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Reserve Bank



C ircular No. 77-101
September 6, 1977

A pplication of C erta in R e q u ire m e n ts to C r e d i t C ard Plan s
Involving T r a n s a c t i o n - b y - T r a n s a c t i o n Billing
And th e Imposition of No F ina n c e C h a r g e

T h e Board of G o v e rn o rs of the Fed eral R e s e r v e System h a s
a p p r o v e d th e e n clo se d in te r p r e ta tio n of R egulation Z ( T r u t h - i n - L e n d in g )
sim plifying p r o c e d u r e s for c r e d i t c a r d i s s u e r s w h ich bill c u sto m e r s in full
on a t r a n s a c t i o n - b y - t r a n s a c t i o n b a s i s a n d impose no finance c h a r g e s .
Most c r e d it c a r d s e x te n d o p e n - e n d c r e d i t , s u c h as th e c r e d i t
a v a ila b le with a b a n k c r e d i t c a r d , or a d e p a r t m e n t s to r e c a r d , a n d custom ­
e r s a r e b ille d , u s u a lly m onthly, for t h e i r p u r c h a s e s . A d e b t b a la n c e
may be left a f te r th e c u sto m e r makes a p a y m e n t. C erta in c r e d i t c a r d is ­
s u e r s , h o w e v e r , su c h a s some automobile rental c o m p a n ie s , r e q u i r e
p a y m e n t in full fo r eac h tr a n s a c t i o n , a n d s e n d b ills only w hen t h e r e h a s
b e en a tr a n s a c t i o n . No fin a n c e c h a r g e s a r e im posed.
T h e in te rp r e ta tio n p e rm its s u c h c r e d i t c a r d i s s u e r s to c o n tin u e
s e n d in g b ills to t h e i r c u s to m e r s only w h e n a tra n s a c tio n h a s o c c u r r e d .
T h e in te r p r e ta tio n also r e q u i r e s s u c h c a rd i s s u e r s to conform o n ly to p r o v i ­
sio n s of Regulation Z th a t a r e c le a rl y c o n s i s t e n t with t h e i r typ e of b illin g .
Any q u e s tio n s c o n c e r n in g Regulation Z sho u ld b e d ir e c te d to
R ic h a r d B. West o r Ralph H. R ic h a r d s o n of o u r Examination D ep artm en t,
C o n su m e r A ffairs S e ctio n , a t Ext. 6171 o r 6181. Additional copies of th e
in te r p r e ta tio n will be f u r n is h e d upon r e q u e s t to th e S e c r e t a r y 's Office
of th is B a n k , Ext. 6267.
S in c e r e ly y o u r s ,
R o b ert H . Boykin
F i r s t Vice P r e s i d e n t
E n c lo su re
Banks and others are encouraged to use the follo w in g to ll-fre e incoming WATS numbers in contacting this Bank:
1 -8 0 0 -49 2 -4 40 3 (in tra s ta te ) and 1 -8 0 0 -52 7 -4 97 0 (in te rs ta te ). For c a lls placed lo c a lly , p le a s e use 651 plus the
extension referred to above.

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It has come to the Board’s attention that cer­
tain credit cards are issued, the card issuer and
the seller being the same person or related per­
sons, in connection with which no finance charge
is imposed and customers are billed in full for
each use of the card on a transaction-by-transaction basis by means of an invoice or other state­
ment reflecting each use of the card. No cumula­
tive account which reflects the transactions by
each customer during a period of time, such as a
month, is maintained.
Section 103(f) of the Act requires all credit
card issuers to comply with certain provisions,
even though those provisions are generally appli­
cable only to creditors of open-end credit plans,
and requires the Board to apply these provisions
to all card issuers “to the extent appropriate.” The
question arises as to which of those provisions,
as implemented by this Part, appropriately apply
to such card issuers.
Such card issuers may bill customers on a
transaction-by-transaction basis and need not
maintain a cumulative account for each customer
for which a periodic statement must be sent.
Prior to the first use of the credit card, the
card issuer shall provide the customer with a
statement setting forth the disclosures required by
§226.7(a)(9) and, as applicable, §226.7(a)(6) and
§226.7(a)(7). The disclosure required by §226.7
(a)(6) shall be limited to those charges that are
or may be imposed as a result of the deferral of
payment by use of the card, such as late pay­
ment or delinquency charges. Such card issuers
need not provide the disclosure required by

The disclosures required by §226.7(b)(l)(i), (iii),
and (ix) need not be given by such credit card
issuers. The requirements of §226.7(b)(l)(ii) and
§226.7(b)(l)(x) are applicable to such card issuers,
and compliance may be achieved by placing the
required disclosures on the invoice or statement
sent to the customer for each transaction. Section
226.7(b)(2) does not apply to these credit card
The provisions of §226.7(c), including those
which permit certain required disclosures to be
made other than on the front of a periodic state­
ment, shall apply. All references to the “periodic
statement” in §226.7(c) shall be read to indicate
the invoice or other billing document sent to the
customer for each transaction.
The provisions of §226.7(d) shall apply to such
credit card issuers. Compliance therewith may
be achieved (1) by mailing or delivering the state­
ment required by §226.7(a)(9) to each customer
who receives a transaction invoice during a onemonth period chosen by the card issuer which
meets the timing requirements of §226.7(d)(2),
(3), and (4); or (2) by sending either the statement
prescribed by §226.7(a)(9) or the statement pre­
scribed by §226.7(d)(5) with each invoice sent to
a customer.
The provisions of §226.7(f) apply to these
credit card issuers, except that (1) notice of the
change in terms shall be given at least 15 days
prior to the date upon which the change takes
effect, rather than 15 days prior to the beginning
date of the billing cycle in which it takes effect,
and (2) the card issuer need notify cardholders
in advance of only those changes in terms which,
if undertaken by creditors of open-end credit
plans generally, would necessitate notice to all
customers prior to imposing the change on their

The provisions of §226.7(g) shall apply to such
credit card issuers if the credit card plan includes
the possible imposition of a specific charge for
late payment, default, or delinquency. Otherwise,
they do not apply to such credit card issuers.
The provisions of §226.7(h) shall apply to such
credit card issuers, except that all requirements
to credit amounts to an account may be complied
with by other reasonable means, such as by a
credit memorandum. Since no periodic state­
ments are provided or required for the credit
card systems subject to this interpretation, a
notice of excess payment should be sent to the
customer within a reasonable period of time fol­
lowing its occurence unless a refund of the
excess payment is mailed or delivered to the

customer within 5 business days of its receipt
by the card issuer.
The card issuer shall comply with all the pro­
visions of §226.13, including §226.13(i) and (j)
to the extent that they are applicable to the credit
card plan, except that §226.13 (k) is inapplicable.
The card issuer shall comply with the pro­
visions of §226.14, as applicable. All references
in §226.14 to the “periodic statement” shall be
read to indicate the invoice or other statement
for the relevant transaction. All actions refer­
enced in §226.14 with regard to correcting and
adjusting a customer’s account may be taken by
issuing a refund or a new invoice, or by other
appropriate means consistent with the purposes
of the section.