when a
promotional or temporary rate or
workout or temporary hardship
arrangement is applied to an account,
the substantive limitations in
§ 226.55(b)(1) and (b)(5) protect
consumers from unanticipated increases
in the rates that apply to existing
balances.
The Board would also clarify that
notice pursuant to § 226.9(c)(2) is not
required when the creditor applies a
lower rate in order to comply with the
SCRA or a similar federal or state statute
or regulation. Finally, in order to
eliminate redundancy and ensure
consistent guidance, the Board would
replace comments 9(c)(2)(v)–3 and –4
with cross references to comments
9(c)(2)(iv)–3 and –4.
9(c)(2)(v) Notice Not Required
Temporary Rate Exception
Section 226.9(c)(2) generally requires
that 45 days’ advance notice be
provided of significant changes in
account terms for open-end (not homesecured) consumer credit plans. Several
exceptions to this 45-day advance notice
requirement are set forth in
§ 226.9(c)(2)(v). Section 226.9(c)(2)(v)(B)
sets forth an exception for increases in
annual percentage rates upon the
expiration of a period of time, provided
that prior to the commencement of that
period, the creditor discloses to the
consumer clearly and conspicuously in
writing the length of the period and the
annual percentage rate that will apply
after that period. Section
226.9(c)(2)(v)(B)(2) requires that the
disclosure of the length of the period
and the rate that will apply after
expiration of the period must be
disclosed in close proximity and equal
prominence to the first listing of the
disclosure of the rate that applies during
the specified period of time.
The Board is proposing to clarify the
proximity and prominence requirements
for the disclosure of introductory rates
that are disclosed at account opening.
The Board understands that there is
confusion regarding how to comply
with the proximity and prominence
rules in § 226.9(c)(2)(v)(B) when an
introductory rate is being disclosed in
the account-opening table. The rules in
§ 226.6(b) contain prescriptive
formatting and font size requirements
for the disclosures required to be

PO 00000

Frm 00013

Fmt 4701

Sfmt 4700

67469

provided in tabular form at account
opening. Section 226.6(b)(1) requires
that the tabular disclosure have
headings, content, and format
substantially similar to any of the
applicable tables in G–17 in appendix
G. In addition, § 226.6(b)(2)(i) requires
that annual percentage rates for
purchases be disclosed in the tabular
disclosure provided at account opening
in 16-point font. Section 226.6(b)(1)(i)
requires that annual percentage rates
required to be disclosed pursuant to
§ 226.6(b)(2)(i), including introductory
rates required to be disclosed under
§ 226.6(b)(2)(i)(F), be disclosed in bold
text.
Sample G–17(C) contains a sample
disclosure of an introductory rate on
purchases, where the introductory and
standard annual percentage rates are
presented in bold 16-point font in
accordance with § 226.6(b)(1)(i) and
(b)(2)(i). However, the disclosure of the
introductory period is displayed in 10point font and is not presented in bold
text, consistent with § 226.6(b). The
Board understands that there is
confusion regarding whether the
§ 226.6(b) tabular disclosure would be
deemed to comply with the formatting
requirements in § 226.9(c)(2)(v)(B)(2),
because the period is disclosed in a
smaller font than the font in which the
relevant rates are disclosed, and is not
in bold text.
The Board believes that additional
clarification is appropriate as to the
relationship between the formatting
requirements of §§ 226.9(c)(2)(v)(B)(2)
and 226.6(b). The Board believes that if
the information described in
§ 226.9(c)(2)(v)(B)(2) is included in the
account-opening table provided
pursuant to, and in compliance with,
§ 226.6(b), it should be deemed to meet
the equal prominence and close
proximity requirements of
§ 226.9(c)(2)(v)(B). The format and
presentation of information in the
account-opening table was informed by
the Board’s consumer testing, and the
Board believes that the requirements of
§ 226.6(b) are appropriate and sufficient
to convey key information regarding
introductory rates to consumers.
Accordingly, the Board is proposing to
adopt a new comment 9(c)(2)(v)–10
which states that a disclosure of the
information described in
§ 226.9(c)(2)(v)(B)(1) provided in the
account-opening table in accordance
with § 226.6(b) complies with the
requirements of § 226.9(c)(2)(v)(B)(2), if
the listing of the introductory rate in
such tabular disclosure also is the first
listing as described in comment
9(c)(2)(v)–6. Existing comments

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

67470

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

9(c)(2)(v)–10 through 9(c)(2)(v)–12
would be renumbered accordingly.
Comment 9(c)(2)(v)–5 sets forth
guidance regarding the disclosure
requirements for temporary rates when
the temporary rate reduction is initially
offered to the consumer by telephone.
Comment 9(c)(2)(v)–5 states that the
timing requirements of
§ 226.9(c)(2)(v)(B) are deemed to have
been met, and written disclosures
required by § 226.9(c)(2)(v)(B) may be
provided as soon as reasonably
practicable after the first transaction
subject to a rate that will be in effect for
a specified period of time (a temporary
rate) if: (1) The consumer accepts the
offer of the temporary rate by telephone;
(2) the creditor permits the consumer to
reject the temporary rate offer and have
the rate or rates that previously applied
to the consumer’s balances reinstated
for 45 days after the creditor mails or
delivers the written disclosures required
by § 226.9(c)(2)(v)(B); and (3) the
disclosures required by
§ 226.9(c)(2)(v)(B) and the consumer’s
right to reject the temporary rate offer
and have the rate or rates that
previously applied to the consumer’s
account reinstated are disclosed to the
consumer as part of the temporary rate
offer.
As discussed in the supplementary
information to the February 2010 Final
Rule, the Board believes that this rule
for telephone offers of promotional rates
ensures that consumers may take
immediate advantage of promotions that
they believe to be beneficial, while
protecting consumers by allowing them
to terminate the promotion with no
adverse consequences, upon receipt of
written disclosures. Consistent with the
rationale discussed in the February 2010
Final Rule, the Board is proposing to
amend comment 9(c)(2)(v)–5.ii to
provide that, in connection with
telephone offers of temporary rates or
fees,3 the creditor need not permit the
consumer to reject the temporary rate or
temporary fee offer if the rate or rates or
fee that will apply following expiration
of the temporary rate do not exceed the
rate or rates or fee that applied
immediately prior to commencement of
the temporary rate. The Board believes
that, since such an offer never results in
the increase in an interest rate or fee
even on a prospective basis, it is
unnecessary to provide consumers with
the opportunity to reject such an offer.
3 As discussed below, the Board is proposing to
apply the exception in § 226.9(c)(2)(v)(B) to
temporary fee reductions; accordingly, proposed
comment 9(c)(2)(v)–5.ii would apply both to
temporary rate and temporary fee offers.

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

The Board is proposing a conforming
change to comment 9(c)(2)(v)–5.iii.
Exception for Temporary Reductions in
Fees
The Board also is proposing to amend
§ 226.9(c)(2)(v)(B) to provide an
exception to the advance notice
requirements for increases in fees that
occur after the expiration of a specified
period of time. The Board declined to
adopt a specific exception for temporary
or promotional fee programs in the
February 2010 Final Rule because the
Credit Card Act did not contain such an
exception and because an exception did
not appear to be necessary. See 75 FR
7699. In the supplementary information
to the February 2010 Final Rule, the
Board noted that nothing in Regulation
Z prohibits a creditor from providing
notice of a future increase in a fee at the
same time it temporarily reduces the
fee; a creditor could provide
information regarding the temporary
reduction in the same notice, provided
that it is not interspersed with the
content required to be disclosed
pursuant to § 226.9(c)(2)(iv). See 75 FR
7699.
Nevertheless, upon further review, for
the reasons also discussed in the
supplementary information to
§ 226.55(b)(1), the Board believes that it
may be appropriate to use its authority
under TILA Section 105(a) to
specifically address the advance notice
requirements for temporary or
promotional fees in order to encourage
issuers to disclose and structure such
programs in a consistent manner that
enables consumers to understand the
associated costs. Accordingly, the Board
proposes to amend § 226.9(c)(2)(v)(B) to
apply to increases in fees upon the
expiration of a specified period of time.
Thus, § 226.9(c)(2)(v)(B) would permit a
card issuer to increase a fee after a
specified period of time without
providing 45 days’ advance notice, if the
card issuer provides the consumer in
advance with a clear and conspicuous
written disclosure of the length of the
period and the fee or charge that will
apply after expiration of the period. In
addition, the Board is proposing to
amend comments 9(c)(2)(v)–5 through
9(c)(2)(v)–7 to expressly refer to
temporary fee offers.
In addition, for clarity, and for
consistency with the proposed changes
to § 226.9(c)(2)(v)(B), the Board is
proposing to amend comment
9(c)(2)(v)–2, which addresses skip
features offered in connection with
open-end (not home-secured) consumer
credit plans. Comment 9(c)(2)(v)–2
addresses the disclosures that must be
given when a credit program allows

PO 00000

Frm 00014

Fmt 4701

Sfmt 4700

consumers to skip or reduce one or
more payments during the year or
involves temporary reductions in
finance charges. The Board notes that
comment 9(c)(2)(v)–2 was amended in
the February 2010 Final Rule for
conformity with the exception in
§ 226.9(c)(2)(v)(B) for temporary
reductions in interest rates. In
particular, the Board added a new
comment 9(c)(2)(v)–2.ii that clarifies the
notice requirements for temporary
reductions in interest rates. See 75 FR
7702. Because the Board is proposing to
expand § 226.9(c)(2)(v)(B) to cover
promotional fee offers in addition to
promotional rate offers, the Board is
proposing to amend comment
9(c)(2)(v)–2.ii to also cover temporary
reductions in fees; comment 9(c)(2)(v)–
2.i would accordingly apply only to
programs that permit a consumer to skip
or reduce a payment.
Variable Rate Exception
The Board is proposing to correct a
typographical error in
§ 226.9(c)(2)(v)(C). Section
226.9(c)(2)(v)(C) contains an exception
to the 45-day advance notice
requirements for increases in variable
annual percentage rates in accordance
with a credit card agreement that
provides for a change in the rate
according to operation of an index that
is not under the control of the creditor
and is available to the general public. In
the proposal that led to the February
2010 Final Rule, proposed
§ 226.9(c)(2)(v)(C) referred to an increase
‘‘in accordance with a credit card or
other account agreement.’’ In the
February 2010 Final Rule, the phrase ‘‘or
other account’’ was inadvertently
deleted, without explanation in the
supplementary information. The Board’s
intent was for the exception in
§ 226.9(c)(2)(v)(C) to apply both to credit
card accounts and to other open-end
(not home-secured) consumer credit
plans. Accordingly, the Board is
proposing to insert the phrase ‘‘or other
account’’ into § 226.9(c)(2)(v)(C).
The exception to the advance notice
requirements for an increase in a
variable annual percentage rate is
conditioned on the rate varying
according to the operation of an index
that is not under the control of the
creditor and is available to the general
public. Comment 9(c)(2)(v)–11 contains
a cross-reference to comment 55(b)(2)–2
for guidance on when an index is
deemed to be under the ‘‘card issuer’s’’
control. The Board is aware that there
has been some confusion regarding the
relationship between comment 55(b)(2)–
2 and the exception set forth in
§ 226.9(c)(2)(v)(C). Comment 55(b)(2)–2

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
provides that an index is under a card
issuer’s control if, among other things,
the variable rate is subject to a fixed
minimum rate or similar requirement
that does not permit the variable rate to
decrease consistent with reductions in
the index. The substantive limitations
on rate increases in § 226.55 and
comment 55(b)(2)–2 apply only to credit
card accounts under an open-end (not
home-secured) consumer credit plan,
while the advance notice requirements
in § 226.9(c)(2) and the variable-rate
exception in § 226.9(c)(2)(v)(C) apply to
all open-end (not home-secured)
consumer credit plans. Thus, the Board
has been asked whether the variable-rate
exception to the advance notice
requirements set forth in
§ 226.9(c)(2)(v)(C) applies to an openend (not home-secured) consumer credit
plan, if the variable rate is subject to a
fixed minimum or ‘‘floor.’’
The Board proposes to clarify that a
variable rate plan that is subject to a
fixed minimum or ‘‘floor’’ does not meet
the conditions of the exception to the
advance notice requirements set forth in
§ 226.9(c)(2)(v)(C). The Board believes
that it is appropriate to adopt a
consistent interpretation of ‘‘an index
that is not under the control of the
creditor’’ for all open-end (not homesecured) credit. The Board is proposing
to amend comment 9(c)(2)(v)–11
(renumbered as comment 9(c)(2)(v)–12)
to refer to guidance on when an index
is deemed to be under ‘‘a creditor’s’’
control, rather than ‘‘the card issuer’s’’
control. The Board notes that the
substantive provisions of § 226.55
continue to apply only to credit card
accounts under an open-end (not homesecured) consumer credit plan;
however, the proposed change would
clarify that 45 days’ advance notice is
required prior to a rate increase on a
variable-rate plan subject to a fixed
minimum or floor, for all open-end (not
home-secured) plans.
Section 226.10

Payments

srobinson on DSKHWCL6B1PROD with PROPOSALS2

10(b) Specific Requirements for
Payments
10(b)(4) Nonconforming Payments
Section 226.10 sets forth rules
regarding the prompt crediting of
payments and the permissibility of
assessing fees to make expedited
payments. Section 226.10(a) generally
requires that payments be credited to a
consumer’s account as of the date of
receipt, except that § 226.10(b) permits
creditors to specify reasonable
requirements for payments provided
that those requirements enable most
consumers to make conforming
payments. Section 226.10(b)(4)

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

addresses the crediting of payments that
do not conform to the requirements
specified by the creditor; if a creditor
specifies requirements for the consumer
to follow in making payments as
permitted under § 226.10 but accepts a
payment that does not conform to the
requirements, such nonconforming
payments must be credited within five
days of receipt.
The Board is aware that there is
confusion regarding the distinction
between conforming payments, which
must be credited as of the date of
receipt, and nonconforming payments,
which must be credited within five days
of receipt. Currently, § 226.10(b)(4)
refers to requirements specified ‘‘on or
with the periodic statement,’’ which
may be read to suggest that payments
received by any means not specified on
or with the periodic statement generally
are nonconforming payments. However,
the rule in § 226.10(b) that permits a
creditor to specify reasonable
requirements for making payments is
silent as to the manner in which these
requirements must be communicated to
consumers in order for such payments
to be considered conforming payments.
In addition, comment 10(b)–2 expressly
provides that if a creditor promotes
electronic payment via its Web site, any
payments made via the Web site are
generally conforming payments for
purposes of § 226.10(b), which indicates
that conforming payments are not only
those payments made via methods
specified on the periodic statement.
The Board believes that additional
clarification is appropriate regarding the
distinction between conforming and
nonconforming payments, in order to
facilitate compliance with the rule and
to ensure that payments are posted
promptly in accordance with consumer
expectations and the intent of TILA
Section 164. TILA Section 164, as
amended by the Credit Card Act,
provides in part that payments received
from a consumer for an open-end
consumer credit plan shall be posted
promptly to the account as specified in
regulations of the Board. The Board
believes that, if a creditor promotes a
specific method of making payments,
the intent of TILA Section 164 is best
effectuated by a rule that requires
payments made by that method to be
credited as of the date of receipt.
Accordingly, the Board is proposing
to amend comment 10(b)–2 to provide
that if a creditor promotes a specific
payment method, any payments made
via that method (prior to any cut-off
time specified by the creditor to the
extent permitted by § 226.10(b)(2)), are
generally conforming payments for
purposes of § 226.10(b). To provide

PO 00000

Frm 00015

Fmt 4701

Sfmt 4700

67471

further guidance, the Board also
proposes to add two additional
examples to comment 10(b)–2. Proposed
comment 10(b)(2)–ii states that if a
creditor promotes payment by telephone
(for example, by including the option to
pay by telephone in a menu of options
provided to consumers at a toll-free
number disclosed on its periodic
statement), payments made by
telephone would generally be
conforming payments for purposes of
§ 226.10(b). Similarly, proposed
comment 10(b)(2)–iii states that if a
creditor promotes in-person payments,
for example by stating in an
advertisement that payments may be
made in person at its branch locations,
such in-person payments made at a
branch or office of the creditor generally
would be conforming payments for
purposes of § 226.10(b). The Board
believes that if a creditor promotes that
payments may be made via a certain
method, it would be inappropriate to
permit the creditor to delay crediting
such payments for five days after
receipt. In contrast, proposed comment
10(b)–2 would not apply if the creditor
makes a general promotional statement
regarding payments that does not refer
to a specific payment method, for
example a statement that the creditor
offers ‘‘many convenient payment
options.’’
For conformity, the Board also is
proposing to amend § 226.10(b)(4),
which addresses the treatment of
nonconforming payments, to provide
that if a creditor specifies, on or with
the periodic statement, requirements for
the consumer to follow in making
payments, but accepts a payment that
does not conform to the requirements
via a payment method that the creditor
does not otherwise promote, the creditor
shall credit the payment within five
days of receipt.
10(e) Limitations on Fees Related to
Method of Payment
Section 226.10(e) generally prohibits
imposing a separate fee for allowing
consumers to make a payment by any
method, unless such payment method
involves expedited service by a
customer service representative of the
card issuer. The Board understands that
card issuers may use third-party service
providers to provide payment-related
services on behalf of the issuer, such as
receiving or processing payments from
consumers. In some circumstances, the
third-party service provider may charge
consumers a separate fee for making a
payment—for example, when a payment
is made electronically through a Web
site. The Board believes that it would be
inconsistent with the purposes of the

E:\FR\FM\02NOP2.SGM

02NOP2

67472

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

Credit Card Act for consumers to pay a
separate fee for making a payment
through a third party who is receiving
payment on behalf of the issuer, unless
the issuer itself would be permitted to
charge the fee. Accordingly, the Board
proposes to adopt a new comment
10(e)–4 to prohibit third party service
providers or other third parties who
receive payments on behalf of a card
issuer from charging a separate fee for
payment, except as otherwise permitted
by paragraph (e).
10(f) Changes by Card Issuer
The Board proposes to replace a
reference to ‘‘consumer’’ in comment
226.10(f)–3.ii with ‘‘card issuer’’ in order
to correct a typographical error.
Section 226.12
Provisions

Special Credit Card

srobinson on DSKHWCL6B1PROD with PROPOSALS2

12(c) Right of Cardholder To Assert
Claims or Defenses Against Card Issuer
Section 226.12(c)(1) provides that,
when a cardholder asserts a claim or
defense against a card issuer, the
cardholder may withhold payment up to
the amount of credit outstanding for the
property or services that gave rise to the
dispute and any finance or other charges
imposed on that amount. Comment
12(c)–4 clarifies that the amount of the
claim or defense that the cardholder
may assert shall not exceed the amount
of credit outstanding for the disputed
transaction at the time the cardholder
first notifies the card issuer or the
person honoring the credit card of the
existence of the claim or defense. It
further clarifies that, to determine the
amount of credit outstanding, payments
and other credits shall be applied to: (i)
Late charges in the order of entry to the
account; then to (ii) finance charges in
the order of entry to the account; and
then to (iii) any other debits in the order
of entry to the account. It also clarifies
that, if more than one item is included
in a single extension of credit, credits
are to be distributed pro rata according
to prices and applicable taxes. Although
the February 2010 Final Rule moved
this language from a footnote in § 226.12
to the commentary, the guidance itself
remained unchanged.
The Board understands that there has
been some confusion about the
interaction between the guidance on
applying payments in comment 12(c)–4
and the payment allocation
requirements in § 226.53. For credit card
accounts under an open-end (not homesecured) consumer credit plan, § 226.53
generally requires card issuers to apply
payments above the minimum first to
the balance with the highest rate.
Comment 53–3 clarifies that, when a

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

consumer has asserted a claim or
defense against a card issuer pursuant to
§ 226.12(c), the card issuer must apply
any payment above the minimum in a
manner that avoids or minimizes any
reduction in the amount subject to that
claim or defense. Illustrative examples
are provided.
In order to remove any inconsistency
and to facilitate compliance, the Board
would revise comment 12(c)–4 to clarify
that, with respect to credit card
accounts under an open-end (not homesecured) consumer credit plan, card
issuers must comply with § 226.53 and
the guidance in comment 53–3.
However, with respect to other types of
credit card accounts (such as credit
cards that access home-equity plans),
the Board would retain the longstanding guidance in comment 12(c)–4.
Section 226.13

Billing Error Resolution

13(c) Time for Resolution; General
Procedures
Section 226.13(c)(2) generally requires
a creditor to complete the billing error
investigation procedures within two
billing cycles (but no later than 90 days)
after receiving a billing error notice. To
ensure that creditors promptly complete
their investigations under TILA, the
Board adopted a new comment 13(c)(2)–
2 in the February 2010 Final Rule to
clarify that a creditor must conclusively
determine whether an error occurred
within two complete billing cycles (but
in no event later than 90 days) after
receiving a billing error notice. Once
this period has expired, the comment
further clarified that the creditor may
not reverse any amounts previously
credited for an asserted billing error,
even if the creditor subsequently obtains
evidence indicating that the billing error
did not occur as asserted.
Since adoption of the comment, the
Board has received questions regarding
whether § 226.13(c)(2) would prohibit
creditors from reversing amounts
previously credited by the creditor after
conclusion of the two billing cycle time
frame if the consumer subsequently
receives a credit in the amount of the
error from the merchant or person that
had honored the credit card. Such an
occurrence might arise, for example,
because the error investigation time
frames under card network rules
provide merchants additional time
beyond the time frame under § 226.13 to
respond to a consumer error claim. As
a result, a merchant may not issue a
credit to the consumer’s account until
after the creditor has already resolved
the consumer’s error claim in the
consumer’s favor in order to comply
with the time frame established under

PO 00000

Frm 00016

Fmt 4701

Sfmt 4700

Regulation Z. In those cases, the
consumer could receive more than one
credit for the same billing error, one
from the creditor and another from the
merchant or other person honoring the
credit card.
The purpose of the billing error
resolution time frame is to enable
consumers to have their error claims
investigated and resolved promptly.
That is, TILA Section 161, as
implemented by § 226.13, is intended to
bring finality to the billing error
resolution process, and to avoid the
potential of undue surprise for
consumers caused by the reversal of
previously credited funds when a
creditor fails to complete its
investigation in a timely manner. In
contrast, the potential for consumer
harm would not arise when a consumer
has already been made whole for the
error by the person honoring the credit
card. In such a case, the Board believes
that the creditor should be permitted to
reverse amounts previously credited by
the creditor to correct the error in order
to avoid giving the consumer a windfall
for that transaction.
Accordingly, the Board proposes to
revise comment 13(c)(2)–2 to clarify that
the requirement to complete an error
investigation within two billing cycles
does not prevent a creditor from
reversing amounts it has previously
credited to a consumer’s account in
circumstances where a consumer’s
account has been credited more than
once for the same billing error. The
proposed comment further clarifies that
the reversal of the credit by the creditor
is appropriate so long as the total
amount of the remaining credits is equal
to or more than the amount of the error
and the consumer does not incur any
fees or other charges as a result of the
timing of the creditor’s reversal. Thus,
to ensure compliance with the
requirements of § 226.13, a creditor
should delay the reversal of the amounts
the creditor has previously credited to
the consumer’s account until after the
subsequent merchant credit has posted
to the consumer’s account. An
illustrative example is set forth in the
proposed comment.
Section 226.14 Determination of
Annual Percentage Rate
14(a) General Rule
The Board understands that
clarification may be appropriate
regarding the effect of a leap year on
determining the annual percentage rate
for disclosures required for open-end
(not home-secured) credit accounts. The
Board proposes to add a new comment
14(a)–6 to clarify that a creditor may

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
disregard any variance in the annual
percentage rate which occurs solely by
reason of the addition of February 29 in
a leap year. For example, a creditor may
use 365 days as the number of periods
in a leap year when computing an
annual percentage rate. In addition, if an
annual percentage rate is computed
using 366 days as the number of periods
in a leap year, a variance in rate which
occurs solely because of the addition of
February 29 in the annual percentage
rate computation would not trigger
disclosure and other requirements
under §§ 226.9 and 226.55. The Board
believes that the proposed comment
promotes accuracy in the disclosure of
annual percentage rates and minimizes
potential consumer confusion and
operational burden for creditors.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Section

226.16 Advertising

16(g) Promotional Rates and Fees
Section 226.16(g) currently sets forth
the requirements for advertisements of
promotional or introductory rates on
open-end (not home-secured) plans. In
general, § 226.16(g) requires that certain
advertisements of promotional or
introductory rates state the promotional
period, post-promotional rate, and, in
some cases, the term ‘‘introductory’’ or
‘‘intro,’’ in order to promote consumer
understanding of the terms of such a
promotional or introductory rate offer.
As discussed elsewhere in this
supplementary information, the Board is
proposing changes to §§ 226.9(c)(2) and
226.55 to implement additional
disclosure requirements and limitations
for offers of temporary reduced or
promotional fees. The Board is
proposing conforming changes to
§ 226.16(g) to require that certain
advertisements of promotional fees also
state the promotional period, postpromotional fee, and, in some cases, the
term ‘‘introductory’’ or ‘‘intro,’’ in order
to promote consumer understanding of
the terms of such promotional or
introductory fee offers. The Board is
proposing these changes using its
authority under TILA Section 105(a) to
effectuate the purposes of TILA. The
Board believes requiring that creditors
clearly disclose the conditions of a
promotional fee offer will promote the
informed use of credit by consumers.
The disclosure requirements under
§ 226.16(g) generally would apply to
‘‘promotional fee[s],’’ as defined in new
§ 226.16(g)(2)(iv). In particular,
§ 226.16(g)(2)(iv) would define
‘‘promotional fee’’ as a fee required to be
disclosed under § 226.6(b)(1) and (b)(2)
on an open-end (not home-secured) plan
for a specified period of time that is
lower than the fee that will be in effect

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

at the end of that period. Accordingly,
the new advertising requirements for
promotional fee offers would apply only
when the promotional fee being offered
is a fee required to be disclosed in the
account-opening table provided
pursuant to § 226.6(b). The Board
believes, based in part on its consumer
testing, that § 226.6(b)(1) and (b)(2)
require disclosure of the fees that are the
most important to consumers.
Accordingly, the Board believes that
these key fees are those for which a
creditor is the most likely to advertise
a promotion. In addition, the
application of the § 226.16(g) disclosure
requirements to fees required to be
disclosed pursuant to § 226.6(b)(1) and
(b)(2) is consistent with the approach
that the Board has taken in
§ 226.9(c)(2)(ii) when defining
‘‘significant changes in account terms.’’
The Board also proposes several
additional amendments to § 226.16(g)
and the associated commentary in order
to conform the advertising disclosures
for promotional fees to the advertising
disclosures for promotional rate offers
in § 226.16(g).
Section 226.30

Limitation on Rates

The Board proposes to make a
technical correction to comment 30–
8.i.C to correct a typographical error.
Section 226.51

Ability To Pay

Section 226.51 implements the
provisions of the Credit Card Act that
require card issuers to assess a
consumer’s ability to pay before opening
a new credit card account or increasing
the credit limit on an existing account.
Section 226.51(a) implements TILA
Section 150, which provides that ‘‘[a]
card issuer may not open any credit
card account for any consumer under an
open end consumer credit plan, or
increase any credit limit applicable to
such account, unless the card issuer
considers the ability of the consumer to
make the required payments under the
terms of such account.’’ Section
226.51(b) implements TILA Section
127(c)(8), which prohibits a card issuer
from opening a credit card account for
a consumer who is under the age of 21
unless the consumer has submitted a
written application that meets certain
requirements. Specifically, the
application must require either: (1)
‘‘Submission by the consumer of
financial information, including through
an application, indicating an
independent means of repaying any
obligation arising from the proposed
extension of credit in connection with
the account’’; or (2) the signature of a
cosigner who has such means, is 21 or

PO 00000

Frm 00017

Fmt 4701

Sfmt 4700

67473

older, and assumes joint liability for the
account.4
The Board generally intended
§ 226.51 to establish consistent
standards for evaluating a consumer’s
ability to pay. Specifically, § 226.51
requires that card issuers establish and
maintain reasonable written policies
and procedures to consider the income
or assets and the current obligations of
all consumers, regardless of age. See
§ 226.51(a)(1)(ii), (b)(1)(i), and
(b)(2)(ii)(B). For all consumers, a card
issuer must consider either the ratio of
debt obligations to income, the ratio of
debt obligations to assets, or the income
the consumer will have after paying
debt obligations. See id. Furthermore,
regardless of a consumer’s age, it would
be unreasonable for a card issuer not to
review any information about a
consumer’s income, assets, or current
obligations, or to issue a credit card to
a consumer who does not have any
income or assets. See id.
Some card issuers request on
application forms that applicants simply
provide their ‘‘income,’’ while other
issuers request that applicants provide
their ‘‘household income.’’ The Board
understands that there has been some
confusion as to whether information
provided by a consumer in response to
a request for household income can be
used by a card issuer to satisfy the
requirements of § 226.51. In particular,
the Board understands that there has
been some uncertainty as to whether
§ 226.51 established different standards
for underage consumers and other
consumers with respect to the
consideration of household income or
assets. There appear to be three sources
of this confusion.
First, the Board understands that
some of the uncertainty regarding
household income results from the fact
that, in the February 2010 Final Rule,
the Board expressly concluded that the
income of an underage consumer’s
spouse could not be used to satisfy the
requirements of § 226.51(b) but did not
state a similar conclusion with respect
to the general rule in § 226.51(a). See 75
FR 7723. However, the issue of spousal
or other household income was not
addressed in the context of § 226.51(a)
because it was not raised during the
comment period. Accordingly, the
Board is addressing the issue in this
rulemaking.
4 Section 226.51(b) also implements TILA Section
127(p), which requires that, when a cosigner has
assumed joint liability for a credit card account
issued to an underage consumer, the account’s
credit limit may not be increased unless the
cosigner approves in writing, and assumes joint
liability for, the increase.

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

67474

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

Second, the Board understands that
there has been some confusion as to
whether Regulation B (12 CFR Part 202)
requires a card issuer to consider
spousal or other household income
when considering a consumer’s ability
to pay under § 226.51. In response to
concerns raised by commenters, the
Board stated in the February 2010 Final
Rule that, when a card issuer is
evaluating an underage consumer’s
ability to pay under § 226.51(b),
Regulation B does not compel the issuer
to consider the income of the
consumer’s spouse. See 75 FR 7723. The
Board also stated that card issuers
would not violate Regulation B by virtue
of complying with the requirements in
§ 226.51(b). Id. However, the Board
understands that these statements may
have left some uncertainty because they
did not expressly address the general
ability to pay requirement in § 226.51(a),
which applies to all consumers
regardless of age. Accordingly, the
Board clarifies that Regulation B does
not compel a card issuer to consider
spousal or other household income
when considering an applicant’s ability
to pay under either § 226.51(a) or (b),
unless, for example, the spouse or
household member is a joint applicant
or accountholder or state law grants the
applicant an ownership interest in the
income of his or her spouse.
Furthermore, the Board clarifies that
card issuers would not violate
Regulation B by virtue of complying
with the requirements in § 226.51(a) or
(b). Thus, to the extent that a card issuer
is not permitted to consider spousal or
other household income when
evaluating a consumer’s ability to pay
under § 226.51, the card issuer’s failure
to consider such income when
performing that evaluation does not
violate Regulation B.
Third, the Board understands that the
use of the word ‘‘independent’’ in
§ 226.51(b) but not in § 226.51(a) has
been interpreted by some as prohibiting
consideration of household income with
respect to underage consumers but
permitting it for other consumers. This
difference in wording reflects the
language in the statutory provisions
implemented by § 226.51(a) and (b).
Specifically, § 226.51(a)(1) follows TILA
Section 150 in requiring a card issuer to
consider the ability of the consumer to
make the required payments, whereas
§ 226.51(b)(1)(i) tracks TILA Section
127(c)(8)(B)(ii) by requiring a card issuer
to obtain financial information
indicating that an underage consumer
without a cosigner has an independent
ability to make those payments.
Congress’ use of ‘‘independent’’ in
TILA Section 127(c)(8)(B)(ii) but not in

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

TILA Section 150 could be interpreted
as establishing a less stringent standard
for consideration of household income
if the consumer is 21 or older. However,
TILA Section 150 requires card issuers
to consider ‘‘the ability of the consumer
to make the required payments,’’ which
indicates that Congress intended card
issuers to base this evaluation only on
the ability of the consumer (or
consumers) applying for the account.
Indeed, to the extent that TILA Section
150 was intended to ensure that credit
cards are not issued to consumers who
lack the ability to pay, it could be
inconsistent with that purpose to permit
a card issuer to open a credit card
account for a consumer without income
or assets based on the income or assets
of a spouse or other household member
(unless the consumer has an ownership
interest in the household income or
assets). Accordingly, using its authority
under TILA Section 105(a) and Section
2 of the Credit Card Act, the Board
proposes to amend § 226.51 to require
that, regardless of the consumer’s age, a
card issuer must consider the
consumer’s independent ability to make
the required payments. In addition to
providing a single, consistent standard
for evaluating a consumer’s ability to
pay, the Board believes that this
proposed revision is consistent with the
intent of TILA Section 150.
Consistent with the proposed
amendments to § 226.51, the Board
would revise comment 51(a)(1)–4 to
clarify that, as a general matter,
consideration of information regarding
the consumer’s household income or
assets does not by itself satisfy the
requirement in § 226.51(a)(1) to consider
the consumer’s independent ability to
pay. The comment would further clarify
that, if, for example, a card issuer
requests on its application form that
applicants provide their household
income, the card issuer may not rely
solely on that income information to
satisfy the requirements of § 226.51(a).
Instead, the card issuer would need to
obtain additional information about the
applicants’ independent income (such
as by contacting the applicants).
However, the comment would also
clarify that, if a card issuer requests on
its application form that applicants
provide their income (without referring
to household income), the card issuer
may rely on the information provided to
satisfy the requirements of § 226.51(a).
For organizational purposes, comment
51(a)(1)–4 would be divided into
subparagraphs, and this guidance would
be set forth in subparagraph 51(a)(1)–
4.iii.
The Board would also add additional
guidance regarding spousal income in

PO 00000

Frm 00018

Fmt 4701

Sfmt 4700

new subparagraph 52(a)(1)–4.i, which
addresses the types of income or assets
that may be considered when
performing the § 226.51(a) analysis. The
Board would clarify that, when an
applicant’s spouse is not a joint
applicant or joint accountholder, a card
issuer may consider the spouse’s
income or assets to the extent that a
federal or state statute or regulation
grants the applicant an ownership
interest in that income or those assets.
For example, assume that a consumer is
applying for a credit card account, but
the consumer’s spouse is not a joint
applicant. If the consumer and the
spouse reside in a community property
state where state law grants the
consumer joint ownership of income or
assets acquired by the spouse during the
marriage, the income or assets are
considered the consumer’s income or
assets for purposes of the § 226.51(a)
analysis.
The Board acknowledges that the
proposed amendments to § 226.51 and
its commentary could prevent a
consumer without income or assets from
opening a credit card account despite
the fact that the consumer has access to
(but not an ownership interest in) the
income or assets of a spouse or other
household member. However, the Board
has previously concluded that it would
be inconsistent with the intent of the
Credit Card Act for a card issuer to issue
a credit card to a consumer who does
not have any income or assets. See
§ 226.51(a)(1)(ii). Furthermore, a
consumer without independent income
or assets could still open a credit card
account by applying jointly with a
spouse or household member who has
sufficient income or assets. See
comment 51(a)(1)–6. Nevertheless, the
Board solicits comment on whether it
would be appropriate to provide greater
flexibility in these circumstances.
The Board also notes that, as
discussed in the February 2010 Final
Rule, neither the Credit Card Act nor
§ 226.51 requires verification of
information provided by a consumer
regarding income or assets. See 75 FR
7721. Thus, while a card issuer that, for
example, prompts applicants to provide
household income on an application
form could not rely on that information
by itself to satisfy the requirements of
§ 226.51(a), a card issuer that requests
on the application form that applicants
provide their own income is not
required to verify that the income
provided by the applicant does not
include household income.
Finally, consistent with the proposed
amendments to §§ 226.9, 226.16, and
226.55 regarding fees that increase after
a specified period of time, the Board

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
would amend comment 51(a)(2)–3 to
clarify that, when estimating the
required minimum periodic payments
for purposes of the safe harbor in
§ 226.51(a)(2)(ii), the issuer must use the
fee that will apply after the specified
period. This approach is consistent with
the guidance regarding promotional
rates in comment 51(a)(2)–2.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Section 226.52

Limitations on Fees

52(a) Limitations Prior to Account
Opening and During First Year After
Account Opening
Section 226.52(a)(1) generally limits
the total amount of fees that a consumer
may be required to pay with respect to
a credit card account under an open-end
(not home-secured) consumer credit
plan to 25 percent of the account’s
credit limit at account opening.5 This
limitation applies ‘‘during the first year
after the account is opened.’’ However,
the Board understands that some card
issuers are requiring consumers to pay
application, processing, or similar fees
prior to account opening that, when
combined with other fees charged after
account opening, exceed the 25 percent
threshold in § 226.52(a)(1). As discussed
below, to the extent that § 226.52(a)(1)
permits this practice, the Board is
concerned that the regulation is
inconsistent with the purposes of TILA
(as amended by the Credit Card Act).
Accordingly, pursuant to its authority
under TILA Section 105(a) and Section
2 of the Credit Card Act, the Board
proposes to amend § 226.52(a)(1) to
apply to fees the consumer is required
to pay prior to account opening.
The Credit Card Act amended TILA
Section 127 by creating a new paragraph
(n). See Credit Card Act § 105. Section
127(n)(1) provides that, ‘‘[i]f the terms of
a credit card account under an open end
consumer credit plan require the
payment of any fees (other than any late
fee, over-the-limit fee, or fee for a
payment returned for insufficient funds)
by the consumer in the first year during
which the account is opened in an
aggregate amount in excess of 25
percent of the total amount of credit
authorized under the account when the
account is opened, no payment of any
fees (other than any late fee, over-thelimit fee, or fee for a payment returned
for insufficient funds) may be made
from the credit made available under
the terms of the account.’’ 15 U.S.C.
1637(n)(1). Section 127(n)(2) further
provides that Section 127(n) may not
5 Late payment fees, over-the-limit fees, and
returned payment fees are exempt from this
requirement, as are fees that the consumer is not
required to pay with respect to the account. See
§ 226.52(a)(2).

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

‘‘be construed as authorizing any
imposition or payment of advance fees
otherwise prohibited by any provision
of law.’’ 15 U.S.C. 1637(n)(2).
As discussed in the February 2010
Final Rule, the Board believes that
Section 127(n) was intended to prevent
card issuers from requiring consumers
to pay excessive fees in order to obtain
a credit card account. See 75 FR 7724–
7726. Many subprime credit card issuers
require payment of substantial one-time
fees when an account is opened (such
as application fees, program fees, and
annual fees). By linking the maximum
amount of permissible fees to the
amount of credit extended, Section
127(n)(1) and § 226.52(a)(1) establish a
direct relationship between the costs
and benefits associated with opening a
credit card account. If, for example, a
card issuer provides a consumer with a
$500 credit limit when the account is
opened, the issuer is prohibited from
requiring the consumer to pay more
than $125 in non-exempt fees at account
opening. Furthermore, in order to
ensure that the statutory relationship
between fees and the account’s credit
limit is maintained for a reasonable
period of time, Section 127(n)(1) and
§ 226.52(a)(1) apply for one year after an
account is opened. Thus, a card issuer
that charges non-exempt fees that equal
25 percent of the credit limit at account
opening cannot require the consumer to
pay any transaction fees, monthly
maintenance fees, or other non-exempt
fees for one year after account opening.
52(a)(1) General Rule
The Board understands that, because
§ 226.52(a)(1) states that its limitations
apply ‘‘during the first year after the
account is opened,’’ there has been some
uncertainty as to whether those
limitations apply to fees that a
consumer is required to pay prior to
account opening. As noted above, some
card issuers are currently requiring
consumers to pay application or
processing fees prior to account opening
that, when combined with other fees
charged to the account after account
opening, exceed 25 percent of the
account’s initial credit limit. While this
practice is consistent with the current
language of § 226.52(a)(1), the Board
believes that it is inconsistent with
intent of Section 127(n)(1) insofar as it
disturbs the statutory relationship
between the costs and benefits of
opening a credit card account.
Accordingly, in order to effectuate the
purpose of Section 127(n)(1), the Board
proposes to use its authority under TILA
Section 105(a) and Section 2 of the
Credit Card Act to amend § 226.52(a)(1)
to apply to fees the consumer is

PO 00000

Frm 00019

Fmt 4701

Sfmt 4700

67475

required to pay before account opening
and during the first year after account
opening.6
The Board is also aware of some
confusion regarding when the one-year
period in § 226.52(a)(1) begins and ends.
For this reason, the Board proposes to
further amend § 226.52(a)(1) to provide
that, for purposes of that paragraph, an
account is considered open no earlier
than the date on which the account may
first be used by the consumer to engage
in transactions. This approach is
generally consistent with
§ 226.5(b)(1)(i), which provides that the
account-opening disclosures required by
§ 226.6 must be provided before the first
transaction is made under the plan.
Although § 226.5(b)(1)(iv) and (b)(1)(v)
permit creditors to collect membership
fees and application fees excludable
from the finance charge under
§ 226.4(c)(1) before providing accountopening disclosures in certain
circumstances, the Board is concerned
that, because the ability to engage in
transactions is a primary benefit of a
credit card account, it would be
inconsistent with the purpose of Section
127(n)(1) if the one-year period expired
less than one year after the consumer
could first use the account for
transactions. However, because card
issuers may have different processes for
opening credit card accounts, the Board
solicits comment on any operational
difficulties posed by this amendment.
The Board also understands that the
references in § 226.52(a)(1) and
comment 52(a)(1)–1 to the charging of
fees to a credit card account have raised
concerns as to whether § 226.52(a)(1)
permits card issuers to require
consumers to pay an unlimited amount
of fees with respect to a credit card
account so long as none of those fees are
actually charged to the account.
Although this language was based on
the language of the Credit Card Act, the
Board does not believe that Congress
intended this result. Indeed, as
discussed in the February 2010 Final
6 Although TILA Section 127(n)(2) refers to the
‘‘imposition or payment of advance fees,’’ the Board
does not interpret this reference as excluding
‘‘advance fees’’ from the application of Section
127(n)(1). On the contrary, Section 127(n)(2)
specifically states that Section 127(n) cannot ‘‘be
construed as authorizing any imposition or
payment of advance fees otherwise prohibited by
any provision of law,’’ which the Board understands
to mean that a fee that falls under the 25 percent
threshold may nevertheless be subject to other legal
restrictions. For example, comment 52(a)(3)–1 cites
16 CFR § 310.4(a)(4), which prohibits any
telemarketer or seller from ‘‘[r]equesting or receiving
payment of any fee or consideration in advance of
obtaining a loan or other extension of credit when
the seller or telemarketer has guaranteed or
represented a high likelihood of success in
obtaining or arranging a loan or other extension of
credit for a person.’’

E:\FR\FM\02NOP2.SGM

02NOP2

67476

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

Rule, the Board believes that Congress
intended the 25 percent limitation to
apply not only to fees charged to a
credit card account but also to fees
collected from other sources with
respect to the account (such as fees that
are charged to a consumer’s deposit
account). See 75 FR 7724–7726.
Accordingly, in order to resolve any
ambiguity, the Board would use its
authority under TILA Section 105(a)
and Section 2 of the Credit Card Act to
simplify § 226.52(a)(1) by removing this
language. The Board would also make
conforming amendments to comment
52(a)(1)–1.
The Board also proposes to amend the
commentary to § 226.52(a)(1) for
consistency with the proposed revisions
discussed above and to make certain
non-substantive clarifications and
corrections.
52(a)(2) Fees Not Subject to Limitations
In addition, the Board understands
that there has been some uncertainty as
to whether minimum interest charges
are subject to § 226.52(a)(1). The Board
has previously stated elsewhere in
Regulation Z that such charges should
be treated as fees. See comment 7(b)(6)–
4. Accordingly, for consistency, the
Board proposes to amend comment
52(a)(2)–1 to clarify that, while
§ 226.52(a)(1) does not apply to charges
attributable to periodic interest rates, it
applies to charges imposed as a
substitute for interest when the interest
charge would not otherwise exceed a
minimum threshold. In addition, the
Board would clarify that § 226.52(a)(1)
applies to other fixed finance charges.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

52(a)(3) Rule of Construction
The Board proposes to correct a
typographical error in § 226.52(a)(3) by
replacing the words ‘‘This paragraph (a)’’
with ‘‘Paragraph (a) of this section.’’
52(b) Limitations on Penalty Fees
Section 226.52(b)(1) prohibits card
issuers from imposing fees for violating
the terms or other requirements of an
open-end (not home-secured) consumer
credit plan unless the dollar amount of
the fee either represents a reasonable
proportion of the total costs incurred by
the issuer as a result of the type of
violation or complies with the
applicable safe harbor amount.
Furthermore, under § 226.52(b)(2), the
dollar amount of the fee cannot exceed
the dollar amount associated with the
violation and a card issuer cannot
impose more than one fee based on a
single event or transaction. In order to
facilitate compliance, the Board
proposes to amend § 226.52(b) and the
accompanying commentary to provide

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

additional guidance and illustrative
examples.
52(b)(1)(ii) Safe Harbors
The safe harbors in
§ 226.52(b)(1)(ii)(A)–(B) provide that a
card issuer may impose a fee of $25 for
an initial violation and a fee of $35 for
any additional violation of the same
type during the next six billing cycles.
As discussed in the June 2010 Final
Rule, the Board believes that permitting
card issuers to impose a higher fee for
repeated violations during a relatively
brief period generally reflects the
increased costs incurred by issuers as a
result of repeated violations, deters
future violations, and addresses
consumer conduct that is more
indicative of loss. See 75 FR 37531–
37534, 37540–37543.
The safe harbors in § 226.52(b)(1)(ii)
address circumstances in which a
violation is repeated in one of the six
billing cycles following the billing cycle
during which the initial violation
occurred. However, the safe harbors do
not expressly address circumstances in
which a repeated violation occurs in the
same billing cycle as the initial
violation. The Board would correct this
oversight by amending
§ 226.52(b)(1)(ii)(B) to state that a card
issuer may impose a $35 fee for a
subsequent violation of the same type
that occurs during the same billing cycle
or during the next six billing cycles. The
Board would also make additional, nonsubstantive clarifying amendments to
§ 226.52(b)(1)(ii).7
There are relatively few
circumstances in which a card issuer
may impose multiple fees for multiple
violations of the same type during a
billing cycle. Section 226.56(j)(1)
prohibits card issuers from imposing
more than one over-the-limit fee per
billing cycle. Furthermore,
§ 226.52(b)(2)(ii) prohibits the
imposition of more than one penalty fee
based on a single event or transaction,
which prevents card issuers from
imposing more than one late payment
fee during a billing cycle. In addition, as
discussed in comment 52(b)(2)(i)–1, a
card issuer may not impose multiple
returned payment fees by submitting the
same check for payment multiple times.
However, if, for example, a consumer
makes two separate payments that are
returned during the same billing cycle,
the Board believes that it is consistent
with the purpose of the safe harbors in
§ 226.52(b)(1)(ii)(A)–(B) to permit the
7 In particular, the Board would move the
language in § 226.52(b)(1)(ii)(A) and (B) regarding
adjustments to the safe harbor amounts based on
changes in the Consumer Price Index to a new
§ 226.52(b)(1)(ii)(D).

PO 00000

Frm 00020

Fmt 4701

Sfmt 4700

card issuer to impose a $35 fee for the
second returned payment. Accordingly,
the Board would revise
§ 226.52(b)(1)(ii)(B) to clarify that this is
permitted. The Board would also amend
comment 52(b)(1)(ii)–1 for consistency
with the proposed revisions to
§ 226.52(b)(1)(ii)(A)–(B) and provide an
illustrative example in comment
52(b)(2)(ii)–1.
In addition, the Board would revise
comment 52(b)(1)(ii)–1.ii to provide
additional guidance regarding the
relationship between the safe harbors in
§ 226.52(b)(1)(ii), the prohibition on
imposing multiple fees based on a single
event or transaction in § 226.52(b)(2)(ii),
and the limitations on fees for exceeding
the credit limit in § 226.56(j)(1).
Consistent with the Credit Card Act,
§ 226.56(j)(1) permits card issuers to
impose multiple over-the-limit fees
based on a single over-the-limit
transaction when the consumer does not
make payments sufficient to bring the
balance under the credit limit by the
next payment due date (although no
more than three fees may be imposed
with respect to any single transaction).
See Credit Card Act § 102(a); TILA
Section 127(k); see also 75 FR 7751–
7752. Because it appears that Congress
intended to permit multiple over-thelimit fees based on a single over-thelimit transaction in these circumstances,
the Board does not believe that it would
be appropriate to interpret § 226.52(b) as
prohibiting such fees. Accordingly, the
Board would provide additional
guidance in comment 52(b)(1)(ii)–1.ii
clarifying that, to the extent permitted
by § 226.56(j)(1), § 226.52(b)(2)(ii) does
not prohibit a card issuer from imposing
fees for exceeding the credit limit in
consecutive billing cycles based on the
same over-the-limit transaction. The
Board would further clarify that, in
these circumstances, the second and
third over-the-limit fees permitted by
§ 226.56(j)(1) may be $35, consistent
with the safe harbor for repeated
violations in § 226.52(b)(1)(ii)(B). A
cross-reference would be inserted to
comment 52(b)(2)(ii)–1, where similar
guidance and an illustrative example
would also be provided.
52(b)(2)(i) Fees That Exceed Dollar
Amount Associated With Violation
Section 226.52(b)(2)(i)(B)(2) prohibits
a card issuer from imposing a fee based
on account inactivity (including the
consumer’s failure to use the account for
a particular number or dollar amount of
transactions or a particular type of
transaction). As an illustrative example,
comment 52(b)(2)(i)–5 states that
§ 226.52(b)(2)(i)(B)(2) prohibits a card
issuer from imposing a $50 fee when a

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

srobinson on DSKHWCL6B1PROD with PROPOSALS2

consumer fails to use the account for
$2,000 in purchases over the course of
a year. Furthermore, the comment
clarifies that § 226.52(b)(2)(i)(B)(2)
prohibits a card issuer from imposing a
$50 annual fee on all accounts but
waiving the fee if the consumer uses the
account for $2,000 in purchases over the
course of a year.
The Board understands that comment
52(b)(2)(i)–5 has created some confusion
as to whether card issuers are prohibited
from considering account activity as a
factor when, for example, responding to
an individual consumer’s request that
an annual fee be waived. This was not
the Board’s intent. Instead, the example
in comment 52(b)(2)(i)–5 was intended
to clarify that card issuers are prohibited
from achieving indirectly through a
systematic waiver of annual fees a result
that is directly prohibited by
§ 226.52(b)(2)(i)(B)(2): Establishing a
program under which only consumers
who do not use an account for at least
$2,000 in purchases over the course of
a year are charged an additional $50.
Accordingly, the Board proposes to
amend comment 52(b)(2)(i)–5 to clarify
that, if a card issuer does not promote
the waiver or rebate of the annual fee for
purposes of § 226.55(e),
§ 226.52(b)(2)(i)(B)(2) does not prohibit
the issuer from considering account
activity when waiving or rebating
annual fees on individual accounts
(such as in response to a consumer’s
request). The promotion of waivers and
rebates is discussed in detail below with
respect to proposed § 226.55(e).
52(b)(2)(ii) Multiple Fees Based On a
Single Event or Transaction
The Board proposes to amend
comment 52(b)(2)(ii)–1 to provide
additional examples further illustrating
the application of § 226.52(b)(2)(ii).
Among other things, these examples
clarify that—if the required minimum
periodic payment is not made during a
billing cycle and a late payment fee is
imposed—the card issuer may include
the unpaid amount in the required
minimum periodic payment due during
the next billing cycle and impose a
second late payment fee under
§ 226.52(b)(2)(ii) if the consumer fails to
make the second minimum payment.
However, the examples also clarify
that—if a consumer makes a required
minimum periodic payment by the
applicable due date—the card issuer
may not impose a late payment fee
based on the consumer’s failure to also
pay past due amounts that the card
issuer chose not to include in that
required minimum periodic payment.
The Board understands that, for loss
mitigation and other purposes, some

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

card issuers do not include past due
amounts in the required minimum
periodic payment. The Board
acknowledges that this practice is
beneficial to consumers to the extent
that it prevents some delinquent
consumers from becoming even more
delinquent. For example, if a card issuer
does not include past due amounts in
the required minimum periodic
payment, a consumer could remain one
payment past due indefinitely without
ever becoming more than 60 days
delinquent and thereby avoid the
application of a penalty rate to existing
balances pursuant to § 226.55(b)(4).
However, a consumer who makes the
required minimum periodic payment
reflected on the periodic statement by
the due date should not be charged a
late payment fee. It is inconsistent with
the purpose of § 226.52(b)(2)(ii) for a
consumer to be charged more than one
late payment fee based on the failure to
make a single required minimum
periodic payment.
The Board proposal also amends
comment 52(b)(2)(ii)–1 to provide an
example of the application of
§ 226.52(b)(2)(ii) in circumstances
where an over-the-limit fee and a
returned payment fee could be based on
a single event or transaction such that
§ 226.52(b)(2)(ii) would only permit the
card issuer to impose a single fee. In
addition, the Board would provide an
example illustrating that
§ 226.52(b)(2)(ii) would permit multiple
returned payment fees to be imposed
during a single billing cycle if each fee
was based on a separate returned
payment.
Section 226.53

Allocation of Payments

53(b) Special Rules
Section 226.53(a) implements TILA
Section 164(b)(1), which requires that
card issuers generally allocate amounts
paid by the consumer in excess of the
required minimum periodic payment
first to the balance with the highest
annual percentage rate and then to other
balances in descending order based on
the applicable rate. However, TILA
Section 164(b)(2) and § 226.53(b)(1) set
forth a special rule for accounts with
balances subject to a deferred interest or
similar program. In these circumstances,
a card issuer is required to allocate
excess payments first to the balance
subject to the program during the two
billing cycles immediately preceding
expiration of the program. In addition,
in the February 2010 Final Rule, the
Board used its authority under TILA
Section 105(a) and Section 2 of the
Credit Card Act to adopt § 226.53(b)(2),
which permits card issuers to allocate

PO 00000

Frm 00021

Fmt 4701

Sfmt 4700

67477

excess payments among the balances in
the manner requested by the consumer
when a balance on the account is
subject to a deferred interest or similar
program. See 75 FR 7728–7729.
The Board understands that there is
some concern regarding the appropriate
allocation of payments when an account
has multiple balances, one of which is
secured. For example, some private
label credit cards permit consumers to
purchase equipment that is subject to a
security interest (such as a motorcycle,
snowmachine, or riding lawnmower) as
well as related items that are not (such
as helmets and other accessories). If the
rate that applies to an unsecured
balance is higher than the rate that
applies to the secured balance,
§ 226.53(a) currently requires the card
issuer to apply excess payments first to
the unsecured balance. While this
allocation method is generally beneficial
to consumers insofar as it minimizes
interest charges, it could also make it
difficult for a consumer to pay off the
secured balance in order to obtain a
release of the security interest. For
example, if a consumer wishes to sell,
trade in, or otherwise dispose of the
property in which the card issuer has a
security interest, § 226.53(a) requires the
consumer to pay off not only the
secured balance but also any other
balances to which a higher rate applies.
The Board believes that, in this
narrow set of circumstances, it may be
beneficial to consumers to provide
greater flexibility regarding the
allocation of excess payments.
Accordingly, pursuant to its authority
under TILA Section 105(a) and Section
2 of the Credit Card Act, the Board
proposes to redesignate the special rules
for accounts with deferred interest or
similar balances as § 226.53(b)(1)(i) and
(b)(1)(ii) and to adopt a new special rule
for accounts with secured balances in
§ 226.53(b)(2). Specifically, the revised
§ 226.53(b)(2) would provide that, when
a balance on a credit card account under
an open-end (not home-secured)
consumer credit plan is secured, the
card issuer may at its option allocate
any amount paid by the consumer in
excess of the required minimum
periodic payment to that balance if
requested by the consumer.
The Board would also revise the
commentary to § 226.53 consistent with
the proposed revisions to § 226.53(b). In
particular, the Board would clarify that
the guidance in comment 53(b)–3 on
what constitutes a consumer request
when an account has a deferred interest
or similar balance also applies when an
account has a secured balance.

E:\FR\FM\02NOP2.SGM

02NOP2

67478

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

Section 226.55 Limitations on
Increasing Annual Percentage Rates,
Fees, and Charges

srobinson on DSKHWCL6B1PROD with PROPOSALS2

55(a) General Rule
Section 226.55 implements the
restrictions on increases in annual
percentage rates and certain fees and
charges in TILA Sections 171 and 172.
Section 226.55(a) prohibits card issuers
from increasing an annual percentage
rate or any fee or charge required to be
disclosed under § 226.6(b)(2)(ii),
(b)(2)(iii), or (b)(2)(xii) unless
specifically permitted by one of the
exceptions in § 226.55(b). The Board
understands that there has been some
confusion as to whether an increase in
a rate, fee, or charge is subject to this
prohibition when the consumer was
previously notified of the circumstances
giving rise to the increase. Accordingly,
in order to remove any ambiguity, the
Board proposes to amend comment
55(a)–1 to clarify that—except as
specifically provided in § 226.55(b)—the
prohibition in § 226.55(a) applies even if
the circumstances under which an
increase will occur are disclosed in
advance.
55(b) Exceptions
Section 226.55(b) contains exceptions
to the general rule in § 226.55(a). As a
general matter, these exceptions are not
mutually exclusive, and a card issuer
may increase a rate, fee, or charge
pursuant to one exception even if that
increase would not be permitted under
a different exception. Comment 55(b)–1
provides illustrative examples of the
interaction between the different
exceptions in § 226.55(b).
The Board proposes to amend
comment 55(b)–1 to provide additional
guidance regarding the interaction
between the exception in § 226.55(b)(4)
for accounts that become more than 60
days delinquent, the exception in
§ 226.55(b)(5) for accounts subject to a
workout or temporary hardship
arrangement, and the exception in
§ 226.55(b)(6) for accounts subject to the
SCRA or a similar federal or state statute
or regulation. Section 226.55(b)(4)(ii)
implements the ‘‘cure’’ provision in
TILA Section 171(b)(4)(B), which allows
a consumer whose rate has been
increased as a result of a delinquency of
more than 60 days to ‘‘terminate’’ the
increase (in other words, reduce the rate
to the pre-existing value) by making the
next six required minimum payments
by the due date. For example, if the rate
on a $1,000 balance was increased from
12% to 30% on January 31 based on a
delinquency of more than 60 days,
§ 226.55(b)(4)(ii) requires the card issuer
to reduce the rate on any remaining

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

portion of the $1,000 balance to 12% if
the consumer makes the required
minimum periodic payments for
February, March, April, May, June, and
July by the relevant due date.
However, the Board understands that,
in certain circumstances, a consumer
may be placed on a workout or
temporary hardship arrangement or
enter military service after a rate has
been increased based on a delinquency
of more than 60 days but before the
consumer has made the six timely
payments necessary to obtain a
reduction under § 226.55(b)(4)(ii).
Section 226.55(b)(5) implements TILA
Section 171(b)(3), which provides that a
card issuer may increase the rate on an
existing balance when a workout or
temporary hardship arrangement is
completed or fails, so long as the
increased rate does not exceed the rate
that applied prior to the arrangement.
For example, if a card issuer reduced a
consumer’s rate on a $1,000 balance
from 30% to 15% as part of a workout
or temporary hardship arrangement,
§ 226.55(b)(5) would permit the card
issuer to increase the rate on any
remaining portion of the $2,000 balance
to 30% upon completion or failure of
the arrangement.
Similarly, when the rate that applies
to a balance is reduced pursuant to the
SCRA because the consumer enters
military service, § 226.55(b)(6) permits
the card issuer to reinstate the preexisting rate for that balance once the
consumer leaves military service. For
example, if a card issuer reduced a
consumer’s rate on a $1,000 balance
from 30% to 6% pursuant to the SCRA,
§ 226.55(b)(6) would permit the card
issuer to increase the rate on any
remaining portion of the $1,000 balance
to 30% once the consumer leaves
military service and the SCRA no longer
applies.
Accordingly, when a consumer
obtains a § 226.55(b)(4)(ii) reduction
during a workout or temporary hardship
arrangement or while in military
service, it is unclear whether
§ 226.55(b)(5) or (b)(6) would permit the
card issuer to negate that reduction by
returning existing balances to the rate
that applied prior to commencement of
the arrangement or military service.
Because § 226.55(b)(4)(ii) implements a
specific statutory requirement that a rate
increase based on a delinquency of more
than 60 days be terminated if the
consumer makes the next six required
minimum payments on time, the Board
believes it would be inconsistent with
the intent of that requirement to
interpret the exceptions in § 226.55(b)(5)
and (b)(6) as overriding the reduction in
rate. Thus, the Board would revise

PO 00000

Frm 00022

Fmt 4701

Sfmt 4700

comment 55(b)–1 to clarify that, if
§ 226.55(b)(4)(ii) requires a card issuer
to decrease the rate, fee, or charge that
applies to a balance while the account
is subject to a workout or temporary
hardship arrangement or subject to the
SCRA or a similar federal or state statute
or regulation, the card issuer may not
impose a higher rate, fee, or charge on
that balance pursuant to § 226.55(b)(5)
or (b)(6). The Board would also provide
the following illustrative example:
Assume that, on January 1, the annual
percentage rate that applies to a $1,000
balance is increased from 12% to 30%
pursuant to § 226.55(b)(4). On February
1, the rate on that balance is decreased
from 30% to 15% consistent with
§ 226.55(b)(5) as a part of a workout or
temporary hardship arrangement. On
July 1, § 226.55(b)(4)(ii) requires the
card issuer to reduce the rate that
applies to any remaining portion of the
$1,000 balance from 15% to 12%. If the
consumer subsequently completes or
fails to comply with the terms of the
workout or temporary hardship
arrangement, the card issuer may not
increase the 12% rate on any remaining
portion of the $1,000 balance pursuant
to § 226.55(b)(5).
55(b)(1) Temporary Rate, Fee, or Charge
Exception
Section 226.55(b)(1) implements TILA
Section 171(b)(1), which permits a card
issuer to increase a temporary or
promotional rate upon expiration of a
period of at least six months, provided
that the card issuer discloses in advance
the length of the period and the rate that
will apply after expiration. However,
neither § 226.55(b)(1) nor TILA Section
171(b)(1) addresses circumstances in
which an annual fee or other fee or
charge subject to § 226.55 increases after
a specified period of time. As discussed
above, the Board declined to adopt a
specific exception for temporary or
promotional fee programs in the
February 2010 Final Rule because the
Credit Card Act did not contain such an
exception and because an exception did
not appear to be necessary. See 75 FR
7734 n. 48; see also id. 7699, 7706–
7707. Indeed, the Board noted that
nothing in the February 2010 Final Rule
prohibited a creditor from providing
notice of an increase in a fee at the same
time it temporarily reduces the fee; a
creditor could provide information
regarding the temporary reduction in
the same notice, provided that it is not
interspersed with the content required
to be disclosed pursuant to
§ 226.9(c)(2)(iv). See 75 FR 7699; see
also comment 5a(b)(2)–4.
Nevertheless, as discussed above with
respect to § 226.9(c)(2)(v)(B), the Board

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

srobinson on DSKHWCL6B1PROD with PROPOSALS2

believes that, upon further review, it
may be appropriate to use its authority
under TILA Section 105(a) and Section
2 of the Credit Card Act to specifically
address temporary or promotional
programs for fees or charges subject to
§ 226.55 in order to encourage issuers to
disclose and structure such programs in
a consistent manner that enables
consumers to understand the associated
costs. Accordingly, the Board proposes
to amend § 226.55(b)(1) to apply to
temporary or promotional programs for
fees and charges required to be
disclosed under § 226.6(b)(2)(ii),
(b)(2)(iii), or (b)(2)(xii). Thus, for
example, § 226.55(b)(1) would permit a
card issuer to increase an annual fee
after a specified period of time if the
card issuer provides the consumer in
advance with a clear and conspicuous
written disclosure of the length of the
period and the fee or charge that will
apply after expiration of the period.
In addition, the Board would amend
comments 55(b)(1)–2 and –4 for
consistency with the proposed revisions
to § 226.55(b)(1), to provide additional
illustrative examples, and to make other
non-substantive clarifications. The
Board would also add a new comment
55(b)(1)–5 to clarify that, although the
limitations in § 226.55(b)(1)(ii) on
applying an increased rate to certain
types of transactions would also apply
to increased fees or charges subject to
§ 226.55, card issuers generally are not
prohibited from increasing a fee or
charge that applies to the account as
whole (to the extent consistent with the
notice requirements in § 226.9 and
§ 226.55(b)(3)). Finally, the Board would
add an additional example to comment
55(b)–3 to clarify the application of
§ 226.55 when the specified time
periods for temporary rates overlap.
55(b)(3) Advance Notice Exception
Section 226.55(b)(3) provides that a
card issuer may generally increase the
rate, fee, or charge that will apply to
new transactions after complying with
the notice requirements in § 226.9.
However, § 226.55(b)(3)(iii) further
provides that a card issuer cannot use
this exception to increase a rate, fee, or
charge during the first year after account
opening.
The Board understands that there has
been some confusion regarding the
circumstances under which an
increased fee or charge applies to an
existing balance (as opposed to the
account as a whole) and therefore does
not qualify for the exception in
§ 226.55(b)(3). In particular, there has
been uncertainty as to whether an
increased fee or charge can be applied
to a closed account or an account on

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

which transaction privileges have been
suspended. Because an account cannot
be used for new transactions in these
circumstances, an increased fee or
charge subject to § 226.55 could only be
applied to the account’s existing
balance. In addition,
§§ 226.52(b)(2)(i)(B)(3) and 226.55(d)(1)
generally prohibit a card issuer from
applying a new or increased fee or
charge to a closed account. Accordingly,
to provide greater clarity, the Board
would amend § 226.55(b)(3)(iii) to state
that § 226.55(b)(3) does not permit a
card issuer to increase a rate, fee, or
charge subject to § 226.55 while an
account is closed or while the card
issuer does not permit the consumer to
use the account for new transactions.
Finally, consistent with the proposed
amendments to § 226.52(a)(1), the Board
would clarify that, for purposes of
§ 226.55(b)(3)(iii), an account is
considered open no earlier than the date
on which the account may first be used
by the consumer to engage in
transactions.
55(b)(6) Servicemembers Civil Relief Act
Exception
Section 226.55(b)(6) provides that,
when a card issuer is required by the
SCRA to reduce the annual percentage
rate for an account to 6% when the
consumer enters military service, the
card issuer may increase the rate once
the SCRA no longer applies, subject to
certain limitations. However,
§ 226.55(b)(6) does not address
circumstances in which the SCRA’s
broad definition of ‘‘interest’’ requires
the card issuer to reduce not only the
annual percentage rate but also fees or
charges while the consumer is in
military service. See 50 U.S.C. app.
527(d)(1) (defining ‘‘interest’’ as
including ‘‘service charges, renewal
charges, fees, or any other charges
(except bona fide insurance) with
respect to an obligation or liability’’).
Accordingly, the Board would amend
§ 226.55(b)(6) and the relevant
commentary to clarify that, to the extent
the SCRA also requires the card issuer
to reduce a fee or charge required to be
disclosed under § 226.6(b)(2)(ii),
(b)(2)(iii), or (b)(2)(xii), the card issuer is
generally permitted to increase that fee
or charge once the SCRA no longer
applies.
The Board also understands that
many states have enacted statutes that—
like the SCRA—require creditors to
reduce rates, fees, and charges while a
consumer is in military service. See,
e.g., La. Rev. Stat. Ann. § 29:312; N.Y.
Mil. Law art. 13 § 323–a; R.I. Gen. Laws
§ 30–7–10; Utah Code Ann. § 39–7–111.
Accordingly, in order to clarify that

PO 00000

Frm 00023

Fmt 4701

Sfmt 4700

67479

§ 226.55 does not prevent a card issuer
from increasing a rate, fee, or charge to
the pre-existing amount once a state law
requirement no longer applies, the
Board would amend the exception in
§ 226.55(b)(6) to apply to decreases
imposed pursuant to the SCRA or ‘‘a
similar federal or state statute or
regulation.’’ Corresponding amendments
would be made to the relevant
commentary.
Finally, the Board understands that,
while the SCRA and some similar state
statutes only require creditors to reduce
the rates, fees, and charges that apply to
obligations incurred before the
consumer enters military service, some
card issuers voluntarily apply the
reduced rate, fee, or charge to
transactions that occur after the
consumer has entered military service.
Accordingly, the Board would adopt a
new comment 55(b)(6)–2 clarifying that,
if a card issuer decreases all rates, fees,
and charges to amounts that are
consistent with the SCRA or a similar
federal or state statute or regulation
(including rates, fees, and charges that
apply to new transactions), the card
issuer may increase those rates, fees,
and charges consistent with
§ 226.55(b)(6). The Board would also
revise the example in current comment
55(b)(6)–2 to illustrate the application of
this guidance and redesignate that
example as comment 55(b)(6)–3.
55(c) Treatment of Protected Balances
Section 226.55(c) addresses the
treatment of ‘‘protected balances,’’ which
are the existing balances to which a card
issuer may not apply an increased rate,
fee, or charge under § 226.55. Comment
55(c)(1)-3 provides guidance regarding
the application of increased fees or
charges to protected balances. In
particular, this comment clarifies that,
while a card issuer is prohibited from
applying an increased fee or charge that
is subject to § 226.55 to a protected
balance, a card issuer is not prohibited
from increasing a fee or charge that
applies to the account as a whole or to
balances other than the protected
balance. The Board would revise this
comment to clarify that a card issuer’s
ability to increase a fee or charge is also
subject to the limitations in
§ 226.55(b)(3)(iii) on increasing fees
during the first year after account
opening, while an account is closed, or
while transaction privileges are
suspended.
The Board would also add a new
comment 55(c)(1)-4 clarifying that
nothing in § 226.55 prohibits a card
issuer from changing the balance
computation method that applies to new
transactions as well as protected

E:\FR\FM\02NOP2.SGM

02NOP2

67480

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

srobinson on DSKHWCL6B1PROD with PROPOSALS2

balances. However, the Board notes that,
before changing the balance
computation method, a card issuer must
comply with the notice requirements in
§ 226.9(c)(2).
55(e) Promotional Waivers or Rebates of
Interest, Fees, and Other Charges
Some card issuers offer promotional
programs under which interest charges
or fees will be waived or rebated so long
as the consumer pays on time and
otherwise complies with the account
terms. For example, a card issuer might
offer a promotion under which interest
accrues on purchases at an annual
percentage rate of 15% but will be
waived for six months if the consumer
pays on time each billing cycle. While
this type of promotional program may
be intended to encourage timely
payment, a consumer who relies on the
promotion when making transactions
and then, for example, inadvertently
pays one day late will experience a
significant and potentially unexpected
increase in the cost of those
transactions. In contrast, if a consumer
relies on a promotional rate when
making transactions, TILA Section
171(b)(1) and § 226.55(b)(1) do not
permit the card issuer to increase the
cost of those transactions by revoking
the promotional rate unless the account
becomes more than 60 days past due.
Thus, the Board is concerned that the
revocation of promotional waiver or
rebate programs based on so-called ‘‘hair
trigger’’ violations of the account terms
may be inconsistent with the purposes
of the Credit Card Act.
In order to address these concerns, the
Board is proposing to use its authority
under TILA Section 105(a) and Section
2 of the Credit Card Act to add a new
§ 226.55(e), which would clarify that, if
a card issuer promotes the waiver or
rebate of interest, fees, or other charges
subject to § 226.55, any cessation of the
waiver or rebate constitutes an increase
in a rate, fee, or charge for purposes of
§ 226.55. Thus, for example, if a card
issuer promotes an interest waiver
program, the card issuer must comply
with § 226.55(b)(1) by disclosing the
length of the promotion and the rate that
will apply after the promotion expires.
Furthermore, the card issuer would be
prohibited from effectively increasing
the interest charges for existing balances
by ceasing or terminating the waiver
during the promotional period, unless
the account becomes more than 60 days
delinquent consistent with
§ 226.55(b)(4).
The Board notes that § 226.55(e) is
intended to address promotional
programs involving waivers or rebates of
interest, fees, and charges. The Board

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

does not intend to restrict a card issuer’s
ability to waive or rebate interest, fees,
or other charges in order to resolve
disputes, address compliance concerns,
or retain customers. Accordingly,
comment 55(e)-1 would clarify that
nothing in § 226.55 prohibits a card
issuer from waiving or rebating finance
charges due to a periodic interest rate or
a fee or charge required to be disclosed
under § 226.6(b)(2)(ii), (b)(2)(iii), or
(b)(2)(xii). This comment would also
provide examples of promotional waiver
or rebate programs that would comply
with § 226.55.
Comment 55(e)-2 would clarify the
circumstances under which a card
issuer would be considered to promote
a waiver or rebate program for purposes
of § 226.55(e). As a general matter, this
comment would follow the existing
guidance regarding advertisements in
§ 226.2(a)(2) and the accompanying
commentary. Thus, a card issuer would
promote a waiver or rebate program for
purposes of § 226.55(e) if, for example,
it disclosed the waiver or rebate in a
newspaper, magazine, leaflet,
promotional flyer, catalog, sign, or
point-of-sale display. Similarly, a card
issuer would promote a waiver or rebate
program for purposes of § 226.55(e) if
disclosed the waiver or rebate on radio
or television or through electronic
advertisements (such as on the Internet).
See comment 2(a)(2)-1.i. In contrast, a
card issuer generally would not promote
a program for purposes of § 226.55(e) if
it disclosed the waiver or rebate in a
communication that is not an
advertisement for purposes of
§ 226.2(a)(2), such as in educational
materials that do not solicit business.
See comment 2(a)(2)-1.ii.
However, the Board would deviate
from the guidance in comment 2(a)(2)1 in one important respect. Comments
2(a)(2)-1.ii.A and F provide,
respectively, as examples of
communications that are not
advertisements ‘‘direct personal
contacts’’ and ‘‘[c]ommunications about
an existing credit account (for example,
a promotion encouraging additional or
different uses of an existing credit card
account).’’ While these exclusions are
appropriate for purposes of § 226.2(a)(2),
it would be inconsistent with the
purpose of § 226.55(e) to exclude from
coverage waiver or rebate programs that
are promoted directly to existing
account holders. Accordingly, comment
55(e)-2 would clarify that programs
disclosed to existing account holders are
subject to § 226.55(e), unless the
disclosure is either provided in relation
to an inquiry or dispute about a specific
charge or occurs after the card issuer has
waived or rebated the interest, fees, or

PO 00000

Frm 00024

Fmt 4701

Sfmt 4700

other charges. Thus, the comment
would clarify that a card issuer is not
promoting a waiver or rebate for
purposes of § 226.55(e) if, for example,
a consumer calls the issuer to dispute a
fee that appears on his or her periodic
statement and the issuer offers to waive
the fee in order to resolve the dispute.
Similarly, a card issuer would not be
promoting a waiver or rebate if, for
example, it waives interest charges that
were erroneously imposed and then
discloses that waiver on a periodic
statement or in a letter. This guidance
is consistent with the Board’s desire to
avoid restricting card issuers’ ability to
waive or rebate interest, fees, or other
charges in order to resolve disputes,
address compliance concerns, or retain
customers.
Similarly, the comment would also
provide a number of additional
examples of circumstances in which a
waiver or rebate is not promoted for
purposes of § 226.55(e), including when
a card issuer communicates with a
consumer about a waiver or rebate in
relation to an inquiry or dispute about
a specific charge, when a card issuer
waives or rebates interest, fees, or other
charges in order to comply with a legal
requirement (such as the fee limitations
in § 226.52(a)), when a card issuer
discloses a grace period, and when a
card issuer provides an undisclosed
period after the payment due date
during which interest, fees, or other
charges are waived or rebated even if a
payment has not been received. The
Board solicits comment on other
examples of circumstances in which a
card issuer may waive or rebate interest,
fees, or charges subject to § 226.55
without promoting the waiver or rebate.
The Board understands that many
card issuers promote rewards programs
under which consumers can earn
points, cash back, or similar benefits
based on purchases, interest charges, or
other factors. The Board further
understands that some card issuers
condition these benefits on the
consumer making timely payments and
otherwise complying with the account
terms. Because TILA Sections 171 and
172 do not address these types of
benefits, the loss of rewards generally
does not raise the same concerns as the
loss of a waiver or rebate of interest,
fees, or other charges subject to § 226.55.
Accordingly, comment 55(e)-2 would
clarify that a card issuer is not
promoting a waiver or rebate for
purposes of § 226.55(e) if it provides
benefits (such as rewards points or cash
back based on purchases or finance
charges) that can be applied to the
account as credits, provided that the
benefits are not promoted as reducing

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
interest, fees, or other charges subject to
§ 226.55.
Finally, comment 55(e)-3 would
provide guidance regarding the
relationship between § 226.55(e) and a
grace period. Specifically, this comment
would clarify that § 226.55(e) does not
apply to the waiver of finance charges
due to a periodic rate consistent with a
grace period, as defined in
§ 226.5(b)(2)(ii)(3).
Section 226.58 Internet Posting of
Credit Card Agreements

srobinson on DSKHWCL6B1PROD with PROPOSALS2

58(b) Definitions
58(b)(4) Card Issuer
The Board proposes to add new
§ 226.58(b)(4) which would define the
term card issuer solely for purposes of
§ 226.58. New § 226.58(b)(4) would
provide that, for purposes of § 226.58,
card issuer or issuer means the entity to
which a consumer is legally obligated,
or would be legally obligated, under the
terms of a credit card agreement.
The Board also proposes to add new
comment 58(b)(4)–1, which would
provide the following example of how
the definition of card issuer would
apply. Bank X and Bank Y work
together to issue credit cards. A
consumer that obtains a credit card
issued pursuant to this arrangement
between Bank X and Bank Y is subject
to an agreement that states ‘‘This is an
agreement between you, the consumer,
and Bank X that governs the terms of
your Bank Y Credit Card.’’ The card
issuer in this example is Bank X,
because the agreement creates a legally
enforceable obligation between the
consumer and Bank X. Bank X is the
issuer even if the consumer applied for
the card through a link on Bank Y’s Web
site and the cards prominently feature
the Bank Y logo on the front of the card.
The Board understands that, in some
cases, more than one institution is
involved in the administration of a
credit card program. For example, a
smaller bank may partner with a larger
bank to market credit cards to the
smaller bank’s customers. The Board
also understands that the terms of these
arrangements can vary, for example
with respect to which institution uses
its name and brand in marketing
materials, develops and implements
underwriting criteria, sets interest rates
and other terms, approves applications,
provides monthly statements and other
disclosures to consumers, collects
payments, and absorbs the risk of
default or fraud.
Section 226.2(a)(7) of Regulation Z
defines a card issuer as a person that
issues a credit card or that person’s
agent with respect to the card. Under

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

this definition, more than one card
issuer may be associated with a single
credit card account. This definition may
be a source of confusion with respect to
§ 226.58. For example, the § 226.58(c)(5)
de minimis exception provides that an
issuer is not required to submit
agreements to the Board under
§ 226.58(c)(1) if the issuer has fewer
than 10,000 open credit card accounts
as of the last business day of the
calendar quarter. If two institutions are
involved in issuing a credit card, one
institution may have fewer than 10,000
open accounts while the other has more
than 10,000 open accounts. It may be
difficult to determine whether the de
minimis exception applies in such
cases. In addition, § 226.58(d) requires
an issuer to post and maintain on its
publicly available Web site the credit
card agreements the issuer is required to
submit to the Board. Where two
institutions are involved in issuing a
credit card, it may be unclear which
institution should post and maintain the
agreements on its Web site. Similarly,
§ 226.58(e)(2) provides that an issuer
that does not maintain an interactive
Web site is permitted to allow
individual cardholders to request copies
of their agreements solely by calling a
readily available telephone line, rather
than both by using the issuer’s Web site
and by calling a readily available
telephone line. If two institutions are
involved in issuing a credit card, one
institution may maintain a Web site
from which cardholders can access
specific information about their
accounts while the other does not. In
such cases, it may be difficult to
determine whether the § 226.58(e)(2)
special rule applies.
The Board therefore believes that it
would be beneficial to clarify which
institution is the card issuer for
purposes of § 226.58. The Board is
proposing to define card issuer with
respect to a particular agreement as the
entity to which a consumer is legally
obligated, or would be legally obligated,
under the terms of that agreement. The
Board is proposing this approach for
several reasons.
First, the proposed definition creates
a bright-line rule that would enable
institutions involved in issuing credit
cards to determine their obligations
under § 226.58. Second, the proposed
definition is consistent with the actual
legal relationship into which a
consumer enters under a credit card
agreement.
Third, the Board understands that the
institution to which the consumer is
legally obligated under the agreement in
most cases will be in a better position
to provide accurate, up-to-date

PO 00000

Frm 00025

Fmt 4701

Sfmt 4700

67481

agreements both to the Board and to
consumers. The Board understands that,
in many cases, the institution that is a
party to the agreement also is the
institution that prepares the agreement,
sends the agreement to consumers at
account opening, and updates and
revises the agreement. That institution
likely would be in the best position to
determine which agreements currently
are offered to the public and to identify
the agreement to which a particular
cardholder is subject. The Board also
understands that, in many cases, the
institution that is a party to the
agreement also is the institution that
maintains a Web site on which
cardholders can obtain information
about their accounts (if such a Web site
is maintained). Many consumers would
look to such a Web site when attempting
to obtain a copy of their credit card
agreements.
Fourth, the Board understands that an
institution that partners with multiple
other institutions to issue credit cards in
many cases will use the same agreement
for all of the credit cards issued in
connection with those arrangements.
Therefore, while the number of credit
cards issued with a given partner
institution may be small, the total
number of consumers subject to the
corresponding agreement may be quite
large. The Board believes that it would
be beneficial to have such agreements
submitted to the Board for posting on
the Board’s Web site.
The Board is aware that consumers in
some cases may be unsure about which
institution issues their credit card. For
example, a consumer may apply for a
credit card through a link on the Web
site of a bank with which the consumer
has a pre-existing relationship, and the
face of the credit card may prominently
display that bank’s logo. In some such
cases, the consumer may assume that
the card is issued by that bank, even
though Web site disclaimers, the credit
card agreement, the back of the credit
card, and other materials explain that
the card is issued by another institution.
The Board believes, however, that
institutions can take steps to alleviate
this confusion, for example by
disclosing the identity of the other
institution and providing contact
information for the other institution or
a link to the other institution’s Web site.
The Board also believes that consumers
would benefit from having a clearer
understanding of to what institution
they are legally obligated under a credit
card agreement.
The proposed definition would apply
solely with respect to § 226.58 and
would not change the definition of card
issuer for purposes of other provisions

E:\FR\FM\02NOP2.SGM

02NOP2

67482

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

srobinson on DSKHWCL6B1PROD with PROPOSALS2

of Regulation Z. The proposed
definition therefore should not affect
other Regulation Z compliance
obligations.
The Board solicits comment on the
proposed definition of card issuer, on
what additional guidance with respect
to the definition would be helpful, and
on whether there are alternative,
preferable approaches to defining card
issuer for purposes of § 226.58.
As a result of the Board’s proposal to
add new § 226.58(b)(4) defining the term
card issuer, the Board proposes to
renumber §§ 226.58(b)(4), (b)(5), (b)(6),
and (b)(7) as §§ 226.58(b)(5), (b)(6),
(b)(7), and (b)(8), respectively. The
Board also proposes to make conforming
changes to references to these
subsections included in other
subsections of § 226.58 and the official
staff commentary.
58(b)(6) Pricing Information
The Board proposes to amend the
definition of pricing information
included in § 226.58(b) to omit the
information listed in § 226.6(b)(4) from
the definition. The Board continues to
believe that consumers should receive
the more robust disclosure regarding
rates required by § 226.6(b)(4) in the
account-opening disclosures governed
by § 226.6(b). However, under § 226.58
it appears that at least some of the
additional disclosures required by
§ 226.6(b)(4) may be a source of
confusion to both consumers and
issuers. For example, § 226.6(b)(4)
requires card issuers to disclose the
periodic rate as well as the
corresponding APR. Account-opening
disclosures reflect the terms of a specific
consumer’s account at the time that
account is opened. The APR is disclosed
as a value, and the corresponding
periodic rate therefore is relatively
straightforward to state and understand.
However, agreements submitted to the
Board under § 226.58 reflect a range of
pricing terms that may be offered in
connection with a set of terms and
conditions and are updated only
quarterly. Section 226.58(c)(8)(ii)(C)
therefore requires issuers to identify the
index or formula and the margin used
to set a variable rate, rather than the
value of the rate or the value of the
index. In this context, it is difficult to
state the corresponding periodic rate in
a way that is accurate and
understandable. With respect to other
information required to be disclosed
under § 226.6(b)(4), such as the
circumstances and frequency under
which a variable rate may increase and
any limitation on the amount a variable
rate may change, it is not clear whether
this information is useful to consumers

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

when reviewing agreements under
§ 226.58.
The Board solicits comment on
whether the definition of pricing
information should continue to include
some or all of the additional disclosure
regarding rates specified in § 226.6(b)(4),
or whether the Board should omit this
disclosure from the definition as
proposed.
58(c) Submission of Agreements to
Board
58(c)(1) Quarterly Submissions
Quarterly Submission Deadlines. The
Board proposes to amend § 226.58(c)(1)
to state that quarterly submissions must
be sent to the Board no later than the
first business day on or after January 31,
April 30, July 31, and October 31 of
each year. These quarterly submission
deadlines were inadvertently omitted
from the February 2010 Final Rule.
Submission of Amended Agreements.
The Board proposes to revise
§ 226.58(c)(1)(iii) to clarify that issuers
are required to submit amended
agreements to the Board only if the
issuer offered the amended agreement to
the public as of the last business day of
the preceding calendar quarter.
Amended agreements that the issuer no
longer offered to the public as of the last
business day of the preceding calendar
quarter are not required to be submitted
to the Board.
The Board also proposes to revise
§ 226.58(c)(3) regarding amended
agreements, as discussed below.
Notice of Withdrawal of Agreements.
The Board proposes to amend
§ 226.58(c)(1)(iv) to include cross
references to §§ 226.58(c)(6) and (c)(7),
in addition to §§ 226.58(c)(4) and (c)(5).
These cross references were
unintentionally omitted from the
February 2010 Final Rule.
58(c)(2) Timing of First Two
Submissions
The Board proposes to delete the
§ 226.58(c)(2) special rules for the initial
and second submissions to the Board
and to reserve § 226.58(c)(2). Section
226.58(c)(2) provided special rules for
the timing and contents of submissions
required to be sent to the Board by
February 22, 2010, and August 2, 2010.
These special rules were necessary to
reconcile the statutorily-mandated
February 22, 2010, initial submission
deadline with the ongoing reporting
schedule based on calendar quarters set
forth in the February 2010 Final Rule.
Because the February 22, 2010, and
August 2, 2010, deadlines have passed,
§ 226.58(c)(2) has no prospective
relevance. The Board therefore proposes

PO 00000

Frm 00026

Fmt 4701

Sfmt 4700

to delete the special rules related to
those deadlines and reserve this section.
58(c)(3) Amended Agreements
The Board proposes to amend
§ 226.58(c)(3) to clarify that issuers are
required to submit amended agreements
to the Board only if the issuer offered
the amended agreement to the public as
of the last business day of the preceding
calendar quarter. Amended agreements
that the issuer no longer offered to the
public as of the last business day of the
calendar quarter should not be
submitted to the Board.
The Board also proposes to revise
comment 58(c)(3)–2 to reflect this
clarification and to add new comment
58(c)(3)–3, which would provide the
following example of the application of
revised § 226.58(c)(3): On December 31
a card issuer offers two agreements,
Agreement A and Agreement B. The
issuer submits these agreements to the
Board by January 31 as required by
§ 226.58. On February 15, the issuer
amends both Agreement A and
Agreement B. On February 28, the issuer
stops offering Agreement A to the
public. On March 15, the issuer amends
Agreement B a second time. As a result,
on March 31, the last business day of
the calendar quarter, the issuer offers to
the public one agreement—Agreement B
as amended on March 15. By the April
30 quarterly submission deadline, the
issuer must: (1) Notify the Board that it
is withdrawing Agreement A because
Agreement A is no longer offered to the
public; and (2) submit to the Board
Agreement B as amended on March 15.
The issuer should not submit to the
Board either Agreement A as amended
on February 15 or the earlier version of
Agreement B (as amended on February
15), as neither was offered to the public
on March 31, the last business day of
the calendar quarter.
The Board also proposes to renumber
existing comment 58(c)(3)–3, regarding
change-in-terms notices, as 58(c)(3)–4.
58(c)(8) Form and Content of
Agreements Submitted to the Board
The Board proposes to revise
§ 226.58(c)(8)(i)(C)(1) to clarify that
billing rights notices are not deemed to
be part of the agreement for purposes of
§ 226.58 and therefore are not required
to be included in agreements submitted
to the Board. The Board understands
that the appropriate treatment of billing
rights notices under this provision has
been a source of confusion for card
issuers and others. The Board therefore
proposes to specifically indicate in
§ 226.58(c)(8)(i)(C)(1) that billing rights
notices are disclosures required by state
or federal law that, like affiliate

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
marketing notices, privacy policies, and
E-Sign Act disclosures, are not
considered to be part of the agreement
for purposes of § 226.58.
It is important to note that
§ 226.58(c)(8)(i)(C)(1) is not intended to
provide an exhaustive list of the state
and federal law disclosures that are not
deemed to be part of an agreement
under § 226.58. As indicated by the use
of the phrase ‘‘such as,’’ the listed
disclosures are merely examples of
‘‘disclosures required by state or federal
law.’’ The Board does not believe it is
feasible to include in
§ 226.58(c)(8)(i)(C)(1) a comprehensive
list of all such disclosures, as such a list
would be extensive and would change
as state and federal laws and regulations
are amended. However, because billing
rights notices appear to be a specific
source of confusion, the Board is
proposing to address their treatment by
amending § 226.58(c)(8)(i)(C)(1).
58(e) Agreements for All Open Accounts

srobinson on DSKHWCL6B1PROD with PROPOSALS2

58(e)(2) Special Rule for Issuers Without
Interactive Web Sites
The Board proposes to revise
comment 58(e)–3 to clarify the
application of the special rule provided
in § 226.58(e)(2) to issuers that provide
online access to individual account
information through third-party
interactive Web sites. Section
226.58(e)(2) provides that an issuer that
does not maintain an interactive Web
site (i.e., a Web site from which a
cardholder can access specific
information about his or her individual
account) may provide cardholders with
the ability to request a copy of their
agreements by calling a readily available
telephone line, the number for which is:
(1) Displayed on the issuer’s Web site
and clearly identified as to purpose; or
(2) included on each periodic statement
sent to the cardholder and clearly
identified as to purpose.
The Board understands that some
issuers provide cardholders with access
to specific information about their
individual accounts, such as balance
information or copies of statements,
through a third-party interactive Web
site. As revised, comment 58(e)–3
would clarify that such an issuer is
considered to maintain an interactive
Web site for purposes of the
§ 226.58(e)(2) special rule. Such a Web
site is deemed to be maintained by the
issuer for purposes of § 226.58(e)(2)
even where, for example, an unaffiliated
entity designs the Web site and owns
and maintains the information
technology infrastructure that supports
the Web site, cardholders with credit
cards from multiple issuers can access

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

individual account information through
the same Web site, and the Web site is
not labeled, branded, or otherwise held
out to the public as belonging to the
issuer. An issuer that provides
cardholders with access to specific
information about their individual
accounts through such a Web site is not
permitted to use the procedures
described in the § 226.58(e)(2) special
rule. Instead, such an issuer must
comply with § 226.58(e)(1).
The special rule in § 226.58(e)(2)
provides cardholders with a convenient
means to request copies of their credit
card agreements without requiring
issuers that do not have interactive Web
sites to build such Web sites for the sole
purpose of facilitating cardholder
requests for agreements. Building an
interactive Web site and complying with
privacy and data security requirements
would represent a significant
compliance burden, especially for
smaller issuers. In adopting the
§ 226.58(e)(2) final rule, the Board noted
its belief that the added convenience to
cardholders of being able to request a
copy of their agreement through a Web
site, rather than by alternative means,
does not outweigh the burden on issuers
that do not otherwise maintain
interactive Web sites of creating such
Web sites solely to facilitate cardholder
requests for agreements. This rationale
does not apply, however, to an issuer
that already provides cardholders with
access to individual account
information through a Web site, whether
through the issuer’s own Web site or
through an arrangement with a third
party.
Section 226.59
Increases

Reevaluation of Rate

59(a) General Rule
Section 226.59 implements TILA
Section 148, which was added by the
Credit Card Act. TILA Section 148, as
implemented in § 226.59(a), generally
requires card issuers that increase an
annual percentage rate applicable to a
credit card account under an open-end
(not home-secured) consumer credit
plan, based on the credit risk of the
consumer, market conditions, or other
factors, to evaluate factors described in
the rule no less frequently than once
every six months and, as appropriate
based upon that review, reduce the
annual percentage rate applicable to the
consumer’s account. Consistent with
TILA Section 148, § 226.59 generally
applies to rate increases made on or
after January 1, 2009.
Since publication of the June 2010
Final Rule, several issuers have
requested additional clarification

PO 00000

Frm 00027

Fmt 4701

Sfmt 4700

67483

regarding what constitutes a rate
increase for purposes of § 226.59. In
particular, the Board understands that
there is a need for additional guidance
regarding the circumstances in which a
change in the type of rate—for example,
from a non-variable rate to a variable
rate—is considered to be a rate increase
triggering review obligations under
§ 226.59. The Board notes that in several
other contexts, Regulation Z treats a
change in a type of rate as equivalent to
a rate increase. For example, comments
9(c)(2)(iv)–3 and 9(c)(2)(iv)–4 clarify
that 45 days’ advance notice is generally
required under § 226.9(c)(2) when the
annual percentage rate on an open-end
(not home-secured) consumer credit
plan is changed from a variable to a
non-variable rate or from a non-variable
to a variable rate. In addition, comment
55(b)(2)–4 treats changing a nonvariable rate to a variable rate as
equivalent to a rate increase for
purposes of § 226.55.
The Board is proposing to adopt new
comment 59(a)(1)–3 to clarify the
applicability of the rate reevaluation
requirements when a card issuer
changes the type of rate applicable to a
credit card account under an open-end
(not home-secured) consumer credit
plan. Existing comments 59(a)(1)–3 and
59(a)(1)–4 would be renumbered
accordingly. Comment 59(a)(1)–3.i
would provide that a change from a
variable rate to a non-variable rate or
from a non-variable rate to a variable
rate generally is not a rate increase for
purposes of § 226.59, if the rate in effect
immediately prior to the change in the
type of rate is equal to or greater than
to the rate in effect immediately after
the change. The proposed comment
states that, for example, a change from
a variable rate of 15.99% to a nonvariable rate of 15.99% is not a rate
increase for purposes of § 226.59 at the
time of the change. Proposed comment
59(a)(1)–3.i also cross-references
§ 226.55 for limitations on the
permissibility of changing from a nonvariable rate to a variable rate.
Proposed comment 59(a)(1)–3.ii
would set forth special guidance
regarding a change from a non-variable
to a variable rate. Proposed comment
59(a)(1)–3.ii states that a change from a
non-variable to a variable rate
constitutes a rate increase for purposes
of § 226.59 if the variable rate exceeds
the non-variable rate that would have
applied if the change in type of rate had
not occurred. The proposed comment
illustrates the applicability of § 226.59
to a change from a non-variable to a
variable rate with the following
example: Assume a new credit card
account under an open-end (not home-

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

67484

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

secured) consumer credit plan is opened
on January 1 of year 1 and that a nonvariable annual percentage rate of 12%
applies to all transactions on the
account. On January 1 of year 2, upon
45 days’ advance notice pursuant to
§ 226.9(c)(2), the rate on all new
transactions is changed to a variable rate
that is currently 12% and is determined
by adding a margin of 10 percentage
points to a publicly-available index not
under the card issuer’s control. The
change from the 12% non-variable rate
to the 12% variable rate is not a rate
increase for purposes of § 226.59(a). On
April 1 of year 2, the value of the
variable rate increases to 12.5%. The
increase in the variable rate from 12%
to 12.5% is a rate increase for purposes
of § 226.59, and the card issuer must
begin periodically conducting reviews
of the account pursuant to § 226.59.
Similarly, proposed comment
59(a)(1)–3.iii states that a change from a
variable to a non-variable rate
constitutes a rate increase for purposes
of § 226.59 if the non-variable rate
exceeds the variable rate that would
have applied if the change in the type
of rate had not occurred. The proposed
comment sets forth the following
illustrative example: assume a new
credit card account under an open-end
(not home-secured) consumer credit
plan is opened on January 1 of year 1
and that a variable annual percentage
rate that is currently 15% and is
determined by adding a margin of 10
percentage points to a publicly-available
index not under the card issuer’s control
applies to all transactions on the
account. On January 1 of year 2, upon
45 days’ advance notice pursuant to
§ 226.9(c)(2), the rate on all existing
balances and new transactions is
changed to a non-variable rate that is
currently 15%. The change from the
15% variable rate to the 15% nonvariable rate on January 1 of year 2 is
not a rate increase for purposes of
§ 226.59(a). On April 1 of year 2, the
value of the variable rate that would
have applied to the account decreases to
12.5%. Accordingly, on April 1 of year
2, the non-variable rate of 15% exceeds
the 12.5% variable rate that would have
applied but for the change in type of
rate. At this time, the change to the nonvariable rate of 15% constitutes a rate
increase for purposes of § 226.59, and
the card issuer must begin periodically
conducting reviews of the account
pursuant to § 226.59.
The Board believes that this
clarification regarding changes in types
of rates is appropriate to effectuate the
purposes of TILA Section 148. As
discussed in the supplementary
information to its final rule published

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

on January 29, 2009, the Board
recognizes that a change from one type
of rate to another (e.g., variable or nonvariable) may, over time, result in the
new rate being higher than the rate that
would have applied but for the change,
even if at the time of the change the
prior rate exceeded the new rate. See 74
FR 5345. For this reason, as discussed
above, comments 9(c)(2)(iv)–3 and
9(c)(2)(iv)–4 clarify that 45 days’
advance notice is generally required
under § 226.9(c)(2) when the annual
percentage rate on an open-end (not
home-secured) consumer credit plan is
changed from a variable to a nonvariable rate or from a non-variable to a
variable rate. The Board believes that
consistent treatment is generally
appropriate under § 226.59, because a
change in type of rate may, over time,
result in a rate increase on a consumer’s
account; however, the Board proposes to
apply the review requirement under
§ 226.59 only if and when the new rate
exceeds the rate that would have
applied if the change in type of rate had
not occurred. For example, a consumer
who has an existing account with a nonvariable rate has an expectation that the
rate generally will not change. However,
if the issuer changes the non-variable
rate to a variable rate, an increase in the
index value may result in the rate
applicable to the consumer’s account
increasing, and exceeding the nonvariable rate that previously applied.
Accordingly, the Board believes that in
such circumstances a rate increase has
occurred and must be reviewed under
§ 226.59.
The Board solicits comment on
whether there are other types of changes
to rates for which clarification of the
applicability of § 226.59 would be
appropriate.
59(d) Factors
Section 226.59(d) sets forth guidance
regarding the factors that an issuer must
consider when conducting reviews of a
rate increase pursuant to § 226.59.
Section 226.59(d)(1) sets forth the
general rule and states that, except as
provided in § 226.59(d)(2) (which is
discussed below), a card issuer must
review either: (1) The factors on which
the increase in an annual percentage
rate was originally based; or (2) the
factors that the card issuer currently
considers when determining the annual
percentage rates applicable to similar
new credit card accounts. Section
226.59(d)(2) sets forth a special rule for
certain rate increases imposed between
January 1, 2009 and February 21, 2010.
Section 226.59(d)(2) provides that,
when conducting the first two reviews
required under § 226.59(a) for rate

PO 00000

Frm 00028

Fmt 4701

Sfmt 4700

increases imposed between January 1,
2009 and February 21, 2010, an issuer
must consider the factors that it
currently considers when determining
the annual percentage rates applicable
to similar new credit card accounts,
unless the rate increase was based solely
upon factors specific to the consumer,
such as a decline in the consumer’s
credit risk, the consumer’s delinquency
or default, or a violation of the terms of
the account.
As discussed in the supplementary
information to the June 2010 Final Rule,
§ 226.59(d)(2) was adopted to address
the Board’s concerns regarding
portfolio-wide rate increases made
following the enactment of the Credit
Card Act but prior to the effective date
of many of the substantive protections
contained in the statute. Some rate
increases that occurred prior to
February 22, 2010 resulted from
adjustments in issuers’ pricing practices
to take into account the limitations that
the Credit Card Act imposed on rate
increases on existing balances. The
Board was concerned that permitting
card issuers to review the factors on
which the rate increase was based may
not result in a meaningful review in
these circumstances, because the legal
restrictions imposed by the Credit Card
Act have continuing application. In
other words, if a card issuer were to
consider the factors on which the rate
increase was based—i.e., the enactment
of the Credit Card Act’s legal restrictions
regarding rate increases—it might
determine that a rate decrease is not
required.
Accordingly, the Board adopted
§ 226.59(d)(2) to require card issuers to
consider, for a brief transition period,
the factors that they use when setting
the rates applicable to similar new
accounts for rate increases imposed
prior to February 22, 2010, if the rate
increase was not based on consumerspecific factors. For the reasons
discussed in the supplementary
information to the June 2010 Final Rule,
the requirement to consider the factors
that an issuer evaluates when setting the
rates applicable to similar new accounts
applies only during the first two review
periods following the effective date of
§ 226.59 and only for rate increases
imposed between January 1, 2009 and
February 21, 2010.
For rate increases based solely on
consumer behavior or other consumerspecific factors, § 226.59(d) does not
distinguish between rate increases
imposed prior to or after February 22,
2010. Accordingly, for such rate
increases an issuer may consider either
the factors on which the increase in an
annual percentage rate was originally

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
based or the factors that the card issuer
currently considers when determining
the annual percentage rates applicable
to similar new credit card accounts.
Consumer-specific factors, such as a
consumer’s credit score or payment
history on the account, can and do
change over time. Accordingly, the
Board noted in the supplementary
information to the June 2010 Final Rule
that it believes consideration of the
consumer-specific factors that an issuer
considered when imposing the rate
increase would result in a meaningful
review and, where appropriate, rate
decreases, for rate increases imposed
between January 1, 2009 and February
21, 2010.
The Board understands that some
confusion has arisen regarding
compliance with the special rule set
forth in § 226.59(d)(2) in the case where
two rate increases occurred between
January 1, 2009 and February 21, 2010,
one of which was based on conditions
that are not specific to the consumer
and one of which was based on
consumer-specific behavior. The Board
understands that there is particular
concern regarding the application of the
rule if the issuer made a market-based
rate increase and subsequently
increased the rate to a penalty rate, due
to a late payment or other consumer
behavior that violates the terms of the
account. The Board is proposing a new
comment 59(d)–6 to clarify the
application of the rule in these
circumstances. Proposed comment
59(d)–6 notes that § 226.59(d)(2) applies
if an issuer increased the rate applicable
to a credit card account under an openend (not home-secured) consumer credit
plan between January 1, 2009 and
February 21, 2010, and the increase was
not based solely upon factors specific to
the consumer. The proposed comment
further notes that in some cases, a credit
card account may have been subject to
multiple rate increases during the
period from January 1, 2009 to February
21, 2010. Some such rate increases may
have been based solely upon factors
specific to the consumer, while others
may have been based on factors not
specific to the consumer, such as the
issuer’s cost of funds or market
conditions. The comment would clarify
that in such circumstances, when
conducting the first two reviews
required under § 226.59, the card issuer
may separately review: (A) Rate
increases imposed based on factors not
specific to the consumer, using the
factors described in § 226.59(d)(1)(ii) (as
required by § 226.59(d)(2)); and (B) rate
increases imposed based on consumerspecific factors, using the factors

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

described in § 226.59(d)(1)(i). If the
review of factors described in
§ 226.59(d)(1)(i) indicates that it is
appropriate to continue to apply a
penalty rate to the account as a result of
the consumer’s payment history or other
behavior on the account, proposed
comment 59(d)–6 clarifies that § 226.59
permits the card issuer to continue to
impose the penalty rate, even if the
review of the factors described in
§ 226.59(d)(1)(ii) would otherwise
require a rate decrease.
Proposed comment 59(d)–6.ii would
set forth the following example: Assume
a credit card account was subject to a
rate of 15% on all transactions as of
January 1, 2009. On May 1, 2009, the
issuer increased the rate on existing
balances and new transactions to 18%,
based upon market conditions or other
factors not specific to the consumer or
the consumer’s account. Subsequently,
on September 1, 2009, based on a
payment that was received five days
after the due date, the issuer increased
the applicable rate on existing balances
and new transactions from 18% to a
penalty rate of 25%. When conducting
the first review required under § 226.59,
the card issuer reviews the rate increase
from 15% to 18% using the factors
described in § 226.59(d)(1)(ii) (as
required by § 226.59(d)(2)), and
separately but concurrently reviews the
rate increase from 18% to 25% using the
factors described in paragraph
§ 226.59(d)(1)(i). The review of the rate
increase from 15% to 18% based upon
the factors described in § 226.59(d)(1)(ii)
indicates that a similarly situated new
consumer would receive a rate of 17%.
The review of the rate increase from
18% to 25% based upon the factors
described in § 226.59(d)(1)(i) indicates
that it is appropriate to continue to
apply the 25% penalty rate based upon
the consumer’s late payment. Section
226.59 permits the rate on the account
to remain at 25%.
The Board notes that the intent of the
special rule in § 226.59(d)(2) was not to
require card issuers to reduce penalty
rates, if the consumer’s credit risk or
behavior on the account justifies the
maintenance of a penalty rate in order
to account for the additional risk of
nonpayment posed by the consumer.
The Board believes that the clarification
in proposed comment 59(d)–6 is
appropriate in order to ensure that
§ 226.59(d)(2) does not lead to
unintended consequences in cases
where a market-based rate increase and
a rate increase due to the imposition of
a penalty rate both occurred between
January 1, 2009 and February 21, 2010.

PO 00000

Frm 00029

Fmt 4701

Sfmt 4700

67485

59(f) Termination of Obligation To
Review Factors
Section 226.59(f) generally provides
that the obligation to conduct periodic
reevaluations of a rate increase ceases to
apply if the issuer reduces the annual
percentage rate applicable to the
account to a rate equal to or lower than
the rate that was in effect immediately
prior to the increase. The Board
understands that some confusion has
arisen regarding the relationship
between the general rule in § 226.59(a)
and the termination provision in
§ 226.59(f). For example, a card issuer
may periodically review a consumer’s
account on which the rate has been
increased, consistent with
§ 226.59(d)(1)(ii), by evaluating the
factors that it currently considers when
determining the annual percentage rates
applicable to similar new credit card
accounts. In the course of conducting
such a review, the card issuer may
determine that it would offer a lower
rate on a new account than the rate that
applied, prior to the rate increase, to the
existing account being reviewed. In
these circumstances, issuers have asked
the Board for guidance regarding the
amount of the rate reduction required
under § 226.59.
The Board proposes to clarify that in
these circumstances, § 226.59 requires
that the rate on the existing account be
reduced to the rate that was in effect
prior to the rate increase, not to the
lower rate that would be offered to a
comparable new consumer. The Board
notes that the review requirements of
TILA Section 148 are triggered only if
an annual percentage rate applicable to
a credit card account is increased. The
Board believes that if Congress had
intended for all annual percentage rates
on all credit card accounts to be
reviewed indefinitely, regardless of
whether the account is subject to a rate
increase, it would have so provided in
the Credit Card Act. Accordingly, the
Board believes that it would be
inappropriate to require card issuers to
reduce a rate on a credit card account
to a rate that is lower than the rate that
applied to the account prior to the
increase.
To clarify the relationship between
§ 226.59(a) and (f), the Board is
proposing to adopt a new comment
59(f)–2, which would set forth the
following illustrative example: Assume
that on January 1, 2011, a consumer
opens a new credit card account under
an open-end (not home-secured)
consumer credit plan. The annual
percentage rate applicable to purchases
is 15%. Upon providing 45 days’
advance notice and to the extent

E:\FR\FM\02NOP2.SGM

02NOP2

67486

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

srobinson on DSKHWCL6B1PROD with PROPOSALS2

permitted under § 226.55, the card
issuer increases the rate applicable to
new purchases to 18%, effective on
September 1, 2012. The card issuer
conducts reviews of the increased rate
in accordance with § 226.59 on January
1, 2013 and July 1, 2013, based on the
factors described in § 226.59(d)(1)(ii).
Based on the January 1, 2013 review, the
rate applicable to purchases remains at
18%. In the review conducted on July
1, 2013, the card issuer determines that,
based on the relevant factors, the rate it
would offer on a comparable new
account would be 14%. Consistent with
§ 226.59(f), § 226.59(a) requires that the
card issuer reduce the rate on the
existing account to the 15% rate that
was in effect prior to the September 1,
2012 rate increase.
Appendix M1—Repayment Disclosures
As discussed in the section-by-section
analysis to § 226.7(b)(12), Appendix M1
contains guidance for how to calculate
the repayment disclosures required to
be disclosed under § 226.7(b)(12).
Specifically, § 226.7(b)(12)(i) generally
requires card issuers to disclose the
following repayment disclosures on
each periodic statement: (1) A ‘‘warning’’
statement indicating that making only
the minimum payment will increase the
interest the consumer pays and the time
it takes to repay the consumer’s balance;
(2) the length of time it would take to
repay the outstanding balance if the
consumer pays only the required
minimum monthly payments and no
further advances are made; (3) the total
cost to the consumer of paying the
balance in full if the consumer pays
only the required minimum monthly
payments and no further advances are
made; (4) the minimum payment
amount that would be required for the
consumer to pay off the outstanding
balance in 36 months, if no further
advances are made; (5) the total cost to
the consumer of paying the balance in
full if the consumer pays the balance
over 36 months; (6) the total savings of
paying the balance in 36 months (rather
than making only minimum payments);
and (7) a toll-free telephone number at
which the consumer may receive
information about accessing consumer
credit counseling.
Section 226.7(b)(12)(i) and (ii)
provides that card issuers must round
the following disclosures to the nearest
whole dollar when disclosing them on
the periodic statement: (1) The
minimum payment total cost estimate,
(2) the estimated minimum payment for
repayment in 36 months, (3) the total
cost estimate for repayment in 36
months, and (4) the savings estimate for
repayment in 36 months. See

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

226.7(b)(12)(i)(C), (b)(12)(i)(F)(1)(i),
(b)(12)(i)(F)(1)(iii), (b)(12)(i)(F)(1)(iv) and
(b)(12)(ii)(C). For the reasons discussed
in the section-by-section analysis to
§ 226.7(b)(12), the Board proposes to
revise § 226.7(b)(12)(i) and (ii) to allow
card issuers to round these disclosures
to either the nearest whole dollar or to
the nearest cent when disclosing them
on the periodic statement. Currently,
paragraph (f) of Appendix M1 references
rounding disclosures to the nearest
whole dollar when calculating the total
saving estimate for repayment in 36
months. Specifically, paragraph (f) of
Appendix M1 states that when
calculating the savings estimate for
repayment in 36 months, a card issuer
must subtract the total cost estimate for
repayment in 36 months calculated
under paragraph (e) of Appendix M1
(rounded to the nearest whole dollar as
set forth in § 226.7(b)(12)(i)(F)(1)(iii))
from the minimum payment total cost
estimate calculated under paragraph (c)
of Appendix M1 (rounded to the nearest
whole dollar as set forth in
§ 226.7(b)(12)(i)(C)).
Consistent with the proposed changes
to § 226.7(b)(12), paragraph (f) of
Appendix M1 would be revised to
indicate that a card issuer, at its option,
may round the disclosures either to the
nearest whole dollar or to the nearest
cent in calculating the savings estimate
for repayment in 36 months. If a card
issuer chooses under § 226.7(b)(12) to
round the disclosures to the nearest
whole dollar, the card issuer must
calculate the savings estimate for
repayment in 36 months by subtracting
the total cost estimate for repayment in
36 months calculated under paragraph
(e) of Appendix M1 (rounded to the
nearest whole dollar) from the
minimum payment total cost estimate
calculated under paragraph (c) of
Appendix M1 (rounded to the nearest
whole dollar). If a card issuer chooses,
however, to round the disclosures to the
nearest cent, the card issuer must
calculate the savings estimate for
repayment in 36 months by subtracting
the total cost estimate for repayment in
36 months calculated under paragraph
(e) of Appendix M1 (rounded to the
nearest cent) from the minimum
payment total cost estimate calculated
under paragraph (c) of Appendix M1
(rounded to the nearest cent). This
ensures that the savings estimate for
repayment in 36 months is calculated
consistent with how the other
disclosures will be shown on the
periodic statement.
IV. Regulatory Analysis
This proposed rule would clarify
aspects of the Board’s February and June

PO 00000

Frm 00030

Fmt 4701

Sfmt 4700

2010 Final Rules implementing the
Credit Card Act. Section VI of the
SUPPLEMENTARY INFORMATION to the
February 2010 Final Rule and section
VII of the SUPPLEMENTARY INFORMATION
to the June 2010 Final Rule set forth the
Board’s analyses and determinations
under the Regulatory Flexibility Act (5
U.S.C. 601 et seq.) with respect to those
rules. See 75 FR 7789–7791, 75 FR
37565–37567. In addition, section VII of
the SUPPLEMENTARY INFORMATION to the
February 2010 Final Rule and section
VIII of the SUPPLEMENTARY INFORMATION
to the June 2010 Final Rule set forth the
Board’s analyses and determinations
under the Paperwork Reduction Act
(PRA) of 1995 (44 U.S.C. 3506; 5 CFR
Part 1320 Appendix A.1) with respect to
those rules. See 75 FR 7791, 75 FR
37567–37568. Because the proposed
amendments are clarifications and
would not, if adopted, alter the
substance of these analyses and
determinations, the Board continues to
rely on those analyses and
determinations for purposes of this
rulemaking.8
The Board has a continuing interest in
the public’s opinion of the collection of
information. Comments on the
collection of information should be sent
to Cynthia Ayouch, Acting Federal
Reserve Board Clearance Officer,
Division of Research and Statistics, Mail
Stop 95–A, Board of Governors of the
Federal Reserve System, Washington,
DC 20551, with copies of such
comments sent to the Office of
Management and Budget, Paperwork
Reduction Project (7100–0199),
Washington, DC 20503.
List of Subjects in 12 CFR Part 226
Advertising, Consumer protection,
Federal Reserve System, Reporting and
recordkeeping requirements, Truth in
Lending.
Text of Final Revisions
For the reasons set forth in the
preamble, the Board proposes to amend
Regulation Z, 12 CFR part 226, as set
forth below:
8 The Board notes that the proposed amendments
to § 226.9(c)(2)(v)(B) would permit a card issuer to
provide the consumer in advance with certain
written disclosures of a fee increase upon
expiration of a specified period of time, without
providing 45 days’ advance notice pursuant to
§ 226.9(c)(2). The Board anticipates that the
proposed rule would impose no additional burden
on card issuers because the proposed clarification
would provide an alternative means of complying
with disclosures that are otherwise required by
§ 226.9(c)(2).

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
PART 226—TRUTH IN LENDING
(REGULATION Z)
1. The authority citation for part 226
continues to read as follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604,
1637(c)(5), and 1639(l); Pub. L. 111–24 § 2,
123 Stat. 1734.

Subpart A—General
*

*

*

*

*

Subpart B—Open-End Credit
2. Section 226.2(a)(15)(ii) is revised to
read as follows:
§ 226.2 Definitions and rules of
construction.

(a) * * *
(15) * * *
(ii) Credit card account under an
open-end (not home-secured) consumer
credit plan means any open-end credit
account flthat isfi accessed by a credit
card, except:
(A) A øcredit card that accesses a¿
home-equity plan subject to the
requirements of § 226.5b flthat is
accessed by a credit cardfi; or
(B) An overdraft line of credit flthat
isfi accessed by a debit card flor an
account numberfi.
*
*
*
*
*
3. Section 226.5 is amended by
revising the heading to paragraph
(b)(2)(ii)(A) and by revising paragraph
(b)(2)(ii)(B) to read as follows:
§ 226.5

General disclosure requirements.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*
*
*
*
(b) * * *
(2) * * *
(ii) Timing requirements.
(A) flCredit card accounts under an
open-end (not home-secured) consumer
credit plan.fi øPayment due date.¿
* * *
(B) flOpen-end consumer credit
plans.fi øGrace period expiration
date.¿ For flaccounts under anfi openend consumer credit planøs¿, a creditor
must adopt reasonable procedures
designed to ensure that:
(1) flIf a grace period applies to the
account:
(i)fi Periodic statements are mailed
or delivered at least 21 days prior to the
date on which flthefi øany¿ grace
period expires; and
fl(ii)fi ø(2)¿ The creditor does not
impose finance charges as a result of the
loss of flthefi øa¿ grace period if a
payment that satisfies the terms of the
grace period is received by the creditor
within 21 days after mailing or delivery
of the periodic statement.
fl(2) If a grace period does not apply
to the account:

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

(i) Periodic statements are mailed or
delivered at least 14 days prior to the
date on which the required minimum
periodic payment must be received in
order to avoid being treated as late for
any purpose; and
(ii) The creditor does not treat as late
for any purpose a required minimum
periodic payment received by the
creditor within 14 days after mailing or
delivery of the periodic statement.fi
(3) For purposes of paragraph
(b)(2)(ii)(B) of this section, ‘‘grace
period’’ means a period within which
any credit extended may be repaid
without incurring a finance charge due
to a periodic interest rate.10
*
*
*
*
*
4. Section 226.5a is amended by
revising paragraphs (a)(2)(iii), (b)(1)(i),
and (b)(1)(iv) to read as follows:
§ 226.5a Credit and charge card
applications and solicitations.

(a) * * *
(2) * * *
(iii) Disclosures required by
paragraphs (b)(1)(iv)(B)fl,
(b)(1)(iv)(C)fi and (b)(6) of this section
must be placed directly beneath the
table.
*
*
*
*
*
(b) * * *
(1) * * *
(i) Variable rate information. If a rate
disclosed under paragraph (b)(1) of this
section is a variable rate, the card issuer
shall also disclose the fact that the rate
may vary and how the rate is
determined. In describing how the
applicable rate will be determined, the
card issuer must identify the type of
index or formula that is used in setting
the rate. The value of the index and the
amount of the margin that are used to
calculate the variable rate shall not be
disclosed in the table. A disclosure of
any applicable limitations on rate
increases øor decreases¿ shall not be
included in the table.
*
*
*
*
*
(iv) Penalty rates. (A) In general.
Except as provided in paragraph
(b)(1)(iv)(B) fland (b)(1)(iv)(C)fi of this
section, if a rate may increase as a
penalty for one or more events specified
in the account agreement, such as a late
payment or an extension of credit that
exceeds the credit limit, the card issuer
must disclose pursuant to paragraph
(b)(1) of this section the increased rate
that may apply, a brief description of
the event or events that may result in
the increased rate, and a brief
description of how long the increased
rate will remain in effect.
10 [Reserved]

PO 00000

Frm 00031

Fmt 4701

Sfmt 4700

67487

(B) Introductory rates. If the issuer
discloses an introductory rate, as that
term is defined in § 226.16(g)(2)(ii), in
the table or in any written or electronic
promotional materials accompanying
applications or solicitations subject to
paragraph (c) or (e) of this section, the
issuer must briefly disclose directly
beneath the table the circumstances, if
any, under which the introductory rate
may be revoked, and the type of rate
that will apply after the introductory
rate is revoked.
fl(C) Employee preferential rates. If a
card issuer discloses in the table a
preferential annual percentage rate for
which only employees of the creditor or
employees of a third party are eligible,
the card issuer must briefly disclose
directly beneath the table the
circumstances under which such
preferential rate may be revoked, and
the rate that will apply after such
preferential rate is revoked.fi
*
*
*
*
*
5. Section 226.6 is amended by
revising paragraphs (b)(1)(ii), (b)(2)(i)(B),
and (b)(2)(i)(D) to read as follows:
§ 226.6

Account-opening disclosures.

*

*
*
*
*
(b) * * *
(1) * * *
(ii) Location. Only the information
required or permitted by paragraphs
(b)(2)(i) through (b)(2)(v) (except for
(b)(2)(i)(D)(2)) and (b)(2)(vii) through
(b)(2)(xiv) of this section shall be in the
table. Disclosures required by
paragraphs (b)(2)(i)(D)(2),
fl(b)(2)(i)(D)(3), fi(b)(2)(vi) and
(b)(2)(xv) of this section shall be placed
directly below the table. Disclosures
required by paragraphs (b)(3) through
(b)(5) of this section that are not
otherwise required to be in the table and
other information may be presented
with the account agreement or accountopening disclosure statement, provided
such information appears outside the
required table.
*
*
*
*
*
(2) * * *
(i) * * *
(B) Discounted initial rates. If the
initial rate is an introductory rate, as
that term is defined in § 226.16(g)(2)(ii),
the creditor must disclose the rate that
would otherwise apply to the account
pursuant to paragraph (b)(2)(i) of this
section. Where the rate is not tied to an
index or formula, the creditor must
disclose the rate that will apply after the
introductory rate expires. In a variablerate account, the øcard
issuer¿flcreditorfi must disclose a rate
based on the applicable index or
formula in accordance with the

E:\FR\FM\02NOP2.SGM

02NOP2

67488

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

srobinson on DSKHWCL6B1PROD with PROPOSALS2

accuracy requirements of paragraph
(b)(4)(ii)(G) of this section. Except as
provided in paragraph (b)(2)(i)(F) of this
section, the creditor is not required to,
but may disclose in the table the
introductory rate along with the rate
that would otherwise apply to the
account if the creditor also discloses the
time period during which the
introductory rate will remain in effect,
and uses the term ‘‘introductory’’ or
‘‘intro’’ in immediate proximity to the
introductory rate.
*
*
*
*
*
(D) Penalty rates. (1) In general.
Except as provided in paragraph
(b)(2)(i)(D)(2) fland (b)(2)(i)(D)(3)fi of
this section, if a rate may increase as a
penalty for one or more events specified
in the account agreement, such as a late
payment or an extension of credit that
exceeds the credit limit, the creditor
must disclose pursuant to paragraph
(b)(2)(i) of this section the increased rate
that may apply, a brief description of
the event or events that may result in
the increased rate, and a brief
description of how long the increased
rate will remain in effect. If more than
one penalty rate may apply, the creditor
at its option may disclose the highest
rate that could apply, instead of
disclosing the specific rates or the range
of rates that could apply.
(2) Introductory rates. If the creditor
discloses in the table an introductory
rate, as that term is defined in
§ 226.16(g)(2)(ii), creditors must briefly
disclose directly beneath the table the
circumstances under which the
introductory rate may be revoked, and
the rate that will apply after the
introductory rate is revoked.
fl(3) Employee preferential rates. If a
creditor discloses in the table a
preferential annual percentage rate for
which only employees of the creditor or
employees of a third party are eligible,
the creditor must briefly disclose
directly beneath the table the
circumstances under which such
preferential rate may be revoked, and
the rate that will apply after such
preferential rate is revoked.fi
*
*
*
*
*
6. Section 226.7 is amended by
revising paragraphs (b)(12) and (b)(14)
to read as follows:
§ 226.7

Periodic statement.

*

*
*
*
*
(b) * * *
(12) Repayment disclosures—(i) In
general. Except as provided in
paragraphs (b)(12)(ii) and (b)(12)(v) of
this section, for a credit card account
under an open-end (not home-secured)
consumer credit plan, a card issuer must

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

provide the following disclosures on
each periodic statement:
(A) The following statement with a
bold heading: ‘‘Minimum Payment
Warning: If you make only the
minimum payment each period, you
will pay more in interest and it will take
you longer to pay off your balance’’;
(B) The minimum payment repayment
estimate, as described in Appendix M1
to this part. If the minimum payment
repayment estimate is less than 2 years,
the card issuer must disclose the
estimate in months. Otherwise, the
estimate must be disclosed in years and
rounded to the nearest whole year;
(C) The minimum payment total cost
estimate, as described in Appendix M1
to this part. The minimum payment
total cost estimate must be rounded
fleitherfi to the nearest whole dollar
flor to the nearest cent, at the card
issuer’s optionfi;
(D) A statement that the minimum
payment repayment estimate and the
minimum payment total cost estimate
are based on the current outstanding
balance shown on the periodic
statement. A statement that the
minimum payment repayment estimate
and the minimum payment total cost
estimate are based on the assumption
that only minimum payments are made
and no other amounts are added to the
balance;
(E) A toll-free telephone number
where the consumer may obtain from
the card issuer information about credit
counseling services consistent with
paragraph (b)(12)(iv) of this section; and
(F)(1) Except as provided in paragraph
(b)(12)(i)(F)(2) of this section, the
following disclosures:
(i) The estimated monthly payment
for repayment in 36 months, as
described in Appendix M1 to this part.
The estimated monthly payment for
repayment in 36 months must be
rounded fleitherfi to the nearest whole
dollar flor to the nearest cent, at the
card issuer’s optionfi;
(ii) A statement that the card issuer
estimates that the consumer will repay
the outstanding balance shown on the
periodic statement in 3 years if the
consumer pays the estimated monthly
payment each month for 3 years;
(iii) The total cost estimate for
repayment in 36 months, as described in
Appendix M1 to this part. The total cost
estimate for repayment in 36 months
must be rounded fleitherfi to the
nearest whole dollar flor to the nearest
cent, at the card issuer’s optionfi; and
(iv) The savings estimate for
repayment in 36 months, as described in
Appendix M1 to this part. The savings
estimate for repayment in 36 months
must be rounded fleitherfi to the

PO 00000

Frm 00032

Fmt 4701

Sfmt 4700

nearest whole dollar flor to the nearest
cent, at the card issuer’s optionfi.
(2) The requirements of paragraph
(b)(12)(i)(F)(1) of this section do not
apply to a periodic statement in any of
the following circumstances:
(i) The minimum payment repayment
estimate that is disclosed on the
periodic statement pursuant to
paragraph (b)(12)(i)(B) of this section
after rounding is three years or less;
(ii) The estimated monthly payment
for repayment in 36 months, as
described in Appendix M1 to this part,
flafter rounding as set forth in
paragraph (b)(12)(f)(1)(i) of this
sectionfi ørounded to the nearest whole
dollar¿ that is calculated for a particular
billing cycle is less than the minimum
payment required for the plan for that
billing cycle; and
(iii) A billing cycle where an account
has both a balance in a revolving feature
where the required minimum payments
for this feature will not amortize that
balance in a fixed amount of time
specified in the account agreement and
a balance in a fixed repayment feature
where the required minimum payment
for this fixed repayment feature will
amortize that balance in a fixed amount
of time specified in the account
agreement which is less than 36 months.
(ii) Negative or no amortization. If
negative or no amortization occurs
when calculating the minimum
payment repayment estimate as
described in Appendix M1 of this part,
a card issuer must provide the following
disclosures on the periodic statement
instead of the disclosures set forth in
paragraph (b)(12)(i) of this section:
(A) The following statement:
‘‘Minimum Payment Warning: Even if
you make no more charges using this
card, if you make only the minimum
payment each month we estimate you
will never pay off the balance shown on
this statement because your payment
will be less than the interest charged
each month’’;
(B) The following statement: ‘‘If you
make more than the minimum payment
each period, you will pay less in interest
and pay off your balance sooner’’;
(C) The estimated monthly payment
for repayment in 36 months, as
described in Appendix M1 to this part.
The estimated monthly payment for
repayment in 36 months must be
rounded fleitherfi to the nearest whole
dollar flor to the nearest cent, at the
issuer’s optionfi;
(D) A statement that the card issuer
estimates that the consumer will repay
the outstanding balance shown on the
periodic statement in 3 years if the
consumer pays the estimated monthly
payment each month for 3 years; and

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
(E) A toll-free telephone number
where the consumer may obtain from
the card issuer information about credit
counseling services consistent with
paragraph (b)(12)(iv) of this section.
*
*
*
*
*
(14) Deferred interest or similar
transactions. For accounts with an
outstanding balance subject to a
deferred interest or similar program, the
date by which that outstanding balance
must be paid in full in order to avoid
the obligation to pay finance charges on
such balance must be disclosed on the
front of flany page offi each periodic
statement issued during the deferred
interest period beginning with the first
periodic statement issued during the
deferred interest period that reflects the
deferred interest or similar transaction.
The disclosure provided pursuant to
this paragraph must be substantially
similar to Sample G–18(H) in Appendix
G to this part.
7. Section 226.9 is amended by
adding paragraph (b)(3)(iii) and by
revising paragraphs (c)(2)(i)(A), (c)(2)(ii),
(iii), (c)(2)(iv) (A)(1), (c)(2)(iv)(B),
(c)(2)(iv)(D), (c)(2)(v)(B), and (c)(2)(v)(C)
to read as follows:
§ 226.9 Subsequent disclosure
requirements.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*
*
*
*
(b) * * *
(3) * * *
fl(iii) Variable rates. If any annual
percentage rate required to be disclosed
pursuant to paragraph (b)(3)(i) of this
section is a variable rate, the card issuer
shall also disclose the fact that the rate
may vary and how the rate is
determined. In describing how the
applicable rate will be determined, the
card issuer must identify the type of
index or formula that is used in setting
the rate. The value of the index and the
amount of the margin that are used to
calculate the variable rate shall not be
disclosed in the table. A disclosure of
any applicable limitations on rate
increases shall not be included in the
table.fi
(c) * * *
(2) * * * (i) * * *
(A) General. For plans other than
home-equity plans subject to the
requirements of § 226.5b, except as
provided in paragraphs (c)(2)(i)(B),
(c)(2)(iii) and (c)(2)(v) of this section,
when a significant change in account
terms as described in paragraph (c)(2)(ii)
of this section is made øto a term
required to be disclosed under
§ 226.6(b)(3), (b)(4) or (b)(5) or the
required minimum periodic payment is
increased¿, a creditor must provide a
written notice of the change at least 45
days prior to the effective date of the

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

change to each consumer who may be
affected. The 45-day timing requirement
does not apply if the consumer has
agreed to a particular change; the notice
shall be given, however, before the
effective date of the change. Increases in
the rate applicable to a consumer’s
account due to delinquency, default or
as a penalty described in paragraph (g)
of this section that are not due to a
change in the contractual terms of the
consumer’s account must be disclosed
pursuant to paragraph (g) of this section
instead of paragraph (c)(2) of this
section.
*
*
*
*
*
(ii) Significant changes in account
terms. For purposes of this section, a
‘‘significant change in account terms’’
means a change to a term required to be
disclosed under § 226.6(b)(1) and (b)(2),
an increase in the required minimum
periodic payment, fla change to a term
required to be disclosed under
§ 226.6(b)(4),fi or the acquisition of a
security interest.
(iii) Charges not covered by
§ 226.6(b)(1) and (b)(2). Except as
provided in paragraph (c)(2)(vi) of this
section, if a creditor increases any
component of a charge, or introduces a
new charge, required to be disclosed
under § 226.6(b)(3) that is not a
significant change in account terms as
described in paragraph (c)(2)(ii) of this
section, a creditor ømay¿flmustfi
either, at its option:
(A) Comply with the requirements of
paragraph (c)(2)(i) of this section; or
(B) Provide notice of the amount of
the charge before the consumer agrees to
or becomes obligated to pay the charge,
at a time and in a manner that a
consumer would be likely to notice the
disclosure of the charge. The notice may
be provided orally or in writing.
(iv) * * *
(A) * * *
(1) A summary of the changes made
to terms required by § 226.6(b)(1) and
(b)(2) flor § 226.6(b)(4)fi, a description
of any increase in the required
minimum periodic payment, and a
description of any security interest
being acquired by the creditor;
*
*
*
*
*
(B) Right to reject for credit card
accounts under an open-end (not homesecured) consumer credit plan. In
addition to the disclosures in paragraph
(c)(2)(iv)(A) of this section, if a card
issuer makes a significant change in
account terms on a credit card account
under an open-end (not home-secured)
consumer credit plan, the creditor must
generally provide the following
information on the notice provided
pursuant to paragraph (c)(2)(i) of this

PO 00000

Frm 00033

Fmt 4701

Sfmt 4700

67489

section. This information is not required
to be provided in the case of an increase
in the required minimum periodic
payment, an increase in a fee as a result
of a reevaluation of a determination
made under § 226.52(b)(1)(i) or an
adjustment to the safe harbors in
§ 226.52(b)(1)(ii) to reflect changes in
the Consumer Price Index, a change in
an annual percentage rate applicable to
a consumer’s account, flan increase in
a fee previously reduced consistent with
50 U.S.C. app. 527 or a similar federal
or state statute or regulation if the
amount of the increased fee does not
exceed the amount of that fee prior to
the reductionfi øa change in the
balance computation method applicable
to consumer’s account necessary to
comply with § 226.54¿, or when the
change results from the creditor not
receiving the consumer’s required
minimum periodic payment within 60
days after the due date for that payment:
*
*
*
*
*
(D) Format requirements—(1) Tabular
format. The summary of changes
described in paragraph (c)(2)(iv)(A)(1) of
this section must be in a tabular format
(except for a summary of any increase
in the required minimum periodic
payment fl, a summary of a term
required to be disclosed under
§ 226.6(b)(4) that is not required to be
disclosed under § 226.6(b)(1) and (b)(2),
or a description of any security interest
being acquired by the creditorfi), with
headings and format substantially
similar to any of the account-opening
tables found in G–17 in appendix G to
this part. The table must disclose the
changed term and information relevant
to the change, if that relevant
information is required by § 226.6(b)(1)
and (b)(2). The new terms shall be
described in the same level of detail as
required when disclosing the terms
under § 226.6(b)(2).
*
*
*
*
*
(v) * * *
(B) When the change is an increase in
an annual percentage rate flor feefi
upon the expiration of a specified
period of time, provided that:
(1) Prior to commencement of that
period, the creditor disclosed in writing
to the consumer, in a clear and
conspicuous manner, the length of the
period and the annual percentage rate
flor feefi that would apply after
expiration of the period;
(2) The disclosure of the length of the
period and the annual percentage rate
flor feefi that would apply after
expiration of the period are set forth in
close proximity and in equal
prominence to the first listing of the
disclosure of the rate flor feefi that

E:\FR\FM\02NOP2.SGM

02NOP2

67490

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

applies during the specified period of
time; and
(3) The annual percentage rate flor
feefi that applies after that period does
not exceed the rate flor feefi disclosed
pursuant to paragraph (c)(2)(v)(B)(1) of
this paragraph or, if the rate disclosed
pursuant to paragraph (c)(2)(v)(B)(1) of
this section was a variable rate, the rate
following any such increase is a variable
rate determined by the same formula
(index and margin) that was used to
calculate the variable rate disclosed
pursuant to paragraph (c)(2)(v)(B)(1);
(C) When the change is an increase in
a variable annual percentage rate in
accordance with a credit card flor other
accountfi agreement that provides for
changes in the rate according to
operation of an index that is not under
the control of the creditor and is
available to the general public; or
*
*
*
*
*
8. Section 226.10(b)(4) is revised to
read as follows:
§ 226.10

Payments.

*

*
*
*
*
(b) * * *
(4) Nonconforming payments. If a
creditor specifies, on or with the
periodic statement, requirements for the
consumer to follow in making payments
as permitted under this § 226.10, but
accepts a payment that does not
conform to the requirements flvia a
payment method that the creditor does
not otherwise promotefi, the creditor
shall credit the payment within five
days of receipt.
*
*
*
*
*
9. Section 226.16(g) is revised to read
as follows:

§ 226.16

Advertising.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*
*
*
*
(g) Promotional rates fland feesfi.
(1) Scope. The requirements of this
paragraph apply to any advertisement of
an open-end (not home-secured) plan,
including promotional materials
accompanying applications or
solicitations subject to § 226.5a(c) or
accompanying applications or
solicitations subject to § 226.5a(e).
(2) Definitions. (i) Promotional rate
means any annual percentage rate
applicable to one or more balances or
transactions on an open-end (not homesecured) plan for a specified period of
time that is lower than the annual
percentage rate that will be in effect at
the end of that period on such balances
or transactions.
(ii) Introductory rate means a
promotional rate offered in connection
with the opening of an account.
(iii) Promotional period means the
maximum time period for which øthe¿

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

fla fi promotional rate fl or
promotional feefi may be applicable.
fl(iv) Promotional fee means a fee
required to be disclosed under
§ 226.6(b)(1) and (b)(2) applicable to an
open-end (not home-secured) plan for a
specified period of time that is lower
than the fee that will be in effect at the
end of that period.
(v) Introductory fee means a
promotional fee offered in connection
with the opening of an account.fi
(3) Stating the term ‘‘introductory’’. If
any annual percentage rate flor feefi
that may be applied to the account is an
introductory rate flor introductory
feefi, the term introductory or intro
must be in immediate proximity to each
listing of the introductory rate flor
introductory feefi in a written or
electronic advertisement.
(4) Stating the promotional period
and post-promotional rate flor feefi. If
any annual percentage rate that may be
applied to the account is a promotional
rate under paragraph (g)(2)(i) of this
section flor any fee that may be applied
to the account is a promotional fee
under paragraph (g)(2)(iv) of this
sectionfi, the information in paragraphs
(g)(4)(i) andfl, as applicable,fi (g)(4)(ii)
flor (g)(4)(iii)fi of this section must be
stated in a clear and conspicuous
manner in the advertisement. If the rate
flor feefi is stated in a written or
electronic advertisement, the
information in paragraphs (g)(4)(i) and
fl, as applicable,fi (g)(4)(ii) flor
(g)(4)(iii)fi of this section must also be
stated in a prominent location closely
proximate to the first listing of the
promotional rate flor promotional
feefi.
(i) When the promotional rate flor
promotional feefi will end; øand¿
(ii) The annual percentage rate that
will apply after the end of the
promotional period. If such rate is
variable, the annual percentage rate
must comply with the accuracy
standards in §§ 226.5a(c)(2),
226.5a(d)(3), 226.5a(e)(4), or
226.16(b)(1)(ii), as applicable. If such
rate cannot be determined at the time
disclosures are given because the rate
depends at least in part on a later
determination of the consumer’s
creditworthiness, the advertisement
must disclose the specific rates or the
range of rates that might applyø.¿fl;
and
(iii) The fee that will apply after the
end of the promotional period.fi
(5) Envelope excluded. The
requirements in paragraph (g)(4) of this
section do not apply to an envelope or
other enclosure in which an application
or solicitation is mailed, or to a banner
advertisement or pop-up advertisement,

PO 00000

Frm 00034

Fmt 4701

Sfmt 4700

linked to an application or solicitation
provided electronically.
*
*
*
*
*
10. Section 226.51 is amended by
revising paragraphs (a)(1), and
(b)(1)(ii)(B) to read as follows:
§ 226.51

Ability to pay.

(a) * * *
(1)(i) Consideration of ability to pay.
A card issuer must not open a credit
card account for a consumer under an
open-end (not home-secured) consumer
credit plan, or increase any credit limit
applicable to such account, unless the
card issuer considers the flthe
consumer’s independentfi ability øof
the consumer¿ to make the required
minimum periodic payments under the
terms of the account based on the
consumer’s income or assets and current
obligations.
(ii) Reasonable policies and
procedures. Card issuers must establish
and maintain reasonable written
policies and procedures to consider a
consumer’s flindependentfi income or
assets and current obligations.
Reasonable policies and procedures to
consider a consumer’s flindependentfi
ability to make the required payments
include a consideration of at least one
of the following: The ratio of debt
obligations to income; the ratio of debt
obligations to assets; or the income the
consumer will have after paying debt
obligations. It would be unreasonable
for a card issuer to not review any
information about a consumer’s income,
assets, or current obligations, or to issue
a credit card to a consumer who does
not have any flindependentfi income
or assets.
*
*
*
*
*
(b) * * *
(1) * * *
(ii) * * *
(B) Financial information indicating
such cosigner, guarantor, or joint
applicant has the flindependentfi
ability to make the required minimum
periodic payments on such debts,
consistent with paragraph (a) of this
section.
*
*
*
*
*
11. Section 226.52 is amended by
revising the heading to paragraph (a)
and by revising paragraphs (a)(1), (a)(3),
and (b)(1)(ii) to read as follows:
§ 226.52

Limitations on fees.

(a) Limitations flprior to account
opening andfi during first year after
account opening. (1) General rule.
flExcept as provided in paragraph (a)(2)
of this section, the total amount of fees
a consumer is required to pay with
respect to a credit card account under

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
an open-end (not home-secured)
consumer credit plan prior to account
opening or during the first year after
account opening must not exceed 25
percent of the credit limit in effect when
the account is opened.fi øExcept as
provided in paragraph (a)(2) of this
section, if a card issuer charges any fees
to a credit card account under an openend (not home-secured) consumer credit
plan during the first year after the
account is opened, the total amount of
fees the consumer is required to pay
with respect to the account during that
year must not exceed 25 percent of the
credit limit in effect when the account
is opened.¿ flFor purposes of this
paragraph, an account is considered
open no earlier than the date on which
the account may first be used by the
consumer to engage in transactions.fi
*
*
*
*
*
(3) Rule of construction. øThis
paragraph (a)¿flParagraph (a) of this
sectionfi does not authorize the
imposition or payment of fees or charges
otherwise prohibited by law.
*
*
*
*
*
(b) * * *
(1) * * *
(ii) Safe harbors. A card issuer may
impose a fee for violating the terms or
other requirements of an account if the
dollar amount of the fee does not exceed
fl, as applicablefi:
(A) fl$25.00;fi øFor the first
violation of a particular type, $25.00,
adjusted annually by the Board to reflect
changes in the Consumer Price Index;¿
(B) fl$35.00 if the card issuer
previously imposed a fee pursuant to
paragraph (b)(1)(ii)(A) of this section for
a violation of the same type that
occurred during the same billing cycle
or one of the next six billing cycles;fi
øFor an additional violation of the same
type during the next six billing cycles,
$35.00, adjusted annually by the Board
to reflect changes in the Consumer Price
Index;¿ or
(C) flThree percent of the delinquent
balance on a charge card account that
requires payment of outstanding
balances in full at the end of each
billing cycle if the card issuer has not
received the required payment for two
or more consecutive billing cycles.fi
øWhen a card issuer has not received
the required payment for two or more
consecutive billing cycles for a charge
card account that requires payment of
outstanding balances in full at the end
of each billing cycle, three percent of
the delinquent balance.¿
fl(D) The amounts in paragraphs
(b)(1)(ii)(A) and (b)(1)(ii)(B) of this
section will be adjusted annually by the

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

Board to reflect changes in the
Consumer Price Index.fi
*
*
*
*
*
12. Section 226.53(b) is revised to
read as follows:
§ 226.53

Allocation of payments.

*

*
*
*
*
(b) Special ruleflsfi øfor accounts
with balances subject to deferred
interest or similar programs¿. fl(1)
Accounts with balances subject to
deferred interest or similar program.fi
When a balance on a credit card account
under an open-end (not home-secured)
consumer credit plan is subject to a
deferred interest or similar program that
provides that a consumer will not be
obligated to pay interest that accrues on
the balance if the balance is paid in full
prior to the expiration of a specified
period of time:
fl(i)fi ø(1)¿ Last two billing cycles.
The card issuer must allocate any
amount paid by the consumer in excess
of the required minimum periodic
payment consistent with paragraph (a)
of this section, except that, during the
two billing cycles immediately
preceding expiration of the specified
period, the excess amount must be
allocated first to the balance subject to
the deferred interest or similar program
and any remaining portion allocated to
any other balances consistent with
paragraph (a) of this section; or
fl(ii)fi ø(2)¿ Consumer request. The
card issuer may at its option allocate
any amount paid by the consumer in
excess of the required minimum
periodic payment among the balances
on the account in the manner requested
by the consumer.
fl(2) Accounts with secured balances.
When a balance on a credit card account
under an open-end (not home-secured)
consumer credit plan is secured, the
card issuer may at its option allocate
any amount paid by the consumer in
excess of the required minimum
periodic payment to that balance if
requested by the consumer.fi
13. Section 226.55 is amended by
revising paragraphs (b)(1), (b)(3)(iii), and
(b)(6), and by adding paragraph (e) to
read as follows:

§ 226.55 Limitations on increasing annual
percentage rates, fees, and charges.

*

*
*
*
*
(b) * * *
(1) Temporary rate fl, fee, or
chargefi exception. A card issuer may
increase an annual percentage rate flor
a fee or charge required to be disclosed
under § 226.6(b)(2)(ii), (b)(2)(iii), or
(b)(2)(xii)fi upon the expiration of a
specified period of six months or longer,
provided that:

PO 00000

Frm 00035

Fmt 4701

Sfmt 4700

67491

(i) Prior to the commencement of that
period, the card issuer disclosed in
writing to the consumer, in a clear and
conspicuous manner, the length of the
period and the annual percentage rate
fl, fee, or chargefi that would apply
after expiration of the period; and
(ii) Upon expiration of the specified
period:
(A) The card issuer must not apply an
annual percentage rate fl, fee, or
chargefi to transactions that occurred
prior to the period that exceeds the
annual percentage rate fl, fee, or
chargefi that applied to those
transactions prior to the period;
(B) If the disclosures required by
paragraph (b)(1)(i) of this section are
provided pursuant to § 226.9(c), the card
issuer must not apply an annual
percentage rate fl, fee, or chargefi to
transactions that occurred within 14
days after provision of the notice that
exceeds the annual percentage rate fl,
fee, or chargefi that applied to that
category of transactions prior to
provision of the notice; and
(C) The card issuer must not apply an
annual percentage rate fl, fee, or
chargefi to transactions that occurred
during the period that exceeds the
increased annual percentage rate fl, fee,
or chargefi disclosed pursuant to
paragraph (b)(1)(i) of this section.
*
*
*
*
*
(3) * * *
(iii) This exception does not permit a
card issuer to increase an annual
percentage rate or a fee or charge
required to be disclosed under
§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii)
during the first year after the account is
opened fl, while the account is closed,
or while the card issuer does not permit
the consumer to use the account for new
transactions. For purposes of this
paragraph, an account is considered
open no earlier than the date on which
the account may first be used by the
consumer to engage in transactionsfi.
*
*
*
*
*
(6) Servicemembers Civil Relief Act
exception. If an annual percentage rate
flor a fee or charge required to be
disclosed under § 226.6(b)(2)(ii),
(b)(2)(iii), or (b)(2)(xii)fi has been
decreased pursuant to 50 U.S.C. app.
527 flor a similar federal or state statute
or regulationfi, a card issuer may
increase that annual percentage ratefl,
fee, or chargefi once 50 U.S.C. app. 527
flor the similar statute or regulationfi
no longer applies, provided that the
card issuer must not apply to any
transactions that occurred prior to the
decrease an annual percentage ratefl,
fee, or chargefi that exceeds the annual
percentage ratefl, fee, or chargefi that

E:\FR\FM\02NOP2.SGM

02NOP2

67492

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

applied to those transactions prior to the
decrease.
*
*
*
*
*
fl(e) Promotional waivers or rebates
of interest, fees, and other charges. If a
card issuer promotes the waiver or
rebate of finance charges due to a
periodic interest rate or fees or charges
required to be disclosed under
§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii)
and applies the waiver or rebate to a
credit card account under an open-end
(not home-secured) consumer credit
plan, any cessation of the waiver or
rebate constitutes an increase in an
annual percentage rate, fee, or charge for
purposes of this section.fi
14. Section 226.58 is amended by:
A. Redesignating paragraphs (b)(4)
through (b)(7) as (b)(5) through (b)(8)
respectively;
B. Adding a new paragraph (b)(4);
C. Revising paragraphs (b)(1), (b)(2),
newly redesignated paragraph (b)(7);
and
D. Revising paragraphs (c)(1), (c)(2),
(c)(3), and (c)(8)(i)(C)(1) to read as
follows:
§ 226.58 Internet posting of credit card
agreements.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*
*
*
*
(b) Definitions—(1) Agreement. For
purposes of this section, ‘‘agreement’’ or
‘‘credit card agreement’’ means the
written document or documents
evidencing the terms of the legal
obligation, or the prospective legal
obligation, between a card issuer and a
consumer for a credit card account
under an open-end (not home-secured)
consumer credit plan. ‘‘Agreement’’ or
‘‘credit card agreement’’ also includes
the pricing information, as defined in
ø§ 226.58(b)(6)¿fl§ 226.58(b)(7)fi.
(2) Amends. For purposes of this
section, an issuer ‘‘amends’’ an
agreement if it makes a substantive
change (an ‘‘amendment’’) to the
agreement. A change is substantive if it
alters the rights or obligations of the
card issuer or the consumer under the
agreement. Any change in the pricing
information, as defined in
ø§ 226.58(b)(6)¿fl§ 226.58(b)(7)fi, is
deemed to be substantive.
*
*
*
*
*
fl(4) Card issuer. For purposes of this
section, ‘‘card issuer’’ or ‘‘issuer’’ means
the entity to which a consumer is legally
obligated, or would be legally obligated,
under the terms of a credit card
agreement.fi
ø(4)¿fl(5)fi * * *
ø(5)¿fl(6)fi * * *
ø(6)¿fl(7)fi Pricing information. For
purposes of this section, ‘‘pricing
information’’ means the information
listed in § 226.6(b)(2)(i) through

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

(b)(2)(xii) [and (b)(4)]. Pricing
information does not include temporary
or promotional rates and terms or rates
and terms that apply only to protected
balances.
ø(7)¿fl(8)fi * * *
(c) * * *
(1) Quarterly submissions. A card
issuer must make quarterly submissions
to the Board, in the form and manner
specified by the Boardfl. Quarterly
submissions must be sent to the Board
no later than the first business day on
or after January 31, April 30, July 31,
and October 31 of each year. Each
submission must contain:fiø, that
contain:¿
(i) Identifying information about the
card issuer and the agreements
submitted, including the issuer’s name,
address, and identifying number (such
as an RSSD ID number or tax
identification number);
(ii) The credit card agreements that
the card issuer offered to the public as
of the last business day of the preceding
calendar quarter that the card issuer has
not previously submitted to the Board;
(iii) Any credit card agreement
previously submitted to the Board that
was amended during the preceding
calendar quarter fland that the card
issuer offered to the public as of the last
business day of the preceding calendar
quarterfi, as described in § 226.58(c)(3);
and
(iv) Notification regarding any credit
card agreement previously submitted to
the Board that the issuer is
withdrawing, as described in
ߤ 226.58(c)(4), (c)(5), (c)(6), and
(c)(7)fiø§ 226.58(c)(4) and (c)(5)¿.
(2) flReserved.fiøTiming of first two
submissions. The first submission
following the effective date of this
section must be sent to the Board no
later than February 22, 2010, and must
contain the credit card agreements that
the card issuer offered to the public as
of December 31, 2009. The next
submission must be sent to the Board no
later than August 2, 2010, and must
contain:
(i) Any credit card agreement that the
card issuer offered to the public as of
June 30, 2010, that the card issuer has
not previously submitted to the Board;
(ii) Any credit card agreement
previously submitted to the Board that
was amended after December 31, 2009,
and on or before June 30, 2010, as
described in § 226.58(c)(3); and
(iii) Notification regarding any credit
card agreement previously submitted to
the Board that the issuer is withdrawing
as of June 30, 2010, as described in
§ 226.58(c)(4) and (c)(5).¿
(3) Amended agreements. If a credit
card agreement has been submitted to

PO 00000

Frm 00036

Fmt 4701

Sfmt 4700

the Board, the agreement has not been
amended and the card issuer continues
to offer the agreement to the public, no
additional submission regarding that
agreement is required. If a credit card
agreement that previously has been
submitted to the Board is amended
fland the card issuer offered the
amended agreement to the public as of
the last business day of the calendar
quarter in which the change became
effectivefi, the card issuer must submit
the entire amended agreement to the
Board, in the form and manner specified
by the Board, by the first quarterly
submission deadline after the last day of
the calendar quarter in which the
change became effective.
*
*
*
*
*
(8) * * *
(i) * * *
(C) * * *
(1) disclosures required by state or
federal law, such as affiliate marketing
notices, privacy policies, flbilling
rights notices,fi or disclosures under
the E–Sign Act;
*
*
*
*
*
15. Appendix M1 to part 226 is
amended by revising paragraph (f) to
read as follows:
Appendix M1 to Part 226—Repayment
Disclosures
* *
(f) Calculating the savings estimate for
repayment in 36 months. flWhen calculating
the savings estimate for repayment in 36
months, if a card issuer chooses under
§ 226.7(b)(12)(i) to round the disclosures to
the nearest whole dollar when disclosing
them on the periodic statement, the card
issuer must calculate the savings estimate for
repayment in 36 months by subtracting the
total cost estimate for repayment in 36
months calculated under paragraph (e) of this
appendix (rounded to the nearest whole
dollar) from the minimum payment total cost
estimate calculated under paragraph (c) of
this appendix (rounded to the nearest whole
dollar). If a card issuer chooses under
§ 227.7(b)(12)(i), however, to round the
disclosures to the nearest cent when
disclosing them on the periodic statement,
the card issuer must calculate the savings
estimate for repayment in 36 months by
subtracting the total cost estimate for
repayment in 36 months calculated under
paragraph (e) of this appendix (rounded to
the nearest cent) from the minimum payment
total cost estimate calculated under
paragraph (c) of this appendix (rounded to
the nearest cent).fi øWhen calculating the
saving estimate for repayment in 36 months,
a card issuer must subtract the total cost
estimate for repayment in 36 months
calculated under paragraph (e) of this
appendix (rounded to the nearest whole
dollar as set forth in
§ 226.7(b)(12)(i)(F)(1)(iii)) from the minimum
payment total cost estimate calculated under
paragraph (c) of this appendix (rounded to

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
the nearest whole dollar as set forth in
§ 226.7(b)(12)(i)(C)).¿ The savings estimate
for repayment in 36 months shall be
considered accurate if it is based on the total
cost estimate for repayment in 36 months
that is calculated in accordance with
paragraph (e) of this appendix and the
minimum payment total cost estimate
calculated under paragraph (c) of this
appendix.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*
*
*
*
16. In Supplement I to Part 226:
A. Under Section 226.2—Definitions
and Rules of Construction, subheading
2(a)(15) Credit card, paragraphs 2. and
3. are revised and paragraph 4. is added.
B. Under Section 226.5—General
Disclosure Requirements, subheading
5(b)(2) Periodic statements:
i. Under Paragraph 5(b)(2)(ii),
paragraphs 1. through 4. are revised;
and
ii. The heading Paragraph 5(b)(2)(iii)
and paragraph 1. under that heading are
deleted.
C. Under Section 226.5a—Credit and
Charge Card Applications and
Solicitations, subheading 5a(b) Required
disclosures:
i. Under 5a(b)(1) Annual percentage
rate, paragraph 5. is revised;
ii. Under 5a(b)(2) Fees for issuance or
availability, paragraph 4. is revised; and
iii. Under 5a(b)(5) Grace period,
paragraph 1. is revised and paragraph 4.
is deleted; and
iv. Under 5a(b)(6) Balance
computation method, paragraph 1. is
revised.
D. Under Section 226.6—AccountOpening Disclosures:
i. Under 6(b)(2)(v) Grace period,
paragraphs 1. and 3. are revised and
paragraph 4. is deleted; and
ii. Under 6(b)(2)(vi) Balance
computation method, paragraph 1. is
revised and paragraph 2. is added.
E. Under Section 226.7—Periodic
Statement, under 7(b) Rules affecting
open-end (not home-secured) plans:
i. Paragraph 1. is revised;
ii. Under 7(b)(5) Balance on which
finance charge computed, paragraphs 7.
and 8. are revised;
iii. Under 7(b)(6) Charges imposed,
paragraph 3. is revised; and
iv. Under 7(b)(12) Repayment
disclosures, paragraph 1. is added.
F. Under Section 226.9—Subsequent
Disclosure Requirements:
i. Under 9(b) Disclosures for
supplemental credit access devices and
additional features, under 9(b)(3)
Checks that access a credit card
account, under 9(b)(3)(i) Disclosures,
paragraph 2. is added;
ii. Under 9(c) Change in terms, under
9(c)(2) Rules affecting open-end (not
home-secured) plans:

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

1. Paragraph 1. is revised;
2. Under 9(c)(2)(iii) Charges not
covered by § 226.6(b)(1) and (b)(2),
paragraph 1. is revised;
3. Under 9(c)(2)(iv) Disclosure
requirements, paragraphs 3. and 4. are
revised; and
4. Under 9(c)(2)(v) Notice not
required, paragraphs 2., 3., 4., 5., 6., 7.,
10., 11., and 12. are revised and
paragraph 13. is added.
G. Under Section 226.10—Payments:
i. Under 10(b) Specific requirements
for payments, paragraph 2. is revised;
ii Under 10(e) Limitations on fees
related to method of payment,
paragraph 4. is added; and
iii. Under 10(f) Changes by card
issuer, paragraph 3. is revised.
H. Under Section 226.12—Special
Credit Card Provisions, under 12(c)
Right of cardholder to assert claims or
defenses against card issuer, paragraph
4. is revised.
I. Under Section 226.13—Billing Error
Resolution, under 13(c) Time for
resolution; general procedures, under
Paragraph 13(c)(2), paragraph 2. is
revised.
J. Under Section 226.14—
Determination of Annual Percentage
Rate, under 14(a) General rule,
paragraph 6. is added.
K. Under Section 226.16—
Advertising:
i. Paragraphs 1. and 2. are revised;
and
ii. Under 16(g) Promotional rates,
paragraphs 2., 3., and 4. are revised.
L. Under Section 226.30—Limitation
on Rates, paragraph 8. is revised.
M. Under Section 226.51—Ability to
Pay:
i. Under 51(a) General rule,
paragraphs 1., 2. and 4. are revised; and
ii. Under 51(a)(2) Minimum periodic
payments, paragraph 3. is revised.
N. Under Section 226.52—Limitations
on Fees:
i. Under 52(a) Limitations during first
year after account opening:
1. The heading 52(a) Limitations
during first year after account opening
is revised to read 52(a) Limitations prior
to account opening and during first year
after account opening;
2. Under 52(a)(1) General rule,
paragraphs 1., 2., and 3. are revised; and
3 Under 52(a)(2) Fees not subject to
limitations, paragraph 1. is revised;
ii. Under 52(b) Limitations on penalty
fees:
1. Under 52(b)(1)(ii) Safe harbors,
paragraph 1. is revised; and
2. Under 52(b)(2) Prohibited fees:
A. Under 52(b)(2)(i) Fees that exceed
dollar amount associated with violation,
paragraph 5. is revised; and

PO 00000

Frm 00037

Fmt 4701

Sfmt 4700

67493

B. Under 52(b)(2)(ii) Multiple fees
based on single event or transaction,
paragraph 1. is revised.
O. Under Section 226.53— Allocation
of Payments:
i. Paragraphs 4. and 5. are revised;
and
ii. Under 53(b) Special rule for
accounts with balances subject to
deferred interest or similar programs:
1. The heading is revised to read 53(b)
Special rules; and
2. Paragraphs 1., 2., and 3. are revised.
P. Under Section 226.55—Limitations
on Increasing Annual Percentage Rates,
Fees, and Charges:
i. Under 55(a) General rule, paragraph
1. is revised;
ii. Under 55(b) Exceptions, paragraphs
1. and 3. are revised;
iii. Under 55(b)(1) Temporary rate
exception:
1. The heading is revised to read
55(b)(1) Temporary rate, fee, or charge
exception; and
2. Paragraphs 2. and 4. are revised and
paragraph 5. is added;
iv. Under 55(b)(6) Servicemembers
Civil Relief Act exception, paragraphs 1.
and 2. are revised and paragraph 3. is
added;
v. Under 55(c) Treatment of protected
balances, under 55(c)(1) Definition of
protected balance, paragraph 3. is
revised and paragraph 4. is added; and
vi. The heading 55(e) Promotional
waivers or rebates of interest, fees, and
other charges is added and paragraphs
1., 2., and 3. are added under that
heading.
Q. Under Section 226.58—Internet
Posting of Credit Card Agreements:
i. Under 58(b) Definitions:
1. Under 58(b)(1) Agreement,
paragraph 1. is revised;
2 Under 58(b)(2) Amends, paragraph
1. is revised;
3. The heading 58(b)(4) Card issuer is
added and paragraph 1. is added under
that heading;
4. The heading 58(b)(4) Offers is
revised to read 58(b)(5) Offers;
5. The heading 58(b)(5) Open account
is revised to read 58(b)(6) Open account;
and
6. The heading 58(b)(7) Private label
credit card account and private label
credit card plan is revised to read
58(b)(8) Private label credit card
account and private label credit card
plan and under that heading paragraphs
2. and 4. are revised;
ii. Under 58(c) Submission of
agreements to Board, under 58(c)(3)
Amended agreements, paragraph 2. is
revised, paragraph 3. is renumbered as
paragraph 4., and a new paragraph 3. is
added; and
iii. Under 58(e) Agreements for all
open accounts, paragraph 3. is revised.

E:\FR\FM\02NOP2.SGM

02NOP2

67494

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

R. Under Section 226.59—
Reevaluation of Rate Increases:
i. Under 59(a) General rule, under
59(a)(1) Evaluation of increased rate,
paragraphs 3., 4., and 5. are renumbered
and a new paragraph 3. is added;
ii. Under 59(d) Factors, paragraph 6.
is added; and
iii. Under 59(f) Termination of
obligation to review factors, paragraph
2. is added.
Supplement I to Part 226—Official Staff
Interpretations
*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

ii. In contrast, credit card does not include,
for example:

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*

*

*

*

flC. An account number that accesses a
credit account, unless the account number
can access an open-end line of credit to
purchase goods or services. For example, if
a creditor provides a consumer with an openend line of credit that can be accessed by an
account number in order to transfer funds
into another account (such as an asset
account with the same creditor), the account
number is not a credit card for purposes of
§ 226.2(a)(15)(i). However, if the account
number can also access the line of credit to
purchase goods or services (such as an
account number that can be used to purchase
goods or services on the Internet), the
account number is a credit card for purposes
of § 226.2(a)(15)(i). Furthermore, if the line of
credit can also be accessed by a card (such
as a debit card or prepaid card), that card is
a credit card for purposes of
§ 226.2(a)(15)(i).fi
3. Charge card. Generally, charge cards are
cards used in connection with an account on
which outstanding balances cannot be
carried from one billing cycle to another and
are payable when a periodic statement is
received. Under the regulation, a reference to
credit cards generally includes charge cards.
flIn particular, references to credit card
accounts under an open-end (not homesecured) consumer credit plan in Subparts B
and G generally include charge cards.fi The
term charge card is, however, distinguished
from credit card flor credit card account
under an open-end (not home-secured)
consumer credit planfi in §§ 226.5a,
fl226.6(b)(2)(xiv),fi 226.7(b)(11),
226.7(b)(12), 226.9(e), 226.9(f)fl,fi øand¿
226.28(d), fl226.52(b)(1)(ii)(C),fi and
appendices G–10 through G–13. øWhen the
term credit card is used in those provisions,
it refers to credit cards other than charge
cards.¿
fl4. Credit card account under an openend (not home-secured) consumer credit

VerDate Mar<15>2010

*

*

Section 226.5—General Disclosure
Requirements

*

*
*

*

2. Examples.

*

*

*

*

*

*

*

*

5(b)(2) Periodic statements.

2(a)(15) Credit card.

*

*

Subpart B—Open-End Credit

*

Section 226.2—Definitions and Rules of
Construction

*

*

5(b) Time of disclosures.

*

Subpart A—General

*

plan. An open-end consumer credit account
is a credit card account under an open-end
(not home-secured) consumer credit plan for
purposes of § 226.2(a)(15)(ii) if:
i. The account is accessed by a credit card,
as defined in § 226.2(a)(15)(i); and
ii. The account is not excluded under
§ 226.2(a)(15)(ii)(A) or (a)(15)(ii)(B).fi

17:45 Nov 01, 2010

Jkt 223001

*

*

*

*

Paragraph 5(b)(2)(ii).
1. Mailing or delivery of periodic
statements. A creditor is not required to
determine the specific date on which a
periodic statement is mailed or delivered to
an individual consumer for purposes of
§ 226.5(b)(2)(ii). A creditor complies with
§ 226.5(b)(2)(ii) if it has adopted reasonable
procedures designed to ensure that periodic
statements are mailed or delivered to
consumers no later than a certain number of
days after the closing date of the billing cycle
and adds that number of days to the 21-day
flor 14-dayfi period required by
§ 226.5(b)(2)(ii) when determiningfl, as
applicable,fi the payment due date fl for
purposes of § 226.5(b)(2)(ii)(A),fi øand¿ the
date on which any grace period expires for
purposes of ߤ 226.5(b)(2)(ii)(B)(1), or the
date after which the payment will be treated
as late for purposes of
§ 226.5(b)(2)(ii)(B)(2).fi
ø§ 226.5(b)(2)(ii)(A)(1) and (b)(2)(ii)(B)(1).¿
For examplefl:fi ø,¿
flA. Iffi øif¿ a creditor has adopted
reasonable procedures designed to ensure
that periodic statements flfor a credit card
account under an open-end (not homesecured) consumer credit plan or an account
under an open-end consumer credit plan that
provides a grace periodfi are mailed or
delivered to consumers no later than three
days after the closing date of the billing
cycle, the payment due date flfor purposes
of § 226.5(b)(2)(ii)(A)fi and the date on
which any grace period expires flfor
purposes of § 226.5(b)(2)(ii)(B)(1)fi must be
no less than 24 days after the closing date of
the billing cycle. Similarly, in these
circumstances, the limitations in
§ 226.5(b)(2)(ii)(A)ø(2)¿ and
(b)(2)(ii)(B)fl(1)fiø(2)¿ on treating a
payment as late and imposing finance
charges apply for 24 days after the closing
date of the billing cycle.
flB. If a creditor has adopted reasonable
procedures designed to ensure that periodic
statements for an account under an open-end
consumer credit plan that does not provide
a grace period are mailed or delivered to
consumers no later than five days after the
closing date of the billing cycle, the date on
which a payment must be received in order
to avoid being treated as late for purposes of
§ 226.5(b)(2)(ii)(B)(2) must be no less than 19
days after the closing date of the billing
cycle. Similarly, in these circumstances, the

PO 00000

Frm 00038

Fmt 4701

Sfmt 4700

limitation in § 226.5(b)(2)(ii)(B)(2) on treating
a payment as late for any purpose applies for
19 days after the closing date of the billing
cycle.fi
2. Treating a payment as late for any
purpose. Treating a payment as late for any
purpose includes increasing the annual
percentage rate as a penalty, reporting the
consumer as delinquent to a credit reporting
agency, assessing a late fee or any other fee,
initiating collection activities, or terminating
benefits (such as rewards on purchases)
based on the consumer’s failure to make a
payment within a specified amount of time
or by a specified date. The prohibitionflsfi
in § 226.5(b)(2)(ii)(A)(2) fland
(b)(2)(B)(2)(ii)fi on treating a payment as late
for any purpose flapply fi øapplies¿ only
during the 21-day flor 14-dayfi period
fl(as applicable)fi following mailing or
delivery of the periodic statement stating the
due date for that payment and only if the
required minimum periodic payment is
received within that period. For example:
i. Assume thatfl, for a credit card account
under an open-end (not home-secured)
consumer credit plan,fi a periodic statement
mailed on April 4 states that a required
minimum periodic payment of $50 is due on
April 25. If the card issuer does not receive
any payment on or before April 25,
§ 226.5(b)(2)(ii)(A)(2) does not prohibit the
card issuer from treating the required
minimum periodic payment as late.

*

*

*

*

*

fliv. Assume that, for an account under an
open-end consumer credit plan that does not
provide a grace period, a periodic statement
mailed on September 10 states that a required
minimum periodic payment of $100 is due
on September 24. If the creditor does not
receive any payment on or before September
24, § 226.5(b)(2)(ii)(B)(2)(ii) does not prohibit
the creditor from treating the required
minimum periodic payment as late.fi
3. Grace periods.

*

*

*

*

*

ii. Applicability of
§ 226.5(b)(2)(ii)(B)fl(1)fi. Section
226.5(b)(2)(ii)(B)fl(1)fi applies if an account
is eligible for a grace period when the
periodic statement is mailed or delivered.
Section 226.5(b)(2)(ii)(B)fl(1)fi does not
require the creditor to provide a grace period
or prohibit the creditor from placing
limitations and conditions on a grace period
to the extent consistent with
§ 226.5(b)(2)(ii)(B) and § 226.54. See
comment 54(a)(1)–1. Furthermore, the
prohibition in § 226.5(b)(2)(ii)(B)fl(1)(ii)fi
ø(2)¿ applies only during the 21-day period
following mailing or delivery of the periodic
statement and applies only when the creditor
receives a payment within that 21-day period
that satisfies the terms of the grace period.
iii. Example.
Assume that the billing cycles for an
account begin on the first day of the month
and end on the last day of the month and that
the payment due date for the account is the
twenty-fifth of the month. Assume also that,
under the terms of the account, the balance
at the end of a billing cycle must be paid in
full by the following payment due date in
order for the account to remain eligible for
the grace period. At the end of the April

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
billing cycle, the balance on the account is
$500. The grace period applies to the $500
balance because the balance for the March
billing cycle was paid in full on April 25.
Accordingly, § 226.5(b)(2)(ii)(B)(1)fl(i)fi
requires the creditor to have reasonable
procedures designed to ensure that the
periodic statement reflecting the $500
balance is mailed or delivered on or before
May 4. Furthermore, § 226.5(b)(2)(ii)(B)
fl(1)(ii)fi ø(2)¿ requires the creditor to have
reasonable procedures designed to ensure
that the creditor does not impose finance
charges as a result of the loss of the grace
period if a $500 payment is received on or
before May 25. However, if the creditor
receives a payment of $300 on April 25,
§ 226.5(b)(2)(ii)(B) fl(1)(ii)fi ø(2)¿ would not
prohibit the creditor from imposing finance
charges as a result of the loss of the grace
period (to the extent permitted by § 226.54).
4. Application of § 226.5(b)(2)(ii) to charge
card and charged-off accounts.
i. Charge card accounts. For purposes of
§ 226.5(b)(2)(ii)(A)(1), the payment due date
flfor a credit card account under an openend (not home-secured) consumer credit
planfi is the date the card issuer is required
to disclose on the periodic statement
pursuant to § 226.7(b)(11)(i)(A). Because
§ 226.7(b)(11)(ii) provides that
§ 226.7(b)(11)(i) does not apply to periodic
statements provided solely for charge card
accounts, § 226.5(b)(2)(ii)(A)(1) also does not
apply to the mailing or delivery of periodic
statements provided solely for such accounts.
However, in these circumstances,
§ 226.5(b)(2)(ii)(A)(2) requires the card issuer
to have reasonable procedures designed to
ensure that a payment is not treated as late
for any purpose during the 21-day period
following mailing or delivery of the
statement. Section 226.5(b)(2)(ii)(B)fl(1)fi
does not apply to charge card accounts
because, for purposes of § 226.5(b)(2)(ii)(B), a
grace period is a period within which any
credit extended may be repaid without
incurring a finance charge due to a periodic
interest rate and, consistent with
§ 226.2(a)(15)(iii), charge card accounts do
not impose a finance charge based on a
periodic rate. flSimilarly,
§ 226.5(b)(2)(ii)(B)(2) does not apply to
charge card accounts.fi
ii. Charged-off accounts. For purposes of
§ 226.5(b)(2)(ii)(A)(1), the payment due date
flfor a credit card account under an openend (not home-secured) consumer credit
planfi is the date the card issuer is required
to disclose on the periodic statement
pursuant to § 226.7(b)(11)(i)(A). Because
§ 226.7(b)(11)(ii) provides that
§ 226.7(b)(11)(i) does not apply to periodic
statements provided for charged-off accounts
where full payment of the entire account
balance is due immediately,
§ 226.5(b)(2)(ii)(A)(1) also does not apply to
the mailing or delivery of periodic statements
provided solely for such accounts.
Furthermore, although § 226.5(b)(2)(ii)(A)(2)
requires the card issuer to have reasonable
procedures designed to ensure that a
payment is not treated as late for any purpose
during the 21-day period following mailing
or delivery of the statement,
§ 226.5(b)(2)(ii)(A)(2) does not prohibit a card

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

issuer from continuing to treat prior
payments as late during that period. See
comment 5(b)(2)(ii)–2. flSimilarly, although
§ 226.5(b)(2)(ii)(B)(2) applies to open-end
consumer credit accounts in these
circumstances, § 226.5(b)(2)(ii)(B)(2)(ii) does
not prohibit a creditor from continuing
treating prior payments as late during the 14day period following mailing or delivery of
a periodic statement.fi Section
226.5(b)(2)(ii)(B)fl(1)fi does not apply to
charged-off accounts where full payment of
the entire account balance is due
immediately because such accounts do not
provide a grace period.

*

*

*

*

*

øParagraph 5(b)(2)(iii).
1. Computer malfunction. The exceptions
identified in § 226.5(b)(2)(iii) of this section
do not extend to the failure to provide a
periodic statement because of computer
malfunction.¿

*

*

*

*

*

Section 226.5a—Credit and Charge Card
Applications and Solicitations

*

*

*

*

*

5a(b) Required disclosures.

*

*

*

*

*

5a(b)(1) Annual percentage rate.

*

*

*

*

*

5. Increased penalty rates. i. In general. For
rates that are not introductory rates flor
employee preferential ratesfi, if a rate may
increase as a penalty for one or more events
specified in the account agreement, such as
a late payment or an extension of credit that
exceeds the credit limit, the card issuer must
disclose the increased rate that would apply,
a brief description of the event or events that
may result in the increased rate, and a brief
description of how long the increased rate
will remain in effect. The description of the
specific event or events that may result in an
increased rate should be brief. For example,
if an issuer may increase a rate to the penalty
rate because the consumer does not make the
minimum payment by 5 p.m., Eastern Time,
on its payment due date, the issuer should
describe this circumstance in the table as
‘‘make a late payment.’’ Similarly, if an issuer
may increase a rate that applies to a
particular balance because the account is
more than 60 days late, the issuer should
describe this circumstance in the table as
‘‘make a late payment.’’ An issuer may not
distinguish between the events that may
result in an increased rate for existing
balances and the events that may result in an
increased rate for new transactions. (See
Samples G–10(B) and G–10(C) (in the row
labeled ‘‘Penalty APR and When it Applies’’)
for additional guidance on the level of detail
in which the specific event or events should
be described.) The description of how long
the increased rate will remain in effect also
should be brief. If a card issuer reserves the
right to apply the increased rate flto any
balancesfi indefinitely, flto the extent
permitted by §§ 226.55(b)(4) and 226.59, the
issuer should disclose that the penalty rate
may apply indefinitelyfi øthat fact should be
stated¿. flThe card issuer may not disclose
in the table any limitations imposed by
§§ 226.55(b)(4) and 226.59 on the duration of

PO 00000

Frm 00039

Fmt 4701

Sfmt 4700

67495

increased rates. For example, if the issuer
generally provides that the increased rate
will apply until the consumer makes twelve
timely consecutive required minimum
periodic payments, except to the extent that
§§ 226.54(b)(4) and 226.59 apply, the issuer
should disclose that the penalty rate will
apply until the consumer makes twelve
consecutive timely minimum payments.fi
(See Samples G–10(B) and G–10(C) (in the
row labeled ‘‘Penalty APR and When it
Applies’’) for additional guidance on the level
of detail which the issuer should use to
describe how long the increased rate will
remain in effect.) A card issuer will be
deemed to meet the standard to clearly and
conspicuously disclose the information
required by § 226.5a(b)(1)(iv)(A) if the issuer
uses the format shown in Samples G–10(B)
and G–10(C) (in the row labeled ‘‘Penalty
APR and When it Applies’’) to disclose this
information.
ii. Introductory rates—general. An issuer is
required to disclose directly beneath the table
the circumstances under which an
introductory rate, as that term is defined in
§ 226.16(g)(2)(ii), may be revoked, and the
rate that will apply after the revocation. This
information about revocation of an
introductory rate and the rate that will apply
after revocation must be provided even if the
rate that will apply after the introductory rate
is revoked is the rate that would have applied
at the end of the promotional period. In a
variable-rate account, the rate that would
have applied at the end of the promotional
period is a rate based on the applicable index
or formula in accordance with the accuracy
requirements set forth in § 226.5a(c)(2) or
(e)(4). In describing the rate that will apply
after revocation of the introductory rate, if
the rate that will apply after revocation of the
introductory rate is already disclosed in the
table, the issuer is not required to repeat the
rate, but may refer to that rate in a clear and
conspicuous manner. For example, if the rate
that will apply after revocation of an
introductory rate is the standard rate that
applies to that type of transaction (such as a
purchase or balance transfer transaction), and
the standard rates are labeled in the table as
‘‘standard APRs,’’ the issuer may refer to the
‘‘standard APR’’ when describing the rate that
will apply after revocation of an introductory
rate. (See Sample G–10(C) in the disclosure
labeled ‘‘Loss of Introductory APR’’ directly
beneath the table.) The description of the
circumstances in which an introductory rate
could be revoked should be brief. For
example, if an issuer may increase an
introductory rate because the account is more
than 60 days late, the issuer should describe
this circumstance fldirectly beneathfiøin¿
the table as ‘‘make a late payment.’’ In
addition, if the circumstances in which an
introductory rate could be revoked are
already listed elsewhere in the table, the
issuer is not required to repeat the
circumstances again, but may refer to those
circumstances in a clear and conspicuous
manner. For example, if the circumstances in
which an introductory rate could be revoked
are the same as the event or events that may
trigger a ‘‘penalty rate’’ as described in
§ 226.5a(b)(1)(iv)(A), the issuer may refer to
the actions listed in the Penalty APR row, in

E:\FR\FM\02NOP2.SGM

02NOP2

67496

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

describing the circumstances in which the
introductory rate could be revoked. (See
Sample G–10(C) in the disclosure labeled
‘‘Loss of Introductory APR’’ directly beneath
the table for additional guidance on the level
of detail in which to describe the
circumstances in which an introductory rate
could be revoked.) A card issuer will be
deemed to meet the standard to clearly and
conspicuously disclose the information
required by § 226.5a(b)(1)(iv)(B) if the issuer
uses the format shown in Sample G–10(C) to
disclose this information.
iii. Introductory rates—limitations on
revocation. Issuers that are disclosing an
introductory rate are prohibited by § 226.55
from increasing or revoking the introductory
rate before it expires unless the consumer
fails to make a required minimum periodic
payment within 60 days after the due date for
the payment. In making the required
disclosure pursuant to § 226.5a(b)(1)(iv)(B),
issuers should describe this circumstance
directly beneath the table as ‘‘make a late
payment.’’
fliv. Employee preferential rates. An
issuer is required to disclose directly beneath
the table the circumstances under which an
employee preferential rate may be revoked,
and the rate that will apply after the
revocation. In describing the rate that will
apply after revocation of the employee
preferential rate, if the rate that will apply
after revocation of the employee preferential
rate is already disclosed in the table, the
issuer is not required to repeat the rate, but
may refer to that rate in a clear and
conspicuous manner. For example, if the rate
that will apply after revocation of an
employee preferential rate is the standard
rate that applies to that type of transaction
(such as a purchase or balance transfer
transaction), and the standard rates are
labeled in the table as ‘‘standard APRs,’’ the
issuer may refer to the ‘‘standard APR’’ when
describing the rate that will apply after
revocation of an employee preferential rate.
The description of the circumstances in
which an employee preferential rate could be
revoked should be brief. For example, if an
issuer may increase an employee preferential
rate based upon termination of the
employee’s employment relationship with
the issuer or a third party, issuers may
describe this circumstance as ‘‘if your
employment with [issuer or third party]
ends.’’fi

*

*

*

*

*

5a(b)(2) Fees for issuance or availability.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*

*

*

*

4. Waived or reduced fees. If fees required
to be disclosed are waived or reduced for a
limited time, the introductory fees or the fact
of fee waivers may be fldisclosedfi
øprovided¿ in the table in addition to the
required fees if the card issuer also discloses
how long the reduced fees or waivers will
remain in effect flin accordance with the
requirements of §§ 226.9(c)(2)(v)(B) and
226.55(b)(1)fi.

*

*

*

*

*

5a(b)(5) Grace period.
1. How grace period disclosure is made.
The card issuer must state any conditions on
the applicability of the grace period. flAn

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

issuer, however, may not disclose under
§ 226.5a(b)(5) the limitations on the
imposition of finance charges as a result of
a loss of a grace period in § 226.54, or the
impact of payment allocation on whether
interest is charged on purchases as a result
of a loss of a grace period. Some issuers may
offer a grace period on all purchases under
which interest will not be charged on
purchases if the consumer pays the
outstanding balance shown on a periodic
statement in full by the due date shown on
that statement for one or more billing cycles.
In these circumstances, § 226.5a(b)(5)
requires that the issuer disclose the grace
period and the conditions for its applicability
using the following language, or substantially
similar language, as applicable: ‘‘Your due
date is [at least] __ days after the close of
each billing cycle. We will not charge you
any interest on purchases if you pay your
entire balance by the due date each
month.’’fi øAn issuer that offers a grace
period on all purchases and conditions the
grace period on the consumer paying his or
her outstanding balance in full by the due
date each billing cycle, or on the consumer
paying the outstanding balance in full by the
due date in the previous and/or the current
billing cycle(s) will be deemed to meet these
requirements by providing the following
disclosure, as applicable: ‘‘Your due date is
[at least] __ days after the close of each
billing cycle. We will not charge you any
interest on purchases if you pay your entire
balance by the due date each month.’’¿
flHowever, other issuers may offer a grace
period on all purchases under which interest
may be charged on purchases even if the
consumer pays the outstanding balance
shown on a periodic statement in full by the
due date shown on that statement each
billing cycle. For example, an issuer may
charge interest on purchases if the consumer
uses the account for a cash advance,
regardless of whether the outstanding
balance shown on the periodic statement is
paid in full by the due date shown on that
statement. In these circumstances,
§ 226.5a(b)(5) requires the issuer to amend
the above disclosure language to describe
accurately the conditions on the applicability
of the grace period.fi

*

*

*

*

*

ø4. Limitations on the imposition of
finance charges in § 226.54. Section
226.5a(b)(5) does not require a card issuer to
disclose the limitations on the imposition of
finance charges in § 226.54.¿

*

*

*

*

*

5a(b)(6) Balance computation method.
1. Form of disclosure. In cases where the
card issuer uses a balance computation
method that is identified by name in the
regulation, the card issuer must disclose
below the table only the name of the method.
In cases where the card issuer uses a balance
computation method that is not identified by
name in the regulation, the disclosure below
the table must clearly explain the method in
as much detail as set forth in the descriptions
of balance methods in § 226.5a(g). The
explanation need not be as detailed as that
required for the disclosures under
§ 226.6(b)(4)(i)(D). ø(See the commentary to

PO 00000

Frm 00040

Fmt 4701

Sfmt 4700

§ 226.5a(g) for guidance on particular
methods.)¿

*

*

*

*

*

Section 226.6—Account-Opening Disclosures

*

*

*

*

*

6(b)(2)(v) Grace period.
1. Grace period. Creditors must state any
conditions on the applicability of the grace
period. flA creditor, however, may not
disclose under § 226.6(b)(2)(v) the limitations
on the imposition of finance charges as a
result of a loss of a grace period in § 226.54,
or the impact of payment allocation on
whether interest is charged on transactions as
a result of a loss of a grace period. Some
creditors may offer a grace period on all types
of transactions under which interest will not
be charged on transactions if the consumer
pays the outstanding balance shown on a
periodic statement in full by the due date
shown on that statement for one or more
billing cycles. In these circumstances,
§ 226.6(b)(2)(v) requires that the creditor
disclose the grace period and the conditions
for its applicability using the following
language, or substantially similar language,
as applicable: ‘‘Your due date is [at least] _
days after the close of each billing cycle. We
will not charge you any interest on your
account if you pay your entire balance by the
due date each month.’’fi [A creditor that
offers a grace period on all types of
transactions for the account and conditions
the grace period on the consumer paying his
or her outstanding balance in full by the due
date each billing cycle, or on the consumer
paying the outstanding balance in full by the
due date in the previous and/or the current
billing cycle(s) will be deemed to meet these
requirements by providing the following
disclosure, as applicable: ‘‘Your due date is
[at least] _ days after the close of each billing
cycle. We will not charge you any interest on
your account if you pay your entire balance
by the due date each month.’’]fl However,
other creditors may offer a grace period on
all types of transactions under which interest
may be charged on transactions even if the
consumer pays the outstanding balance
shown on a periodic statement in full by the
due date shown on that statement each
billing cycle. In these circumstances,
§ 226.6(b)(2)(v) requires the creditor to
amend the above disclosure language to
describe accurately the conditions on the
applicability of the grace period.fi

*

*

*

*

*

3. Grace period on some features. øSee
Samples G–17(B) and G–17(C) for guidance
on complying with § 226.6(b)(2)(v) when a
creditor offers a grace period for purchases
but no grace period on balance transfers and
cash advances.¿ flSome creditors do not
offer a grace period on cash advances and
balance transfers, but offers a grace period for
all purchases under which interest will not
be charged on purchases if the consumer
pays the outstanding balance shown on a
periodic statement in full by the due date
shown on that statement for one or more
billing cycles. In these circumstances,
§ 226.6(b)(2)(v) requires that the creditor
disclose the grace period for purchases and
the conditions for its applicability, and the
lack of a grace period for cash advances and

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
balance transfers using the following
language, or substantially similar language,
as applicable: ‘‘Your due date is [at least] _
days after the close of each billing cycle. We
will not charge you any interest on purchases
if you pay your entire balance by the due
date each month. We will begin charging
interest on cash advances and balance
transfers on the transaction date.’’ However,
other creditors may offer a grace period on
all purchases under which interest may be
charged on purchases even if the consumer
pays the outstanding balance shown on a
periodic statement in full by the due date
shown on that statement each billing cycle.
For example, a creditor may charge interest
on purchases if the consumer uses the
account for a cash advance, regardless of
whether the outstanding balance shown on
the periodic statement is paid in full by the
due date shown on that statement. In these
circumstances, § 226.6(a)(2)(v) requires the
creditor to amend the above disclosure
language to accurately describe the
conditions on the applicability of the grace
period. Also, some creditors may not offer a
grace period on cash advances and balance
transfers, and will begin charging interest on
these transactions from a date other than the
transaction date, such as the posting date. In
these circumstances, § 226.6(a)(2)(v) requires
the creditor to amend the above disclosure
language to be accurate. fi
ø4. Limitations on the imposition of
finance charges in § 226.54. Section
226.6(b)(2)(v) does not require a card issuer
to disclose the limitations on the imposition
of finance charges in § 226.54.¿
6(b)(2)(vi) Balance computation method.
ø1. Content.¿fl1. Use of same balance
computation method for all features. In cases
where the balance for each feature is
computed using the same balance
computation method, a single identification
of the name of the balance computation
method is sufficient. In this case, a creditor
may use an appropriate name listed in
§ 226.5a(g) (e.g., ‘‘average daily balance
(including new purchases)’’) to satisfy the
requirement to disclose the name of the
method for all features on the account, even
though the name only refers to purchases.
For example, if a creditor uses the average
daily balance method including new
transactions for all features, a creditor may
use the name ‘‘average daily balance
(including new purchases)’’ listed in
§ 226.5a(g)(i) to satisfy the requirement to
disclose the name of the balance computation
method for all features. As an alternative, in
this situation, a creditor may revise the
balance computation names listed in
§ 226.5a(g) to refer more broadly to all new
credit transactions, such as using the
language ‘‘new transactions’’ or ‘‘current
transactions’’ (e.g., ‘‘average daily balance
(including new transactions)’’), rather than
simply referring to new purchases when the
same method is used to calculate the
balances for all features of the account.fi See
Samples G–17(B) and G–17(C) for guidance
on how to disclose the balance computation
method where the same method is used for
all features on the account.
fl2. Use of balance computation names in
§ 226.5a(g) for balances other than

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

purchases. The names of the balance
computation methods listed in § 226.5a(g)
describe balance computation methods for
purchases. When a creditor is disclosing the
name of the balance computation methods
separately for each feature, in using the
names listed in § 226.5a(g) to satisfy the
requirements of § 226.6(b)(2)(vi) for features
other than purchases, a creditor must revise
the names listed in § 226.5a(g) to refer to the
other features. For example, when disclosing
the name of the balance computation method
applicable to cash advances, a creditor must
revise the name listed in § 226.5a(g)(i) to
disclose it as ‘‘average daily balance
(including new cash advances)’’ when the
balance for cash advances is figured by
adding the outstanding balance (including
new cash advances and deducting payments
and credits) for each day in the billing cycle,
and then dividing by the number of days in
the billing cycle. Similarly, a creditor must
revise the name listed in § 226.5a(g)(ii) to
disclose it as ‘‘average daily balance
(excluding new cash advances)’’ when the
balance for cash advances is figured by
adding the outstanding balance (excluding
new cash advances and deducting payments
and credits) for each day in the billing cycle,
and then dividing by the number of days in
the billing cycle. See comment 6(b)(2)(vi)–1
for guidance on the use of one balance
computation name when the same balance
computation method is used for all features
on the account.fi

*

*

*

*

*

Section 226.7—Periodic Statement

*

*

*

*

*

7(b) Rules affecting open-end (not homesecured) plans.
1. Deferred interest or similar transactions.
* * *

*

*

*

*

*

iv. Due date to avoid obligation for finance
charges under a deferred interest or similar
program. Section 226.7(b)(14) requires
disclosure on periodic statements of the date
by which any outstanding balance subject to
a deferred interest or similar program must
be paid in full in order to avoid the
obligation for finance charges on such
balance. This disclosure must appear on the
front of flany page offi each periodic
statement issued during the deferred interest
period beginning with the first periodic
statement issued during the deferred interest
period that reflects the deferred interest or
similar transaction.

*

*

*

*

*

7(b)(5) Balance on which finance charge
computed.

*

*

*

*

*

7. Use of one balance computation method
explanation when multiple balances
disclosed. Sometimes the creditor will
disclose more than one balance to which a
periodic rate was applied, even though each
balance was computed using the same
balance computation method. For example, if
a plan involves purchases and cash advances
that are subject to different rates, more than
one balance must be disclosed, even though
the same computation method is used for
determining the balance for each feature. In
these cases, one explanation or a single

PO 00000

Frm 00041

Fmt 4701

Sfmt 4700

67497

identification of the name of the balance
computation method is sufficient. Sometimes
the creditor separately discloses the portions
of the balance that are subject to different
rates because different portions of the
balance fall within two or more balance
ranges, even when a combined balance
disclosure would be permitted under
comment 7(b)(5)–1. In these cases, one
explanation or a single identification of the
name of the balance computation method is
also sufficient (assuming, of course, that all
portions of the balance were computed using
the same method). flIn these cases, a
creditor may use an appropriate name listed
in § 226.5a(g) (e.g., ‘‘average daily balance
(including new purchases)’’) as the single
identification of the name of the balance
computation method applicable to all
features, even though the name only refers to
purchases. For example, if a creditor uses the
average daily balance method including new
transactions for all features, a creditor may
use the name ‘‘average daily balance
(including new purchases)’’ listed in
§ 226.5a(g)(i) to satisfy the requirement to
disclose the name of the balance computation
method for all features. As an alternative, in
this situation, a creditor may revise the
balance computation names listed in
§ 226.5a(g) to refer more broadly to all new
credit transactions, such as using the
language ‘‘new transactions’’ or ‘‘current
transactions’’ (e.g., ‘‘average daily balance
(including new transactions)’’), rather than
simply referring to new purchases, when the
same method is used to calculate the
balances for all features of the account.
8. Use of balance computation names in
§ 226.5a(g) for balances other than
purchases. The names of the balance
computation methods listed in § 226.5a(g)
describe balance computation methods for
purchases. When a creditor is disclosing the
name of the balance computation methods
separately for each feature, in using the
names listed in § 226.5a(g) to satisfy the
requirements of § 226.7(b)(5) for features
other than purchases, a creditor must revise
the names listed in § 226.5a(g) to refer to the
other features. For example, when disclosing
the name of the balance computation method
applicable to cash advances, a creditor must
revise the name listed in § 226.5a(g)(i) to
disclose it as ‘‘average daily balance
(including new cash advances)’’ when the
balance for cash advances is figured by
adding the outstanding balance (including
new cash advances and deducting payments
and credits) for each day in the billing cycle,
and then dividing by the number of days in
the billing cycle. Similarly, a creditor must
revise the name listed in § 226.5a(g)(ii) to
disclose it as ‘‘average daily balance
(excluding new cash advances)’’ when the
balance for cash advances is figured by
adding the outstanding balance (excluding
new cash advances and deducting payments
and credits) for each day in the billing cycle,
and then dividing by the number of days in
the billing cycle. See comment 7(b)(5)–7 for
guidance on the use of one balance
computation method explanation or name
when multiple balances are disclosed.fi

*

E:\FR\FM\02NOP2.SGM

*

*

02NOP2

*

*

67498

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
9(b)(3)(i) Disclosures.

7(b)(6) Charges imposed.

*

*

*

*

*

*

3. Total fees fland interest chargedfi for
calendar year to date.
i. Monthly statements. Some creditors send
monthly statements but the statement periods
do not coincide with the calendar month. For
creditors sending monthly statements, the
following comply with the requirement to
provide calendar year-to-date totals.
A. A creditor may disclose øa¿ calendaryear-to-date totalflsfi at the end of the
calendar year by aggregating flfinance
charges attributable to periodic interest rates
andfi fees for 12 monthly cycles, starting
with the period that begins during January
and finishing with the period that begins
during December. For example, if statement
periods begin on the 10th day of each month,
the statement covering December 10, 2011
through January 9, 2012, may disclose the
year-to-date totalflsfi for flinterest charged
andfi fees imposed from January 10, 2011,
through January 9, 2012. Alternatively, the
creditor could provide a statement for the
cycle ending January 9, 2012, showing the
year-to-date totalflsfi for flinterest charged
andfi fees imposed January 1, 2011, through
December 31, 2011.
B. A creditor may disclose a calendar-yearto-date totalflsfi at the end of the calendar
year by aggregating flfinance charges
attributable to periodic interest rates andfi
fees for 12 monthly cycles, starting with the
period that begins during December and
finishing with the period that begins during
November. For example, if statement periods
begin on the 10th day of each month, the
statement covering November 10, 2011
through December 9, 2011, may disclose the
year-to-date totalflsfi for flinterest charged
andfi fees imposed from December 10, 2010,
through December 9, 2011.

*

*

*

*

*

srobinson on DSKHWCL6B1PROD with PROPOSALS2

7(b)(12) Repayment disclosures.
fl1. Rounding. In disclosing on the
periodic statement the minimum payment
total cost estimate, the estimated monthly
payment for repayment in 36 months, the
total cost estimate for repayment in 36
months, and the savings estimate for
repayment in 36 months under
§ 226.7(b)(12)(i) or (b)(12)(ii) as applicable, a
card issuer, at its option, must either round
these disclosures to the nearest whole dollar
or to the nearest cent. Nonetheless, an
issuer’s rounding for all of these disclosures
must be consistent. An issuer may round all
of these disclosures to the nearest whole
dollar when disclosing them on the periodic
statement, or may round all of these
disclosures to the nearest cent. An issuer may
not, however, round some of the disclosures
to the nearest whole dollar, while rounding
other disclosures to the nearest cent.fi

*

*

*

*

*

Section 226.9—Subsequent Disclosure
Requirements

*

*

*

*

*

9(b) Disclosures for supplemental credit
access devices and additional features.

*

*

*

*

*

9(b)(3) Checks that access a credit card
account.

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

*

*

*

*

fl2. Combined disclosures for checks and
other transactions subject to the same terms.
A card issuer may include in the tabular
disclosure provided pursuant to § 226.9(b)(3)
disclosures regarding the terms offered on
non-check transactions, provided that such
transactions are subject to the same terms
that are required to be disclosed pursuant to
§ 226.9(b)(3)(i) for the checks that access a
credit card account. However, a card issuer
may not include in the table information
regarding additional terms that are not
required disclosures for checks that access a
credit card account pursuant to
§ 226.9(b)(3).fi

*

*

*

*

*

9(c) Change in terms.

*

*

*

*

*

9(c)(2) Rules affecting open-end (not homesecured) plans.
1. Changes initially disclosed. Except as
provided in § 226.9(g)(1), no notice of a
change in terms need be given if the specific
change is set forth initially flconsistent with
any applicable requirementsfi, such as
flrate or fee increases upon expiration of a
specific period of time that were disclosed in
accordance with § 226.9(c)(2)(v)(B) orfi rate
increases under a properly disclosed
variable-rate plan in accordance with
§ 226.9(c)(2)(v)(C). In contrast, notice must be
given if the contract allows the creditor to
increase the rate at its discretion.

*

*

*

*

*

9(c)(2)(iii) Charges not covered by
§ 226.6(b)(1) and (b)(2).
1. Applicability. Generally, if a creditor
increases any component of a charge, or
introduces a new charge, that is imposed as
part of the plan under § 226.6(b)(3) but is not
required to be disclosed as part of the
account-opening summary table under
§ 226.6(b)(1) and (b)(2), the creditor
ømay¿flmustfi either, at its option (i)
provide at least 45 days’ written advance
notice before the change becomes effective to
comply with the requirements of
§ 226.9(c)(2)(i), or (ii) provide notice orally or
in writing, or electronically if the consumer
requests the service electronically, of the
amount of the charge to an affected consumer
before the consumer agrees to or becomes
obligated to pay the charge, at a time and in
a manner that a consumer would be likely to
notice the disclosure. (See the commentary
under § 226.5(a)(1)(iii) regarding disclosure
of such changes in electronic form.) For
example, a fee for expedited delivery of a
credit card is a charge imposed as part of the
plan under § 226.6(b)(3) but is not required
to be disclosed in the account-opening
summary table under § 226.6(b)(1) and (b)(2).
If a creditor changes the amount of that
expedited delivery fee, the creditor may
provide written advance notice of the change
to affected consumers at least 45 days before
the change becomes effective. Alternatively,
the creditor may provide oral or written
notice, or electronic notice if the consumer
requests the service electronically, of the
amount of the charge to an affected consumer
before the consumer agrees to or becomes
obligated to pay the charge, at a time and in

PO 00000

Frm 00042

Fmt 4701

Sfmt 4700

a manner that the consumer would be likely
to notice the disclosure. (See comment
5(b)(1)(ii)–1 for examples of disclosures given
at a time and in a manner that the consumer
would be likely to notice them.)

*

*

*

*

*

9(c)(2)(iv) Disclosure requirements.

*

*

*

*

*

3. Changing from a variable rate to a nonvariable rate. If a creditor is changing a rate
applicable to a consumer’s account from a
variable rate to a non-variable rate, the
creditor flgenerallyfi must provide a notice
as otherwise required under § 226.9(c) even
if the variable rate at the time of the change
is higher than the non-variable rate.
flHowever, a creditor is not required to
provide a notice under § 226.9(c) if the
creditor provides the disclosures required by
§ 226.9(c)(2)(v)(B) or (c)(2)(v)(D) in
connection with changing a variable rate to
a lower non-variable rate. Similarly, a
creditor is not required to provide a notice
under § 226.9(c) when changing a variable
rate to a lower non-variable rate in order to
comply with 50 U.S.C. app. 527 or a similar
federal or state statute or regulation.fi
4. Changing from a non-variable rate to a
variable rate. If a creditor is changing a rate
applicable to a consumer’s account from a
non-variable rate to a variable rate, the
creditor flgenerallyfi must provide a notice
as otherwise required under § 226.9(c) even
if the non-variable rate is higher than the
variable rate at the time of the change.
flHowever, a creditor is not required to
provide a notice under § 226.9(c) if the
creditor provides the disclosures required by
§ 226.9(c)(2)(v)(B) or (c)(2)(v)(D) in
connection with changing a non-variable rate
to a lower variable rate. Similarly, a creditor
is not required to provide a notice under
§ 226.9(c) when changing a non-variable rate
to a lower variable rate in order to comply
with 50 U.S.C. app. 527 or a similar federal
or state statute or regulation.fi

*

*

*

*

*

9(c)(2)(v) Notice not required.

*

*

*

*

*

2. Skip features. i. øGeneral¿flSkipped or
reduced paymentsfi. If a credit program
allows consumers to skip or reduce one or
more payments during the yearø, or involves
temporary reductions in finance charges
other than reductions in an interest rate
(except if § 226.9(c)(2)(v)(B) or (c)(2)(v)(D)
applies)¿, no notice of the change in terms
is required either prior to the reduction flin
paymentsfi or upon resumption of the
higher [finance charges or] payments if these
features are explained on the accountopening disclosure statement (including an
explanation of the terms upon resumption).
For example, a merchant may allow
consumers to skip the December payment to
encourage holiday shopping, or a teacher’s
credit union may not require payments
during summer vacation. Otherwise, the
creditor must give notice prior to resuming
the original flpaymentfi schedule øor
finance charge¿, even though no notice is
required prior to the reduction. The changein-terms notice may be combined with the
notice offering the reduction. For example,
the periodic statement reflecting the

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
øreduction or¿ skip feature may also be used
to notify the consumer of the resumption of
the original flpaymentfi schedule øor
finance charge¿, either by stating explicitly
when the higher payment [or charges]
resumeflsfi or by indicating the duration of
the skip option. Language such as ‘‘You may
skip your October payment’’ may serve as the
change-in-terms notice.
ii. Temporary reductions in interest rates
flor feesfi. If a credit program involves
temporary reductions in an interest rate flor
feefi, no notice of the change in terms is
required either prior to the reduction or upon
resumption of the original rate flor feefi if
these features are disclosed in advance in
accordance with the requirements of
§ 226.9(c)(2)(v)(B). Otherwise, the creditor
must give notice prior to resuming the
original rate flor feefi, even though no
notice is required prior to the reduction. The
notice provided prior to resuming the
original rate flor feefi must comply with
the timing requirements of § 226.9(c)(2)(i)
and the content and format requirements of
§ 226.9(c)(2)(iv)(A), (B) (if applicable), (C) (if
applicable), and (D). See comment 55(b)–3
for guidance regarding the application of
§ 226.55 in these circumstances.
3. Changing from a variable rate to a nonvariable rate. flSee comment 9(c)(2)(iv)–3.fi
[If a creditor is changing a rate applicable to
a consumer’s account from a variable rate to
a non-variable rate, the creditor must provide
a notice as otherwise required under
§ 226.9(c) even if the variable rate at the time
of the change is higher than the non-variable
rate. (See comment 9(c)(2)(iv)(A)–3.)]
4. Changing from a non-variable rate to a
variable rate. flSee comment 9(c)(2)(iv)–4.fi
[If a creditor is changing a rate applicable to
a consumer’s account from a non-variable
rate to a variable rate, the creditor must
provide a notice as otherwise required under
§ 226.9(c) even if the non-variable rate is
higher than the variable rate at the time of
the change. (See comment 9(c)(2)(iv)(A)–4.)]
5. Temporary rate flor feefi reductions
offered by telephone. The timing
requirements of § 226.9(c)(2)(v)(B) are
deemed to have been met, and written
disclosures required by § 226.9(c)(2)(v)(B)
may be provided as soon as reasonably
practicable after the first transaction subject
to a rate that will be in effect for a specified
period of time (a temporary rate) flor the
imposition of a fee that will be in effect for
a specified period of time (a temporary fee)fi
if:
i. The consumer accepts the offer of the
temporary rate flor temporary feefi by
telephone;
ii. The creditor permits the consumer to
reject the temporary rate flor temporary
feefi offer and have the rate or rates flor
feefi that previously applied to the
consumer’s balances reinstated for 45 days
after the creditor mails or delivers the written
disclosures required by § 226.9(c)(2)(v)(B)fl,
except that the creditor need not permit the
consumer to reject a temporary rate or
temporary fee offer if the rate or rates or fee
that will apply following expiration of the
temporary rate do not exceed the rate or rates
or fee that applied immediately prior to
commencement of the temporary rate or
temporary feefi; and

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

iii. The disclosures required by
§ 226.9(c)(2)(v)(B) and the consumer’s right to
reject the temporary rate flor temporary
feefi offer and have the rate or rates flor
feefi that previously applied to the
consumer’s account reinstatedfl, if
applicable,fi are disclosed to the consumer
as part of the temporary rate flor temporary
feefi offer.
6. First listing. The disclosures required by
§ 226.9(c)(2)(v)(B)(1) are only required to be
provided in close proximity and in equal
prominence to the first listing of the
temporary rate flor feefi in the disclosure
provided to the consumer. For purposes of
§ 226.9(c)(2)(v)(B), the first statement of the
temporary rate flor feefi is the most
prominent listing on the front side of the first
page of the disclosure. If the temporary rate
flor feefi does not appear on the front side
of the first page of the disclosure, then the
first listing of the temporary rate flor feefi
is the most prominent listing of the
temporary rate on the subsequent pages of
the disclosure. For advertising requirements
for promotional rates, see § 226.16(g).
7. Close proximity—point of sale. Creditors
providing the disclosures required by
§ 226.9(c)(2)(v)(B) of this section in person in
connection with financing the purchase of
goods or services may, at the creditor’s
option, disclose the annual percentage rate
flor feefi that would apply after expiration
of the period on a separate page or document
from the temporary rate flor feefi and the
length of the period, provided that the
disclosure of the annual percentage rate flor
feefi that would apply after the expiration of
the period is equally prominent to, and is
provided at the same time as, the disclosure
of the temporary rate flor feefi and length
of the period.

*

*

*

*

*

fl10. Relationship between
§§ 226.9(c)(2)(v)(B) and 226.6(b). A
disclosure of the information described in
§ 226.9(c)(2)(v)(B)(1) provided in the accountopening table in accordance with § 226.6(b)
complies with the requirements of
§ 226.9(c)(2)(v)(B)(2), if the listing of the
introductory rate in such tabular disclosure
also is the first listing as described in
comment 9(c)(2)(v)–6.fi
ø10¿fl11fi. Disclosure of the terms of a
workout or temporary hardship arrangement.
In order for the exception in
§ 226.9(c)(2)(v)(D) to apply, the disclosure
provided to the consumer pursuant to
§ 226.9(c)(2)(v)(D)(2) must set forth:
i. The annual percentage rate that will
apply to balances subject to the workout or
temporary hardship arrangement;
ii. The annual percentage rate that will
apply to such balances if the consumer
completes or fails to comply with the terms
of, the workout or temporary hardship
arrangement;
iii. Any reduced fee or charge of a type
required to be disclosed under
§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) that
will apply to balances subject to the workout
or temporary hardship arrangement, as well
as the fee or charge that will apply if the
consumer completes or fails to comply with
the terms of the workout or temporary
hardship arrangement;

PO 00000

Frm 00043

Fmt 4701

Sfmt 4700

67499

iv. Any reduced minimum periodic
payment that will apply to balances subject
to the workout or temporary hardship
arrangement, as well as the minimum
periodic payment that will apply if the
consumer completes or fails to comply with
the terms of the workout or temporary
hardship arrangement; and
v. If applicable, that the consumer must
make timely minimum payments in order to
remain eligible for the workout or temporary
hardship arrangement.
ø11¿fl12fi. Index not under creditor’s
control. See comment 55(b)(2)–2 for guidance
on when an index is deemed to be under [the
card issuer’s] fla creditor’sfi control.
ø12¿fl13fi. Temporary rates—
relationship to § 226.59. i. General. Section
226.59 requires a card issuer to review rate
increases imposed due to the revocation of a
temporary rate. In some circumstances,
§ 226.59 may require an issuer to reinstate a
reduced temporary rate based on that review.
If, based on a review required by § 226.59, a
creditor reinstates a temporary rate that had
been revoked, the card issuer is not required
to provide an additional notice to the
consumer when the reinstated temporary rate
expires, if the card issuer provided the
disclosures required by § 226.9(c)(2)(v)(B)
prior to the original commencement of the
temporary rate. See § 226.55 and the
associated commentary for guidance on the
permissibility and applicability of rate
increases.
ii. Example. A consumer opens a new
credit card account under an open-end (not
home-secured) consumer credit plan on
January 1, 2011. The annual percentage rate
applicable to purchases is 18%. The card
issuer offers the consumer a 15% rate on
purchases made between January 1, 2012 and
January 1, 2014. Prior to January 1, 2012, the
card issuer discloses, in accordance with
§ 226.9(c)(2)(v)(B), that the rate on purchases
made during that period will increase to the
standard 18% rate on January 1, 2014. In
March 2012, the consumer makes a payment
that is ten days late. The card issuer, upon
providing 45 days’ advance notice of the
change under § 226.9(g), increases the rate on
new purchases to 18% effective as of June 1,
2012. On December 1, 2012, the issuer
performs a review of the consumer’s account
in accordance with § 226.59. Based on that
review, the card issuer is required to reduce
the rate to the original 15% temporary rate
as of January 15, 2013. On January 1, 2014,
the card issuer may increase the rate on
purchases to 18%, as previously disclosed
prior to January 1, 2012, without providing
an additional notice to the consumer.

*

*

*

*

*

Section 226.10—Payments

*

*

*

*

*

10(b) Specific requirements for payments.

*

*

*

*

*

2. Payment flmethods promoted by
creditorfiø via creditor’s Web site¿. flIf a
creditor promotes a specific payment
method, any payments made via that method
(prior to any cut-off time specified by the
creditor, to the extent permitted by
§ 226.10(b)(2)) are generally conforming

E:\FR\FM\02NOP2.SGM

02NOP2

67500

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

payments for purposes of § 226.10(b). For
example:fi
fli.fi If a creditor promotes electronic
payment via its Web site (such as by
disclosing on the Web site itself that
payments may be made via the Web site), any
payments made via the creditor’s Web site
prior to the creditor’s specified cut-off time,
if any, would generally be conforming
payments for purposes of § 226.10(b).
flii. If a creditor promotes payment by
telephone (for example, by including the
option to pay by telephone in a menu of
options provided to consumers at a toll-free
number disclosed on its periodic statement),
payments made by telephone would
generally be conforming payments for
purposes of § 226.10(b).
iii. If a creditor promotes in-person
payments, for example by stating in an
advertisement that payments may be made in
person at its branch locations, such in-person
payments made at a branch or office of the
creditor generally would be conforming
payments for purposes of § 226.10(b).fi

*

*

*

*

*

10(e) Limitations on fees related to method
of payment.

*

*

*

*

*

fl4. Third parties. For purposes of
§ 226.10(e), the term ‘‘creditor’’ includes
third-party service providers or other third
parties who collect, receive, or process
payments on behalf of the creditor.fi

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

Section 226.12—Special Credit Card
Provisions
srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*

*

*

*

12(c) Right of cardholder to assert claims
or defenses against card issuer.

*

*

*

*

*

4. Method of calculating the amount of
credit outstanding. The amount of the claim
or defense that the cardholder may assert
shall not exceed the amount of credit
outstanding for the disputed transaction at
the time the cardholder first notifies the card
issuer or the person honoring the credit card

VerDate Mar<15>2010

17:45 Nov 01, 2010

*

*

*

*

*

*

*

*

*

*

Paragraph 13(c)(2).

(ii) Retail location. For a material change
in the address of a retail location or
procedures for handling cardholder
payments at a retail location, a card issuer
may impose a late fee or finance charge on
a consumer’s account for a late payment
during the 60-day period following the date
on which the change took effect. However, if
a øconsumer¿flcard issuerfi is notified by
a consumer no later than 60 days after the
card issuer transmitted the first periodic
statement that reflects the late fee or finance
charge for a late payment that the late
payment was caused by such change, the
card issuer must waive or remove any late fee
or finance charge, or credit an amount equal
to any late fee or finance charge, imposed on
the account during the 60-day period
following the date on which the change took
effect.

*

*

13(c) Time for resolution; general
procedures.

3. Safe harbor.

*

*

Section 226.13—Billing Error Resolution

10(f) Changes by card issuer.

*

of the existence of the claim or defense.
flHowever, when a consumer has asserted a
claim or defense against a creditor pursuant
to § 226.12(c), the creditor must apply any
payment or other credit in a manner that
avoids or minimizes any reduction in the
amount subject to that claim or defense.
Accordingly, to determine the amount of
credit outstanding for purposes of this
section, payments and other credits must be
applied first to amounts other than the
disputed transaction. For examples of how to
comply with §§ 226.12 and 226.53 for credit
card accounts under an open-end (not homesecured) consumer credit plan, see comment
53–3. For other types of credit card
accountsfi øTo determine the amount of
credit outstanding for purposes of this
section¿, payments and other credits
flmayfi øshall¿ be applied to: (i) Late
charges in the order of entry to the account;
then to (ii) finance charges in the order of
entry to the account; and then to (iii) any
øother¿ debits flother than the transaction
subject to the claim or defensefi in the order
of entry to the account. In these
circumstances, iffi øIf¿ more than one item
is included in a single extension of credit,
credits are to be distributed pro rata
according to prices and applicable taxes.

Jkt 223001

*

*

*

*

2. Finality of error resolution procedure. A
creditor must comply with the error
resolution procedures and complete its
investigation to determine whether an error
occurred within two complete billing cycles
as set forth in § 226.13(c)(2). Thus, for
example, fl§ 226.13(c)(2) prohibits afi øthe¿
creditor øwould be prohibited¿ from
reversing amounts previously credited for an
alleged billing error even if the creditor
obtains evidence after the error resolution
time period has passed indicating that the
billing error did not occur as asserted by the
consumer. Similarly, if a creditor fails to mail
or deliver a written explanation setting forth
the reason why the billing error did not occur
as asserted, or otherwise fails to comply with
the error resolution procedures set forth in
§ 226.13(f), the creditor generally must credit
the disputed amount and related finance or
other charges, as applicable, to the
consumer’s account. flHowever, if a
consumer receives more than one credit to
correct the same billing error, this section
does not prevent a creditor from reversing
amounts it has previously credited to correct
that error, provided that the total amount of
the remaining credits is equal to or more than
the amount of the error and that the
consumer does not incur any fees or other
charges as a result of the timing of the
creditor’s reversal. For example, assume that
a consumer asserts a billing error with
respect to a $100 transaction and that the
creditor posts a $100 credit to the consumer’s
account to correct that error during the time

PO 00000

Frm 00044

Fmt 4701

Sfmt 4700

period set forth in § 226.13(c)(2). However,
following that time period, a merchant or
other person honoring the credit card issues
a $100 credit to the consumer to correct the
same error. In these circumstances,
§ 226.13(c)(2) does not prohibit the creditor
from reversing its $100 credit once the $100
credit from the merchant or other person has
posted to the consumer’s account.fi

*

*

*

*

*

Section 226.14—Determination of Annual
Percentage Rate
14(a) General rule.

*

*

*

*

*

fl6. Effect of leap year. Any variance in
the annual percentage rate that occurs solely
by reason of the addition of February 29 in
a leap year, may be disregarded, and such a
rate may be disclosed without regard to such
variance.fi

*

*

*

*

*

Section 226.16—Advertising
1. Clear and conspicuous standard—
general. Section 226.16 is subject to the
general ‘‘clear and conspicuous’’ standard for
subpart B (see § 226.5(a)(1)) but prescribes no
specific rules for the format of the necessary
disclosures, other than the format
requirements related to the disclosure of a
promotional rate or payment under
§ 226.16(d)(6), a promotional rate flor
promotional feefi under § 226.16(g), or a
deferred interest or similar offer under
§ 226.16(h). Other than the disclosure of
certain terms described in §§ 226.16(d)(6),
(g), or (h), the credit terms need not be
printed in a certain type size nor need they
appear in any particular place in the
advertisement.

*

*

*

*

*

2. Clear and conspicuous standard—
promotional ratesfl, fees,fi or payments;
deferred interest or similar offers.

*

*

*

*

*

ii. For purposes of § 226.16(g)(4) as it
applies to written or electronic
advertisements only, a clear and conspicuous
disclosure means the required information in
§ 226.16(g)(4)(i) andfl, as applicable,fi
(g)(4)(ii) fland (g)(4)(iii)fi must be equally
prominent to the promotional rate flor
promotional feefi to which it applies. If the
information in § 226.16(g)(4)(i) andfl, as
applicable,fi (g)(4)(ii) fland (g)(4)(iii)fi is
the same type size as the promotional rate
flor promotional feefi to which it applies,
the disclosures would be deemed to be
equally prominent. For purposes of
§ 226.16(h)(3) as it applies to written or
electronic advertisements only, a clear and
conspicuous disclosure means the required
information in § 226.16(h)(3) must be equally
prominent to each statement of ‘‘no interest,’’
‘‘no payments,’’ ‘‘deferred interest,’’ ‘‘same as
cash,’’ or similar term regarding interest or
payments during the deferred interest period.
If the information required to be disclosed
under § 226.16(h)(3) is the same type size as
the statement of ‘‘no interest,’’ ‘‘no payments,’’
‘‘deferred interest,’’ ‘‘same as cash,’’ or similar
term regarding interest or payments during

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
the deferred interest period, the disclosure
would be deemed to be equally prominent.

*

*

*

*

*

16(g) Promotional rates.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*

*

*

*

2. Immediate proximity. For written or
electronic advertisements, including the term
‘‘introductory’’ or ‘‘intro’’ in the same phrase
as the listing of the introductory rate flor
introductory feefi is deemed to be in
immediate proximity of the listing.
3. Prominent location closely proximate.
For written or electronic advertisements,
information required to be disclosed in
§ 226.16(g)(4)(i) andfl, as applicable,fi
(g)(4)(ii) fland (g)(4)(iii)fi that is in the same
paragraph as the first listing of the
promotional rate flor promotional feefi is
deemed to be in a prominent location closely
proximate to the listing. Information
disclosed in a footnote will not be considered
in a prominent location closely proximate to
the listing.
4. First listing. For purposes of
§ 226.16(g)(4) as it applies to written or
electronic advertisements, the first listing of
the promotional rate flor promotional feefi
is the most prominent listing of the rate flor
feefi on the front side of the first page of the
principal promotional document. The
principal promotional document is the
document designed to be seen first by the
consumer in a mailing, such as a cover letter
or solicitation letter. If the promotional rate
flor promotional feefi does not appear on
the front side of the first page of the principal
promotional document, then the first listing
of the promotional rate flor promotional
feefi is the most prominent listing of the rate
flor feefi on the subsequent pages of the
principal promotional document. If the
promotional rate flor promotional feefi is
not listed on the principal promotional
document or there is no principal
promotional document, the first listing is the
most prominent listing of the rate flor feefi
on the front side of the first page of each
document listing the promotional rate flor
promotional feefi. If the promotional rate
flor promotional feefi does not appear on
the front side of the first page of a document,
then the first listing of the promotional rate
flor promotional feefi is the most
prominent listing of the rate flor feefi on
the subsequent pages of the document. If the
listing of the promotional rate flor
promotional feefi with the largest type size
on the front side of the first page (or
subsequent pages if the promotional rate flor
promotional feefi is not listed on the front
side of the first page) of the principal
promotional document (or each document
listing the promotional rate flor promotional
feefi if the promotional rate flor
promotional feefi is not listed on the
principal promotional document or there is
no principal promotional document) is used
as the most prominent listing, it will be
deemed to be the first listing. Consistent with
comment 16(c)–1, a catalog or multiple-page
advertisement is considered one document
for purposes of § 226.16(g)(4).

*

*

*

*

*

Section 226.30—Limitation on Rates

*

*

*

VerDate Mar<15>2010

*

*

17:45 Nov 01, 2010

Jkt 223001

8. Manner of stating the maximum interest
rate. The maximum interest rate must be
stated in the credit contract either as a
specific amount or in any other manner that
would allow the consumer to easily
ascertain, at the time of entering into the
obligation, what the rate ceiling will be over
the term of the obligation.
i. For example, the following statements
would be sufficiently specific:

*

*

*

*

*

C. The interest rate will not exceed X%, or
X percentage points øabout¿flabovefi [a
rate to be determined at some future point in
time], whichever is less.

*

*

*

*

*

Subpart G—Special Rules Applicable to
Credit Card Accounts and Open-End Credit
Offered to College Students

*

*

*

*

*

Section 226.51—Ability To Pay
51(a) General rule.
51(a)(1) Consideration of ability to pay.
1. Consideration of additional factors.
Section 226.51(a) requires a card issuer to
consider a consumer’s flindependentfi
ability to make the required minimum
periodic payments under the terms of an
account based on the consumer’s
flindependentfi income or assets and
current obligations. The card issuer may also
consider consumer reports, credit scores, and
other factors, consistent with Regulation B
(12 CFR part 202).
2. Ability to pay as of application or
consideration of increase. A card issuer
complies with § 226.51(a) if it bases its
determination regarding a consumer’s
flindependentfi ability to make the
required minimum periodic payments on the
facts and circumstances known to the card
issuer at the time the consumer applies to
open the credit card account or when the
card issuer considers increasing the credit
line on an existing account.

*

*

*

*

*

4. flInformation regarding income,fi
øIncome,¿ assets, and employment.
fli. Types of information. flFor purposes
of § 226.51(a), a card issuer may consider any
current or reasonably expected income or
assets of the consumer or consumers who are
applying for a new account or, when the card
issuer is considering whether to increase the
credit limit on an existing account, the
consumer or consumers who are
accountholders.fi øAny current or
reasonably expected assets or income may be
considered by the card issuer.¿ For example,
a card issuer may use information about
current or expected salary, wages, bonus pay,
tips and commissions. Employment may be
full-time, part-time, seasonal, irregular,
military, or self-employment. Other sources
of income could include interest or
dividends, retirement benefits, public
assistance, alimony, child support, or
separate maintenance payments. A card
issuer may also take into account assets such
as savings accounts or investments øthat the
consumer can or will be able to use¿. flIn
addition, when a consumer’s spouse is not a
joint applicant or joint accountholder, a card

PO 00000

Frm 00045

Fmt 4701

Sfmt 4700

67501

issuer may consider the spouse’s income or
assets to the extent that a federal or state
statute or regulation grants the consumer an
ownership interest in the spouse’s income or
asserts.fi
flii. Sources of information.fi A card
issuer may consider the consumer’s income
or assets based on information provided by
the consumer, in connection with this credit
card account or any other financial
relationship the card issuer or its affiliates
has with the consumer, subject to any
applicable information-sharing rules, and
information obtained through third parties,
subject to any applicable information-sharing
rules. A card issuer may also consider
information obtained through any
empirically derived, demonstrably and
statistically sound model that reasonably
estimates a consumer’s income or assets.
fliii. Information regarding household
income or assets. Consideration of
information regarding a consumer’s
household income or assets does not by itself
satisfy the requirement in § 226.51(a) to
consider the consumer’s independent ability
to pay. For example, if a card issuer requests
on its application form that applicants
provide their household income, the card
issuer may not rely solely on the information
provided to satisfy the requirements of
§ 226.51(a). Instead, the card issuer would
need to obtain additional information about
an applicant’s independent income (such as
by contacting the applicant). However, if a
card issuer requests on its application form
that applicants provide their income (without
reference to household income), the card
issuer may rely on the information provided
to satisfy the requirements of § 226.51(a).fi

*

*

*

*

*

51(a)(2) Minimum periodic payments.

*

*

*

*

*

3. Mandatory fees. For purposes of
estimating required minimum periodic
payments under the safe harbor set forth in
§ 226.51(a)(2)(ii), mandatory fees that must be
assumed to be charged include those fees the
card issuer knows the consumer will be
required to pay under the terms of the
account if the account is opened, such as an
annual fee. flIf a mandatory fee is a
promotional fee (as defined in § 226.16(g)),
the issuer must use the post-promotional fee
amount for purposes of § 226.51(a)(2)(ii).fi

*

*

*

*

*

Section 226.52—Limitations on Fees
52(a) Limitations flprior to account
opening andfi during first year after account
opening.
52(a)(1) General rule.
1. Application. øSection 226.52(a)(1)
applies if a card issuer charges any fees to the
account during the first year after the account
is opened (unless the fees are specifically
exempted by § 226.52(a)(2)). Thus, if a card
issuer charges a non-exempt fee to the
account during the first year after account
opening, § 226.52(a)(1) provides that the total
amount of non-exempt fees the consumer is
required to pay with respect to the account
during the first year cannot exceed 25
percent of the credit limit in effect when the
account is opened.¿ flThefi øThis¿ 25

E:\FR\FM\02NOP2.SGM

02NOP2

67502

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

percent limit flin § 226.52(a)(1)fi applies to
fees that the card issuer charges to the
account as well as to fees that the card issuer
requires the consumer to pay with respect to
the account through other means (such as
through a payment from the consumerfl’s
asset accountfi to the card issuer or from
another credit account provided by the card
issuer). For example:

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*

*

*

*

ii. Assume that, under the terms of a credit
card account, a consumer is required to pay
$125 in fees for the issuance or availability
of credit during the first year after account
opening. At account opening on January 1 of
year one, the credit limit for the account is
$500. Section 226.52(a)(1) permits the card
issuer to charge the $125 in fees to the
account. However, § 226.52(a)(1) prohibits
the card issuer from requiring the consumer
to make payments to the card issuer for
additional non-exempt fees with respect to
the account flprior to account opening orfi
during the first year after account
openingfl.fiøor¿ flSection 226.52(a)(1)
also prohibits the card issuer fromfi
requiring the consumer to open a separate
credit account with the card issuer to fund
the payment of additional non-exempt fees
flprior to the opening of the credit card
account or fi during the first year flafter the
credit card account is openedfi.
fliii. Assume that, on January 1 of year
one, a consumer is required to pay a $100 fee
in order to apply for a credit card account.
On January 5, the card issuer approves the
consumer’s application, assigns the account
a credit limit of $1,000, and provides the
consumer with account-opening disclosures
consistent with § 226.6. The card issuer also
permits the consumer to begin using the
account for transactions on January 5. The
consumer is required to pay $150 in fees for
the issuance or availability of credit, which
§ 226.52(a)(1) permits the card issuer to
charge to the account on January 5. However,
because the $100 application fee is subject to
the 25 percent limit in § 226.52(a)(1), the card
issuer is prohibited from requiring the
consumer to pay any additional non-exempt
fees with respect to the account until January
5 of year two.fi
2. Fees that exceed 25 percent limit. A card
issuer that charges a fee to a credit card
account that exceeds the 25 percent limit
complies with § 226.52(a)(1) if the card issuer
waives or removes the fee and any associated
interest charges or credits the account for an
amount equal to the fee and any associated
interest charges within a reasonable amount
of time but no later than the end of the billing
cycle following the billing cycle during
which the fee was charged. For example,
assuming the facts in flthe example infi
comment 52(a)(1)–1fl.i.fi above, the card
issuer complies with § 226.52(a)(1) if the card
issuer charged the $2.50 cash advance fee to
the account on July 15 of year one but waived
or removed the fee or credited the account for
$2.50 (plus any interest charges on that
$2.50) at the end of the billing cycle.
3. Changes in credit limit during first year.

*

*

*

*

*

17:45 Nov 01, 2010

*

*

Jkt 223001

*

*

*

iii. Fees that the consumer is required to
pay in order to engage in transactions using
the account (such as cash advance fees,
balance transfer fees, foreign transaction fees,
and fees for using the account for purchases);
øand¿
iv. Fees that the consumer is required to
pay for violating the terms of the account
(except to the extent specifically excluded by
§ 226.52(a)(2)(i))fl;fiø.¿
flv. Fixed finance charges; and
vi. Minimum charges imposed if a charge
would otherwise have been determined by
applying a periodic interest rate to a balance
except for the fact that such charge is smaller
than the minimum.fi

*

*

*

*

*

52(b) Limitations on penalty fees.

*

ii. Decreases in credit limit. If a card issuer
decreases the credit limit during the first year
after the account is opened, § 226.52(a)(1)

VerDate Mar<15>2010

requires the card issuer to waive or remove
any fees charged to the account that exceed
25 percent of the reduced credit limit or to
credit the account for an amount equal to any
fees the consumer was required to pay with
respect to the account that exceed 25 percent
of the reduced credit limit within a
reasonable amount of time but no later than
the end of the billing cycle following the
billing cycle during which flthe credit limit
was reducedfiøthe fee was charged¿. For
examplefl:fiø,¿
flA. Assumefiøassume¿ that, at account
opening on January 1, the credit limit for a
credit card account is $1,000 and the
consumer is required to pay $250 in fees for
the issuance or availability of credit. The
billing cycles for the account begin on the
first day of the month and end on the last day
of the month. On July 30, the card issuer
decreases the credit limit for the account to
$500. Section 226.52(a)(1) requires the card
issuer to waive or remove $175 in fees from
the account or to credit the account for an
amount equal to $175 within a reasonable
amount of time but no later than August 31.
flB. Assume that, on June 25 of year one,
a consumer is required to pay a $75 fee in
order to apply for a credit card account. At
account opening on July 1 of year one, the
credit limit for the account is $500 and the
consumer is required to pay $50 in fees for
the issuance or availability of credit. The
billing cycles for the account begin on the
first day of the month and end on the last day
of the month. On February 15 of year two,
the card issuer decreases the credit limit for
the account to $250. Section 226.52(a)(1)
requires the card issuer to waive or remove
fees from the account or to credit the account
for an amount equal to $62.50 within a
reasonable amount of time but no later than
March 31 of year two.fi
52(a)(2) Fees not subject to limitations.
1. Covered fees. Except as provided in
§ 226.52(a)(2), § 226.52(a) applies to any fees
flor other chargesfi that a card issuer will
or may require the consumer to pay with
respect to a credit card account flprior to
account opening andfi during the first year
after account openingfl, other than charges
attributable to periodic interest ratesfi. For
example, § 226.52(a) applies to:

*

*

*

*

52(b)(1)(ii) Safe harbors.
1. Multiple violations of same type.
øSection 226.52(b)(1)(ii)(A) permits a card

PO 00000

Frm 00046

Fmt 4701

Sfmt 4700

issuer to impose a fee that does not exceed
$25 for the first violation of a particular type.
For a subsequent violation of the same type
during the next six billing cycles,
§ 226.52(b)(1)(ii)(B) permits the card issuer to
impose a fee that does not exceed $35.¿
i. flSame billing cycle or next six billing
cycles.fi øNext six billing cycles.¿ flA card
issuer cannot impose a fee for a violation
pursuant to § 226.52(b)(1)(ii)(B) unless a fee
has previously been imposed for the same
type of violation pursuant to
§ 226.52(b)(1)(ii)(A). Once a fee has been
imposed for a violation pursuant to
§ 226.52(b)(1)(ii)(A), the card issuer may
impose a fee pursuant to § 226.52(b)(1)(ii)(B)
for any subsequent violation of the same type
until that type of violation has not occurred
for a period of six consecutive complete
billing cycles.fi øA fee may be imposed
pursuant to § 226.52(b)(1)(ii)(B) if, during the
six billing cycles following the billing cycle
in which a violation occurred, another
violation of the same type occurs.¿

*

*

*

*

*

ii. Relationship to §§ 226.52(b)(2)(ii) and
226.56(j)(1)ø(i)¿. If multiple violations are
based on the same event or transaction such
that § 226.52(b)(2)(ii) prohibits the card
issuer from imposing more than one fee, the
event or transaction constitutes a single
violation for purposes of § 226.52(b)(1)(ii).
Furthermore, consistent with § 226.56(j)(1)(i),
no more than one violation for exceeding an
account’s credit limit can occur during a
single billing cycle for purposes of
§ 226.52(b)(1)(ii). flHowever,
§ 226.52(b)(2)(ii) does not prohibit a card
issuer from imposing fees for exceeding the
credit limit in consecutive billing cycles
based on the same over-the-limit transaction
to the extent permitted by § 226.56(j)(1). In
these circumstances, the second and third
over-the-limit fees permitted by § 226.56(j)(1)
may be imposed pursuant to
§ 226.52(b)(1)(ii)(B). See comment
52(b)(2)(ii)-1.fi
iii. Examplesfl.fi ø:¿ * * * * *

*

*

*

*

*

52(b)(2) Prohibited fees.

*

*

*

*

*

52(b)(2)(i) Fees that exceed dollar amount
associated with violation.

*

*

*

*

*

5. Inactivity fees. Section
226.52(b)(2)(i)(B)(2) prohibits a card issuer
from imposing a fee flwith respect to a
credit card account under an open-end (not
home-secured) consumer credit planfi based
on øaccount¿ inactivity flon that accountfi
(including the consumer’s failure to use the
account for a particular number or dollar
amount of transactions or a particular type of
transaction). For example,
§ 226.52(b)(2)(i)(B)(2) prohibits a card issuer
from imposing a $50 fee flwhen a credit card
account under an open-end (not homesecured) consumer credit plan is not usedfi
øwhen a consumer fails to use the account¿
for flat leastfi $2,000 in purchases over the
course of a year. Similarly, flif the card
issuer promotes the waiver or rebate of an
annual fee for purposes of § 226.55(e) with
respect to a particular type of account,fi
§ 226.52(b)(2)(i)(B)(2) prohibits a card issuer

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
from imposing a $50 annual fee on all flsuch
fi accounts but waiving the fee flon any
account that is usedfi øif the consumer uses
the account¿ for flat leastfi $2,000 in
purchases over the course of a year.
flHowever, if the card issuer does not
promote the waiver or rebate of an annual fee
for purposes of § 226.55(e),
§ 226.52(b)(2)(i)(B)(2) does not prohibit a card
issuer from considering account activity
along with other factors when deciding
whether to waive or rebate annual fees on
individual accounts (such as in response to
a consumer’s request).fi

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*

*

*

*

52(b)(2)(ii) Multiple fees based on single
event or transaction.
1. Single event or transaction. Section
226.52(b)(2)(ii) prohibits a card issuer from
imposing more than one fee for violating the
terms or other requirements of an account
based on a single event or transaction. flIf
§ 226.56(j)(1) permits a card issuer to impose
fees for exceeding the credit limit in
consecutive billing cycles based on the same
over-the-limit transaction, those fees are not
based on a single event or transaction for
purposes of § 226.52(b)(2)(ii).fi The
following examples illustrate the application
of § 226.52(b)(2)(ii). Assume for purposes of
these examples that the billing cycles for a
credit card account begin on the first day of
the month and end on the last day of the
month and that the payment due date for the
account is the twenty-fifth day of the month.
i. Assume that the required minimum
periodic payment due on March 25 is $20.
On March 26, the card issuer has not
received any payment and imposes a late
payment fee. flConsistent with
§§ 226.52(b)(1)(ii)(A) and (b)(2)(i), the card
issuer may impose a $20 late payment fee on
March 26. However, § fi øSection¿
226.52(b)(2)(ii) prohibits the card issuer from
imposing an additional late payment fee if
the $20 minimum payment has not been
received by a subsequent date (such as March
31). øHowever, § 226.52(b)(2)(ii) does not
prohibit the card issuer from imposing an
additional late payment fee if the required
minimum periodic payment due on April 25
(which may include the $20 due on March
25) is not received on or before that date.¿
flA. On April 3, the card issuer provides
a periodic statement disclosing that a $70
required minimum periodic payment is due
on April 25. This minimum payment
includes the $20 minimum payment due on
March 25 and the $20 late payment fee
imposed on March 26. On April 20, the card
issuer receives a $20 payment. No additional
payments are received during the April
billing cycle. Section 226.52(b)(2)(ii) does not
prohibit the card issuer from imposing a late
payment fee based on the consumer’s failure
to make the $70 required minimum periodic
payment on or before April 25. Accordingly,
consistent with § 226.52(b)(1)(ii)(B) and
(b)(2)(i), the card issuer may impose a $35
late payment fee on April 26.
B. On April 3, the card issuer provides a
periodic statement disclosing that a $20
required minimum periodic payment is due
on April 25. This minimum payment does
not include the $20 minimum payment due
on March 25 or the $20 late payment fee

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

imposed on March 26. On April 20, the card
issuer receives a $20 payment. No additional
payments are received during the April
billing cycle. Because the card issuer has
received the required minimum periodic
payment due on April 25 and because
§ 226.52(b)(2)(ii) prohibits the card issuer
from imposing a second late payment fee
based on the consumer’s failure to make the
$20 minimum payment due on March 25, the
card issuer cannot impose a late payment fee
in these circumstances.fi

*

*

*

*

*

iv. Assume that the credit limit for an
account is $1,000 and that, consistent with
§ 226.56, the consumer has affirmatively
consented to the payment of transactions that
exceed the credit limit. On March 31, the
balance on the account is $970 and the card
issuer has not received the $35 required
minimum periodic payment due on March
25. On that same date (March 31), a $70
transaction is charged to the account, which
increases the balance to $1,040. Consistent
with § 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the
card issuer may impose a late payment fee of
$25 and an over-the-limit fee of $25. Section
226.52(b)(2)(ii) does not prohibit the
imposition of both fees because those fees are
based on different events or transactions.
flNo additional transactions are charged to
the account during the March, April, or May
billing cycles. If the account balance remains
more than $35 above the credit limit on April
26, the card issuer may impose an over-thelimit fee of $35 pursuant to
§ 226.52(b)(1)(ii)(B), consistent with
§ 226.56(j)(1). Furthermore, if the account
balance remains more than $35 above the
credit limit on May 26, the card issuer may
again impose an over-the-limit fee of $35
pursuant to § 226.52(b)(1)(ii)(B), to the extent
consistent with § 226.56(j)(1). Thereafter,
§ 226.56(j)(1) does not permit the card issuer
to impose additional over-the-limit fees
unless another over-the-limit transaction
occurs. However, if an over-the-limit
transaction occurs during the six billing
cycles following the May billing cycle, the
card issuer may impose an over-the-limit fee
of $35 pursuant to § 226.52(b)(1)(ii)(B).fi
flv. Assume that the credit limit for the
account is $5,000 and that, consistent with
§ 226.56, the consumer has affirmatively
consented to the payment of transactions that
exceed the credit limit. On July 23, the
balance on the account is $4,950. On July 24,
the card issuer receives the $100 required
minimum periodic payment due on July 25,
reducing the balance to $4,850. On July 26,
a $75 transaction is charged to the account,
which increases the balance to $4,925. On
July 27, the $100 payment is returned for
insufficient funds, increasing the balance to
$5,025. Consistent with §§ 226.52(b)(1)(ii)(A)
and (b)(2)(i)(A), the card issuer may impose
a returned payment fee of $25 or an over-thelimit fee of $25. However, § 226.52(b)(2)(ii)
prohibits the card issuer from imposing both
fees because those fees would be based on a
single event or transaction.
vi. Assume that the required minimum
periodic payment due on March 25 is $50.
On March 20, the card issuer receives a check
for $50, but the check is returned for
insufficient funds on March 22. Consistent

PO 00000

Frm 00047

Fmt 4701

Sfmt 4700

67503

with §§ 226.52(b)(1)(ii)(A) and (b)(2)(i)(A),
the card issuer may impose a returned
payment fee of $25. On March 25, the card
issuer receives a second check for $50, but
the check is returned for insufficient funds
on March 27. Consistent with
§§ 226.52(b)(1)(ii)(A), (b)(1)(ii)(B), and
(b)(2)(i)(A), the card issuer may impose a late
payment fee of $25 or a returned payment fee
of $35. However, § 226.52(b)(2)(ii) prohibits
the card issuer from imposing both fees
because those fees would be based on a
single event or transaction.
vii. Assume that the required minimum
periodic payment due on February 25 is
$100. On February 25, the card issuer
receives a check for $100. On March 3, the
card issuer provides a periodic statement
disclosing that a $120 required minimum
periodic payment is due on March 25. On
March 4, the $100 check is returned to the
card issuer for insufficient funds. Consistent
with §§ 226.52(b)(1)(ii)(A) and (b)(2)(i)(A),
the card issuer may impose a late payment
fee of $25 or a returned payment fee of $25
with respect to the $100 payment. However,
§ 226.52(b)(2)(ii) prohibits the card issuer
from imposing both fees because those fees
would be based on a single event or
transaction. On March 20, the card issuer
receives a $120 check, which is not returned.
No additional payments are received during
the March billing cycle. Because the card
issuer has received the required minimum
periodic payment due on March 25 and
because § 226.52(b)(2)(ii) prohibits the card
issuer from imposing a second fee based on
the $100 payment that was returned for
insufficient funds, the card issuer cannot
impose a late payment fee in these
circumstances.fi

*

*

*

*

*

Section 226.53—Allocation of Payments

*

*

*

*

*

4. Balances with the same rate. When the
same annual percentage rate applies to more
than one balance on an account and a
different annual percentage rate applies to at
least one other balance on that account,
§ 226.53 generally does not require that any
particular method be used when allocating
among the balances with the same annual
percentage rate. Under these circumstances,
a card issuer may treat the balances with the
same rate as a single balance or separate
balances. See example in comment 53–5.iv.
However, when a balance on a credit card
account is subject to a deferred interest or
similar program that provides that a
consumer will not be obligated to pay
interest that accrues on the balance if the
balance is paid in full prior to the expiration
of a specified period of time, that balance
must be treated as a balance with an annual
percentage rate of zero for purposes of
§ 226.53 during that period of time. For
example, if an account has a $1,000 purchase
balance and a $2,000 balance that is subject
to a deferred interest program that expires on
July 1 and a 15% annual percentage rate
applies to both, the balances must be treated
as balances with different rates for purposes
of § 226.53 until July 1. In addition, unless
the card issuer allocates amounts paid by the
consumer in excess of the required minimum

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

67504

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

periodic payment in the manner requested by
the consumer pursuant to
§ 226.53(b)fl(1)(ii)fi ø(2)¿,
§ 226.53(b)(1)fl(i)fi requires the card issuer
to apply any excess payments first to the
$1,000 purchase balance except during the
last two billing cycles of the deferred interest
period (when it must be applied first to any
remaining portion of the $2,000 balance). See
example in comment 53–5.v.
5. * * * * *
v. * * * * *
A. Each month from February through
June, the consumer pays $400 in excess of
the required minimum periodic payment on
the payment due date, which is the twentyfifth of the month. Any interest that accrues
on the purchases not subject to the deferred
interest program is paid by the required
minimum periodic payment. The card issuer
does not accept requests from consumers
regarding the allocation of excess payments
pursuant to § 226.53(b)fl(1)(ii)fi ø(2)¿.
Thus, § 226.53(b)(1)fl(i)fi requires the card
issuer to allocate the $400 excess payments
received on February 25, March 25, and April
25 consistent with § 226.53(a). In other
words, the card issuer must allocate those
payments as follows: $200 to pay off the
balance not subject to the deferred interest
program (which is subject to the 15% rate)
and the remaining $200 to the deferred
interest balance (which is treated as a balance
with a rate of zero). However,
§ 226.53(b)(1)fl(i)fi requires the card issuer
to allocate the entire $400 excess payment
received on May 25 to the deferred interest
balance. Similarly, § 226.53(b)(1)fl(i)fi
requires the card issuer to allocate the $400
excess payment received on June 25 as
follows: $200 to the deferred interest balance
(which pays that balance in full) and the
remaining $200 to the balance not subject to
the deferred interest program.
B. Same facts as above, except that the card
issuer does accept requests from consumers
regarding the allocation of excess payments
pursuant to § 226.53(b)fl(1)(ii)fi ø(2)¿. In
addition, on April 25, the card issuer receives
an excess payment of $800, which the
consumer requests be allocated to pay off the
$800 balance subject to the deferred interest
program. Section 226.53(b)fl(1)(ii)fi ø(2)¿
permits the card issuer to allocate the $800
excess payment in the manner requested by
the consumer.
53(b) Special ruleflsfi øfor accounts with
balances subject to deferred interest or
similar programs¿.
1. Deferred interest and similar programs.
Section 226.53(b)fl(1)fi applies to deferred
interest or similar programs under which the
consumer is not obligated to pay interest that
accrues on a balance if that balance is paid
in full prior to the expiration of a specified
period of time. For purposes of
§ 226.53(b)fl(1)fi, ‘‘deferred interest’’ has the
same meaning as in § 226.16(h)(2) and
associated commentary. Section
226.53(b)fl(1)fi applies regardless of
whether the consumer is required to make
payments with respect to that balance during
the specified period. However, a grace period
during which any credit extended may be
repaid without incurring a finance charge
due to a periodic interest rate is not a

VerDate Mar<15>2010

19:32 Nov 01, 2010

Jkt 223001

deferred interest or similar program for
purposes of § 226.53(b)fl(1)fi. Similarly, a
temporary annual percentage rate of zero
percent that applies for a specified period of
time consistent with § 226.55(b)(1) is not a
deferred interest or similar program for
purposes of § 226.53(b)fl(1)fi unless the
consumer may be obligated to pay interest
that accrues during the period if a balance is
not paid in full prior to expiration of the
period.
2. Expiration of fldeferred interest or
similarfi program during billing cycle. For
purposes of § 226.53(b)(1)fl(i)fi, a billing
cycle does not constitute one of the two
billing cycles immediately preceding
expiration of a deferred interest or similar
program if the expiration date for the
program precedes the payment due date in
that billing cycle. For example, assume that
a credit card account has a balance subject
to a deferred interest program that expires on
June 15. Assume also that the billing cycles
for the account begin on the first day of the
month and end on the last day of the month
and that the required minimum periodic
payment is due on the twenty-fifth day of the
month. The card issuer does not accept
requests from consumers regarding the
allocation of excess payments pursuant to
§ 226.53(b)fl(1)(ii)fi ø(2)¿. Because the
expiration date for the deferred interest
program (June 15) precedes the due date in
the June billing cycle (June 25),
§ 226.53(b)(1)fl(i)fi requires the card issuer
to allocate first to the deferred interest
balance any amount paid by the consumer in
excess of the required minimum periodic
payment during the April and May billing
cycles (as well as any amount paid by the
consumer before June 15). However, if the
deferred interest program expired on June 25
or on June 30 (or on any day in between),
§ 226.53(b)(1)fl(i)fi would apply only to the
May and June billing cycles.
3. Consumer requests.
i. Generally. Section 226.53(b) does not
require a card issuer to allocate amounts paid
by the consumer in excess of the required
minimum periodic payment in the manner
requested by the consumer, provided that the
card issuer instead allocates such amounts
consistent with § 226.53fl(a)fi or (b)(1)fl(i),
as applicablefi. For example, a card issuer
may decline consumer requests regarding
payment allocation as a general matter or
may decline such requests when a consumer
does not comply with requirements set by the
card issuer (such as submitting the request in
writing or submitting the request prior to or
contemporaneously with submission of the
payment), provided that amounts paid by the
consumer in excess of the required minimum
periodic payment are allocated consistent
with § 226.53fl(a)fi or (b)(1)fl(i), as
applicablefi. Similarly, a card issuer that
accepts requests pursuant to
§ 226.53(b)fl(1)(ii) or (b)fi(2) must allocate
amounts paid by a consumer in excess of the
required minimum periodic payment
consistent with § 226.53fl(a)fi or (b)(1)fl(i),
as applicable,fi if the consumer does not
submit a request. Furthermore, øin these
circumstances,¿ a card issuer flthat accepts
requests pursuant to § 226.53(b)(1)(ii) or
(b)(2)fi must allocate consistent with

PO 00000

Frm 00048

Fmt 4701

Sfmt 4700

§ 226.53fl(a)fi or (b)(1)fl(i), as
applicable,fi if the consumer submits a
request with which the card issuer cannot
comply (such as a request that contains a
mathematical error), unless the consumer
submits an additional request with which the
card issuer can comply.
ii. Examples of consumer requests that
satisfy § 226.53fl(b)(1)(ii) orfi (b)(2). A
consumer has made a request for purposes of
§ 226.53fl(b)(1)(ii) orfi (b)(2) if:
A. The consumer contacts the card issuer
orally, electronically, or in writing and
specifically requests that a payment or
payments be allocated in a particular manner
during the period of time that the deferred
interest or similar program applies to a
balance on the account flor the period of
time that a balance on the account is secured
fi.
B. The consumer completes fland submits
to the card issuerfi a form or payment
coupon provided by the card issuer for the
purpose of requesting that a payment or
payments be allocated in a particular manner
during the period of time that the deferred
interest or similar program applies to a
balance on the account flor the period of
time that a balance on the account is
securedfi øand submits that form or coupon
to the card issuer¿.
C. The consumer contacts the card issuer
orally, electronically, or in writing and
specifically requests that a payment that the
card issuer has previously allocated
consistent with § 226.53fl(a) orfi (b)(1)fl(i),
as applicable,fi instead be allocated in a
different manner.
iii. Examples of consumer requests that do
not satisfy § 226.53fl(b)(1)(ii) orfi (b)(2). A
consumer has not made a request for
purposes of § 226.53fl(b)(1)(ii) orfi (b)(2) if:
A. The terms and conditions of the account
agreement contain preprinted language
stating that by applying to open an
accountfl,fi øor¿ by using that account for
transactions subject to a deferred interest or
similar programfl, or by using the account
to purchase property in which the card issuer
holds a security interestfi the consumer
requests that payments be allocated in a
particular manner.

*

*

*

*

*

D. The card issuer requires a consumer to
accept a particular payment allocation
method as a condition of using a deferred
interest or similar program, flpurchasing
property in which the card issuer holds a
security interest,fi making a payment, or
receiving account services or features.

*

*

*

*

*

Section 226.55—Limitations on Increasing
Annual Percentage Rates, Fees, and Charges
55(a) General rule.
1. flIncrease in rate, fee, or chargefi
øExamples¿. Section 226.55(a) prohibits card
issuers from increasing an annual percentage
rate or any fee or charge required to be
disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or
(b)(2)(xii) on a credit card account unless
specifically permitted by one of the
exceptions in § 226.55(b). flExcept as
specifically provided in § 226.55(b), this
prohibition applies even if the circumstances
under which an increase will occur are

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
disclosed in advance.fi The following
examples illustrate the general application of
§ 226.55(a) and (b). Additional examples
illustrating specific aspects of the exceptions
in § 226.55(b) are provided in the
commentary to those exceptions.

*

*

*

*

*

55(b) Exceptions.
1. Exceptions not mutually exclusive. A
card issuer may increase an annual
percentage rate or a fee or charge required to
be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii),
or (b)(2)(xii) pursuant to an exception set
forth in § 226.55(b) even if that increase
would not be permitted under a different
exception. For example, although a card
issuer cannot increase an annual percentage
rate pursuant to § 226.55(b)(1) unless that
rate is provided for a specified period of at
least six months, the card issuer may increase
an annual percentage rate during a specified
period due to an increase in an index
consistent with § 226.55(b)(2). Similarly,
although § 226.55(b)(3) does not permit a
card issuer to increase an annual percentage
rate during the first year after account
opening, the card issuer may increase the rate
during the first year after account opening
pursuant to § 226.55(b)(4) if the required
minimum periodic payment is not received
within 60 days after the due date.
flHowever, if § 226.55(b)(4)(ii) requires a
card issuer to decrease the rate, fee, or charge
that applies to a balance while the account
is subject to a workout or temporary hardship
arrangement or subject to 50 U.S.C. app. 527
or a similar federal or state statute or
regulation, the card issuer may not impose a
higher rate, fee, or charge on that balance
pursuant to § 226.55(b)(5) or (b)(6) upon
completion or failure of the arrangement or
once 50 U.S.C. app. 527 or the similar federal
or state statute or regulation no longer
applies. For example, assume that, on
January 1, the annual percentage rate that
applies to a $1,000 balance is increased from
12% to 30% pursuant to § 226.55(b)(4). On
February 1, the rate on that balance is
decreased from 30% to 15% consistent with
§ 226.55(b)(5) as a part of a workout or
temporary hardship arrangement. On July 1,
§ 226.55(b)(4)(ii) requires the card issuer to
reduce the rate that applies to any remaining
portion of the $1,000 balance from 15% to
12%. If the consumer subsequently
completes or fails to comply with the terms
of the workout or temporary hardship
arrangement, the card issuer may not
increase the 12% rate that applies to any
remaining portion of the $1,000 balance
pursuant to § 226.55(b)(5).fi

*

*

*

*

*

*

*

*

3. * * *

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*

iii. * * *
flC. Application of lower temporary rate
during specified period. Same facts as in
paragraph iii. above. On June 30 of year two,
the account has a purchase balance of $1,000
at the 15% non-variable rate. On July 1, the
card issuer provides a notice pursuant to
§ 226.9(c) informing the consumer that the
rate for the $1,000 balance and new
purchases will decrease to a non-variable rate
of 12% for six months (from July 1 through

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

December 31 of year two) and that, beginning
on January 1 of year three, the rate for
purchases will increase to a variable rate that
is currently 20% and is determined by
adding a margin of 10 percentage points to
a publicly-available index not under the card
issuer’s control. On August 15 of year two,
the consumer makes a $500 purchase. On
October 1, the card issuer provides another
notice pursuant to § 226.9(c) informing the
consumer that the rate for the $1,000 balance,
the $500 purchase, and new purchases will
decrease to a non-variable rate of 5% for six
months (from October 1 of year two through
March 31 of year three) and that, beginning
on April 1 of year three, the rate for
purchases will increase to a variable rate that
is currently 23% and is determined by
adding a margin of 13 percentage points to
the previously-disclosed index. On
November 15 of year two, the consumer
makes a $300 purchase. On April 1 of year
three, § 226.55 permits the card issuer to
begin accruing interest using the following
rates for any remaining portion of the
following balances: the 15% non-variable
rate for the $1,000 balance; the variable rate
determined using the 10-point margin for the
$500 purchase; and the variable rate
determined using the 13-point margin for the
$300 purchase.fi
55(b)(1) Temporary rate fl, fee, or
chargefi exception.

*

*

*

*

*

2. Period of six months or longer. A
temporary annual percentage rate fl, fee, or
chargefi must apply øto transactions¿ for a
specified period of six months or longer
before a card issuer can increase that rate fl,
fee, or chargefi pursuant to § 226.55(b)(1).
The specified period must expire no less than
six months after the date on which the
flcard issuerfi øcreditor¿ provides the
consumer with the disclosures required by
§ 226.55(b)(1)(i) or, if later, the date on which
the account can be used for transactions to
which the temporary rate fl, fee, or chargefi
applies. Section 226.55(b)(1) does not
prohibit a card issuer from limiting the
application of a temporary annual percentage
rate fl, fee, or chargefi to a particular
category of transactions (such as balance
transfers or purchases over $100). However,
in circumstances where the card issuer limits
application of the temporary ratefl, fee, or
chargefi to a flsinglefi øparticular¿
transaction, the specified period must expire
no less than six months after the date on
which that transaction occurred. The
following examples illustrate the application
of § 226.55(b)(1):

*

*

*

*

*

flvii. Assume that a card issuer discloses
at account opening on January 1 of year one
that the annual fee for the account is $0 until
January 1 of year two, when the fee will
increase to $50. On January 1 of year two, the
card issuer may impose the $50 annual fee.
However, the issuer must also comply with
the notice requirements in § 226.9(e).
viii. Assume that a card issuer discloses at
account opening on January 1 of year one
that the monthly maintenance fee for the
account is $0 until July 1 of year one, when
the fee will increase to $10. Beginning on
July 1 of year one, the card issuer may

PO 00000

Frm 00049

Fmt 4701

Sfmt 4700

67505

impose the $10 monthly maintenance fee (to
the extent consistent with § 226.52(a)).fi

*

*

*

*

*

4. Contingent or discretionary ørate¿
increases. Section § 226.55(b)(1) permits a
card issuer to increase a temporary annual
percentage rate fl, fee, or chargefi upon the
expiration of a specified period of time.
However, § 226.55(b)(1) does not permit a
card issuer to apply an increased rate fl, fee,
or chargefi that is contingent on a particular
event or occurrence or that may be applied
at the card issuer’s discretion. The following
examples illustrate rate increases that are not
permitted by § 226.55:

*

*

*

*

*

fliii. Assume that a card issuer discloses
at account opening on January 1 of year one
that the annual fee for the account is $10 but
may be increased to $50 if a consumer’s
required minimum periodic payment is
received after the payment due date, which
is the fifteenth of the month. The payment
due on July 15 is not received until July 23.
Section 226.55 does not permit the card
issuer to impose the $50 annual fee at this
time. Furthermore, § 226.55(b)(3) does not
permit the card issuer to increase the $10
annual fee during the first year after account
opening. However, § 226.55(b)(3) does permit
the card issuer to impose the $50 fee (or a
different fee) on January 1 of year two if, on
or before November 16 of year one, the issuer
informs the consumer of the increased fee
consistent with § 226.9(c) and the consumer
does not reject that increase pursuant to
§ 226.9(h).
iv. Assume that a card issuer discloses at
account opening on January 1 of year one
that the annual fee for a credit card account
under an open-end (not home-secured)
consumer credit plan is $0 but may be
increased to $100 if the consumer’s balance
in a deposit account provided by the card
issuer or its affiliate or subsidiary falls below
$5,000. On June 1 of year one, the balance
on the deposit account is $4,500. Section
226.55 does not permit the card issuer to
impose the $100 annual fee at this time.
Furthermore, § 226.55(b)(3) does not permit
the card issuer to increase the $0 annual fee
during the first year after account opening.
However, § 226.55(b)(3) does permit the card
issuer to impose the $100 fee (or a different
fee) on January 1 of year two if, on or before
November 16 of year one, the issuer informs
the consumer of the increased fee consistent
with § 226.9(c) and the consumer does not
reject that increase pursuant to § 226.9(h).fi
fl5. Application of increased fees and
charges. Section 226.55(b)(1)(ii) limits the
ability of a card issuer to apply an increased
fee or charge to certain transactions.
However, to the extent consistent with
§ 226.55(b)(3)(c), and (d), a card issuer
generally is not prohibited from increasing a
fee or charge that applies to the account as
a whole. See comments 55(c)(1)–3 and 55(d)–
1.fi

*

*

*

*

*

55(b)(6) Servicemembers Civil Relief Act
exception.
1. Ratefl, fee, or chargefi that does not
exceed rate that applied before decrease.
flWhen a rate or a fee or charge subject to

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

67506

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

§ 226.55 has been decreased pursuant to 50
U.S.C. app. 527 or a similar federal or state
statute or regulation, § 226.55(b)(6) permits
the card issuer to increase the rate, fee, or
charge once 50 U.S.C. app. 527 or the similar
statute or regulation no longer applies.
However, § 226.55(b)(6) prohibits the card
issuer from applying to any transactions that
occurred prior to the decrease a rate, fee, or
charge that exceeds the rate, fee, or charge
that applied to those transactions prior to the
decrease (except to the extent permitted by
one of the other exceptions in § 226.55(b)).fi
øOnce 50 U.S.C. app. 527 no longer applies,
§ 226.55(b)(6) prohibits a card issuer from
applying an annual percentage rate to any
transactions that occurred prior to a decrease
in rate pursuant to 50 U.S.C. app. 527 that
exceeds the rate that applied to those
transactions prior to the decrease. However,
this provision does not prohibit the card
issuer from applying an increased annual
percentage rate once 50 U.S.C. app. 527 no
longer applies, to the extent consistent with
any of the other exceptions in § 226.55(b).¿
For example, if a temporary rate applied
prior to fla decrease in rate pursuant to 50
U.S.C. app. 527fi øthe decrease¿ and flthe
temporary ratefi øthat rate¿ expired during
the period that 50 U.S.C. app. 527 applied to
the account, the card issuer may apply an
increased rate once 50 U.S.C. app. 527 no
longer applies to the extent consistent with
§ 226.55(b)(1). Similarly, if a variable rate
applied prior to fla decrease in rate pursuant
to 50 U.S.C. app. 527fi øthe decrease¿, the
card issuer may apply any increase in that
variable rate once 50 U.S.C. app. 527 no
longer applies to the extent consistent with
§ 226.55(b)(2).
fl2. Decreases in rates, fees, and charges
to amounts consistent with 50 U.S.C. app.
527 or similar statute or regulation. If a card
issuer deceases all annual percentage rates
and all fees and charges subject to § 226.55
to amounts that are consistent with 50 U.S.C.
app. 527 or a similar federal or state statute
or regulation (including rates, fees, and
charges that apply to new transactions), the
card issuer may increase those rates, fees,
and charges consistent with § 226.55(b)(6).fi
fl3.fi ø2.¿ Example. Assume that on
December 31 of year one the annual
percentage rate that applies to a $5,000
balance on a credit card account is a variable
rate that is determined by adding a margin
of 10 percentage points to a publiclyavailable index that is not under the card
issuer’s control. flThe account is also
subject to a monthly maintenance fee of
$10.fi On January 1 of year two, the card
issuer reduces the rate that applies to the
$5,000 balance to a non-variable rate of 6%
fland ceases to impose the $10 monthly
maintenance fee and other fees (including
late payment fees)fi pursuant to 50 U.S.C.
app. 527. flThe card issuer also decreases
the rate that applies to new transactions to
6%. During year two, the consumer uses the
account for $1,000 in new transactions.fi On
January 1 of year three, 50 U.S.C. app. 527
ceases to apply and the card issuer provides
a notice pursuant to § 226.9(c) informing the
consumer that on February 15 of year three
the variable rate determined using the 10point margin will apply to any remaining

VerDate Mar<15>2010

19:32 Nov 01, 2010

Jkt 223001

portion of the $5,000 balance fland to any
remaining portion of the $1,000 balance. The
notice also states that the $10 monthly
maintenance fee and other fees (including
late payment fees) will resume on February
15 of year three. Consistent with
§ 226.9(c)(2)(iv)(B), the card issuer is not
required to provide a right to reject in these
circumstancesfi. On February 15 of year
three, § 226.55(b)(6) permits the card issuer
to begin accruing interest on any remaining
portion of the $5,000 fland $1,000fi
balanceflsfi at the variable rate determined
using the 10-point margin fland to resume
imposing the $10 monthly maintenance fee
and other fees (including late payment
fees)fi.
55(c) Treatment of protected balances.
55(c)(1) Definition of protected balance.

*

*

*

*

*

3. Increased fees and charges. flExcept as
provided in § 226.55(b)(3)(iii)fi [Once an
account has been open for more than one
year], § 226.55(b)(3) permits a card issuer to
increase a fee or charge required to be
disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or
(b)(2)(xii) after complying with the applicable
notice requirements in § 226.9(b) or (c),
provided that the increased fee or charge is
not applied to a protected balance. flTo the
extent consistent with § 226.55(b)(3)(iii), afi
øA¿ card issuer is not prohibited from
increasing a fee or charge that applies to the
account as a whole or to balances other than
the protected balance. For example, after the
first year following account opening, a card
issuer may add flor increase anfi øa new¿
annual or a monthly maintenance fee flfor
an active account after complying with the
notice requirements in § 226.9(c), including
notifying the consumer of the right to reject
the new or increased fee under § 226.9(h)fi
øto an account or increase such a fee so long
as the fee is not based solely on the protected
balance¿. flHowever, except as otherwise
provided in § 226.55(b), an increased fee or
charge cannot be applied to an account while
the account is closed or while the card issuer
does not permit the consumer to use the
account for new transactions. See
§ 226.55(b)(3)(iii); see also
§§ 226.52(b)(2)(i)(B)(3) and 226.55(d)(1).
Furthermorefi øHowever¿, if the consumer
rejects an increase in a fee or charge pursuant
to § 226.9(h), the card issuer is prohibited
from applying the increased fee or charge to
the account and from imposing any other fee
or charge solely as a result of the rejection.
See § 226.9(h)(2)(i) and (ii); comment
9(h)(2)(ii)–2.
fl4. Changing balance computation
method. Nothing in § 226.55 prohibits a card
issuer from changing the balance
computation method that applies to new
transactions as well as protected balances.fi

*

*

*

*

*

fl55(e) Promotional waivers or rebates of
interest, fees, and other charges.
1. Generally. Nothing in § 226.55 prohibits
a card issuer from waiving or rebating
finance charges due to a periodic interest rate
or a fee or charge required to be disclosed
under § 226.6(b)(2)(ii), (b)(2)(iii), or
(b)(2)(xii). However, if a card issuer promotes
and applies the waiver or rebate to an
account, the card issuer cannot cease or

PO 00000

Frm 00050

Fmt 4701

Sfmt 4700

terminate the waiver or rebate unless
permitted by one of the exceptions in
§ 226.55(b). For example:
i. A card issuer applies an annual
percentage rate of 15% to balance transfers
but promotes a program under which all of
the interest accrued on transferred balances
will be waived or rebated for one year. If,
prior to the commencement of the one-year
period, the card issuer discloses the length of
the period and the annual percentage rate
that will apply to transferred balances after
expiration of that period consistent with
§ 226.55(b)(1)(i), § 226.55(b)(1) permits the
card issuer to begin imposing interest charges
on transferred balances after one year.
Furthermore, if, during the one-year period,
a required minimum periodic payment is not
received within 60 days of the payment due
date, § 226.55(b)(4) permits the card issuer to
begin imposing interest charges on
transferred balances (after providing a notice
consistent with § 226.9(g) and
§ 226.55(b)(4)(i)). However, if a required
minimum periodic payment is not more than
60 days delinquent or if the consumer
otherwise violates the terms or other
requirements of the account, § 226.55 does
not permit the card issuer to begin imposing
interest charges on transferred balances until
the expiration of the one-year period.
ii. A card issuer imposes a monthly
maintenance fee of $10 but promotes a
program under which the fee will be waived
or rebated for the six months following
account opening. If, prior to account opening,
the card issuer discloses the length of the
period and the monthly maintenance fee that
will be imposed after expiration of that
period consistent with § 226.55(b)(1)(i),
§ 226.55(b)(1) permits the card issuer to begin
imposing the monthly maintenance fee six
months after account opening. Furthermore,
if, during the six-month period, a required
minimum periodic payment is not received
within 60 days of the payment due date,
§ 226.55(b)(4) permits the card issuer to begin
imposing the monthly maintenance fee (after
providing a notice consistent with § 226.9(c)
and § 226.55(b)(4)(i)). However, if a required
minimum periodic payment is not more than
60 days delinquent or if the consumer
otherwise violates the terms or other
requirements of the account, § 226.55 does
not permit the card issuer to begin imposing
the monthly maintenance fee until the
expiration of the six-month period.
2. Promotion of waiver or rebate. For
purposes of § 226.55(e), a card issuer
promotes a waiver or rebate if the card issuer
discloses the waiver or rebate in an
advertisement (as defined in § 226.2(a)(2)).
See comment 2(a)(2)–1. In addition, a card
issuer promotes a waiver or rebate for
purposes of § 226.55(e) if the card issuer
discloses the waiver or rebate in
communications regarding existing accounts
(such as communications regarding a
promotion that encourages additional or
different uses of an existing account), unless
the communication relates to an inquiry or
dispute about a specific charge or occurs after
the card issuer has waived or rebated the
interest, fees, or other charges.
i. The following are examples of
circumstances in which a card issuer is

E:\FR\FM\02NOP2.SGM

02NOP2

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
promoting a waiver or rebate for purposes of
§ 226.55(e):
A. A card issuer discloses the waiver or
rebate in a newspaper, magazine, leaflet,
promotional flyer, catalog, sign, or point-ofsale display.
B. A card issuer discloses the waiver or
rebate on radio or television or through
electronic advertisements (such as on the
Internet).
C. A card issuer discloses a waiver or
rebate to individual consumers, such as by
telephone, letter, or electronic
communication, through direct mail
literature, or on or with account statements.
To the extent that a card issuer provides such
disclosures to its current accountholders, the
issuer is promoting a waiver or rebate for
purposes of § 226.55(e) if the disclosure is
provided before the issuer has waived or
rebated the interest, fees, or other charges
subject to § 226.55 (unless the disclosure
relates to an inquiry or dispute about a
specific charge).
ii. The following are examples of
circumstances in which a card issuer is not
promoting a waiver or rebate for purposes of
§ 226.55(e):
A. After a card issuer has waived or
rebated interest, fees, or other charges subject
to § 226.55 with respect to an account, the
issuer discloses the waiver or rebate to the
accountholder on the periodic statement or
by telephone, letter, or electronic
communication. However, if the card issuer
also discloses prospective waivers or rebates
in the same communication, the issuer is
promoting a waiver or rebate for purposes of
§ 226.55(e).
B. A card issuer communicates with a
consumer about a waiver or rebate of interest,
fees, or other charges subject to § 226.55 in
relation to an inquiry or dispute about a
specific charge, including a dispute under
§ 226.12 or § 226.13.
C. A card issuer waives or rebates interest,
fees, or other charges subject to § 226.55 in
order to comply with a legal requirement
(such as the limitations in § 226.52(a)).
D. A card issuer discloses a grace period
consistent with § 226.5a, § 226.6, or § 226.7.
E. A card issuer provides an undisclosed
period after the payment due date during
which interest, fees, or other charges subject
to § 226.55 are waived or rebated even if a
payment has not been received.
F. A card issuer provides benefits (such as
rewards points or cash back on purchases or
finance charges) that can be applied to the
account as credits, provided that the benefits
are not promoted as reducing interest, fees,
or other charges subject to § 226.55.
3. Relationship of § 226.55(e) to grace
period. Section 226.55(e) does not apply to
the waiver of finance charges due to a
periodic rate consistent with a grace period,
as defined in § 226.5(b)(2)(ii)(3).fi

*

*

*

*

*

Section 226.58—Internet Posting of Credit
Card Agreements
58(b) Definitions.
58(b)(1) Agreement.
1. Inclusion of pricing information. For
purposes of this section, a credit card
agreement is deemed to include certain

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

information, such as annual percentage rates
and fees, even if the issuer does not
otherwise include this information in the
basic credit contract. This information is
listed under the defined term ‘‘pricing
information’’ in
ø§ 226.58(b)(6)¿fl§ 226.58(b)(7)fi. For
example, the basic credit contract may not
specify rates, fees and other information that
constitutes pricing information as defined in
ø§ 226.58(b)(6)¿fl§ 226.58(b)(7)fi; instead,
such information may be provided to the
cardholder in a separate document sent along
with the card. However, this information
nevertheless constitutes part of the agreement
for purposes of § 226.58.

*

*

*

*

*

58(b)(2) Amends.
1. Substantive changes. A change to an
agreement is substantive, and therefore is
deemed an amendment of the agreement, if
it alters the rights or obligations of the
parties. Section 226.58(b)(2) provides that
any change in the pricing information, as
defined in
ø§ 226.58(b)(6)¿fl§ 226.58(b)(7)fi, is
deemed to be substantive. Examples of other
changes that generally would be considered
substantive include: (i) Addition or deletion
of a provision giving the issuer or consumer
a right under the agreement, such as a clause
that allows an issuer to unilaterally change
the terms of an agreement; (ii) addition or
deletion of a provision giving the issuer or
consumer an obligation under the agreement,
such as a clause requiring the consumer to
pay an additional fee; (iii) changes that may
affect the cost of credit to the consumer, such
as changes in a provision describing how the
minimum payment will be calculated; (iv)
changes that may affect how the terms of the
agreement are construed or applied, such as
changes in a choice-of-law provision; and (v)
changes that may affect the parties to whom
the agreement may apply, such as provisions
regarding authorized users or assignment of
the agreement.

67507

ø58(b)(7)¿fl58(b)(8)fi Private label credit
card account and private label credit card
plan.

*

*

*

*

*

2. Co-branded credit cards. The term
private label credit card account does not
include accounts with so-called co-branded
credit cards. Credit cards that display the
name, mark, or logo of a merchant or
affiliated group of merchants as well as the
mark, logo, or brand of payment network are
generally referred to as co-branded cards.
While these credit cards may display the
brand of the merchant or affiliated group of
merchants as the dominant brand on the
card, such credit cards are usable at any
merchant that participates in the payment
network. Because these credit cards can be
used at multiple unaffiliated merchants,
accounts with such credit cards are not
considered private label credit card accounts
under ø§ 226.58(b)(7)¿fl§ 226.58(b)(8)fi.

*

*

*

*

*

fl58(b)(4) Card issuer.
1. Card issuer clarified. Section
226.58(b)(4) provides that, for purposes of
§ 226.58, card issuer or issuer means the
entity to which a consumer is legally
obligated, or would be legally obligated,
under the terms of a credit card agreement.
For example, Bank X and Bank Y work
together to issue credit cards. A consumer
that obtains a credit card issued pursuant to
this arrangement between Bank X and Bank
Y is subject to an agreement that states ‘‘This
is an agreement between you, the consumer,
and Bank X that governs the terms of your
Bank Y Credit Card.’’ The card issuer in this
example is Bank X, because the agreement
creates a legally enforceable obligation
between the consumer and Bank X. Bank X
is the issuer even if the consumer applied for
the card through a link on Bank Y’s Web site
and the cards prominently feature the Bank
Y logo on the front of the card. fi
ø58(b)(4)¿fl58(b)(5)fi Offers.

4. Private label credit card plan. Which
credit card accounts issued by a particular
issuer constitute a private label credit card
plan is determined by where the credit cards
can be used. All of the private label credit
card accounts issued by a particular card
issuer with credit cards usable at the same
merchant or affiliated group of merchants
constitute a single private label credit card
plan, regardless of whether the rates, fees, or
other terms applicable to the individual
credit card accounts differ. For example, a
card issuer has 3,000 open private label
credit card accounts with credit cards usable
only at Merchant A and 5,000 open private
label credit card accounts with credit cards
usable only at Merchant B and its affiliates.
The card issuer has two separate private label
credit card plans, as defined by
ø§ 226.58(b)(7)¿fl§ 226.58(b)(8)fi—one plan
consisting of 3,000 open accounts with credit
cards usable only at Merchant A and another
plan consisting of 5,000 open accounts with
credit cards usable only at Merchant B and
its affiliates.
The example above remains the same
regardless of whether (or the extent to which)
the terms applicable to the individual open
accounts differ. For example, assume that,
with respect to the card issuer’s 3,000 open
accounts with credit cards usable only at
Merchant A in the example above, 1,000 of
the open accounts have a purchase APR of
12 percent, 1,000 of the open accounts have
a purchase APR of 15 percent, and 1,000 of
the open accounts have a purchase APR of
18 percent. All of the 5,000 open accounts
with credit cards usable only at Merchant B
and Merchant B’s affiliates have the same 15
percent purchase APR. The card issuer still
has only two separate private label credit
card plans, as defined by
ø§ 226.58(b)(7)¿fl§ 226.58(b)(8)fi. The open
accounts with credit cards usable only at
Merchant A do not constitute three separate
private label credit card plans under
ø§ 226.58(b)(7)¿fl§ 226.58(b)(8)fi, even
though the accounts are subject to different
terms.

*

*

*

*

*

*

*

*

*

*

*

*

PO 00000

*

*

Frm 00051

*

Fmt 4701

*

Sfmt 4700

*

*

*

*

58(c) Submission of agreements to Board.

ø58(b)(5)¿fl58(b)(6)fi Open account.

*

E:\FR\FM\02NOP2.SGM

*

*

02NOP2

*

*

67508

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

58(c)(3) Amended agreements.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

*

*

*

*

*

2. Submission of amended agreements.
flIf a card issuer amends a credit card
agreement previously submitted to the Board,
§ 226.58(c)(3) requires the card issuer to
submit the entire amended agreement to the
Board. The issuer must submit the amended
agreement to the Board by the first quarterly
submission deadline after the last day of the
calendar quarter in which the change became
effective. However, the issuer is required to
submit the amended agreement to the Board
only if the issuer offered the amended
agreement to the public as of the last
business day of the calendar quarter in which
the change became effective. For example, a
card issuer submits an agreement to the
Board on October 31. On November 15, the
issuer changes the balance computation
method used under the agreement. Because
an element of the pricing information has
changed, the agreement has been amended
for purposes of § 226.58(c)(3). On December
31, the last business day of the calendar
quarter in which the change in the balance
computation method became effective, the
issuer still offers the agreement to the public
as amended on November 15. The issuer
must submit the entire amended agreement
to the Board no later than January 31.fi øIf
a card issuer amends a credit card agreement
previously submitted to the Board,
§ 226.58(c)(3) requires the card issuer to
submit the entire amended agreement to the
Board by the first quarterly submission
deadline after the last day of the calendar
quarter in which the change became
effective. For example, a card issuer submits
an agreement to the Board on October 31. On
November 15, the issuer changes the balance
computation method used under the
agreement. Because an element of the pricing
information has changed, the agreement has
been amended and the card issuer must
submit the entire amended agreement to the
Board no later than January 31.¿
fl3. Agreements amended but no longer
offered to the public. A card issuer should
submit an amended agreement to the Board
under § 226.58(c)(3) only if the issuer offered
the amended agreement to the public as of
the last business day of the calendar quarter
in which the amendment became effective.
Agreements that are not offered to the public
as of the last day of the calendar quarter
should not be submitted to the Board. For
example, on December 31 a card issuer offers
two agreements, Agreement A and
Agreement B. The issuer submits these
agreements to the Board by January 31 as
required by § 226.58. On February 15, the
issuer amends both Agreement A and
Agreement B. On February 28, the issuer
stops offering Agreement A to the public. On
March 15, the issuer amends Agreement B a
second time. As a result, on March 31, the
last business day of the calendar quarter, the
issuer offers to the public one agreement—
Agreement B as amended on March 15. By
the April 30 quarterly submission deadline,
the issuer must: (1) Notify the Board that it
is withdrawing Agreement A because
Agreement A is no longer offered to the
public; and (2) submit to the Board
Agreement B as amended on March 15. The

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

issuer should not submit to the Board either
Agreement A as amended on February 15 or
the earlier version of Agreement B (as
amended on February 15), as neither was
offered to the public on March 31, the last
business day of the calendar quarter.fi
ø3.¿fl4.fi Change-in-terms notices not
permissible. * * *

*

*

*

*

*

58(e) Agreements for all open accounts.

*

*

*

*

*

3. Issuers without interactive Web sites.
Section 226.58(e)(2) provides that a card
issuer that does not maintain a Web site from
which cardholders can access specific
information about their individual accounts
is not required to provide a cardholder with
the ability to request a copy of the agreement
by using the card issuer’s Web site. A card
issuer without a Web site of any kind could
comply by disclosing the telephone number
on each periodic statement; a card issuer
with a non-interactive Web site could comply
in the same way, or alternatively could
comply by displaying the telephone number
on the card issuer’s Web site. flAn issuer is
considered to maintain an interactive Web
site for purposes of the § 226.58(e)(2) special
rule if the issuer provide cardholders with
access to specific information about their
individual accounts, such as balance
information or copies of statements, through
a third-party interactive Web site. Such a
Web site is deemed to be maintained by the
issuer for purposes of § 226.58(e)(2) even
where, for example, an unaffiliated entity
designs the Web site and owns and maintains
the information technology infrastructure
that supports the Web site, cardholders with
credit cards from multiple issuers can access
individual account information through the
same Web site, and the Web site is not
labeled, branded, or otherwise held out to the
public as belonging to the issuer. An issuer
that provides cardholders with access to
specific information about their individual
accounts through such a Web site is not
permitted to comply with the special rule in
§ 226.58(e)(2). Instead, such an issuer must
comply with § 226.58(e)(1).fi

*

*

*

*

*

Section 226.59—Reevaluation of Rate
Increases
59(a) General rule.
59(a)(1) Evaluation of increased rate.

*

*

*

*

*

fl3. Change in type of rate. i. Generally.
A change from a variable rate to a nonvariable rate or from a non-variable rate to a
variable rate is not a rate increase for
purposes of § 226.59, if the rate in effect
immediately prior to the change in type of
rate is equal to or greater than the rate in
effect immediately after the change. For
example, a change from a variable rate of
15.99% to a non-variable rate of 15.99% is
not a rate increase for purposes of § 226.59
at the time of the change. See § 226.55 for
limitations on the permissibility of changing
from a non-variable rate to a variable rate.
ii. Change from non-variable rate to
variable rate. A change from a non-variable
to a variable rate constitutes a rate increase
for purposes of § 226.59 if the variable rate

PO 00000

Frm 00052

Fmt 4701

Sfmt 4700

exceeds the non-variable rate that would
have applied if the change in type of rate had
not occurred. For example, assume a new
credit card account under an open-end (not
home-secured) consumer credit plan is
opened on January 1 of year 1 and that a nonvariable annual percentage rate of 12%
applies to all transactions on the account. On
January 1 of year 2, upon 45 days’ advance
notice pursuant to § 226.9(c)(2), the rate on
all new transactions is changed to a variable
rate that is currently 12% and is determined
by adding a margin of 10 percentage points
to a publicly-available index not under the
card issuer’s control. The change from the
12% non-variable rate to the 12% variable
rate on January 1 of year 2 is not a rate
increase for purposes of § 226.59(a). On April
1 of year 2, the value of the variable rate
increases to 12.5%. The increase in the
variable rate from 12% to 12.5% is a rate
increase for purposes of § 226.59, and the
card issuer must begin periodically
conducting reviews of the account pursuant
to § 226.59.
iii. Change from variable rate to nonvariable rate. A change from a variable to a
non-variable rate constitutes a rate increase
for purposes of § 226.59 if the non-variable
rate exceeds the variable rate that would have
applied if the change in type of rate had not
occurred. For example, assume a new credit
card account under an open-end (not homesecured) consumer credit plan is opened on
January 1 of year 1 and that a variable annual
percentage rate that is currently 15% and is
determined by adding a margin of 10
percentage points to a publicly-available
index not under the card issuer’s control
applies to all transactions on the account. On
January 1 of year 2, upon 45 days’ advance
notice pursuant to § 226.9(c)(2), the rate on
all existing balances and new transactions is
changed to a non-variable rate that is
currently 15%. The change from the 15%
variable rate to the 15% non-variable rate on
January 1 of year 2 is not a rate increase for
purposes of § 226.59(a). On April 1 of year 2,
the value of the variable rate that would have
applied to the account decreases to 12.5%.
Accordingly, on April 1 of year 2, the nonvariable rate of 15% exceeds the 12.5%
variable rate that would have applied but for
the change in type of rate. At this time, the
change to the non-variable rate of 15%
constitutes a rate increase for purposes of
§ 226.59, and the card issuer must begin
periodically conducting reviews of the
account pursuant to § 226.59.fi
ø3.¿ fl4.fi Rate increases prior to effective
date of rule. For increases in annual
percentage rates made on or after January 1,
2009 and prior to August 22, 2010,
§ 226.59(a) requires the card issuer to review
the factors described in § 226.59(d) and
reduce the rate, as appropriate, if the rate
increase is of a type for which 45 days’
advance notice would currently be required
under § 226.9(c)(2) or (g). For example, 45
days’ notice is not required under
§ 226.9(c)(2) if the rate increase results from
the increase in the index by which a
properly-disclosed variable rate is
determined in accordance with
§ 226.9(c)(2)(v)(C) or if the increase occurs
upon expiration of a specified period of time

E:\FR\FM\02NOP2.SGM

02NOP2

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
and disclosures complying with
§ 226.9(c)(2)(v)(B) have been provided. The
requirements of § 226.59 do not apply to such
rate increases.
ø4.¿ fl5.fi Amount of rate decrease. Even
in circumstances where a rate reduction is
required, § 226.59 does not require that a
card issuer decrease the rate that applies to
a credit card account to the rate that was in
effect prior to the rate increase subject to
§ 226.59(a). The amount of the rate decrease
that is required must be determined based
upon the card issuer’s reasonable policies
and procedures under § 226.59(b) for
consideration of factors described in
§ 226.59(a) and (d). For example, assume a
consumer’s rate on new purchases is
increased from a variable rate of 15.99% to
a variable rate of 23.99% based on the
consumer’s making a required minimum
periodic payment five days late. The
consumer makes all of the payments required
on the account on time for the six months
following the rate increase. Assume that the
card issuer evaluates the account by
reviewing the factors on which the increase
in an annual percentage rate was originally
based, in accordance with § 226.59(d)(1)(i).
The card issuer is not required to decrease
the consumer’s rate to the 15.99% that
applied prior to the rate increase. However,
the card issuer’s policies and procedures for
performing the review required by § 226.59(a)
must be reasonable, as required by
§ 226.59(b), and must take into account any
reduction in the consumer’s credit risk based
upon the consumer’s timely payments.

*

*

*

*

*

*

*

59(d) Factors.

*

*

*

srobinson on DSKHWCL6B1PROD with PROPOSALS2

fl6. Multiple rate increases between
January 1, 2009 and February 21, 2010. i.
General. Section 226.59(d)(2) applies if an
issuer increased the rate applicable to a
credit card account under an open-end (not
home-secured) consumer credit plan between
January 1, 2009 and February 21, 2010, and
the increase was not based solely upon
factors specific to the consumer. In some

VerDate Mar<15>2010

17:45 Nov 01, 2010

Jkt 223001

cases, a credit card account may have been
subject to multiple rate increases during the
period from January 1, 2009 to February 21,
2010. Some such rate increases may have
been based solely upon factors specific to the
consumer, while others may have been based
on factors not specific to the consumer, such
as the issuer’s cost of funds or market
conditions. In such circumstances, when
conducting the first two reviews required
under § 226.59, the card issuer may
separately review: (A) Rate increases
imposed based on factors not specific to the
consumer, using the factors described in
§ 226.59(d)(1)(ii) (as required by
§ 226.59(d)(2)); and (B) rate increases
imposed based on consumer-specific factors,
using the factors described in
§ 226.59(d)(1)(i). If the review of factors
described in § 226.59(d)(1)(i) indicates that it
is appropriate to continue to apply a penalty
rate to the account as a result of the
consumer’s payment history or other
behavior on the account, § 226.59 permits the
card issuer to continue to impose the penalty
rate, even if the review of the factors
described in § 226.59(d)(1)(ii) would
otherwise require a rate decrease.
ii. Example. Assume a credit card account
was subject to a rate of 15% on all
transactions as of January 1, 2009. On May
1, 2009, the issuer increased the rate on
existing balances and new transactions to
18%, based upon market conditions or other
factors not specific to the consumer or the
consumer’s account. Subsequently, on
September 1, 2009, based on a payment that
was received five days after the due date, the
issuer increased the applicable rate on
existing balances and new transactions from
18% to a penalty rate of 25%. When
conducting the first review required under
§ 226.59, the card issuer reviews the rate
increase from 15% to 18% using the factors
described in § 226.59(d)(1)(ii) (as required by
§ 226.59(d)(2)), and separately but
concurrently reviews the rate increase from
18% to 25% using the factors described in
paragraph § 226.59(d)(1)(i). The review of the
rate increase from 15% to 18% based upon

PO 00000

Frm 00053

Fmt 4701

Sfmt 9990

67509

the factors described in § 226.59(d)(1)(ii)
indicates that a similarly situated new
consumer would receive a rate of 17%. The
review of the rate increase from 18% to 25%
based upon the factors described in
§ 226.59(d)(1)(i) indicates that it is
appropriate to continue to apply the 25%
penalty rate based upon the consumer’s late
payment. Section 226.59 permits the rate on
the account to remain at 25%.fi

*

*

*

*

*

59(f) Termination of obligation to review
factors.

*

*

*

*

*

fl2. Example—relationship to § 226.59(a).
Assume that on January 1, 2011, a consumer
opens a new credit card account under an
open-end (not home-secured) consumer
credit plan. The annual percentage rate
applicable to purchases is 15%. Upon
providing 45 days’ advance notice and to the
extent permitted under § 226.55, the card
issuer increases the rate applicable to new
purchases to 18%, effective on September 1,
2012. The card issuer conducts reviews of the
increased rate in accordance with § 226.59 on
January 1, 2013 and July 1, 2013, based on
the factors described in § 226.59(d)(1)(ii).
Based on the January 1, 2013 review, the rate
applicable to purchases remains at 18%. In
the review conducted on July 1, 2013, the
card issuer determines that, based on the
relevant factors, the rate it would offer on a
comparable new account would be 14%.
Consistent with § 226.59(f), § 226.59(a)
requires that the card issuer reduce the rate
on the existing account to the 15% rate that
was in effect prior to the September 1, 2012
rate increase.fi

*

*

*

*

*

By order of the Board of Governors of the
Federal Reserve System, October 18, 2010.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2010–26515 Filed 11–1–10; 8:45 am]
BILLING CODE 6210–01–P

E:\FR\FM\02NOP2.SGM

02NOP2