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F
edera l
R
e se r v e b a n k
OF DALLAS
W ILLIAM
H. W ALLACE
FIRST V IC E PR ES ID EN T
AND C H IE F O PER ATING O FFIC ER
DALLAS, T EXA S 7 5 2 2 2
April 23, 1990
Circular 90-25
TO:
The Chief Executive Officer of all
member banks and others concerned in
the Eleventh Federal Reserve District
SUBJECT
F in a l R e v i s i o n s t o t h e
S t a f f Commentary t o R e g u l a t i o n Z
DETAILS
The Federal Reserve Board has published revisions to its official
staff commentary to Regulation Z, Truth in Lending. The revisions became
effective April 1, 1990, but compliance is optional until October 1, 1990.
The majority of the revisions address the Regulation Z amendments
implementing the Fair Credit and Charge Card Disclosure Act and the Home
Equity Loan Consumer Protection Act. Most of the interpretations have
been developed in response to requests by creditors for additional
guidance.
Some of the issues discussed include tax refund anticipation
loans, the price-level adjusted mortgage, and open-end credit advertising.
ATTACHMENTS
Copies of the B o a r d ’s notice as it appeared in the Federal
Register are attached.
M
ORE INFORMATION
For more information, please contact Jane Anne Schmoker at (214) 6516228.
For additional copies of this circular, please contact the Public
Affairs Department at (214) 651-6289.
Sincerely yours,
For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are
encouraged to use the following incoming WATS numbers in contacting this Bank (800) 442-7140 (intrastate) and (800)
527-9200 (interstate).
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
13103
Rules and Regulations
Federal Register
Vol. 55, No. 68
M onday, April 9, 1990
C lo s e d -e n d c r e d it is s u e s : Michael
Bylsma, Kurt Schumacher, Mary Jane
Seebach.
For the hearing impaired only.
Telecommunications Device for the Deaf
(TDD), Eamestine Hill or Dorothea
Thompson, at (202) 452-3544. Board of
Governors o f the Federal Reserve
System, Washington, DC 20551.
SUPPLEMENTARY INFORMATION: (1)
G e n e ra l. The Truth in Lending Act (15
FEDERAL RESERVE SYSTEM
12CFR Part 226
[R eg.
Truth in Lending; Update to Official
Staff Commentary
a g e n c y : Board of Governors of the
Federal Reserve System.
ACTION: Official staff interpretation.
summary :
The Board is publishing
revisions to the official staff
commentary to Regulation Z (Truth in
Lending). The commentary applies and
interprets the requirements of
Regulation Z and is a substitute for
individual staff interpretations. The
majority of the revisions address the
amendments to Regulation Z issued in
April 1989 to implement the Fair Credit
and Charge Card Disclosure Act of 1988
and the amendments to the regulation
issued in June 1989 to implement the
Home Equity Loan Consumer Protection
Act of 1988. The commentary
incorporates much of the guidance
provided when those regulatory changes
were adopted and addresses additional
questions that have been raised about
application of the new requirements as
w ell as several issues concerning other
parts of the regulation.
DATES: Effective April 1 ,1 9 9 0 . b u t
compliance optional until October 1,
199a
FOR FURTHER INFORMATION CONTACT:
The following attorneys in the Division
of Consumer and Community Affairs, at
(202) 4 5 2 -3 6 6 7 or (202) 452-2412.
F a ir C re d it a n d C h a rg e D is c lo s u r e A c t
is s u e s : Jane Ahrens, Adrienne Hurt,
John Wood.
H o m e E q u ity L o a n C o n s u m e r P r o te c tio n
A c t is s u e s : Sharon Bowman, Michael
Bylsma, Leonard Chanin, Thomas
Noto.
O th e r o p e n -e n d c r e d it is s u e s : Jane
Ahrens, Adrienne Hurt. John WoocL
U.S.C. 1601 e t seq.) governs consumer
credit transactions and is implemented
by the Board's Regulation Z (12 CFR
part 226). Effective October 13,1981, an
official staff commentary (TIL-1, Supp. I
to 12 CFR part 226) w as published to
interpret the regulation. The
commentary is designed to provide
guidance to creditors in applying the
regulation to specific transactions and is
updated periodically to address
significant questions that arise. There
have been eight general updates and one
limited update. This update reflects
material that w as published for
comment at 54 FR 48253 (November 22,
1989). Creditors are free to rely on the
revised commentary as of April 1,1990.
although they need not follow the
revisions until October 1,1990. (2)
R e v is io n s . Within the last year the
Board adopted two major sets of
amendments to Regulation Z. The first
of these were amendments published in
the Federal Register on April 6,1989 (54
FR 13855) to implement the Fair Credit
and Charge Card Disclosure Act of 1988,
Pub. L. No. 100-583,102 Stat. 2960
(FCCCDA). (The Board also adopted
technical amendments to Regulation Z,
in further implementation of FCCCDA,
published on August 11,1989, 54 FR
32953.)
The second major set of amendments
to Regulation Z comprised amendments
published in the Federal Register on
June 9,1989 (54 FR 24670) to implement
the Home Equity Loan Consumer
Protection Act of 1988, Pub. L No. 100709,102 Stat. 4725 (HELCPA). (See also
the correction notice published July 7,
1989, 54 FR 28665.)
In addition to the issues arising with
regard to the FCCCDA and HELPCA,
additional revisions are made to other
provisions of Regulation Z. For example,
the commentary revisions discuss tax
refund anticipation loans; a possible
new mortgage product, the price-level
adjusted mortgage; and open-end credit
advertising.
The text of all of the revisions is
presented below in the order in which it
appears in the commentary. To facilitate
review, however, the descriptions of the
revisions are presented separately for
the credit and charge provisions, the
home equity provisions, and the other
provisions.
Credit and Charge Card Provisions
The final commentary to the
regulation incorporates much of the
supplementary information that
accompanied the amendments to
Regulation Z implementing the
FCCCDA. Additional interpretations
and interpretations included in the
proposed comments that have been
revised are noted below.
Section 226.5a— C redit an d Charge C ard
A pplication s an d S olicitation s
Comments 5 a -l and -2 have been
added, respectively, to provide general
guidance on the coverage of § 226.5a
and to explain that a card issuer may
establish procedures so that a single
disclosure statement complies with
| § 226.5a and 226.6. (Proposed comment
5a(e)(2)-3 has been incorporated into
comment 5a-2.)
5a(a) General Rules
Comment 5a(a)(2)-3 has been revised
to emphasize that only the information
required or specifically permitted by this
section may be disclosed in the required
table; any other credit information must
appear outside of the table.
5a (b) Required Disclosures
Comment 5a(b)(l)-3 has been revised
to further clarify the timing rules for a
variable rate disclosure under
§ 226.5a(d)(2) in telephone applications
and solicitations; the rules correspond to
those under § 226.6(a)(2). Comment
5a(b)(6)-l has been revised to
emphasize that if a card issuer uses a
balance calculation method identified
in § 226.5a(g), only the name, and not a
description of the method, may be.
included in the required table.
5a(c) Direct Mail Applications and
Solicitations
Comment 5a(c)-l explains which rules
govern applications and solicitations in
catalogs and other publications mailed
to consumers. Generally, the "take-one”
rules apply. Nevertheless, where a
primary purpose of a card issuer’s
13104______ Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rales and Regulations
mailing is to offer credit or charge card
accounts, [for example, where a card
issuer mails to a credit-based
prescreened list of addressees a catalog
containing an application or
solicitation,] the direct mail rules apply.
The comment also provides further
guidance on the use of a single
application form for both direct mailings
and “take-ones."
5a(g) Balance Computation Methods
Defined
Comment 5a(g)-2 has been revised to
further explain the “two-cycle average
daily balance" method.
S e c tio n 2 2 6.9 — S u b s e q u e n t D is c lo s u r e
R e q u ir e m e n ts
9{e) Disclosures Upon Renewal of Credit
or Charge Card
The 30-day timing rule stated in the
proposal has been changed in comment
9(e}-4 on the disclosure of a variable
rate in a renewal notice; the rule now
corresponds to the rule under
§ 226.6(a)(2). Comment 9(e)-6 has been
revised primarily to explain that a card
issuer must clearly disclose when a
cardholder may terminate an account to
avoid paying a renewal fee. Comments
9(e)— through -9 have been added to
7
provide general guidance on the timing
requirements under § 226.9(e).
(Interpretations in proposed comment
9(e)(1)— which have been revised and
1,
simplified, are now included in these
comments.) Comment 9(e)-7 provides
that where card issuers give renewal
notices under § 226.9(e)(1), cardholders
must be given the lesser of 30 days or 1
full billing cycle to make a decision
about terminating the account; under
section 226.9(e)(2)(i), the cardholder has
30 days to make a decision. Comment
9(e)-8 states that notices are provided
when mailed or delivered. Comment
9(e}-9 provides that in situations where
a cardholder terminates an account and
a renewal fee appears on a periodic
statement, the card issuer must promptly
reverse or withdraw the renewal fee.
The comment also emphasizes that once
a cardholder terminates an account, no
additional action by the cardholder to
terminate may be required.
applications for purposes of preemption
has been changed. Comments 28(d) -1
and -2 have been revised to explain that
a “dual purpose” application or
solicitation—that is, one used to open
either a card account for consumer
purposes or a card account for business
purposes—is subject only to the
requirements of the federal law.
Home Equity Provisions
Although much of the final
commentary is self-explanatory,
provisions that have been changed
significantly from the proposal are
highlighted below. In addition, there are
two areas that were discussed in the
proposal that are not addressed in the
final commentary; the rule relating to
delaying detailed disclosures for the
repayment period of a home equity plan,
and the provision allowing a creditor to
suspend advances of credit if the rate
cap is reached under the plan. The
Board published a notice requesting
comment on whether it should delete or
revise the regulation relating to these
two issues on March 21,1990 (55 FR
10465). Depending on the resolution of
these issues, the Board may make
conforming changes to the commentary.
S e c tio n 2 2 6 .5 b — R e q u ir e m e n ts f o r H o m e
E q u ity P la n s
The commentary to § 226.5b dealing
with general coverage differs from the
proposed commentary in several
respects. First, comment 5b-2 discussing
transition rules and renewals of plans
entered into before the effective date of
the HELCPA has been added, at the
request of several commenters. Second,
as discussed above, in light of the
Board's proposed revision to the rule
relating to delayed timing of providing
detailed disclosures about any
repayment phase of a plan, the proposed
commentary provisions discussing that
issue have not been retained pending
the Board's final action on the issue.
Third, additional guidance and
examples have been added to comment
5b-4 to discuss the limited
circumstances when subpart C applies
to home equity plans.
9(e) Notification on Periodic Statements
5b(b) Time of Disclosures
Comment 9(e)(3)-l has been revised
to give further guidance where renewal
notices are combined with periodic
statements.
Comment 5b(b)-2 includes additional
guidance about general purpose
applications. It explains that the
disclosures and brochure need not
accompany general purpose
applications provided in response to a
consumer's inquiry only about credit
other than a home equity plan unless
promotional material about home equity
plans is included in the mailing.
S e c tio n 226.28— E ffe c t o n S ta te L a w s
28(d) Special Rule for Credit and Charge
Cards
The position in the proposal on the
treatment of “dual purpose”
5b(c) Duties of Third Parties
Comment 5b(c)-l explains that the
creditor is not responsible for ensuring
that a third party complies with its
obligations under § 226.5b(c).
5b(d) Content of Disclosures
Comment 5b(d)-2 has been added to
discuss the duty of creditors to respond
to requests from the consumer for
information about the plan. The
substance of this comment previously
w as in proposed comments 5b(d)(4)(ii)-l
and 5b(d)(8)-2. Comment 5b(d)(4)(i)—
1
clarifies that fees imposed when a
consumer voluntarily closes out an
account prior to its scheduled maturity
need not be disclosed under that
section. Comment 5b(d)(5)(i)-l clarifies
how to disclose the length of a plan
when the length is indefinite. More
guidance is offered on the types of fees
that must be disclosed under § 226.5b(d)
(7) and (8), as w ell as more examples of
the type of fees that need not be
disclosed. A number of commenters
objected to proposed comment 5b(d)(8)1 that premiums for property insurance
required by the creditor must be
disclosed in all cases. These
commenters argued, among other things,
that in many cases insurance already
w as being carried on the property and
that it would be difficult to provide an
accurate disclosure in most cases
because of the many factors involved in
pricing the insurance. In light of these
considerations, comment 5b(d)(8)— has
1
been revised to permit creditors to
disclose either the amount of the
premium or the fact that property
insurance is required. Comment
5b(d)(9)-l has been added to provide
guidance on when the disclosure
concerning negative amortization must
be made.
Additional guidance regarding the
historical example required under
§ 226.5b(d)(12)(xi) has been included in
the final commentary in response to
commenters’ suggestions. Comment
5b(d)(12)(xi)-l explains that the
example must be updated as soon as
reasonably possible after the latest
year’s index value becom es available
for consistency with the rules for closedend adjustable-rate mortgages.
Comment 5b(d)(12)(xi)-3 includes
examples of how to disclose plans with
draw and repayment periods of varying
lengths in the historical example.
5b(f) Limitations on Home Equity Plans
Comment 5b(f)(2)(ii)-l clarifies what
constitutes failure to meet repayment
terms for purposes of the creditor’s right
to terminate and accelerate. A
significant number of commenters
Federal Register / Vol. 55, No. 68 / Monday, April 9, >990 / Rales and Regulations
objected to the proposed comment on
the grounds that the statute and
regulation provide that what constitutes
failure to make payments should b e
determined by the agreement between
the parties. The final comment has been
revised accordingly. Creditors, o f
course, must comply with any state la w s
that address any right of the consumer
to a right to cure notice, or impose other
requirements.
Though creditors are prohibited from
changing the margin after a plan is
opened, the reference to the margin as a
term that need not be disclosed has
been omitted from the comment 5b(f)(3)—
1 since margins must be provided to the
consumer upon request Comment
5b(f)(3)-2 explains in more detail the
basis for allowing creditors to pass on
increases in property taxes and charges
for property and credit insurance. The
Board does not believe that it w as
intended that creditors absorb bona fide
increases m such charges during the life
of the plan since taxes- are imposed by a
government body and are heyond the
control of the creditor, and insurance
provides benefits apart from the line or
is voluntary. Comment 5b(f)(3}(iii}-l has.
been revised by deleting the
requirement that an advance notice of
change in terms be provided w hen a
change is made pursuant to a written
agreement between the parties. Under
such circumstances, the agreement itself
serves as adequate notice. An example
has also been added to illustrate the
relationship between the general
prohibition on unilateral changes and
the consumer’s ability to agree in
writing to a contemporaneous change.
Comment 5b(f)(3^vi)-4 has been
revised to permit a creditor to require
that a request for reinstatement of
suspended credit privileges be in
writing, as long as the consumer is
notified erf the requirement. Comment
5b(f}(3)(vi}-5 clarifies that a creditor
may require all obligors to request
reinstatement w hen credit privileges
have been suspended upon the request
of one of them. Comment 5b(f)(3)(vi}-7
clarifies that a material change in
financial circumstances exists when a
consumer files for bankruptcy. Proposed
comment 5b(f)f 3){vi)-10 has not been
incorporated in the final commentary
since the Board is currently taking
comment on a proposal that could delete
or revise 8 226.5b(f}(3)(vi)fG> of the
regulation.
5b(g) Refund of Fees
The reference to insurance premiums
in proposed comment 5b(g)-I has been
deleted in the final since it is unlikely
that additional insurance w ould have to
be purchased in mast transaction®.
Comment 5b{g)-l h as also been revised
to reflect the fact that if there is a
change in information provided in
response to a request by the consumer
pursuant to 5 22&5b(d), and the
consumer a* a result deckles to not
enter into the plan, the creditor must
refund all fees paid.
Section 226£—In itial D isclosu re
S tatem en t
6(e) Home Equity Plan Information
Comment 6(e}-l clarifies that while
creditors must disclose a list of the
conditions that permit them, for
example, to terminate the plan, they
need not identify such conditions in the
contract in a manner other than is
generally required by the format rules in
§ 226.5(a)(1). Some commenters
misunderstood the proposal as imposing
a new format rule for this disclosure.
Comment 6(e}-4 is revised to clarify
that, to the extent the variable rate
information in footnote 12. and the
annual percentage rate are the same for
the draw and any repayment period, the
creditor need not repeat such
information as long as the creditor
states that the information applies to
both phases. Information in the proposal
relating to delaying the timing o f giving
the more detailed repayment disclosures
has not been incorporated in the final
commentary. Pending final Board action
on this issue, the commentary may be
revised as appropriate.
S ection 226.9—Subsequent D isclosu re
R equirem ents
9(c) Change in Terms
Comment 9(c)(l)-6 is revised to reflect
that a creditor need not provide advance
notice of changes to the terms of a home
equity plan if the change is made by
written mutual agreement.
Proposed comment 9(c)(3)-l has been
renumbered as 9(c)(3J-2. N ew comment
9(c)(3)-l has been added to state that if
a creditor requires the consumer to
request reinstatement of credit
privileges to be in writing, the creditor
must state that fact w hen notifying the
consumer of the suspension.
Section 229.15—R ight o f R escission
15(a) Consumer’s Right to Rescind
Comment 15(a)(3)-2 cterifies that
failure by a creditor to give any o f the
§ 226.5b disclosures does not prevent
the running o f the rescission period, but
may result in civil liability or
administrative sanctions.
13105
Section 228.16 A dvertisin g
16(d) Additional Requirements for Home
Equity Plans
Comment 10{dJ-l is revised to provide
that a statement such as "low fees” does
not trigger the need to state additional
information. Comment 16(d)-2 is revised
to track the disclosure rule m comment
5b(d)(8)-l with regard to property
insurance. Comment 16td}-5 is revised
to clarify the relation of the home equity
advertising rules to the other open-end
advertising provisions. In particular, it
points out that if the creditor is required
to state the annual percentage rate
under § 226.16(d)—due to the u se of a
trigger tram—the disclosures in
§ 226.16(b) also would be required to be
included in the advertisement.
Other Provisions o f Regulation Z
Section 226.12—S p ecia l C redit C ard
P rovisions
Comment 12(a)(2}-9 provides
guidance to multiple entities that share
responsibility for a card, such as where
a single card has been issued by a long
distance telephone company but both
that company and a local telephone
company participate in matters such as
authorization and billing The
commentary clarifies that the entity that
issued the card may replace it on an
unsolicited basis if it terminates the
existing card, but that the other entity
m ay not issue an unsolicited card.
(Thus, in this example, die local
company could not issue a new card of
its own on an unsolicited basis.)
In the proposed commentary update,
comment w as requested on whether the
commentary should b e revised so as to
permit an additional credit card to be
issued (Hi an unsolicited basis by any of
the entities in the example described
above, even if the original card were not
terminated. A few commenters
supported such a revision. The Board
does not believe that convincing policy
reasons have been demonstrated,
however, for altering its long-standing
"one-for-one” rule.
S ection 226.16—A dvertisin g
Comment 16(b)-7 is revised to give
further guidance on terms that trigger
additional disclosures. For example, the
comment explains that the phrase
“small monthly service charge on the
remaining balance" triggers additional
disclosures because the statement
discloses how the amount of the finance
charge will be determined, not because
the statement uses the term “smalt” in
describing that a monthly service charge
will be assessed.
13106
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
Comment 16(b)— replaces a portion of
8
the proposed revision to comment 16(b)7, and discusses deferred billing and
deferred payment programs. The
comment clarifies that a statement
regarding when finance charges begin to
accrue is a triggering term, but that a
statement concerning the deferral of
billing or of payment, by itself, will not
trigger additional disclosures.
S e c tio n 2 2 6 .1 7 — G e n e ra l D is c lo s u r e
R e q u ir e m e n ts
17(c) Basis of Disclosures and Use of
Estimates
The proposed comments concerning
“price level adjusted mortgages”
(PLAMs) are included in the final
commentary with minor revisions.
(PLAMs have been authorized to be
insured by the Department of Housing
and Urban Development in a
demonstration program.)
Comment 17(c)(1)— which
17,
introduces special rules for disclosures
about income tax refund anticipation
loans (RALs), is revised from the
proposal to clarify that the creditor must
ignore a demand feature and instead
base the disclosures on the estimated
date a refund will be delivered to the
consumer (such as by direct deposit into
the consumer's account) only if,
pursuant to the legal obligation,
repayment of the loan is required at that
time. The final comment also makes
clear that a lender’s practice of
demanding payment when the refund is
delivered does not determine what the
legal obligation requires; this issue must
be resolved according to applicable
state or other law. Some commenters
assumed that the proposed comment
would require RAL lenders in all cases
to base the disclosures upon the
estimated date a refund would be
delivered regardless of the terms of the
legal obligation. The comment (both as
proposed and revised) is more limited
due to the need for consistency with the
general requirement that the disclosures
reflect the terms of the legal obligation.
S e c tio n 226 .1 9— C e rta in R e s id e n tia l
M o rtg a g e T r a n s a c tio n s
and control of the broker's actions
should be determinative. Therefore, the
third factor describing the amount of
work completed by the broker has been
revised to reflect that such knowledge
would be based on prior dealings
between the creditor and broker and on
the creditor’s requirements for accepting
applications. Comment 19(b)-5 is
changed from the proposal to clarify that
certain disclosure provisions are
inapplicable to PLAMs or similar
mortgages only to the extent that they
relate to the addition of a margin,
changes in the interest rate, or interest
rate discounts; those provisions still
could apply in other respects.
S e c tio n 22 6.2 0 — S u b s e q u e n t D is c lo s u r e
R e q u ir e m e n ts
20(c) Variable-Rate Adjustments
Comment 20(c)-2 is revised to state
that PLAMs or similar mortgages are not
subject to the requirements of that
section.
List of Subjects in 12 CFR Part 226
Advertising, Banks, Banking,
Consumer protection, Credit, Federal
Reserve System, Finance, Penalties,
Rate limitations, Truth in Lending.
(3) T e x t o f r e v is io n s . Pursuant to
authority granted in section 105 of the
Truth in Lending Act (15 U.S.C. 1604 as
amended), the Board amends the official
staff commentary to Regulation Z (12
CFR part 226 Supp. I) as follows:
PART 226—[AMENDED]
1. The authority citation for part 226
continues to read:
Authority: T ruth in Lending Act. 15 U.S.C.
1604 and sec. 2 Pub. L. 100-583,102 Stat. 2960;
sec. 1204(c), Com petitive Equality Banking
Act, Pub. L. 100-86,101 Stat. 552.
it refers to credit cards other than charge
cards.
2. Comment 2(a)(20)-5 is amended by
adding parenthetical material before the
last sentence of the last paragraph of the
comment to read as follows:
2(a)(20)
*
*
"O pen-E nd C redit"
*
*
*
5. R eusable line. * * *
*
* * [The rules in { 226.5b(f). however,
limit the ability of a creditor to suspend
credit advances for home equity
plans.) * * *
*
*
*
*
*
3. Comment 2(a)(24)-6 is added to
read as follows:
2(a](24) "R esid en tia l M ortgage
Transaction "
*
*
*
*
*
6. M u ltip le purpose transactions. A
transaction m eets this definition of this
section if any part of the loan proceeds will
be used to finance the acquisition or initial
construction of the consum er's principal
dwelling. For exam ple, a transaction to
finance the initial construction of the
consum er’s principal dwelling is a residential
mortgage transaction even if a portion of the
funds will be disbursed directly to the
consum er or used to satisfy a loan for the
purchase of the land on which the dwelling
will be built.
Subpart B— Open-End Credit
S ectio n 226.5 G eneral D isclosure
R eq u irem en ts
4. Comment 5(b)(1)— is amended by
1
adding two sentences after the second
sentence to read as follows:
5(b)
Tim e o f D isclosures
5(b)(1)
In itia l d isclo su res
S ectio n 226.2 D efin itio n s a n d R u les o f
C onstruction
1. D isclosures before th e fir st
transaction. * * * The prohibition on the
paym ent of fees other than application or
refundable m em bership fees before initial
disclosures are provided does not apply to
home equity plans subject to 5 226.5b. See the
com m entary to S 228.5b(h) regarding the
collection of fees for home equity plans
covered by { 226.5b. * * *
*
*
*
*
*
1. Comment 2(a)(15)-3 is added to
read as follows:
5. Comments 5 a -l through 5a(g)-2 and
headings are added to read as follows:
2(a)
S e ctio n 226.5a C redit a n d Charge C ard
A p p lica tio n s a n d S o licita tio n s
2. Supplement I to part 226 is amended
as follows:
Subpart A—General
D efin itio n s
19(b) Certain Variable-Rate
Transactions
2(a)(t5 )
*
*
Comment 19(b)-3 has been revised to
clarify that a creditor may not delay
providing disclosures in transactions
involving either a legal agent or any
other third party that is not an
"intermediary agent or broker." The
factors provided to determine whether
or not a transaction involves an
"intermediary agent or broker” have
been revised to address commenters'
concern that the creditor's knowledge
3. Charge card. Generally, charge cards are
cards used in connection w ith a n account on
which outstanding balances cannot be
carried from one billing cycle to an o th er and
are payable w hen a periodic statem ent is
received. U nder the regulation, a reference to
credit cards generally includes charge cards.
The term "charge card" is, however,
distinguished from “credit c ard ” in §§ 226.5a.
226.9(e). 226.9(f). and 226.28(d), and
appendices G-10 through G-13. W hen the
term "credit card " is used in those provisions.
"C redit C ard"
*
*
*
1. G eneral. Section 226.5a generally
requires that credit disclosures be contained
in application forms a n d preapproved
solicitations initiated by a card issuer to open
a credit or charge card account. (See the
com m entary to § 226.5a(a)(3) and (e) for
exceptions: see also S 226.2(a)(15) and
accom panying com m entary for the definition
of charge card.)
2. C om bining disclosures. The initial
disclosures required by 5 226.6 do not
substitute for the disclosures required by
§ 226.5a: however, a card issuer may
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
establish procedures so that a single
disclosure statem ent m eets the requirem ents
of both sections. For exam ple, if a card issuer
in complying w ith S 226.5a(e)(2) provides all
the applicable disclosures required under
S 226.6, in a form that the consum er m ay keep
a n d in accordance w ith the other form at and
timing requirem ents for that section, the
issuer satisfies the initial disclosure
requirem ents under § 226.6 as well as the
disclosure requirem ents of S 226.5a(e)(2). Or
if, in complying w ith § 226.5a(c) or
{ 226.5a(d)(2), a card issuer provides an
integrated docum ent that the consum er may
keep, and provides the § 226.5a disclosures
(in a tabular format) along w ith the
additional disclosures required under S 226.6
(presented outside of the table), the card
issuer satisfies the requirem ents of both
§§ 226.5a a n d 226.6.
5o(a)
G eneral R ules
5a(a)(2)
Form o f D isclo su res
1. P rom inent location. C ertain of the
required disclosures provided on or w ith an
application or solicitation m ust be
prom inently located—that is, readily
noticeable to the consum er. T here are,
however, no requirem ents that the
disclosures be in any particular location or in
any particular type size or typeface.
2. M u ltip le acco u nts or varying term s. If a
tab u lar form at is required to be used, card
issuers offering several types of accounts
m ay disclose the various term s for the
accounts in a single table or m ay provide a
sep arate table for each account. Similarly, if
rates or other term s vary from state to state,
c ard issuers m ay list the states and the
various disclosures in a single table or in
sep arate tables.
3. A d d itio n a l inform ation. The table
containing the disclosures required by
5 226.5a should contain only the inform ation
required or perm itted by this section. (See the
com m entary to S 228.5a(b) for guidance on
inform ation perm itted in the table.) O ther
credit information m ay be presented on or
w ith an application or solicitation, provided
such inform ation ap p ears outside the
required table.
4. Location o f certa in d isclosu res. A card
issuer ha s the option of disclosing any of the
fees in 5 228.5a(b) (8) through (10) in the
required table or outside the table.
5. Term inology. In general,
'5 226.5a(a)(2)(iv) requires that the
terminology used for the disclosures specified
in § 226.5a(b) be consistent w ith that used in
the disclosures under $ § 226.6 and 226.7. This
sta n d ard requires that the $ 226.5a(b)
disclosures be close in m eaning to those
under § $ 226.8 a n d 226.7; how ever, the
terminology used need not be identical. In
addition, $ 226.5a(a)(2)(i) requires that the
headings, content, a n d form at of the tabular
disclosures be substantially similar, but need
not be identical, to the tables in A ppendix G.
A special rule applies to the grace period
disclosure, h o w e v e r the term "grace period"
m ust be used, either in the heading or in the
text of the disclosure.
6. D eletion o f in a p p lica b le disclosures.
Generally, disclosures need only be given as
applicable. C ard issuers may, therefore,
delete inapplicable headings a n d their
corresponding boxes in the table. For
exam ple, if no transaction fee is im posed for
purchases, the disclosure form m ay contain
the heading "T ransaction fee for purchases”
a n d a box show ing "none," or the heading
and box m ay be deleted from the table. There
is a n exception for the grace period
disclosure, how ever: even if no grace period
exists, that fact m ust be stated.
5a(a)(3) E xcep tio n s
1. Coverage. C ertain exceptions to the
coverage of § 228.5a are stated in
§ 226.5a(a)(3); in addition, the requirem ents of
$ 228.5a do not apply to the following:
• Lines of credit accessed solely by
account num bers
• A ddition of a credit or charge card to an
existing open-end plan
2. N oncoverage o f "consum er in itia te d "
requests. A pplications provided to a
consum er upon request are not covered by
{ 226.5a, even if the request is m ade in
response to the card issuer's invitation to
apply for a card account. To illustrate, if a
card issuer invites consum ers to call a tollfree num ber or to return a response card to
obtain a n application, the application sent in
response to the consum er's request need not
contain the disclosures required under
§ 226.5a. Similarly, if the c ard issuer invites
consum ers to call a n d m ake a n oral
application on the telephone, § 226.5a does
not apply to the application m ade by the
consumer. If, how ever, the card issuer calls a
consum er o r initiates a telephone discussion
w ith a consum er about opening a card
account a n d contem poraneously takes an
oral application, such applications are
subject to $ 226.5a, specifically $ 226.5a(d).
3. G eneral p u rp o se a p plicatio n s. The
requirem ents of this section do not apply to
general purpose applications unless the
application, or m aterial accom panying it,
indicates that it c an be used to open a credit
or charge card account.
5a(a)(5)
C ertain F ees th a t V ary b y S ta te
1. M a n ner o f disclo sin g range. If the card
issuer discloses a range of fees instead of
disclosing the am ount of the fee im posed in
each state, the range m ay be stated a s the
low est authorized fee (zero, if there are one
or more sta te s w here no fee applies) to the
highest authorized fee.
5a(b) R eq u ired D isclo su res
5 a (b )(l)
A n n u a l P ercentage R a te
1. P eriodic rate. The periodic rate,
expressed a s such, m ay be disclosed in the
table in addition to the required disclosure of
the corresponding annual percentage rate.
2. V ariable-rate accounts—d efin itio n . For
purposes of $ 226.5a(b)(l), a variable-rate
account exists w hen ra te changes are part of
the plan and are tied to an index or formula.
(See the com m entary to $ 226.6(a)(2) for
exam ples of variable-rate plans.)
3. V ariable-rate acco un ts—ra te s in effect.
For variable-rate disclosures in direct mail
applications a n d solicitations subject to
S 226.5a(c), and in applications and
solicitations m ade available to the general
public subject to f 226.5a(e), the rules
concerning accuracy of the annual percentage
rate are sta te d in $ 226.5a(b)(l)(ii). For
13107
variable-rate disclosures in telephone
applications a n d solicitations subject to
§ 226.5a(d), the card issuer m ust provide an
annual percentage rate currently applicable
w hen oral disclosures are provided under
§ 226.5a(d)(l). For the alternate disclosures
under § 226.5a(d)(2), the card issuer must
provide the annual percentage ra te in effect
at the time the disclosures are m ailed or
delivered. A rate in effect also includes the
rate as of a specified d a te (which rate is then
updated from time to time, for exam ple, each
calendar month) or an estim ated rate
provided in accordance w ith § 226.5(c).
4. V ariable-rate accounts—o th er
disclosu res. In describing how the applicable
rate will be determ ined, the card issuer must
identify the index or formula and disclose
any m argin or spread a dded to the index or
formula in setting the rate. The card issuer
m ay disclose the margin or spread a s a range
of the highest and low est m argins that may
be applicable to the account. A disclosure of
any applicable lim itations on rate increases
or d ecreases m ay also be included in the
table.
5. In tro du ctory ra te s— d isco u n ted rates. If
the initial rate is tem porary a n d is low er than
the rate that will apply after the tem porary
ra te expires, the card issuer m ust disclose the
annual percentage ra te that w ould otherw ise
apply to the account. In a fixed-rate account,
the card issuer m ust disclose the rate that
will apply after the introductory ra te expires.
In a variable-rate account, the card issuer
m ust disclose a rate based on the index or
formula applicable to the account in
accordance w ith the rules in § 226.5a(b)(l)(ii)
an d comm ent 5a(b)(l)-3. A n initial
discounted ra te m ay be provided in the table
along w ith the rate required to be disclosed if
the card issuer also discloses the time period
during which the introductory ra te will
rem ain in effect.
6. In tro du ctory ra tes—p rem ium rates. If the
initial rate is tem porary and is higher than
the perm anently applicable rate, the card
issuer m ust disclose the initial rate. The
issuer m ay disclose in the table the rate that
w ould otherw ise apply if the issuer also
discloses the time period during which the
initial ra te will rem ain in effect.
5a(b)(2) F ees fo r Issua n ce o r A v a ila b ility
1. M em b ership fee s. M em bership fees for
opening a n account m ust be disclosed under
this paragraph. A m em bership fee to join an
organization that provides a credit or charge
c ard a s a privilege of m em bership m ust be
disclosed only if the card is issued
autom atically upon m em bership. Such a fee
n eed not be disclosed if m em bership results
m erely in eligibility to apply for an account.
2. E nhancem ents. Fees for optional services
in addition to basic m em bership privileges in
a credit or charge card account (for example,
travel insurance or card registration services)
n eed not be disclosed under this paragraph if
the basic account m ay be opened without
paying such fees.
3. O ne-tim e fe e s. Disclosure of non-periodic
fees is limited to fees related to opening the
account, such a s one-time m em bership fees.
The following are exam ples of fees that
should not be disclosed in the table:
13108______ Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
• Fees for reissuing a lo st o r stolen card
• S tatem ent reproduction fees
• Application fees described in
§ 228.4(c)(1)
4. W a ived o r red u ced fe e s. If fees required
to be disclosed a re w aived or reduced for a
limited time, the introductory fees or the fact
of fee w aivers m ay be provided in the table
in addition to the required fees if the card
issuer also discloses how long the fees or
w aivers will rem ain in effect.
5. F ees sta te d as ann ua l am ount. Fees
im posed periodically m ust be sta te d a s an
annual total. For exam ple, if a fee is im posed
quarterly, the disclosures w ould sta te the
total am ount of the fees for one year. (See,
however, the com m entary to § 226.9(e) with
regard to disclosure of such fees in renew al
notices.)
5a(b)(4)
Transaction C harges
1. C harges im p o se d b y p erso n o th er than
c a rd issuer. C harges im posed by a third
party, such a s a seller of goods, w ould not be
disclosed under this section; the third party
w ould be responsible for disclosing the
charge under § 226.9(d)(1).
5a(b)(5)
G race P eriod
1. H ow d isclo su re is m ade. The card issuer
may, but need not, refer to the beginning or
ending point of any grace period and briefly
state any conditions on the applicability of
the grace period. For exam ple, the grace
period disclosure might read "30 d ay s" or “30
days from the d a te of the periodic statem ent
(provided you have paid your previous
balance in full by the due date)."
5a(b)(6)
B alance C om putation M eth o d
1. Form o f disclosure. In cases w here the
card issuer uses a balance calculation
m ethod that is identified by nam e in the
regulation, the card issuer m ay only disclose
the nam e of the m ethod in the table. In cases
w here the card issuer uses a balance
com putation m ethod that is not identified by
nam e in the regulation, the disclosure in the
table should clearly explain the m ethod in as
much detail as set forth in the descriptions of
balance m ethods in section 226.5a(g). The
e xplanation need not be a s detailed as that
required for the disclosures under
§ 226.6(a)(3). (See the com m entary to
§ 226.5a(g) for guidance on particular
methods.)
2. D eterm ining th e m ethod. In determ ining
the appropriate balance com putation m ethod
for purchases for disclosure purposes, the
c ard issuer m ust assum e that a purchase
balance will exist a t the end of any grace
period. Thus, for exam ple, if the average
daily balance m ethod will include new
purchases or cover tw o billing cycles only if
purchase ba la n c es are not paid w ithin the
grace period, the card issuer w ould disclose
the nam e of the average daily balance
m ethod that includes new purchases or
covers two billing cycles, respectively. The
card issuer should not assum e the existence
of a purchase balance, however, in making
other disclosures under 5 226.5a(b).
periodic statem ent is applicable only to
charge card accounts. In m aking this
disclosure, the card issuer m ay m ake such
m odifications a s are n e ce ssary to more
accurately reflect the circum stances of
repaym ent u nder the account. For example,
the disclosure might read, “Charges are due
and payable upon receipt of the periodic
statem ent and m ust be paid no late r than 15
days after receipt of such statem ent.”
5a(b)(8)
C ash A d va n ce Fee
1. A p p lic a b ility . The card issuer m ust
disclose only those fees it im poses for a cash
advance that are finance charges under
S 226.4. For exam ple, a charge for a cash
advance a t a n autom ated teller m achine
(ATM) w ould be disclosed under
§ 226.5a(b)(8) if no sim ilar charge is im posed
for ATM transactions not involving an
extension of credit. (See com m ent 4(a)-5 for a
description of such a fee.)
5a(b)(9)
L ate P a ym en t Fee
1. A p p lica b ility. The disclosure of the fee
for a late paym ent includes only those fees
that will be im posed for actual, unanticipated
late paym ents. (See the com m entary to
5 226.4(c)(2) for additional guidance on late
paym ent fees.)
5a(b)(10)
O ver-th e-L im it Fee
1. A p p lic a b ility . T he disclosure of fees for
exceeding a credit limit does n o t include fees
for other types of default or for services
related to exceeding the limit. For exam ple,
no disclosure is required of fees for
reinstating credit privileges or fees for the
dishonor of checks on a n account that, if
paid, w ould cause the credit limit to be
exceeded.
5a(c) D irect M a il A p p lic a tio n s a n d
S o lic ita tio n s
1. A ccuracy. In general, disclosures in
direct mail applications a n d solicitations
m ust be accurate a s of the time of mailing.
(An accurate variable annual percentage rate
is one in effect w ithin 30 days before
mailing.)
2. M a ile d p u b lica tio n s. A pplications or
solicitations contained in generally available
publications m ailed to consum ers (such as
subscription m agazines) are subject to the
requirem ents applicable to “take-ones" in
§ 226.5a(e). rath er than the direct mail
requirem ents of § 226.5a(c). How ever, if a
prim ary purpose of a card issuer's m ailing is
to offer credit or charge c ard accounts— for
exam ple, w here a card issuer “p rescreens” a
list of potential cardholders using credit
criteria, a n d then mails to the targeted group
its catalog containing an application or a
solicitation for a card account— the direct
mail rules apply. In addition, a c ard issuer
m ay use a single application form a s a "takeone" (in racks in public locations, for
exam ple) and for direct mailings, if the card
issuer complies w ith the requirem ents of
§ 226.5a(c) even w hen the form is used as a
“take-one”— that is, by providing current
5a(b)(7) S ta te m e n t on Charge C ard
inform ation and presenting the required
P a ym ents
disclosures in a tabular form at—and
1. A p p lic a b ility a n d content. The disclosure elim inates the inform ation required under
that charges are payable upon receipt of the
§ 226.5a(e)(l) (ii) and (iii).
5a(d) T elephone A p p lica tio n s a n d
S o lic ita tio n s
1 . C overage. T his paragraph applies if:
• A telephone conversation betw een a
card issuer a n d consum er m ay result in the
issuance of a card a s a consequence of an
issuer-initiated offer to open a n account for
w hich the issuer does not require any
application (that is, a “preapproved”
telephone solicitation).
• The card issuer initiates the contact and
at the sam e time takes application
inform ation over the telephone.
This paragraph does not apply to:
• Telephone applications initiated by the
consumer.
• Situations w here no card will be
issued—because, for exam ple, the consum er
indicates that he or she does not w a n t the
card, or the card issuer decides either during
the telephone conversation or later not to
issue the card.
5a(e) A p p lica tio n s a n d S o lic ita tio n s M ade
A va ila b le to G eneral P ublic
1. C overage. A pplications and solicitations
m ade available to the general public include
w hat are comm only referred to a s “take-one”
applications typically found a t counters in
banks and retail establishm ents, as well as
applications contained in catalogs, m agazines
a n d other generally available publications. In
the case of credit unions, this paragraph
applies to applications a n d solicitations to
open card accounts m ade available to those
in the general field of m embership.
2. C ross-selling. If a card issuer invites a
consum er to apply for a credit or charge card
(for exam ple, w here the issuer engages in
cross-selling), an application provided to the
consum er a t the consum er’s request is not
considered a n application m ade available to
the general public and therefore is not subject
to § 226.5a(e). For exam ple, the following are
not covered:
• A consum er applies in person for a c ar
loan a t a financial institution and the loan
officer invites the consum er to apply for a
credit or charge card account; the consum er
accepts the invitation.
• An em ployee of a retail establishm ent, in
the course of processing a sales transaction
using a bank credit card, a sk s a custom er if
he or she w ould like to apply for the retailer's
credit or charge card; the custom er responds
affirmatively.
3. T oll-free telep h o n e num ber. If a card
issuer, in complying with any of the
disclosure options of ! 226.5a(e), provides a
telephone num ber for consum ers to call to
obtain credit information, the num ber must
be toll-free for nonlocal calls m ade from an
area code other than the one used in the card
issuer’s dialing area. Alternatively, a card
issuer m ay provide any telephone num ber
th at allow s a consum er to call for information
a n d reverse the telephone charges.
5 a (e )(l) D isclosure o f R eq u ired C redit
Inform ation
1 . D ate o f printing. Disclosure of the m onth
a nd year fulfills the requirem ent to disclose
the date an application w a s printed.
2. Form o f disclosures. The disclosures
specified in $ 226.5a(e) (i), (ii). and (iii) may
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
a p p ea r either in or outside the table
containing the required credit disclosures.
5a(e)(2) Inclusion o f C ertain In itia l
D isclosures
1. A ccu ra cy o f d isclo sures. The disclosures
required by I 226.5a(e)(2) generally m ust be
current as of the time they are m ade
available to the public. Disclosures are
considered to be m ade available a t the time
they are placed in public locations (in the
case of "take-ones") or m ailed to consum ers
(in the case of publications).
2. A ccu ra cy—exception. If a card issuer
discloses all the information required by
| 226.5a(e)(l)(ii) on the application or
solicitation, the disclosures under
I 226.5a(e)(2) need only be current as of the
d ate of printing. (A current variable annual
percentage rate w ould be one in effect within
30 days before printing.)
5a(e)(3) N o D isclosure o f C redit
Inform ation
1. W hen disclo sure option a va ila b le. A
c ard issuer m ay use this option only if the
issuer does not include on or w ith the
application or solicitation any statem ent that
refers to the credit disclosures required by
S 226.5a(b). Statem ents such a s "no annual
fee," "low interest rate," “favorable rates,”
a n d "low costs" are deem ed to refer to the
required credit disclosures and, therefore,
m ay not be included on or w ith the
solicitation or application, if the card issuer
chooses to use this option.
5a(e){4) P rom pt R esp o nse to R eq u e sts fo r
Inform ation
1. P rom pt disclosure. Inform ation is
prom ptly disclosed if it is given w ithin 30
days of a consum er's request for information
but in no event later than delivery of the
credit or charge card.
2. Inform ation disclosed. W hen a consum er
requests credit information, card issuers need
not provide all the required credit disclosures
in all instances. For exam ple, if disclosures
have been provided in accordance with
§ 226.5a(e) (1) or (2) a n d a consum er calls or
w rites a card issuer to obtain inform ation
a bout changes in the disclosures, the issuer
n eed only provide the item s of inform ation
th at have changed from those previously
disclosed on or w ith the application or
solicitation. If a consum er requests
inform ation about particular items, the card
issuer need only provide the requested
information. If, how ever, the card issuer has
m ade disclosures in accordance w ith the
option in i 226.5a(e)(3) and a consum er calls
or w rites the card issuer requesting
inform ation about costs, all the required
disclosure inform ation m ust be given.
3. M an n er o f response. A card issuer’s
response to a consum er's request for credit
inform ation m ay be provided orally or in
writing, regardless of the m anner in which
the consum er's request is received by the
issuer. Furthermore, the card issuer may
provide the inform ation listed in either
S 226.5a(e) (1) or (2). Inform ation provided in
w riting need not be in a tab u lar format.
13109
(See the com m entary to § 226.3(a), which
discusses w hether transactions are consum er
or business-purpose credit, for guidance on
w hether a hom e equity plan is subject to
1. D uties o f charge ca rd issuer. Although
Regulation Z.)
the charge card issuer is not required to
2. Transition ru les a n d ren ew als o f
disclose inform ation about the underlying
p re e xistin q pla n s. The requirem ents of this
open-end credit plan if the card issuer m eets
section do not apply to hom e equity plans
the conditions set forth in § 226.5a(f). the card
entered into before N ovem ber 7,1989. The
issuer must disclose the inform ation relating
requirem ents of this section also do not apply
to the charge card plan itself.
if the original consum er, on or after
2. D u ties o f cred ito r m a intain in g o pen-end
N ovem ber 7,1989, renew s a plan entered into
plan. Section 226.5a does not impose
prior to that date (with or w ithout changes to
disclosure requirem ents on the creditor that
the terms). If. on or after Novem ber 7,1989, a
m aintains the underlying open-end credit
security interest in the consum er’s dwelling is
plan. This is the case even though the
a dded to a line of credit entered into before
creditor offering the open-end credit plan
that date, the substantive restrictions of this
m ay be considered an agent of the charge
section apply for the rem ainder of the plan,
card issuer. (See comm ent 2(a)(7)—
1.)
but no new disclosures are required under
3. Form o f d isclosu res. The disclosures
this section.
required by 5 226.5a(f) m ay a p p e a r either in
3. D isclosure o f rep a ym en t p h a se—
or outside the table containing the required
a p p lic a b ility o f requirem ents. Some plans
credit disclosures in circum stances w here a
provide in the initial agreem ent for a period
tabular form at is required.
during which no further draw s m ay be taken
5a(g) B alance C om putation M eth o ds
and repaym ent of the am ount borrow ed is
D efin ed
m ade. All of the applicable disclosures in this
section m ust be given for the repaym ent
1. D a ily b a lan ce m ethod. C ard issuers
phase. Thus, for exam ple, a creditor must
using the daily b alan ce m ethod m ay disclose
provide paym ent inform ation about the
it using the nam e "average daily balance
repaym ent phase a s well as about the draw
(including new purchases)" or “average daily
period, a s required by § 226.5b(d)(5). If the
balance (excluding new purchases),” as
ra te that will apply during the repaym ent
appropriate. Alternatively, such card issuers
phase is fixed a t a know n amount, the
m ay explain the m ethod. (See com m ent 7(e)-5
creditor m ust provide an annual percentage
for a discussion of the daily balance method.)
ra te under § 226.5b(d)(6) for that phase. If.
2. Tw o-cycle average d a ily ba la nce
m ethods. The "two-cycle average daily
however, a creditor uses an index to
b alance” m ethods described in $ 226.5a (g)(2)
determ ine the rate that will apply a t the time
(i) and (ii) include those m ethods in which the
of conversion to the repaym ent phase—even
average daily ba la n c es for tw o billing cycles
if the rate will thereafter be fixed—the
m ay be a d d ed together to com pute the
creditor m ust provide the inform ation in
finance charge. Such m ethods also include
§ 226.5b(d)(12), a s applicable.
those in w hich a periodic rate is applied
4. P a ym en t term s— a p p lic a b ility o f closedseparately to the balance in each cycle, and
e n d p ro visio n s a n d su b sta n tive rules. All
the resulting finance charges are a dded
paym ent term s that are provided for in the
together. The m ethod is a "two-cycle average
initial agreem ent are subject to the
daily ba la n c e" even if the finance charge is
requirem ents of subpart B and not subpart C
b a se d on both the current and prior cycle
of the regulation. Paym ent term s that are
b alances only u nder certain circum stances,
subsequently a d d ed to the agreem ent may be
such as w hen purchases during a prior cycle
subject to subpart B or to subpart C,
w ere carried over into the current cycle and
depending on the circum stances. The
no finance charge w a s a sse sse d during the
following exam ples apply these general rules
prior cycle. Furtherm ore, the m ethod is a
to different situations:
“two-cycle average daily b alan ce m ethod" if
• If the initial agreem ent provides for a
the b a la n c es for both the current a n d prior
repaym ent phase or for other paym ent term s
cycles are average daily balances, even if
such a s options perm itting conversion of part
those ba la n c es are figured differently. For
or all of the b alan ce to a fixed rate during the
exam ple, the nam e “two-cycle average daily
d ra w period, these term s m ust be disclosed
balance (excluding new p urchases)” should
pursuant to § § 226.5b a n d 226.6, a n d not
be used to describe a m ethod in w hich the
u nder subpart C. Furthermore, the creditor
finance charge for the current cycle, figured
m ust continue to provide periodic statem ents
on an average daily balance excluding new
under § 226.7 a n d comply w ith other
purchases, will b e a dded to the finance
provisions of subpart B (such a s the
charge for the prior cycle, figured on an
substantive requirem ents of j 226.5b(f))
average daily b alan ce of only new purchases
throughout the plan, including the repaym ent
during that prior cycle.
phase.
• If the consum er an d the creditor enter
6. C o m m e n ts 5 b - l th r o u g h 5 b (h ) -3 a n d
into an agreem ent during the d ra w period to
h e a d i n g s a r e a d d e d to r e a d a s fo llo w s:
repay all or part of the principal balance on
S ectio n 226.5b R eq uirem ents fo r H om e
different term s (for exam ple, w ith a fixed rate
E q u ity P lans
of interest) a n d the am ount of available
credit will be replenished as the principal
1. C overage. T his section applies to all
b alan ce is repaid, the creditor m ust continue
open-end credit plans secured by the
to comply w ith subpart B. For example, the
consum er's "dw elling," a s defined in
creditor m ust continue to provide periodic
§ 226.2(a)(19), a n d is not lim ited to plans
statem ents and comply with the substantive
secured by the consum er’s principal dwelling.
5a(f) S p e cia l C harge C ard R u le— C ard
Issu er a n d P erson E xten d in g C redit N o t th e
S a m e Person
13110
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
requirem ents of J 228.5b(f) throughout the
plan.
• If the consum er a n d creditor e n te r into
a n agreem ent during the d ra w period to repay
all or part of the principal balance a n d the
am ount of available credit will not be
replenished a s the principal balance is
repaid, the creditor m ust give closed-end
credit disclosures pursuant to subpart C for
that new agreem ent. In such cases, su b p a rt B,
including the su b sta n tiv e rules, d o e s not
apply to the closed-end credit transaction,
although it will continue to apply to any
rem aining open-end credit available under
the plan.
5. S p rea der clause. W hen a creditor holds a
mortgage or deed of trust on the consum er’s
dwelling a n d that mortgage or deed of trust
contains a “sp read er clause" (also know n as
a “dragnet" or cross-collateralization clause],
subsequent occurrences such a s the opening
of a n open-end plan are subject to the rules
applicable to hom e equity plans to the sam e
degree as if a security interest w ere taken
directly to secure the plan, unless the creditor
effectively w aives its security interest u nder
the sp read er clause w ith respect to the
subsequent open-end credit extensions.
other. For exam ple, if the consum er can only
obtain a pa rtic u la r paym ent option in
conjunction w ith a certain variable-rate
feature, this fa ct m ust be disclosed. A
creditor h a s the option of providing se p a ra te
disclosure form s for multiple options or
variations in features. For exam ple, a creditor
th at offers different paym ent options for the
d ra w period m ay prepare se p a rate disclosure
forms for the tw o paym ent options. A creditor
using this alternative, however, m ust include
a statem ent on each disclosure form that the
consum er should a sk about the creditor's
other home equity programs. (This disclosure
is required only for those program s available
generally to the public. Thus, if the only other
program s available are em ployee preferredra te plans, for exam ple, the creditor w ould
not have to provide this statem ent.) A
creditor th at receives a request for
inform ation about other available program s
m ust provide the additional disclosures a s
soon as re asonably possible.
5b(a](2) P recedence o f C ertain D isclosures
5b(a) Form o f D isclosures
1. P recedence rule. The list of conditions
provided a t the creditor's option under
I 226.5b(d)(4)(iii) need not precede the other
disclosures.
5 b (a )(l)
5b(b)
G eneral
1. W ritten disclosures. T he disclosures
required under this section m ust be clear a n d
conspicuous a n d in writing, but need not be
in a form the consum er can keep. {See the
com m entary to § 226.6(e) for special rules
w hen disclosures required under S 22&5b(d)
are given in a retainable form.)
2. D isclosure o f a nn u a l p ercen ta g e rate—
m ore conspicuous requirem ent. A s provided
in $ 226.5(a)(2), w hen the term "annual
percentage ra te ” is required to b e disclosed
w ith a num ber, it m ust be m ore conspicuous
than other required disclosures.
3. Segregation o f d isclosu res. W hile m ost
of the disclosures m ust be grouped together
a n d segregated from all unrelated
information, the creditor is perm itted to
include inform ation that explains or expands
on the required disclosures, including, for
example:
• A ny prepaym ent penalty
• H ow a substitute index m ay be chosen
• A ctions the creditor m ay ta k e short of
term inating an d accelerating an outstanding
balance
• Renew al term s
• R ebate of fees
An exam ple of inform ation th a t does not
explain or e x pand on the required disclosures
a n d thus cannot be included is the creditor’s
underw riting criteria, although the creditor
could provide such inform ation separately
from the required disclosures.
4. M eth o d o f p rovid ing d isclo sures. A
creditor m ay provide a single disclosure form
for all of its hom e equity plans, a s long a s the
disclosure describes all aspects of the plans.
For exam ple, if the creditor offers several
paym ent options, all such options m ust be
disclosed. (See, however, th e com m entary to
§ 226,5b(d)(5)(iii) a n d (dH12) (x) a n d (xi) for
disclosure requirem ents relating to these
provisions.) If a n y a sp ects of a plan are
linked together, the creditor m ust disclose
clearly the relationship of the term s to each
T im e o f D isclo su res
1. M a il a n d telep h o n e applicatio n s. If the
creditor sends applications through the mail,
the disclosures a n d a brochure m ust
accom pany the application. If a n application
is taken over the telephone, the disclosures
an d brochure m ay be delivered or m ailed
w ithin three business days of taking the
application. If a n application is m ailed to the
consum er following a telephone request,
how ever, the creditor also m ust send the
disclosures a n d a brochure along w ith the
application.
2. G eneral p u rp o se a p p lica tion s. The
disclosures a n d a brochure n e ed not be
provided w hen a general purpose application
is given to a consum er unless (1) the
application or m aterials accom panying it
indicate that it can be used to apply for a
hom e equity plan or (2) the application is
provided in response to a consum er's specific
inquiry about a hom e equity plan. O n the
other h a n d , if a general purpose application is
provided in response to a consum er's specific
inquiry only a bout credit o ther than a hom e
equity plan, the disclosures a n d brochure
need not be provided even if the application
indicates i t can be used for a hom e equity
plan, unless it is accom panied by
prom otional inform ation about hom e equity
plans.
3. P u blicly-a va ila b le applications. Some
creditors m ake applications for hom e equity
plans, such a s "take-ones,” available w ithout
the need for a consum er to request them.
T hese applications m ust be accom panied by
the disclosures a n d a brochure, such a s by
attaching the disclosures a n d brochure to the
application form.
4. R esp o n se cards. A creditor m ay solicit
consum ers for its home equity plan by
m ailing a "response c ard ” w hich th e
consum er returns to the creditor to indicate
interest in the plan. If the only action taken
by the creditor upon receipt of the response
card is to send the consum er an application
form or to telephone th e consum er to discuss
the plan, the creditor need not send the
disclosures and brochure w ith the response
card.
5. D en ia l or w ith d ra w a l o f application. In
situations w here footnote 10a perm its the
creditor a three-day delay in providing
disclosures a n d the brochure, if the creditor
determ ines w ithin that period that an
application will not be approved, the creditor
need not provide the consum er w ith the
disclosures or brochure. Similarly, if the
consum er w ithdraw s the application within
this three-day period, the creditor need not
provide the disclosures or brochure.
6. In term ed ia ry agent o r broker. In
determ ining w hether or not an application
involves an "interm ediary agent or broker”
as discussed in footnote 10a, creditors should
consult the provisions in comm ent 19(b)—
3.
5b(c)
D uties o f Third P arties
1. D isclosure requirem ents. Although third
parties w ho give applications to consum ers
for hom e equity plans m ust provide the
brochure required under § 226.5b(e) in all
cases, such persons need provide the
disclosures required under § 226.5b(d) only in
certain instances. A third p arty has no duty
to obtain disclosures about a creditor's home
equity plan or to create a set of disclosures
b a se d o n w h a t it know s about a creditor’s
plan. If, however, a creditor provides the
third party with disclosures along w ith its
application form, the third party m ust give
the disclosures to the consum er with the
application form. The duties under this
section are those of the third party; the
creditor is not responsible for ensuring that a
third party complies w ith those obligations. If
an interm ediary agent or broker takes an
application over the telephone or receives an
application contained in a m agazine or other
publication, footnote 10a perm its th at person
to mail the disclosures a n d brochure within
three business days of receipt of the
application. (See the com m entary to
§ 226.5b(h) about imposition of
nonrefundable fees.)
5b(d)
C ontent o f D isclosures
1. D isclosures g iven a s applicable. The
disclosures required u nder this section need
be m ade only a s applicable. Thus, for
exam ple, if negative am ortization cannot
occur in a home equity plan, a reference to it
need not be m ade.
2. D u ty to resp o n d to req u ests fo r
inform ation. If the consum er, prior to the
opening of a plan, requests inform ation as
suggested in the disclosures (such a s the
current index value or margin), the creditor
m ust provide this inform ation as soon as
reasonably possible after the request.
5 b (d )(l)
R eten tio n o f Inform ation
1. W hen disclo su re n o t required. The
creditor need not disclose that the consum er
should m ake or otherw ise retain a copy of the
disclosures if they are retainable— for
exam ple, if the disclosures are not part of an
application th a t must be returned to the
creditor to apply for the plan.
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
5b(d)(2)
C onditions fo r D isclo sed Term s
Paragraph 5b(d)(2)(i)
1. G uaranteed term s. The requirem ent that
the creditor disclose the time by which an
application m ust be subm itted to obtain the
disclosed term s does not require the creditor
to guarantee any terms. If a creditor chooses
not to guarantee any terms, it m ust disclose
that all of the term s are subject to change
prior to opening the plan. The creditor also is
perm itted to g uarantee some term s a n d not
others, but m ust indicate which term s are
subject to change.
2. D ate fo r o btaining d isc lo sed term s. The
creditor m ay disclose either a specific date or
a time period for obtaining the disclosed
terms. If the creditor discloses a time period,
the consum er m ust be able to determ ine from
the disclosure the specific date b y which an
application m ust be subm itted to obtain any
g u aranteed terms. For example, the
disclosure might read, "To obtain the
following terms, you m ust subm it your
application w ithin 60 days a fter the date
appearing on this disclosure," provided the
disclosure form also show s the date.
P aragraph 5b(d)(2)(ii)
1. R ela tio n to o th er pro vision s. C reditors
should consult the rules in $ 226.55(g)
regarding refund of fees.
5b(d)[4) P o ssib le A ctio n s b y C reditor
P aragraph 5b(d)(4)(i)
1. F ees im p o sed upon term ination. This
disclosure applies only to fees (such as
penalty or prepaym ent fees) that the creditor
im poses if it term inates the plan prior to
norm al expiration. The disclosure does not
apply to fees that are im posed either when
the plan expires in accordance with the
agreem ent or if the consum er term inates the
plan prior to its scheduled m aturity. In
addition, the disclosure does not apply to
fees associated w ith collection of the debt,
such as attorneys fees and court costs, or to
increases in the annual percentage rate
linked to the consum er’s failure to m ake
paym ents. The actual am ount o f the fe e n e ed
not be disclosed.
2. Changes sp e c ifie d in th e in itia l
agreem ent. If changes m ay occur pursuant to
S 22fl.5b(f)(3)(i), a creditor m ust state that
certain changes will be im plem ented a s
specified in the initial agreement.
Paragraph Sb(d](4}(iii)
1. D isclosure o f conditions. In making this
disclosure, the creditor m ay provide a
highlighted copy of the docum ent that
contains such information, such as the
contract or security agreement. The relevant
item s m ust be distinguished from the other
inform ation contained in the document. For
exam ple, the creditor m ay provide a cover
sheet that specifically points out which
contract provisions contain the information,
or m ay m ark the relevant item s on the
docum ent itself. A s an alternative to
disclosing the conditions in this m anner, the
creditor may simply describe the conditions
using the language in $ 226.5b (f)(2) and
(f)(3)(vi) or language that is substantially
similar. In describing specified changes that
m ay be im plem ented during the plan, the
creditor m ay provide a disclosure such as
“O u r agreem ent perm its us to m ake certain
changes to the term s of the line at specified
times or upon the occurrence of specified
events."
2. Form o f disclosure. The list of conditions
u n d e r ! 226.5b(d)(4)(iii) m ay a p p ea r w ith the
segregated disclosures or apart from them. If
the creditor elects to provide the list of
conditions w ith the segregated disclosures,
the list need not comply with the precedence
rule in § 228.5b(a)(2).
5b(d)(5)
P a ym en t Term s
Paragraph 5b(d)(5)(i)
1. Length o f th e plan. The com bined length
of the draw period and any repaym ent period
need not be stated. If the length of the
repaym ent phase cannot be determ ined
because, for exam ple, it depends on the
balance outstanding a t the beginning of the
repaym ent period, the creditor m ust state that
the length is determ ined by the size of the
balance. If the length of the plan is indefinite
(for exam ple, because there is no time limit
on the period during w hich the consum er can
take advances), the creditor m ust state that
fact.
2. R en ew a l p ro visio n s. If, under the credit
agreement, a creditor retains th e right to
review a line a t the end of the specified d ra w
period and determ ine w hether to renew or
extend the d ra w period of the plan, the
possibility of renew al or extension—
regardless of its likelihood— should be
ignored for purposes of the disclosures. For
exam ple, if an agreem ent provides that the
d ra w period is five y ears and that the
creditor may renew the d ra w period for an
additional five years, the possibility of
renew al should be ignored a n d the draw
period should be considered five years. (See
the com m entary accom panying § 226.9(c)(1)
dealing w ith change in term s requirem ents.)
P aragraph 5b(d)(5](ii)
1. D eterm in a tion o f the m inim u m p erio d ic
p a y m e n t T his disclosure m ust reflect how
the minimum periodic paym ent is determ ined,
but need only describe the principal and
interest com ponents of the paym ent. O ther
charges that m ay be p a rt of the paym ent (as
w ell a s the b alance com putation m ethod)
may, but need not, be described u nder this
provision.
2. F ixed ra te a n d term p a y m e n t options
during dra w p erio d . If the hom e equity plan
perm its the consum er to repay all or pa rt of
the b alan ce during the draw period a t a fixed
ra te (rather than a v a ria b le rate) and over a
specified tim e period, this feature m ust be
disclosed. To illustrate, a variable-rate plan
m ay permit a consum er to elect during a teny ear d ra w period to repay all o r a portion of
the b alan ce over a three-year period a t a
fixed rate. The creditor m ust disclose the
rules relating to this feature including the
period during w hich the option can be
selected, the length of tim e over which
repaym ent can occur, any fees im posed for
such a feature, a n d the specific rate or a
description of the index and m argin that will
apply upon exercise of this choice. For
exam ple, the index a n d m argin disclosure
might state. “If you choose to convert any
portion of your balance to a fixed rate, the
13111
ra te will be the highest prime rate published
in the "W all Street foum al" that is in effect at
the date of conversion plus a margin." If the
fixed rate is to be determ ined according to an
index, it m ust be one that is outside the
creditor's control and is publicly available in
accordance w ith f 226.5b(f)(l). T h e effect of
exercising the option should n o t b e reflected
elsew here in the disclosures, such as in the
historical exam ple required in
§ 226.5b(d)(12)(xi).
3. B alloon p a ym en ts. In program s w here
the occurrence of a balloon paym ent is
possible, the creditor m ust disclose the
possibility of a balloon paym ent even if such
a paym ent is uncertain or unlikely. In such
cases, the disclosure might read, “Your
minimum paym ents may not be sufficient to
fully repay the principal that is outstanding
on your line. If they are not, you will be
required to pay the entire outstanding
balance in a single paym ent." In programs
w here a balloon paym ent will occur, such as
program s w ith interest-only paym ents during
the draw period and no repaym ent period,
the disclosures m ust state that fact. For
exam ple, the disclosure might read, "Your
minimum paym ents will not repay the
principal th a t is outstanding on your line. You
will be required to pay the entire outstanding
balance in a single p a y m e n t" In making this
disclosure, the creditor is not required to use
the term “balloon p a y m e n t" The creditor
also is not required to disclose the am ount of
the balloon payment. (See, however, the
requirem ent under § 226.5b(d)(5)(iii).) The
balloon paym ent disclosure does not apply in
cases w here repaym ent of the entire
outstanding balance w ould occur only a s a
result of term ination and acceleration. The
creditor also need not m ake a disclosure
ab o u t balloon paym ents if the final paym ent
could not be more than tw ice the am ount of
other minimum paym ents under the plan.
Paragraph 5b(d)(5)(iii)
1. M inim um p erio d ic p a y m e n t exam ple. In
disclosing the paym ent exam ple, the creditor
m ay assum e th at the credit limit a s w ell as
the outstanding b a la n c e is $10,000 if such an
assum ption is relevant to calculating
paym ents. (If the creditor only offers lines of
credit for less than $10,000, the creditor may
assum e an outstanding balance of $5,000
instead of $10,000 in making this disclosure.)
T h e exam ple should reflect the paym ent
com prised only of principal a n d interest.
C reditors m ay provide a n additional exam ple
reflecting other charges that m ay be included
in the paym ent, such a s credit insurance
premiums. Creditors m ay assum e that all
m onths have an equal num ber of days, that
paym ents are collected in w hole cents, and
that paym ents will fall on a business day
even though they m ay b e due on a nonbusiness day. For variable-rate plans, the
exam ple must be b a se d on the last rate in the
historical exam ple required in
5 226.5b(d)(12)(xi), o r a more recent rate. In
cases w here the last rate show n in the
historical exam ple is different from the index
value a n d m argin (for exam ple, d u e to a rate
cap), creditors should calculate the rate by
using the index value a n d margin. A
discounted rate m ay not be considered a
13112______ Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
m ore recent rate in calculating this paym ent
exam ple for either variable- or fixed-rate
plans.
2. R ep resen ta tiv e exam ples. In plans with
multiple paym ent options w ithin the draw
period or within any repaym ent period, the
creditor m ay provide representative
exam ples as an alternative to providing
exam ples for each paym ent option. The
creditor m ay elect to provide representative
paym ent exam ples based on three categories
of paym ent options. The first category
consists of plans that permit minimum
paym ent o f only accrued finance charges
(“interest only" plans). The second category
includes plans in w hich a fixed percentage or
a fixed fraction of the outstanding balance or
credit limit (for exam ple, 2% of the balance or
Vnoth of the balance) is used to determ ine
the minimum paym ent. The third category
includes all other types of minimum paym ent
options, such a s a specified dollar am ount
plus any accrued finance charges. Creditors
m ay classify their minimum paym ent
arrangem ents w ithin one of these three
categories even if other features exist, such
a s varying lengths of a draw or repaym ent
period, required paym ent of pa st due
am ounts, late charges, a n d minimum dollar
am ounts. The creditor m ay use a single
exam ple within each category to represent
the paym ent options in that category. For
exam ple, if a creditor permits minimum
paym ents of 1%, 2%, 3% or 4% of the
outstanding balance, it m ay pick one of these
four options and provide the exam ple
required under § 226.5b(d)(5)(iii) for that
option alone.
The exam ple used to represent a category
m ust be an option commonly chosen by
consum ers, or a typical or representative
exam ple. (See the com m entary to
§ 226.5b(d)(12) (x) and (xi) for a discussion of
the use of representative exam ples for
making those disclosures. C reditors using a
representative exam ple within each category
m ust use the sam e exam ple for purposes of
the disclosures under § 226.5b (d)(5)(iii) and
(d)(12) (x) a n d (xi).) Creditors m ay use
representative exam ples under S 228.5b(d)(5)
only with respect to the paym ent exam ple
required under paragraph (d)(5)(iii). Creditors
m ust provide a full narrative description of
all paym ent options under g 226.5b(d)(5) (i)
and (ii).
3. E xam ples fo r draw a n d rep a ym en t
periods. Separate exam ples m ust be given for
the draw and repaym ent periods unless the
paym ents are determ ined the sam e w ay
during both periods. In setting forth paym ent
exam ples for any repaym ent period under
this section (and the historical exam ple under
§ 226.5b(d)(12)(xi)), creditors should assum e a
$10,000 a d vance is taken a t the beginning of
the draw period a n d is reduced according to
the term s of the plan. C reditors should not
assum e an additional advance is taken at any
time, including at the beginning of any
repaym ent period.
4. R everse m ortgages. Reverse mortgages,
also know n a s reverse annuity or home
equity conversion mortgages, in addition to
permitting the consum er to obtain advances,
m ay involve the disbursem ent of monthly
a d v an c es to the consum er for a fixed period
or until the occurrence of an event such as
the consum er's death. R epaym ent of the
reverse mortgage (generally a single paym ent
of principal and accrued interest) m ay be
required to be m ade at the end of the
disbursem ents or, for exam ple, upon the
death of the consum er. In disclosing these
plans, creditors m ust apply the following
rules, as applicable:
• If the reverse mortgage h a s a specified
period for advances and disbursem ents but
repaym ent is due only upon occurrence of a
future event such as the d eath of the
consumer, the creditor m ust assum e that
disbursem ents will be m ade until they are
scheduled to end. The creditor m ust assum e
repaym ent will occur w hen disbursem ents
end (or w ithin a period following the final
disbursem ent which is not longer than the
regular interval betw een disbursem ents).
This assum ption should be used even though
repaym ent m ay occur before or after the
disbursem ents are scheduled to end. In such
cases, the creditor m ay include a statem ent
such as “The disclosures assum e that you
will repay the line a t the time the draw
period and our paym ents to you end. As
provided in your agreement, your repaym ent
m ay be rquired at a different time.” The
single paym ent should be considered the
“minimum periodic paym ent” and
consequently w ould not be treated as a
balloon paym ent. The exam ple of the
minimum paym ent under § 226.5b(d)(5)(iii)
should assum e a single $10,000 draw .
• If the reverse mortgage has neither a
specified period for a d v an c es or
disbursem ents nor a specified repaym ent
d a te and these term s will be determ ined
solely by reference to future events, including
the consum er’s death, the creditor m ay
assum e that the draw s and disbursem ents
will end upon the consum er’s d eath
(estim ated by using actuarial tables, for
exam ple) and that repaym ent will be required
at the sam e time (or within a period following
the date of the final disbursem ent which is
not longer than the regular interval for
disbursem ents). A lternatively, the creditor
m ay b a se the disclosures upon an o th er future
event it estim ates will be m ost likely to occur
first. (If term s will be determ ined by
reference to future events which do not
include the consum er’s death, the creditor
m ust b a se the disclosures upon the
occurrence of the event estim ated to be most
likely to occur first.)
• In making the disclosures, the creditor
m ust assum e that all draw s and
disbursem ents and accrued interest will be
paid by the consum er. For exam ple, if the
note h a s a non-recourse provision providing
that the consum er is not obligated for an
am ount greater than the value of the house,
the creditor m ust nonetheless assum e that the
full am ount to be d raw n or disbursed will be
repaid. In this case, how ever, the creditor
m ay include a statem ent such as “The
disclosures assum e full repaym ent of the
am ount advanced plus accrued interest,
although the am ount you m ay be required to
pay is lim ited by your agreem ent.”
• Some reverse mortgages provide that
som e or all of the appreciation in the value of
the property will be shared betw een the
consum er a n d the creditor. T he appreciation
feature m ust be disclosed in accordance with
§ 226.5b(d)(12).
5b(d)(S) A n n u a l P ercentage R a te
1. P referred-rate plan s. If a creditor offers a
preferential fixed-rate plan in which the rate
will increase a specified am ount upon the
occurrence of a specified event, the creditor
m ust disclose the specific am ount the rate
will increase.
5b(d](7) F ees Im p o sed b y C reditor
1. A p p lica b ility. The fees referred to in
§ 226.5b(d)(7) include item s such as
application fees, points, annual fees,
transaction fees, fees to obtain checks to
a ccess the plan, a n d fees im posed for
converting to a repaym ent phase that is
provided for in the original agreem ent. This
disclosure includes any fees that are im posed
by the creditor to use or m aintain the plan,
w hether the fees are kept by the creditor or a
third party. For exam ple, if a creditor requires
an annual credit report on the consum er and
requires the consum er to pay this fee to the
creditor or directly to the third party, the fee
m ust be specifically stated. T hird party fees
to open the plan that are initially paid by the
consum er to the creditor m ay be included in
this disclosure or in the disclosure under
§ 226.5b(d)(8).
2. M a nn er o f d escribin g fe e s. Charges may
be stated as an estim ated dollar am ount for
each fee, or a s a percentage of a typical or
representative am ount of credit. The creditor
m ay provide a stepped fee schedule in which
a fee will increase a specified am ount a t a
specified date. (See the discussion contained
in the com m entary to § 226.5b(f)(3)(i).)
3. F ees n o t req uired to be disclosed. Fees
that are not im posed to open, use, or m aintain
a plan, such as fees for researching an
account, photocopying, paying late, stopping
paym ent, having a check returned, exceeding
the credit limit, or closing out an account do
not have to be disclosed under this section.
Credit report and appraisal fees im posed to
investigate w hether a condition permitting a
freeze continues to exist—as discussed in the
com m entary to § 226.5b(f)(3)(vi)— are not
required to be disclosed under this section or
§ 226.5b(d)(8).
4. R eb a tes o f closing costs. If closing costs
are im posed they m ust be disclosed,
regardless of w hether such costs m ay be
re b ated later (for exam ple, reb ated to the
extent of any interest paid during the first
y e ar of the plan).
5. Term s u se d in disclosure. Creditors need
not use the term s "finance charge” or "other
charge” in describing the fees im posed by the
creditor under this section or those im posed
by third parties under § 226.5b(d)(8).
&b(d)(6) F ees Im p o sed b y T h ird P arties to
O pen a Plan
1. A p p lica b ility. Section 226.5b(d)(8)
applies only to fees im posed by third parties
to open the plan. Thus, for exam ple, this
section does not require disclosure of a fee
imposed by a governm ent agency a t the end
of a plan to release a security interest. Fees
to be disclosed include appraisal, credit
report, governm ent agency, and attorneys
fees. In cases w here property insurance is
required by the creditor, the creditor either
m ay disclose the amount of the premium or
m ay state that property insurance is required.
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
For exam ple, the disclosure m ight state, “You
m ust carry insurance on the property that
secures this plan."
2. Item iza tio n o f th ird p a rty fe e s. In. all
cases creditors must state the total o f third
party fees as a single dollar am ount or a
range. A creditor has two options w ith regard
to providing the more detailed information
about third party fees. C reditors m ay provide
a statem ent th at the consum er m ay request
more specific cost inform ation about third
p arty fees from the creditor. A s an alternative
to including this statem ent, creditors may
provide an item ization of such fees (by type
a n d am ount) w ith the early disclosures.
3. M a n n er o f d escrib in g fe e s. A good faith
estim ate of the am ount o f fees m ust be
provided. C reditors m ay provide, b a se d on a
typical o r representative am ount of credit, a
range for such fees or sta te the dollar am ount
of such fees. Fees m ay be expressed on a unit
cost basis, for exam ple, $5 p e r $1,000 of
credit.
4. R eb a tes o f th ird p a rty fe e s. Even if fees
im posed by third parties m ay be rebated,
they m ust be disclosed. (See the com m entary
to § 220.5b(d){7).)
5b(d)(9)
N eg a tive A m o rtiza tio n
1. D isclosure required. In transactions
w here the minimum paym ent will not or m ay
not be sufficient to cover the interest that
accrues on the outstanding balance, the
creditor m ust disclose that negative
am ortization will o r m ay occur. This
disclosure is required w hether or n o t the
unpaid interest is a dded to the outstanding
balance upon w hich interest is computed. A
disclosure is not required m erely because a
loan calls for non-amortizing o r partially
amortizing paym ents.
5b(d)(10) Transaction R eq u irem en ts
1. A p p lica b ility. A lim itation on autom ated
teller m achine usage need not be disclosed
under this paragraph unless that is the only
m eans by w hich the consum er can obtain
funds.
5b(d)(12)
P lans
D isclosures fo r V ariable-R ate
1. V ariable-rate pro visio n s. Sam ple forms
in Appendix G-14 provide illustrative
guidance on the variable-rate rules.
Paragraph 5b(d)(12)(iv)
1. D eterm ination o f ann u al p ercen ta g e rate.
If the creditor adjusts its index through the
addition of a margin, the disclosure might
read, “Your annual percentage ra te is b a se d
on the index plus a margin." The creditor is
not required to disclose a specific value for
the margin.
Paragraph 5b(d)(12)(viii)
1. P referred-rate p ro visio n s. This
paragraph requires disclosure of preferredrate provisions, w here the rate will increase
upon the occurrence of some event, such as
the borrow er-em ployee leaving the creditor's
employ or the consum er closing an existing
deposit account w ith the creditor.
2. P ro visio n s on conversion to fix e d rates.
The com m entary to § 226.5b(d)(5)(ii)
discusses the disclosure requirem ents for
options permitting the consum er to convert
from a variable rate to a fixed rate.
Paragraph 5b(d)(12}(ix)
1. P eriod ic lim ita tio n s on in crea ses in
rates. The creditor m ust disclose any annual
lim itations on increases in the annual
percentage rate. If the creditor b a se s its rate
lim itation on 12 m onthly billing cycles, such a
lim itation should be treated a s an annual cap.
R ate lim itations im posed on less th an an
annual b asis m ust be stated in. term s of a
specific am ount of time. For exam ple, if the
creditor im poses ra te lim itations on only a
sem iannual basis, this m ust be expressed as
a ra te lim itation for a six-m onth time period.
If the creditor does not impose periodic
lim itations (annual or shorter) on rate
increases, the fact that there are no annual
rate lim itations m ust be stated.
2. M axim um lim ita tio n s on in crea ses in
rates. The m axim um annual percentage rate
that m ay be im posed under each paym ent
option over the term o f the plan (including the
dra w period a n d any repaym ent period
provided for in the initial agreem ent) m ust be
provided. The creditor m ay disclose this rate
as a specific num ber (for exam ple, 18%) or as
a specific am ount above the initial rate. For
exam ple, this disclosure might read, "The
m axim um annual percentage ra te that can
apply to your line will be 5 percentage points
above your initial rate." If the creditor states
the m axim um ra te a s a specific am ount
above the initial rate, the creditor m ust
include a sta te m en t th at the consum er should
inquire about the ra te lim itations th at are
currently available. If an initial discount is
not taken into account in applying maximum
rate limitations, that fact m ust be disclosed. If
sep arate overall lim itations apply to rate
increases resulting from events such as the
exercise of a fixed-rate conversion option or
leaving the creditor’s employ, those
lim itations also m ust be stated. lim itatio n s
do not include legal limits in the n atu re of
usury or rate ceilings under state or federal
sta tu te s or regulations.
3. Form o f d isclo sures. The creditor need
not disclose each periodic or maxim um rate
lim itation that is currently available. Instead,
the creditor m ay disclose the range of the
low est a n d highest periodic a n d maximum
ra te lim itations that m ay be applicable to the
creditor's home equity plans. C reditors using
this alternative m ust include a statem ent that
the consum er should inquire a b o u t the rate
lim itations that are currently available.
Paragraph 5b(dJ(I2)(x)
1. M axim um ra te p a y m e n t exam ple. In
calculating the paym ent creditors should
assum e the maxim um rate is iti effect. Any
discounted or premium initial ra te s or
periodic rate lim itations should be ignored for
purposes of this disclosure. If a range is used
to disclose the m axim um cap under
5 226.5b(d)(12)(ix). the highest ra te in the
range m ust be used for the disclosure under
this paragraph. A s a n alternative to making
disclosures b a se d on each paym ent option,
the creditor m ay choose a representative
exam ple within the three categories o f
paym ent options upon w hich to base this
disclosure. (See the com m entary to
§ 226.5b(d)(5).) How ever, se p a rate exam ple?
m ust be provided for the d ra w period and for
any repaym ent period unless the paym ent is
determ ined the sam e w ay in both periods.
13113
Creditors should calculate the exam ple for
the repaym ent period b a se d on an assum ed
$10,000 balance. (See the com m entary to
{ 228.5b(d)(5) for a discussion of the
circum stances in w hich a creditor m ay use a
low er outstanding balance.)
2. Tim e th e m a xim u m ra te co u ld be
reached. In stating the date or tim e w hen the
maxim um ra te could be reached* creditors
should assum e the rate increases a s rapidly
as possible under the plan. In calculating the
da te or time, creditors should factor in any
discounted or premium initial ra te s and
periodic ra te limitations. T his disclosure m ust
be provided fo r the draw phase a n d any
repaym ent phase. C reditors should assum e
the index a n d m argin show n in the last year
of the historical exam ple (or a m ore recent
rate) is in effect a t the beginning o f each
phase.
Paragraph 5b(d)(12)(xi)
1. In d ex m o v e m e n t Index values and
annual percentage ra te s m ust be show n for
the entire 15 y ears of the historical exam ple
an d m ust be b a se d on the m ost recent 15
years. The exam ple m ust be updated
annually to reflect the m ost recen t 15 y ears of
index values as soon a s re asonably possibte
a fter the new index value becom es available.
If the values for an index have not been
available for 15 years, a cred ito r need only go
back as far as the values have been available
and m ay start the historical exam ple a t the
year for w hich values a r e first available.
2. S electio n o f in d ex values. The historical
exam ple m ust reflect the m ethod of choosing
index values for the plan. F o r exam ple, if an
average of index values is used in the plan,
averages m ust be used in the exam ple, b u t if
a n index value as of a particular d a te is used,
a single index value m ust be show n. The
creditor is required to assum e one date (or
one period, if an average is used) within a
year on which to b a se the history of index
values. T he creditor m ay choose to use index
values as of any d a te or period as long as the
index value a s of this d a te or period is used
for each year in the exam ple. Only one index
value per y e ar need be show n, even if the
plan provides for adjustm ents to the annual
percentage rate or paym ent more than once
in a year. In such cases, the creditor can
assum e that the index rate rem ained constant
for the full year for the purpose of calculating
the annual percentage ra te a n d payment.
3. S electio n o f m argin. A value for the
m argin m ust be a ssu m e d in o rder to prepare
the exam ple. A creditor m ay select a
representative m argin that it h a s used with
the in d ex during the six m onths preceding
preparation of the disclosures a n d state th at
the margin is one th a t it h a s used recently.
The m argin selected m ay be used until the
creditor annually updates the disclosure form
to reflect the m ost recent 15 y ears of index
values.
4. A m o u n t o f d isco u n t o r prem ium . In
reflecting any discounted or premium initial
rate, the creditor m ay select a discount or
premium that it ha s used during the six
m onths preceding preparation of the
disclosures, a n d should disclose that the
discount or premium is one that the creditor
has used recently. The discount or premium
13114
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
should be reflected in the exam ple for a s long
as it is in effect. T he creditor m ay assum e
that a discount or premium that w ould have
been in effect for any part of a y e ar w a s in
effect for the full y e a r for purposes of
reflecting it in the historical exam ple.
5. R a te lim ita tio n s. Limitations on both
periodic and m axim um rates m ust be
reflected in the historical exam ple. If ranges
of ra te lim itations are provided under
§ 226.5b(d)(12}(ix), the highest rates provided
in those ranges m ust be used in the exam ple.
Rate lim itations that m ay apply m ore often
than annually should be treated a s if they
w ere annual lim itations. For exam ple, if a
creditor im poses a 1% cap every six months,
this should be reflected in the exam ple a s if it
w ere a 2% an n u al cap.
6. A ssu m ed a dvances. The creditor should
assum e that the $10,000 balance is an
advance taken at the beginning of the first
billing cycle and is reduced according to the
term s of the plan, a n d that the consum er
takes no subsequent draw s. A s discussed in
the com m entary to § 226.5b(d)(5), creditors
should not assum e a n additional advance is
taken a t the beginning of any repaym ent
period. If applicable, the creditor m ay assum e
the $10,000 is both the advance a n d the credit
limit. (See the com m entary to 5 226.5b(d)(5)
for a discussion of the circum stances in
which a creditor m ay use a low er outstanding
balance.)
7. R ep resen ta tive p a y m e n t options. The
creditor need not provide a n historical
exam ple for all of its various paym ent
options, but m ay select a representative
paym ent option within each of the three
categories of paym ents upon which to base
its disclosure. (See the com m entary to
§ 226.5b(d)(5).)
8. P aym ent inform ation. The paym ent
figures in the historical exam ple m ust reflect
all significant program terms. For example,
features such a s rate and paym ent caps, a
discounted initial rate, negative amortization,
and ra te carryover m ust be taken into
account in calculating the paym ent figures if
these w ould have applied to the plan. The
historical exam ple should include paym ents
for a s much of the length of the plan as w ould
occur during a 15-year period. For example:
• If the draw period is 10 years and the
repaym ent period is 15 years, the exam ple
should illustrate the entire 10-year draw
period and the first 5 y ears of the repaym ent
period.
• If the length of the d ra w period is 15
years and there is a 15-year repaym ent
phase, the historical exam ple m ust reflect the
paym ents for the 15-year dra w period and
w ould not show any of the repaym ent period.
No additional historical exam ple w ould be
required to reflect paym ents for the
repaym ent period.
• If the length of the plan is less than 15
years, paym ents in the historical exam ple
need only be show n for the num ber of years
in the term. In such cases, how ever, the
creditor m ust show the index values, m argin
and annual percentage rates a n d continue to
reflect all significant plan term s such a s rate
lim itations for the entire 15 years.
A creditor need show only a single paym ent
per y e ar in the exam ple, even though
paym ents m ay vary during a year. The
calculations should be based on the actual
paym ent com putation formula, although the
creditor m ay assum e that all m onths have an
equal num ber of days. The creditor may
assum e that paym ents are m ade on the last
day of the billing cycle, the billing date or the
paym ent due date, but m ust be consistent in
the m anner in w hich the period used to
illustrate paym ent inform ation is selected.
Inform ation about balloon paym ents and
rem aining b alan ce may, but need not, be
reflected in the exam ple.
9. D isclosures fo r rep a ym en t period. The
historical exam ple m ust reflect all features of
the repaym ent period, including the
appropriate index values, margin, rate
limitations, length of the repaym ent period,
and paym ents. For exam ple, if different
indices are used during the d ra w and
repaym ent periods, the index values for that
portion of the 15 y ears that reflect the
repaym ent period m ust be the values for the
appropriate index.
10. R everse m ortgages. T he historical
exam ple for reverse m ortgages should reflect
15 y ears of index values a n d annual
percentage rates, but the paym ent column
should be blank until the y e a r that the single
paym ent will b e m ade, assum ing that
paym ent is estim ated to occur w ithin 15
years. (See the com m entary to $ 226.5b(d)(5)
for a discussion of reverse mortgages.)
5 b(ej B rochure
1. S u b stitu te s. A brochure is a suitable
substitute for the B oard's hom e equity
brochure if it is, a t a minimum, com parable to
the Board's brochure in substance and
com prehensiveness. Creditors are perm itted
to provide m ore detailed inform ation than is
contained in the Board's brochure.
2. E ffe ct o f th ird p a rty d e liv e ry o f brochure.
If a creditor determ ines that a third party has
provided a consum er w ith the required
brochure pursuant to § 226.5b(c), the creditor
need not give the consum er a second
brochure.
5b(f) L im ita tio n s on H om e E q u ity P lans
1. C overage. Section 226.5b(f) limits both
actions th at m ay b e taken a n d language that
m ay b e included in contracts, and applies to
any assignee or holder a s well a s to the
original creditor. The lim itations apply to the
d ra w period a n d any repaym ent period, and
to any renew al or m odification of the original
agreem ent.
Paragraph 5 b (f)(l)
1. E xtern a l ind ex. A creditor m ay change
the annual percentage rate for a plan only if
the change is b a se d on a n index outside the
creditor’s control. Thus, a creditor m ay not
m ake rate changes b a se d on its ow n prime
rate or cost of funds and m ay not reserve a
contractual right to change ra te s a t its
discretion. A creditor is perm itted, however,
to use a published prime rate, such a s that in
the W all Street Journal, even if the b a n k ’s
ow n prime rate is one of several ra te s used to
establish the published rate.
2. P u b licly a vaila b le. The index m ust be
available to the public. A publicly available
index need not be published in a new spaper,
but it m ust be one the consum er can
independently obtain (by telephone, for
exam ple) a n d use to verify rates imposed
under the plan.
3. P ro visio ns n o t pro h ib ited . This
paragraph does not prohibit rate changes that
are specifically set forth in the agreement.
For exam ple, stepped-rate plans, in which
specified rates are im posed for specified
periods, are permissible. In addition,
preferred-rate provisions, in which the rate
increases by a specified am ount upon the
occurrence of a specified event, also are
permissible.
Paragraph 5b(f)(2)
1. L im ita tio n s on term in a tion a n d
acceleration. In general, creditors are
prohibited from term inating and accelerating
paym ent of the outstanding balance before
the scheduled expiration of a plan. However,
creditors m ay take these actions in the three
circum stances specified in S 226.5b(f)(2).
Creditors are not perm itted to specify in their
contracts any other events that allow
term ination a n d acceleration beyond those
perm itted by the regulation. Thus, for
exam ple, an agreem ent m ay not provide that
the balance is payable on dem and nor m ay it
provide that the account will be term inated
an d the b alan ce accelerated if the rate cap is
reached.
2. O ther a ctio n s perm itted . If a n event
permitting term ination a n d acceleration
occurs, a creditor may instead take actions
short of term inating and accelerating. For
exam ple, a creditor could tem porarily or
perm anently suspend further advances,
reduce the credit limit, change the paym ent
term s, or require the consum er to pay a fee. A
creditor also m ay provide in its agreement
that a higher rate or higher fees will apply in
circum stances under which it w ould
otherw ise be perm itted to term inate the plan
and accelerate the balance. A creditor that
does not im m ediately term inate a n account
and accelerate paym ent or take another
perm itted action m ay take such action a t a
later time, provided one of the conditions
permitting term ination a n d acceleration
exists a t that time.
Paragraph 5b(f)(2)(i)
1. F raud o r m a teria l m isrep resentatio n . A
creditor m ay term inate a plan a n d accelerate
the balance if there h a s been fraud or
m aterial m isrepresentation by the consum er
in connection w ith the plan. This exception
includes fraud or m isrepresentation at any
time, either during the application process or
during the draw period a n d any repaym ent
period. W h a t constitutes fraud or
m isrepresentation is determ ined by
applicable sta te law and m ay include acts of
om ission a s w ell a s overt acts, as long a s any
necessary intent on the part of the consum er
exists.
Paragraph 5b(f)(2)(ii)
1. F ailure to m e e t repa ym ent term s. A
creditor m ay term inate a plan a n d accelerate
the b alan ce w hen the consum er fails to m eet
the repaym ent term s provided for in the
agreem ent. H ow ever, a creditor may
term inate a n d accelerate under this provision
only if the consum er actually fails to make
paym ents. For example, a creditor m ay not
term inate and accelerate if the consum er, in
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
error, sends a paym ent to the wrong location,
such as a branch rather than the m ain office
of the creditor. If a consum er files for or is
placed in bankruptcy, the creditor may
term inate and accelerate under this provision
if the consum er fails to m eet the repaym ent
term s of the agreement. This section does not
override any state or other law that requires
a right-to-cure notice, or otherw ise places a
duty on the creditor before it c an term inate a
plan and accelerate the balance.
P aragraph 5b(f)(2)(iii)
1. Im p a irm en t o f secu rity. A creditor may
term inate a plan and accelerate the balance
if the consum er’s action or inaction adversely
affects the creditor's security for the plan, or
any right of the creditor in that security.
Action or inaction by third parties does not,
in itself, permit the creditor to term inate and
accelerate.
2. E xam ples. A creditor m ay term inate and
accelerate, for exam ple, if:
• The consum er transfers title to the
property or sells the property w ithout the
perm ission of the creditor
• The consum er fails to m aintain required
insurance on the dwelling
• T he consum er fails to pay taxes on the
property
• The consum er permits the filing of a lien
senior to that held by the creditor
• The sole consum er obligated on the plan
dies
• The property is taken through eminent
dom ain
• A prior lienholder forecloses
By contrast, the filing of a judgment against
the consum er w ould permit term ination and
acceleration only if the am ount of the
judgment and collateral subject to the
judgment is such th at the creditor's security is
adversely affected. If the consum er commits
w a ste or otherw ise destructively uses or fails
to m aintain the property such that the action
adversely affects the security, the plan m ay
be term inated and the balance accelerated.
Illegal use of the property by the consum er
w ould perm it term ination a n d acceleration if
it subjects the property to seizure. If one of
tw o consum ers obligated on a plan dies the
creditor m ay term inate the plan and
accelerate the b alan ce if the security is
adversely affected. If the consum er moves
out of the dwelling that secures the plan and
that action adversely affects the security, the
creditor m ay term inate a plan a n d accelerate
the balance.
Paragraph 5b(f)(3)
1. Sco p e o f pro visio n. In general, a creditor
m ay not change the term s of a plan after it is
opened. For exam ple, a creditor m ay not
increase any fee or impose a new fee once
the plan has been opened, even if the fee is
charged by a third party, such a s a credit
reporting agency, for a service. The change of
term s prohibition applies to all features of a
plan, not only those required to be disclosed
under this section. For exam ple, this
provision applies to charges im posed for late
paym ent, although this fee is not required to
be disclosed under { 226.5b(d)(7).
2. C harges n o t covered. T here a re three
charges not covered by this provision. A
creditor m ay p ass on increases in taxes since
such charges are imposed by a governm ental
body a n d are beyond the control of the
creditor. In addition, a creditor m ay pass on
increases in premium s for property insurance
that are excluded from the finance charge
under § 226.4(d)(2), since such insurance
provides a benefit to the consum er
independent of the use of the line and is often
m aintained notw ithstanding the line. A
creditor also m ay p ass on increases in
premium s for credit insurance that are
excluded from the finance charge under
{ 226.4(d)(1). since the insurance is voluntary
and provides a benefit to the consumer.
P aragraph 5b(f)(3)(i)
1. Changes p ro v id ed fo r in agreem ent. A
creditor m ay provide in the initial agreement
for specific changes to take place upon the
occurrence of specific events. Both the
triggering event and the resulting
m odification m ust be stated w ith specificity.
For exam ple, in hom e equity plans for
employees, the agreem ent could provide that
a specified higher rate or m argin will apply if
the borrow er’s em ploym ent with the creditor
ends. A contract could contain a stepped-rate
or stepped-fee schedule providing for
specified changes in the rate or the fees on
certain d a te s or a fter a specified period of
time. A creditor also m ay provide in the
initial agreem ent that it will be entitled to a
share of the appreciation in the value of the
property a s long as the specific appreciation
share and the specific circum stances which
require the paym ent of it are set forth. A
contract m ay perm it a consum er to sw itch
among minimum paym ent options during the
plan.
2. P ro h ib ited p ro visio n s. A creditor may
not include a general provision in its
agreem ent perm itting changes to any o r all of
the term s of the plan. For exam ple, creditors
m ay not include "boilerplate" language in the
agreem ent stating that they reserve the right
to change the fees im posed under the plan. In
addition, a creditor m ay not include any
“ triggering events" or responses that the
regulation expressly a d d resses in a m anner
different from that provided in the regulation.
For exam ple, a n agreem ent m ay not provide
that the m argin in a variable-rate plan will
increase if there is a m aterial change in the
consum er's financial circum stances, because
the regulation specifies that tem porarily
freezing the line or lowering the credit limit is
the perm issible response to a m aterial change
in the consum er’s financial circum stances.
Similarly a contract cannot contain a
provision allowing the creditor to freeze a
line due to a n insignificant decline in
property value since the regulation allow s
that response only for a significant decline.
P aragraph 5b(f)(3)(ii)
1. S u b stitu tio n o f index. A creditor may
change the index a n d m argin used under the
plan if the original index becom es
unavailable, a s long a s historical fluctuations
in the original a n d replacem ent indices w ere
substantially similar, a n d a s long a s the
replacem ent index a n d margin will produce a
rate sim ilar to the rate that w a s in effect at
the time the original index becam e
unavailable. If the replacem ent index is
new ly established and therefore does not
13115
have any rate history, it m ay be used if it
produces a rate substantially sim ilar to the
rate in effect w hen the original index becam e
unavailable.
Paragraph 5b(f)(3)(iii)
1. C hanges b y w ritten agreem ent. A
creditor may change the term s of a plan if the
consum er expressly agrees in writing to the
change at the time it is m ade. For exam ple, a
consum er and a creditor could agree in
writing to change the repaym ent term s from
interest-only paym ents to paym ents that
reduce the principal balance. The provisions
of any such agreem ent are governed by the
lim itations in $ 226.5b(f). For exam ple, a
m utual agreem ent could not provide for
future annual percentage ra te changes b a se d
on the m ovem ent of an index controlled by
the creditor or for term ination and
acceleration under circum stances other than
those specified in the regulation. By contrast,
a consum er could agree to a new credit limit
for the plan, although the agreem ent could
not permit the creditor to later change the
credit limit except by a subsequent w ritten
agreem ent or in the circum stances described
in § 226.5b(f)(3)(vi).
2. W ritten agreem ent. The change must b e
agreed to in writing by the consumer.
C reditors are not perm itted to assum e
consent because the consum er uses an
account, even if use of an account w ould
otherw ise constitute acceptance of a
proposed change under state law.
Paragraph 5b(f)(3)(iv)
1. B en eficia l changes. A fter a plan is
opened, a creditor m ay m ake changes that
unequivocally benefit the consum er. Under
this provision, a creditor m ay offer more
options to consumers, a s long as existing
options remain. For exam ple, a creditor may
offer the consum er the option of making
low er monthly paym ents or could increase
the credit limit. Similarly, a creditor wishing
to extend the length of the plan on the sam e
term s m ay do so. C reditors are perm itted to
tem porarily reduce the rate or fees charged
during the plan (though a change in terms
notice m ay be required under $ 226.9(c) w hen
the rate or fees are returned to their original
level). C reditors also m ay offer an additional
m eans of access to the line, even if fees are
a ssociated w ith using the device, provided
the consum er retains the ability to use prior
access devices on the original terms.
Paragraph 5b(f)(3)(v)
1. In sig n ifica n t changes. A creditor is
perm itted to m ake insignificant changes after
a plan is opened. This rule accom m odates
operational and sim ilar problem s, such as
changing the ad d ress of the creditor for
purposes of sending paym ents. It does not
permit a creditor to change a term such as a
fee charged for late paym ents.
2. E xam p les o f in sig n ifica n t changes.
Creditors m ay m ake m inor changes to
features such a s the billing cycle date, the
paym ent due d a te (as long as the consum er
does not have a dim inished grace period if
one is provided), and the day of the month on
w hich index values are m easured to
determ ine changes to the rate for variablerate plans. A creditor also may change its
13116
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rales and Regulations
rounding practice in. accordance w ith the
tolerance roles s e t forth in §. 22ft. 14 (for
exam ple, stating an e x a c t APR o f 14.3333
percent a s 14.3 percent, even if it h a d
previously been sta te d a s 14.33 percent). A
creditor m ay change the b alan ce com putation
m ethod it u se s only if th e change produces an
insignificant difference in the finance charge
paid by the consum er. For exam ple, a
creditor m ay sw itch from using the average
daily b alan ce m ethod (including new
transactions^ to the daily balance m ethod
(including new transactions).
P aragraph 5 b ff)(3 jfvi}
1. S usp en sio n o f c r e d it o r red uctio n o f
c re d it'lim it A e r e c t o r m ay prohibit
a d ditional e xtensions of credit o r reduce the
Gredit lim it in the-circum stances specified in
th e regulation. A creditor may not tak e these
actions u n d e r o th e r circum stances, unless the
creditor w ould be perm itted to term inate the
line a n d accelerate the b a la n c e as described
in 8 226.5b(f)(2f. The creditor's right to reduce
the credit limit d o e s n o t perm it reducing the
limit below the am ount o f the outstanding
balance if this w ould req u ire th e consum er to
m ake a higher paym ent.
2. Tem porary na tu re o f su sp en sio n or
reduction. C reditors a r e perm itted to prohibit
a dditional extensions of credit o r reduce the
credit limit only w hile o n e of fee designated
circum stances exists. W hen the circum stance
justifying the creditor's action ceases to exist,
credit privileges m o st b e reinstated, assum ing
that no other circsn stan G e permitting such
action exists a t th at time.
3. Im po sitio n o f fe e s. If not prohibited by
sta te law , a creditor m ay eellect only bona
fide and reasonable a p p raisa l a n d credit
report fees if such fees are actually incurred
in investigating w h e th e r the condition
perm itting the freeze continues to ex ist. A
creditor m ay not, in a n y circum stances,
impose a fee to re in sta te a credit line once
the condition h a s b e e n determ ined not to
exist.
4. R ein sta tem en t o f c re d it p rivileg es.
C reditors a re responsible for ensuring th at
credit privileges a re re sto red a s soon a s
reasonably possible a fte r the condition that
perm itted the creditor’s action ceases to
exist. O ne w a y a creditor can m eet this
responsibility is to m onitor the line o n an.
ongoing b asis to determ ine w h e n the
condition ceases to exist. The creditor m ust
investigate the condition frequently enough to
assure itself that the condition perm itting the
freeze continues to exist. The frequency with
w hich the creditor m ust investigate to
determ ine w h e th e r a condition continues to
exist depends upon the apeeifkrcondition
perm itting the freeze. A s a n a lternative to
such monitoring* the creditor m ay shift fee
duty to the co n su m er to request
reinstatem ent of credit privileges by
providing a notice in. a cc o rd an t* with
§ 226.9(c)(3). A creditor m ay require a
reinstatem ent request to be in w riting if it
notifies the consum er of this requirem ent on
the notice provided under § 22&!9(c)t3). Once
the consum er re q u ests reinstatem ent, the
creditor m ust prom ptly investigate to
determ ine w hether the condition allowing the
freeze co n tin u e s to exist. U nder this
alternative, the c re d ito r h a s a duty to
investigate only upon the consum er’s request.
5. S usp en sio n o f c re d it p riv ile g e s fo llo w in g
re q u est by consum er. A creditor m ay h o n o r a
specific request by a consum er to suspend
credit privileges. If the consum er later
requests that the creditor re in sta te credit
privileges, th e creditor must do so provided
no other circum stance justifying a suspension
ex ists a t th a t time. If tw o or m ore consum ers
are obligated under a plan a n d e a c h has the
ability to take advances, the agreem ent may
permit any of the consum ers to direct the
creditor n o t to m ake farther advances. A
creditor may require that all persons
obligated under a plan request reinstatem ent.
6. S ig n ifica n t d eclin e d efin ed . W hat
constitutes a significant decline for purposes
of i 226.5b(f){3)( vi)( A) will vary according to
individual circum stances, bi any event, if the
v alue of the dwelling declines su c h that the
initial difference betw een the c redit limit and
the available equity (based on the property’s
a p p raise d v a lu e for purposes of the plan) is
reduced by fifty percent, this constitutes a
significant decline in the value of the
dwelling for purposes of I 228 .5 b(fj( 3 )(vi)(A).
For example, assum e th at a house w ith a first
mortgage of $50^000 is appraised a t $100,000
a n d the credit limit is $30,000. T he difference
b etw een the credit limit a n d the available
equity is $20,000, h alf of w hich is $10,000. T he
creditor could prohibit farth er a d v a n c e s or
reduce the credit limit if the value of the
property declines from $100,000 to $90,000.
T his provision does not require a creditor to
obtain an appraisal before suspending credit
privileges although a significant decline m ust
occur before suspension c an occur.
7. M a teria l change in fin a n c ia l
circum sta nces. T w o conditions m ust be m et
for § 226.5b(f)(3)(vi)(B) to apply. First, there
m ust be a “m aterial change" in the
consum er's financial circum stances, such as
a significant decrease in the co n su m er's
incom e. S e c o n d a s a result of this change,
the creditor m ust have a reaso n ab le belief
that the consum er will b e un ab le to fulfill the
paym ent obligations of the plan. A creditor
may, but does not have to, rely on specific
evidence (such a s th e failure to pay other
debts) in concluding th at the second p a rt of
the test has* been m e t A creditor m ay
prohibit further a d v an c es or red u ce the credit
limit under this section if a consum er files for
o r is p la c e d in bankruptcy.
8. D efa ult o f a m a te ria l obligation.
Creditors m ay specify events that w ould
qualify a s a default of a m aterial obligation
u nder $ 226.5b{fH3)(Vi:)(C). For example* a
creditor m ay provide that default of a
m aterial obligation w ill exist if the consum er
m oves out of the dwelling o r perm its an
intervening lien to b e filed th a t w ould take
priority over future a d v an c es m ade by the
creditor.
9. G overnm ent lim its on th e a n n u a l
p ercen ta g e rate. U nder &226J>b(f)(3)(vi)(DJ, a
creditor m ay prohibit further a d v an ces or
reduce the credit limit if, for exam ple, a state
usury law is en acted which prohibits a
creditor from imposing the a ^ e e d -u p o n
annual percentage rate.
5b(g)
R .efund o f Fees
1. R efu n d o f fe e s required. If any disclosed
term, including any term provided upon
request pursuant to $ 226.5b(d), changes
b etw een the time the early disclosures are
provided to the consum er a n d d ie tim e the
plan is opened, a n d the consum er a s a result
decides to not e n te r into the-plan, a creditor
m ust refund all fees paid by the c o n su m er in
connection with the application. AH fees,
including credit report fees and appraisal
fees, m ust be refunded w h eth er such fees are
paid to the creditor or directly to third
parties. A consum er is entitled to a refund of
fees under these circum stances w h e th e r or
not term s are guaranteed by the creditor'
u nder § 226.5b(d)(2)(i).
2. V ariable-rate pla n s. The right to a refund
of fees does not apply to changes in the
annual percentage r a te resulting from
fluctuations in the index value in a variablera te plan. Also, if the m axim um annual
percentage rate is expressed a s a n am ount
over the initial rate, the right to refund of fees
w ould n o t a p p ly to changes in the cap
resulting from fluctuations in th e index value.
3. C hanges in term s. If a term, such a s the
m axim um rate, is stated a s a range in the
early disclosures, and the term ultim ately
applicable to the plan falls w ithin that range,
a change does not occur for purposes of this
section. If, however, no range is used and the
term is changed (for exam ple, a rate cap of 6
ra th e r than 5 percentage points over the
initial rate), the change w ould permit the
consum er to obtain a refund of fees. If a fee
im posed by the creditor is stated in the early
disclosures a s an estim ate a n d the fee
changes, the consum er could elect to not
enter into the agreem ent a n d w ould be
entitled to a refund of fees. O n the other
hand, if fees im posed by third parties are
disclosed a s estim ates and those fees change,
the consum er is not entitled to a refund of
fees paid in connection w ith the application.
Creditors must, however, use the best
information reasonably available In
providing disclosures about such fees.
4. T im ing o f refu n d s a n d rela tio n to oth er
p ro visio n s. The refund o f fees m ust be m ade
as soon as reasonably possible a fter the
creditor is notified that the consum er is not
entering into the plan because of the changed
term, or that the consum er w a n ts a refund of
fees. The fact that a n application fee m ay be
refunded to some applicants u nder this
provision does not render such fees finance
charges u nder { 226.4(c)(1) of th e regulation.
Sb(h) Im p o sitio n o f N onrefu nd a ble F ees
1. C ollection o f fe e s a fte r consum er
receives d isclo sures. A fee m ay b e collected
after the consum er receives the disclosures
and brochure and before the expiration of
three days, although the fee m u st be refunded
if, w ithin three d a y s of receiving the required
information, the consum er decides to not
e nter into the agreem ent. In such a case, the
consum er m ust b e notified that the fee is
refundable for three days. T h e notice m ust be
clear and conspicuous and in writing, and
m ay be included w ith the disclosures
required under § 226.5b(d) or a s a n
attachm ent to them. If disclosures and
brochure a re m ailed to th e consum er,
footnote lOd of the regulation provides that a
nonrefundable fee m ay not be im posed until
six business days a fter the mailing;
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
2. C ollection o f fe e s before consum er
re c eive s disclosures. An application fee may
be collected before the consum er receives the
disclosures and brochure (for exam ple, w hen
a n application contained in a m agazine is
m ailed in w ith an application fee) provided
that it rem ains refundable until three
business days after the consum er receives the
5 226.5b disclosures. No other fees except a
refundable m em bership fee m ay be collected
until after the consum er receives the
disclosures required under { 226.5b.
3. R ela tio n to o th er p ro vision s. A fee
collected before disclosures are provided
m ay becom e nonrefundable except that,
under § 226.5b(g), it must be refunded if the
consum er elects to not enter into the plan
because of a change in term s. (Of course, all
fees must be refunded if the consum er later
rescinds under § 226.15.)
S ectio n 226.6 In itia l D isclosure S ta tem en t
7. Comment 6{a)(2)-2 is amended by
adding a sentence after the first
sentence of the flush text following the
third bulleted paragraph to read as
follows:
6(a)
F inance Charge
P aragraph 6(a)(2)
♦
*
*
*
2.
*
*
V ariable-rate disclosu res—coverage.
*
*
*
*
*
(See the rule in § 226.5b(f)(l) applicable
to home equity plans, however, which
prohibits "rate reservation” clauses.) * * *
*
*
*
*
*
8. Comments 6 (e)-l through 6(e)-4 and
a heading are added to read as follows:
6(e) H om e E q u ity Plan Inform ation
1. A d d itio n a l d isclo su res required. For
home equity plans, creditors m ust provide
several of the disclosures set forth in
§ 226.5b(d) along with the disclosures
required under § 226.6. C reditors also must
disclose a list of the conditions that permit
the creditor to term inate the plan, freeze or
reduce the credit limit, and implement
specified m odifications to the original terms.
2. Form o f disclosures. The home equity
disclosures provided under this section must
be in a form the consum er can keep, and are
governed by 5 226.5(a)(1). The segregation
sta n d a rd set forth in § 226.5b(a) does not
apply to home equity disclosures provided
u nder 5 226.6.
3. D isclosure o f p a y m e n t a n d variable-rate
exam ples. The paym ent exam ple disclosure
in § 226.5b(d)(5)(iii) and the variable-rate
inform ation in { 228.5b(d)(12) (viii), (x), (xi),
and (xii) need not be provided with the
disclosures under § 226.6 if:
• The disclosures under 5 226.5b(d) w ere
provided in a form the consum er could keep:
and
• The disclosures of the paym ent exam ple
under § 226.5b(d)(5)(iii), the maxim um
paym ent exam ple under { 226.5b(d)(12)(x)
and the historical table under
$ 226.5b(d)(12)(xi) included a representative
paym ent exam ple for the category' of
paym ent options the consum er has chosen.
For exam ple, if a creditor offers three
paym ent options (one for each of the
categories described in the com m entary to
§ 226.5b(d)(5)), describes all three options in
its early disclosures, a n d provides all of the
disclosures in a retainable form, that creditor
need not provide the { 226.5b(d)(5)(iii) or
(d)(12) disclosures again w hen the account is
opened. If the creditor show ed only one of
the three options in the early disclosures
(which w ould be the case w ith a separate
disclosure form rather than a com bined form,
as discussed under § 226.5b(a)). the
disclosures under § 226.5b(d)(5)(iii) and
(d)(12) (viii), (x), (xi) and (xii) m ust be given
to any consum er who chooses one of the
other two options. If the § 226.5b(d)(5)(iii) and
(d)( 12) disclosures are provided w ith the
second set of disclosures, they need not be
transaction-specific, but m ay be b a se d on a
representative exam ple of the category of
paym ent option chosen.
4.
D isclosures fo r the rep a ym en t period.
The creditor m ust provide disclosures about
both the d ra w a n d repaym ent phases when
giving the disclosures under § 226.6.
Specifically', the creditor m ust m ake the
disclosures in § 226.6(e), sta te the
corresponding annual percentage rate (as
required in § 226.6(a)(2)) and provide the
variable-rate inform ation required in footnote
12 for the repaym ent phase. To the extent the
corresponding annual percentage rate, the
inform ation in footnote 12 a n d any other
required disclosures are the sam e for the
draw and repaym ent phase, the creditor need
not repeat such information, a s long as the
disclosure clearly states that the information
applies to both phases.
*
*
*
*
*
13117
a creditor freezes a line or reduces a credit
line rath er than term inating a plan and
accelerating the balance.
*
*
*
*
*
12. Comments 9(e)-l through 9(e)(3)—
2
and headings are added to read as
follows:
9(e) D isclosures Upon R en e w a l o f C redit or
Charge C ard
1. Coverage. T his paragraph applies to
credit a n d charge card accounts of the type
subject to 226.5a. (See § 226.5a(a)(3) and the
accom panying com m entary for discussion of
the types of accounts subject to 5 226.5a.) The
disclosure requirem ents are triggered when a
card issuer imposes any annual or other
periodic fee on such an account, w hether ori
not the card issuer originally w a s required to
provide the application and solicitation
disclosures described in § 226.5a.
2. Form. The disclosures under this
paragraph m ust be clear and conspicuous,
but need not a p p ea r in a tabular form at or in
a prom inent location. The disclosures need
not be in a form the cardholder can retain.
3. Term s a t renew al. Renew al notices must
reflect the term s actually in effect at the time
of renew al. For exam ple, a card issuer that
offers a preferential annual percentage rate
to em ployees during their employm ent must
send a renew al notice to em ployees
disclosing the low er rate actually charged to
em ployees (although the card issuer also m ay
show the rate charged to the general public).
4. V ariable rate. If the card issuer cannot
determ ine the rate that will be in effect if the
cardholder chooses to renew a variable-rate
Sectio n 226.9 S u b seq u en t D isclosure
account, the card issuer m ay disclose the rate
R eq u irem en ts
in effect a t the time of mailing or delivery of
9. Comment 9 (c)-l is amended by
the renew al notice. Alternatively, the card
issuer m ay use the rate as of a specified date
adding a sentence at the end to read as
(and then update the rate from time to time,
follows:
for exam ple, each c alen d ar month) or use an
9(c) C hange in Term s
estim ated rate under § 226.5(c).
5. R en ew a ls m ore fre q u en t than annual. If
1.
"C hanges" in itia lly d isclo sed . ' * * The
a renew al fee is billed more often than
rules in § 226.5b(f) relating to home equity
annually, the renew al notice should be
plans, however, limit the ability of a creditor
provided each time the fee is billed. In this
to change the term s of such plans.
instance, the fee need not be disclosed as an
10. Comment 9(c)(l)-6 is addd to read
annualized amount. Alternatively, the card
as follows:
issuer m ay provide the notice no less than
9(c)(1) W ritten N o tice R eq u ired
once every tw elve m onths if the notice
*
*
*
*
*
explains the am ount and frequency of the fee
6.
H om e e q u ity pla n s. If a creditor renew s that will be billed during the time period
covered by the disclosure, and also discloses
the draw period for a home equity plan on
the fee a s an annualized amount. The notice
term s different from those of the original
under this alternative also m ust state the
plan, the requirem ents of § 226.9(c) apply to
consequences of a cardholder’s decision to
such a change. W hen the term s are changed
pursuant to a w ritten agreem ent a s described
term inate the account after the renew al
in § 225.5b(f)(3)(iii), the advance notice
notice period has expired. For exam ple, if a
requirem ent does not apply.
$2 fee is billed m onthly but the notice is given
annually, the notice m ust inform the
11. Comments 9(c)(3)— and 9(c)(3)—
!
2
cardholder that the m onthly charge is $2. the
and a heading are added to read as
annualized fee is $24, a n d $2 will be billed to
follows:
the account each m onth for the coming year
9(c)(3) N o tice fo r H om e E q u ity P lans
unless the cardholder notifies the card issuer.
If the cardholder is obligated to pay an
1. W ritten req u est fo r rein sta tem en t. If a
am ount equal to the rem aining unpaid
creditor requires the request for
m onthly charges if the cardholder term inates
reinstatem ent of credit privileges to be in
the account during the coming year but after
writing, the notice under S 226.9(c)(3) must
the first m onth, the notice m ust disclose that
state that fact.
fact.
2. N o tice n o t required. A creditor need not
6. T erm inating c red it a v a ila b ility. Card
provide a notice under this paragraph if,
issuers have some flexibility in determining
pursuant to the com m entary to 5 226.5b(f)[2).
13118______ Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
th e procedures fo r b o w a n d w h e n a n account
may b e term inated. How ever, th e card issuer
m ust clearly disclose the time b y w hich the
cardholder m ust act to term in ate the account
to avoid paying a renew al fee. S tate and
other applicable law govern w h e th er the card
issuer may im pose requirem ents such as
specifying that the cardholder’s response be
in writing or that the outstanding balance be
repaid in full upon term ination.
7. Tim ing o f term in atio n b y cardholder.
W h en a card issuer provides notice under
§ 226.9(e)(1). a cardholder m ust be given a t
least 30 d ays o r one billing cycle, w hichever
is less, from the d a te th e notice is m ailed or
delivered to m ake a decision w h eth er to
term inate a n a c c o u n t W h en notice is g iv es
u nder § 226.9(e)(2), a cardholder h a s 30 days
from m ailing o r delivery to decide to
term inate a n a c c o u n t
8. Tim ing o f n o tices. A renew al notice is
deem ed to be provided w hen m ailed or
delivered. Sim ilarly, notice o f term ination is
deem ed to b e given w hen m ailed or
delivered.
9. P rom pt rev ersa l o f re n e w a l fe e upon
term ination. In a situation w here a
cardholder h a s provided timely notice of
term ination a n d a re n ew a l fee h a s been
billed to a c ard h o ld er's ac c o u n t the card
issuer m ust reverse o r otherw ise w ithdraw
the fee promptly. O nce a cardholder has
term inated a n a c c o u n t no additional action
by the cardholder m ay be required.
9(e)(3) N o tifica tio n o n P eriodic S ta te m e n ts
1. C om bined disclosures. If a single
disclosure is used to comply w ith both
§§ 226.9(e) and 226.7, the periodic statem ent
m ust comply w ith the rules in §{ 226.5a and
226.7. For exam ple, the w ords “grace period”
m ust be used and the nam e of the balance
calculation m ethod m ust be identified (if
listed in { 226.5a(g)) to comply w ith the
requirem ents of j 226.5a, even though the use
of those term s w ould not otherw ise be
required for periodic statem ents under
§ 226.7. A card issuer may include som e of
the re n ew a l disclosures on a periodic
statem ent a n d others on a se p a rate docum ent
so long a s there is som e reference indicating
that they relate to one another. All renew al
disclosures m ust b e provided to a cardholder
a t the sam e time.
2. P reprinted n o tices on p erio d ic
sta tem en ts. A card issuer m ay preprint the
required inform ation on its periodic
statem ents. A card issuer th at does so,
however, using the advance notice option
u n d e r § 226.9(e)(1), m ust m ake d e a r on the
periodic statem ent w hen the preprinted
ren ew al disclosures are applicable. For
exam ple, the card issuer could include a
special notice (not preprinted) a t the
appropriate tim e th at the renew al fee will be
billed in the following billing cycle, or could
show the renew al date a s a regular
(preprinted) entry o n all periodic statem ents.
13. Comments 9(f)-l through 9(f}-4
and 9(f)(3)— and headings are added to
1
read a3 follows:
9 (f) C hange in C redit C ard A cco u n t
in su ra n ce P rovider
1.
Coverage. This paragraph applies to
credit c a rd accounts of the type subject to
§ 226.5a if credit insurance- (typically life,
disability, a n d unem ploym ent insurance) is
offered on the outstanding b alan ce of such an
account. (C redit c a rd accounts subject to
§ 226.9(f) are the sam e as those subject to
S 226.9(e); se e com m ent 9(e )-l.) Charge card
accounts are not covered by this paragraph.
In addition, the disclosure requirem ents of
this paragraph apply only w here the card
issuer initiates the change in insurance
providers. For exam ple, if the card issuer's
current insurance provider is merged into or
acquired by an o th er company, these
disclosures w ould not be required.
D isclosures also need not be given in cases
w here card issuers pay for credit insurance
them selves a n d do not separately charge the
cardholder.
2. N o in crea se in ra te o r d ecrease in
coverage. The requirem ent to provide the
disclosure arises w hen the card issuer
changes the provider of insurance, even if
there will be no in crease in the premium rate
charged the consum er and no d ecrease in
coverage under the insurance policy.
3. Form o f n o tice. If a substantial decrease
in coverage will result from the change in
providers, the card issuer eith er m ust explain
the decrease o r refer to a n accom panying
copy of the policy or group certificate for
details of the new term s of coverage. (See the
com m entary to A ppendix G-13.)
4. D isco ntin u atio n o f insurance. In addition
to stating that the cardholder m ay cancel the
insurance, the card issuer m ay explain the
effect the cancellation w ould have on the
consum er's credit card plan.
5. M a ilin g b y th ird p a rty. Although the
card issuer is responsible for the disclosures,
the insurance provider or an o th er third party
m ay furnish the disclosures on the card
issu er’s behalf.
9(f)(3) S u b sta n tia l D ecrease in C overage
1.
D eterm ination. W hether a substantial
decrease in coverage will result from the
change in providers is determ ined by the twopart test in § 226.9(f)(3); First, w hether the
decrease is in a significant term of coverage;
and second, w h eth er the decrease might
reasonably b e expected to affect a
cardho lder’s decision to continue the
insurance. If both conditions are m e t the
decrease m ust be disclosed in the notice.
14(b) A n n u a l P ercentage R a te fo r § § 226.5a
a n d 226.5b D isclosures, fo r In itia l
D isclo su res a n d fo r A d vertisin g P urposes
16. Comment 14(b)— is amended by
1
revising the first sentence to read as
follows:
1. C orresponding a n n u a l percen ta g e rate
com putation. For purposes of §§ 226.5a.
226.5b, 226.6 and 226.16, the annual
percentage ra te is determ ined b y multiplying
the periodic rate by the num ber of periods in
the year. * * *
S ectio n 226.15 R ig h t o f R escissio n
17. Comments to 15(a)(3) are amended
by revising the fourth sentence and by
adding two sentences at the end of
comment 1.5(a)(3)— and by adding a
2r
sentence at the end of comment
15(a)(3)— to read as follows:
3
15(a)
C onsum er's R ig h t to R escin d
Paragraph 15(a)(3)
*
*
*
*
*
2. M a teria l disclo su res. * * * Failure to give
the other required initial disclosures (such as
the billing rights statem ent) or the
inform ation required under section 226.5b.
does not prevent the running of the rescission
period, although that failure m ay result in
civil liability or adm inistrative sanctions. The
paym ent term s set forth in footnote 36 apply
to any repaym ent phase set forth in the
agreement. Thus, the paym ent terms
described in § 226.6(e)(2) for any repaym ent
phase as well a s for the d ra w period are
“m aterial disclosures."
3. M a teria l disclo su res— variable-rate
program . * * * The disclosures listed in
footnote 12 to section 226.6(a)(2) for any
repaym ent phase also are m aterial
disclosures for variable-rate programs.
*
*
*
*
*
S ectio n 226.16 A d ve rtisin g
18. Comments to 16(b) are amended
by adding parenthetical material at the
end of comment 16(b)-2 and by revising
the last sentence in comment 16(b)— to
6
read as follows:
S ectio n 226.12 S p e cia l C redit C ard
P rovisions
16(b) A d ve rtise m en t o f Term s T h a t R equ ire
A d d itio n a l D isclosures
14. Comment 12(a)(2)-9 is added to
read as follows:
2.
Use of positive term s. * * * (See.
how ever, the rules in § 226.16(d) relating to
advertisem ents for home equity plans.}
*
*
*
*
*
12(a)
Issu an ce o f C redit C ards
Paragraph 12(a)(2)
6. D isco u n ted va ria b le-rate p la n s—
d isclo su re o f th e a n n ua l percen ta g e
9.
M u ltip le en titie s. W here multiple entities rates. * * * The options listed in comm ent
16(b)— m ay be used in disclosing the current
5
sh a re responsibilities w ith respect to a credit
indexed rate.
card issued by one of them, the entity that
*
*
*
*
*
issued the card m ay replace it on an
unsolicited basis, if that entity term inates the
19. Comment 16(b)-7 ia revised to read
original card by voiding it in som e way, as
as follows:
described in com m ent 12(a)(2)-7. The other
7. Triggering term s. The following are
entity or entities m ay not issue a card o n an
exam ples of term s that trigger additional
unsolicited basis in these circum stances.
disclosures:
S ectio n 226.14 D eterm ination o f A n n u a l
•
"Small monthly service charge on die
P ercentage R a te
remaining balance, which describes how the
15. The heading to comments under
am ount of a finance charge will be
determ ined.
§ 226.14(b) is revised to read a s follows:
*
*
*
*
*
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
•
"12 percent A nnual Percentage Rate o r
"A $15 annual m em bership fee buys you
$2,000 in credit," w hich d escrib e required
disclosures .using positive num bers.
20. Comment 16(b)-8 is added to read
as follows:
under | 226.18(d) to state the annual
percentage rate, the additional disclosures in
§ 226.16(13) must b e provided in the
a d v ertise m e n t W hile § 226.16(d) does not
require a statem ent of fees to use or m aintain
the plan (such a s m em bership fees and
transaction charges), such fees m ust be
disclosed under 5 226.16(b) (1) and (3).
6.
In a p p lic a b ility o f clo sed -en d rules.
A dvertisem ents for home equity plans are
governed solely by the requirem ents in
§ 226.16, and not by the closed-end
advertising rules in § 226.24. Thus, if a
creditor states paym ent inform ation about
the repaym ent phase, this will trigger the
duty to provide additional information under
§ 226.16. but not under § 226.24.
8.
D eferred b illin g a n d d e fe rred p a ym en t
program s. Statem ents such a s “Charge it—
you w on’t be billed until M ay" or "You m ay
skip your January paym ent" are not in
them selves triggering terms, since the timing
for initial billing o r for m onthly paym ents are
not term s required to b e disclosed under
§ 226.6. How ever, a statem ent such as "No
finance charge until M ay” or any other
statem ent regarding when finance charges
begin to accrue is a triggering term, w hether
appearing alone o r in conjunction with a
description of a deferred billing or deferred
paym ent program such a s the exam ples
above.
S ectio n 226.17— G eneral D isclosure
R eq u irem en ts
*
*
*
*
*
21. Comments 16(d)-l through 16(d)—
6
and a heading are added to read as
follows:
22. C o m m e n t 1 7 (b )-2 is a m e n d e d b y
r e v is in g th e f ir s t s e n t e n c e to r e a d a s
fo llo w s:
16(d) A d d itio n a l R eq uirem ents fo r H om e
E q u ity P lans
17(b) T im e o f D isclo su res
1. Trigger term s. Negative as well as
affirm ative references trigger the requirem ent
for additional information. For exam ple, if a
creditor states “no annual fee,” “no points,"
or "w e w aive closing costs” in an
advertisem ent, additional inform ation must
be provided. (See comm ent 16(d)— regarding
4
the use of a p hrase such a s “no closing
costs.") Inclusion of a statem ent such as “low
fees," however, w ould not trigger the need to
state additional information. References to
paym ent term s include references to the draw
period or any repaym ent period, to the length
of the plan, to how the minimum paym ents
are determ ined and to the timing of such
paym ents.
2. F ees to open th e plan. Section
226.16(d)(l)(i) requires a disclosure of any
fees im posed by the creditor o r a third party
to open the plan. In providing the fee
inform ation required under this paragraph,
the corresponding rules for disclosure of this
information apply. For exam ple, fees to open
the plan m ay be sta te d as a range. Similarly,
if property insurance is required to open the
plan, a creditor either may estim ate the cost
of the insurance or provide a statem ent that
such insurance is required. (See the
com m entary to § 226.5b(d)(7) and (8).)
3. S ta te m e n ts o f ta x ded u ctib ility: An
advertisem ent referring to deductibility for
tax purposes is not m isleading if it includes a
statem ent such a s "consult a tax advisor
regarding the deductibility of interest.”
4. M islea ding term s proh ib ited . U nder
§ 226.16(d)(5), advertisem ents m ay not refer
to home equity plans as "free m oney" or use
other m isleading terms. For exam ple, an
advertisem ent could not state ”no closing
costs" or “we w aive closing costs" if
consum ers m ay be required to pay any
closing costs, such as recordation fees.
5. R ela tio n to o th er sectio n s.
A dvertisem ents for home equity plans must
comply w ith all provisions in § 226.16. not
solely the rules in § 226.16(d). If an
advertisem ent contains information (such as
the paym ent terms) that triggers the duty
Subpart C—Closed-End Credit
2.
C onverting open -en d to clo sed -en d
credit. Except for hom e equity p lans subject
to § 226.5b in w hich the agreem ent provides
for a repaym ent phase, if an open-end credit
account is converted to a closed-end
transaction under a w ritten agreem ent with
the consum er, the creditor m ust provide a set
of closed-end credit disclosures before
consum m ation of the closed-end
transaction. * * *
*
*
*
*
*
17(c) B a sis o f D isclo su res a n d Use o f
E stim a tes
23. C o m m e n ts to 17(c)(1) a r e a m e n d e d
b y a d d in g f lu s h t e x t to fo llo w th e th ir d
b u l le t e d p a r a g r a p h o f c o m m e n t 17(c)(1)—
4; b y a d d in g a f o u rth b u l le t e d p a r a g r a p h
b e f o r e th e l a s t p a r a g r a p h o f c o m m e n t
1 7 ( c ) ( l ) - l l ; a n d b y a d d in g a n e w
c o m m e n t 17(c)(l)-1 7 , to r e a d a s fo llo w s:
P aragraph 17(c)(1)
*
*
*
*
*
4. C onsum er b uyd o w n s. * * *
The rules regarding consum er buydow ns
do not apply to transactions know n a s
"lender buydow ns," In lender buydow ns, a
creditor pays a n am ount (either into an
account or to the party to w hom the
obligation is sold) to reduce the consum er’s
paym ents or interest rate for all o r a portion
of the credit term. Typically, th ese
transactions are structured a s a buydow n of
the interest ra te during an initial period of the
transaction with a higher than usual rate for
the rem ainder of the term. The disclosures for
lender buydow ns should be b a se d on the
term s of the legal obligation betw een the
consum er a n d the creditor. (See comment
17(c)(1)— for the analogous rules concerning
3
third-party buydowns.)
13119
to paym ents a n d the loan .balance to reflect
changes in an index m easuring prioes or
inflation. D isclosures are to be based on the
fixed interest rate.
*
*
*
*
*
17. S p e cia l ru les fo r ta x refu n d a n ticip a tio n
loans. T ax refund loans, also know n as
refund anticipation loans (RALs), are
transactions in which a creditor will lend up
to the amount of a consum er's expected tax
refund. RAL agreem ents typically require
repaym ent upon dem and, but also m ay
provide that repaym ent is required when the
refund is m ade. The agreem ents also
typically provide th a t if the am ount of the
refund is less than the paym ent due, the
consum er must pay the difference.
R epaym ent often is m ad? by a preauthorized
offset to a consum er s account held w ith the
creditor when the refund h a s been deposited
by electronic transfer. C reditors may charge
fees for RALs in addition to fees for filing the
consum er's tax return electronically. In RAL
transactions subject to the regulation the
following special rules apply:
• If, under the term s oi the legal obligation,
repaym ent of the loan is required w hen the
refund is received by the consum er (such as
by deposit into the consum er’s account), the
disclosures should be b a se d on the creditor's
estim ate of the time the refund will be
delivered even if the loan also contains a
dem and clause. The practice of a creditor to
dem and repaym ent upon delivery of refunds
does not determ ine w hether the legal
obligation requires that repaym ent be m ade
at that time; this determ ination m ust be m ade
according to applicable state or other law.
(See comm ent 17(c)(5)— for the rules
1
regarding disclosures if the loan is payable
solely on dem and or is payable either on
dem and or on an alternate m aturity date.)
* If the consum er is required to repay more
than the am ount borrowed, the difference is a
finance charge unless excluded under § 226.4.
In addition, to the extent that any fees
charged in connection with the loan (such as
for filing the tax return electronically) exceed
those fees for a com parable cash transaction
(that is, filing the tax return electronically
w ithout a loan), the difference m ust be
included in the finance charge.
S ectio n 226.19 C ertain R esid e n tia l
M ortgage Transactions
24. Comment l9(al(1}-3 is amended by
adding parenthetical materials after the
third sentence to read as follows:
19(a)(1)
*
*
*
Tim e o f D isclosure
*
*
*
*
3.
W ritten application. * * * (See comment
19(b)-3 for guidance in determ ining w hether
or not the transaction involves an
interm ediary agent or broker.)
*
*
*
25. Comments to 19(b) are amended
by adding parenthetical information
after the second sentence in comment
19(b)-2; by redesignating comments
*
*
*
*
*
19(b)-3 and 19(b)-4 to be comments
11. O th er variable-rate tra n sa ctio ns. * * *
4
•
“Price level adjusted m ortgages” or other 19(b)— and 19(b)-5, respectively: by
adding new comment 19(b)-3; in newly
indexed mortgages that have a fixed rate o f
redesignated comment 19(b)-5, in the
interest but provide for periodic adjustm ents
13120
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules and Regulations
second bulleted paragraph, the last
sentence should appear as flush text
below that paragraph and by adding a
third bulleted paragraph preceding the
flush text to newly redesignated
comment 19(b)-5 to read as follows:
19(b) C ertain V ariable-R ate Transactions
*
*
*
*
*
2. Tim ing. * * * (See com m ent 19(b)— for
3
guidance in determ ining w hether or not the
transaction involves a n interm ediary agent or
broker.) * * *
3. In term ed ia ry agent or broker. In certain
transactions involving an "interm ediary
agent or broker,” a creditor m ay delay
providing disclosures. A creditor m ay not
d elay providing disclosures in transactions
involving either a legal agent (as determ ined
by applicable law ) or any other third party
th at is not an “interm ediary agent or broker."
In determ ining w hether or not a transaction
involves an "interm ediary agent or broker”
the following factors should be considered:
• The num ber of applications subm itted by
the broker to the creditor as com pared to the
total num ber of applications received by the
creditor. The greater the percentage of total
loan applications subm itted by the broker in
any given period of time, the less likely it is
th at the broker w ould be considered an
"interm ediary agent or broker" of the creditor
during the next period.
• The num ber of applications subm itted by
the broker to the creditor as com pared to the
total num ber of applications received by the
broker. (This factor is applicable only if the
creditor has such information.) The greater
the percentage of total loan applications
received by the broker that is subm itted to a
creditor in any given period of time, the less
likely it is that the broker w ould be
considered a n “interm ediary agent or broker"
of the creditor during the next period.
• T he am ount of w ork (such a s docum ent
preparation) the creditor expects to be done
by the broker on an application b a se d on the
creditor’s prior dealings w ith the broker and
on the creditor’s requirem ents for accepting
applications. The more preparation that the
creditor expects the broker to do on an
application, the less likely it is that the broker
w ould be considered a n "interm ediary agent
or broker” of the creditor.
A n exam ple of an “interm ediary agent or
b roker” is a broker who, custom arily w ithin a
brief time after receiving an application,
inquires about the credit term s of several
creditors w ith w hom the broker does
business a n d subm its the application to one
of them. The broker is responsible for only a
sm all percentage of the applications received
by that creditor. During the time the broker
h a s the application, it might request a credit
report a n d an appraisal.
*
*
*
*
*
5. E xa m p les o f variable-rate
tra nsaction s. * * *
• “Price level adjusted m ortgages" o r other
indexed m ortgages that have a fixed rate of
interest but provide for periodic adjustm ents
to paym ents a n d the loan balance to reflect
changes in an index m easuring prices or
inflation. The disclosures under j 226.19(b)(1)
a re not applicable to such loans, nor are the
2. L im ita tio n s on fie ld o f preem ption.
Preemption under the Fair Credit and Charge
C ard Disclosure Act does not extend to state
law s applying to types of credit other than
open-end consum er credit and charge card
accounts. Thus, for exam ple, a state law is
not preem pted as it applies to disclosures in
credit and charge card applications and
solicitations solely for business-purpose
accounts. O n the other hand, sta te credit
disclosure law s will not apply to a single
S ection 226.20 S u b seq u en t D isclosure
application or solicitation to open either an
R eq u irem en ts
account for consum er purposes or an account
26. Comment 20(c)-2 is revised to read
for business purposes. Such “dual purpose"
as follows:
applications and solicitations are treated as
"consum er credit or charge card applications
20(c) V ariable-R ate A d ju stm en ts
or solicitations” under this section and state
*
*
*
*
*
credit disclosure law s applicable to them are
2.
E xcep tio n s. Section 226.20(c) does not
preem pted. Preem ption under this statute
apply to “shared-equity," “shareddoes not extend to state law s applicable to
appreciation,” or “price level adjusted" or
hom e equity plans; preem ption
sim ilar mortgages.
determ inations in this area are b a se d on the
*
*
*
*
*
Home Equity Loan Consum er Protection Act,
Subpart D— M iscellaneous
a s im plem ented in § 226.5b of the regulation.
3. L a w s n o t preem pted . State law s relating
S ectio n 226.25 R eco rd R eten tio n
to disclosures concerning credit and charge
*
*
*
*
*
c ards other than in applications, solicitations,
27. Comment 25(a)-4 is added to read
or renew al notices are not preem pted under
as follows:
§ 226.28(d). In addition, sta te law s regulating
the term s of credit a n d charge card accounts
25(a) G eneral R u le
are not preem pted, nor are law s preem pted
*
*
*
*
*
that regulate the form or content of
4.
H om e e q u ity p lan s. In hom e equity plans inform ation unrelated to the information
that are subject to the requirem ents of
required to be disclosed under § § 226.5a and
§ 226.5b, w ritten procedures for com pliance
226.9(e). Finally, state law s concerning the
w ith those requirem ents a s w ell as a sam ple
enforcem ent of the requirem ents of § I 226.5a
disclosure form and contract for each home
a n d 226.9(e) and state law s prohibiting unfair
equity program represent a d eq u a te evidence
or deceptive acts or practices concerning
of compliance. (See com m ent 25(a)—
2
credit a n d charge card applications,
pertaining to perm issible m ethods of
solicitations a n d renew als are not preem pted.
retaining the required disclosures.)
Exam ples of law s that are not preem pted
include:
S ectio n 226.28 E ffe c t on S ta te L aw s
• A sta te law that requires card issuers to
28. Comments 28(d)-l through 28(d)-3
offer a grace period or that prohibits certain
and a, heading are added to read as
fees in credit and charge card transactions.
follows:
• A state retail installm ent sales law or a
sta te plain language law, except to the extent
28(d) S p e cia l R u le fo r C red it a n d Charge
that it regulates the disclosure of credit
C ards
information in applications, solicitations and
1.
G eneral. The sta n d ard that applies to
renew als of accounts of the type subject to
preem ption of sta te law s a s they affect
§§ 226.5a a n d 226.9(e).
transactions of the type subject to I § 226.5a
• A state law requiring notice of a
an d 226.9(e) differs from the preem ption
consum er’s rights under antidiscrim ination or
sta n d ard s generally applicable u n d e r the
sim ilar law s or a state law requiring notice
T ruth in Lending Act. The Fair Credit and
about credit inform ation available from state
Charge C ard Disclosure A ct fully preem pts
authorities.
sta te law s relating to the disclosure of credit
inform ation in consum er credit or charge card
S ectio n 226.30 L im ita tio n s on R a tes
applications or solicitations. (For purposes of
29. Comment 30-1 is amended by
this section, a single credit or charge card
revising the text of the second bulleted
application or solicitation th at m ay be used
to open either an account for consum er
paragraph and the flush text preceding
purposes or an account for business purposes
the third bulleted paragraph is
is deem ed to be a "consum er credit or charge
republished: by revising the first
card application or solicitation.") For
sentence in the fourth bulleted
exam ple, a sta te law requiring disclosure of
paragraph; and by adding a sixth
credit term s in direct mail solicitations for
bulleted paragraph before the flush text
consum er credit card accounts is preem pted.
which appears at the end of comment
A state law requiring disclosures in telephone
30-1 to read as follows:
applications for consum er credit card
accounts also is preem pted, even if it applies
1. Scope o f coverage. * * * Exam ples of
to applications initiated by the consum er
credit obligations subject to this section
rath er than the issuer, because the state law
include: * * *
relates to the disclosure of credit information
• Dwelling-secured open-end credit plans
in applications or solicitations w ithin the
entered into before Novem ber 7,1989 (the
general field of preem ption, that is, consum er
effective date of the home equity rules) that
credit and charge cards.
following provisions to the extent they relate
to the determ ination of the interest ra te by
the addition of a margin, changes in the
interest rate, or interest rate discounts:
Section 226.19(b)(2) (i), (iii), (iv), (v), (vi), (vii),
(viii), (ix), and (x). (See com m ents 20(c)-2 and
30-1 regarding the inapplicability of variablerate adjustm ent notices a n d interest rate
lim itations to price level adjusted or sim ilar
m ortgages.)
Federal Register / Vol. 55, No. 68 / Monday, April 9, 1990 / Rules an d Regulations
are not considered variable-rate obligations
for purposes of disclosure under the
regulation but w here th e creditor reserves the
contractual right to increase the interest
rate—-periodic ra te a n d corresponding annual
percentage rate— during the term of the plan.
In contrast, credit obligations in w hich there
is no contractual right to increase the interest
rate during the term of the obligation are not
subject to this section. Exam ples include:
*
*
*
*
*
regulation, card issuers are perm itted to use
headings a n d disclosures other than those in
the forms (with an exception relating to the
use of “grace period” ) if they are clear and
concise and are substantially sim ilar to the
headings a n d disclosures contained in m odel
forms. For further discussion of requirem ents
relating to form, see the com m entary to
I 226.5a(a)(2).
6. M odels G - ll a n d G-12. M odel G - l l
contains clauses th at illustrate the general
disclosures required under $ 226.5a(e) in
• Dwelling-secured fixed-rate closed-end
applications a n d solicitations m ade available
balloon-paym ent mortgage loans and
to the general public. M odel G-12 is a m odel
dw elling-secured fixed-rate open-end plans
clause for the disclosure required under
w ith a stated term that the creditor may
§ 226.5a(f) w hen a charge card accesses an
renew a t m aturity. * * *
open-end plan offered by an o th er creditor.
*
*
*
*
*
7. M o dels G -13(A ) a n d G-13(B). These
• "Price level adjusted m ortgages" or other
m odel forms illustrate the disclosures
indexed m ortgages that have a fixed rate of
required under § 226.9(f) w hen the card issuer
interest but provide for periodic adjustm ents
changes the entity providing insurance on a
to paym ents and the loan balance to reflect
credit card account. Model G-13(A) contains
changes in an index m easuring prices or
the item s set forth in I 226.9(f)(3) a s exam ples
inflation.
of significant term s of coverage th a t m ay be
affected by the change in insurance provider.
30. Comment 30-11 is amended by
The card issuer m ay either list all of these
revising the fourth sentence; by
potential changes in coverage a n d place a
removing the fifth sentence; and by
check m ark by the applicable changes, or list
adding a new sentence after the fourth
only the actual changes in coverage. Under
sentence, to read as follows;
either approach, the card issuer m ust either
11. Increasing th e m a xim u m in te re st ra te— explain the changes or refer to an
accom panying copy of the policy or group
g en era l rule. * * * Furthermore, w here an
certificate for details of the new term s of
open-end plan has a fixed m aturity and a
coverage. M odel G-13(A) also illustrates the
creditor renew s the plan at m aturity, or
perm issible com bination of the two notices
enters in to a closed-end credit transaction, a
required by § 226.9(f)— the notice required for
new maxim um interest ra te m ay be set at
a plann ed change in provider a n d the notice
that time. If the open-end plan provides for a
required once a change h a s occurred. This
repaym ent phase, the m axim um interest rate
form m ay be m odified for use in providing
cannot be increased w hen the repaym ent
only the disclosures required before the
phase begins unless the agreem ent provided
change if the c ard issuer chooses to send two
for such an increase. * * *
se p a rate notices. Thus, for exam ple, the
A ppendix G— Open-End M odel Form s and
references to the a tta c h e d policy or
C lauses
certificate w ould not be required in a
sep arate notice prior to a change in the
31. Coments app. G-5 through app. G insurance provider since the policy or
7 are added to read as follows:
certificate n e ed not be provided at that time.
5. M o dels G -10(A ) through G-IO(C).
Model G-13(B) illustrates the disclosures
Models G—
10(A) and G-10(B) illustrate the
required under § 226.9(f)(2) w hen the
tabular form at for providing the disclosures
insurance provider is changed.
required under § 226.5a for applications and
Board of Governors of the Federal Reserve
solicitations for credit cards other than
System, M arch 29,1990.
charge cards. M odel G-10(A) illustrates the
William W. Wiles,
perm issible inclusion in the tabular form at of
all of the disclosures. M odel G-10(B) contains
S e creta ry o f th e B oard.
only the disclosures required to be included
[FR Doc. 90-7708 Filed 4-4-90; 2:32 pm]
in the table, while the three additional
BILUNG COOE 6210-01-*
disclosures a r e show n o u tsid e of the table.
The tw o forms also illustrate two different
levels of detail in disclosing the grace period,
a n d different arrangem ents of the disclosures.
M odel G-10(C) illustrates the tab u lar form at
disclosure for charge card applications and
solicitations a n d reflects all of the disclosures
in the table. Disclosures may be arranged in
an order different from that in m odel forms
G-10 (A), (B), a n d (C); m ay be arranged
vertically o r horizontally; need not be
highlighted aside from being included in the
table; and are not required to be in any
particular type size. Various features from
different m odel forms may be combined; for
exam ple, the shorter grace period disclosure
in model form G-10(B) m ay be used in any
disclosure. W hile proper use of the model
forms will be deem ed in compliance with the
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@FedFRASER