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F e d er a l Re s e r v e Ba n k DALLAS. TEX A S of Dallas 75222 C irc u la r No. 75-115 August 8, 1975 American Revolution Bicentennial REVISED PROPOSALS TO AMEND REGULATION Z (T ru th -in -L e n d in g ) Fair C red it B illing Amendments TO ALL BANKS, OTHER CREDITORS, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: The Board of Governors of the Federal Reserve System has made public the full text of its revised proposals for regulations to imple ment the Fair C re d it B illing Amendments to the T r u th -in -L e n d in g Act. On July 22, 1975, the Board published the substance of the r e vised proposals and announced that it would hold an informal hearing on August 5 and 6. The Board's original proposals w ere made public May 5. Tim e for comment on the revised proposals, o rig in a lly scheduled to end August 12, has been extended through August 18. Interested persons a re invited to submit relevant data, view s, or arguments concerning this proposal, including possible effects on the cost and the a v a ila b ility of consumer c re d it. A n y such material should be submitted in w ritin g to the S ecretary, Board of Governors of the Federal Reserve System, Washington, D . C . 20551, to be received not later than August 18, 1975. Printed on the attached pages is a copy of the revised propos als as they appeared in the FEDERAL REGISTER on August 1, 1975. A d d i tional copies w ill be furnished upon request to the Secretary's Office of this Bank. S incerely y o u rs, T . W. P l a n t F i r s t V ic e P r e s i d e n t Attachment This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Extract From FEDERAL REGISTER, VO L. 40, NO. 149, F rid a y , August 1, 1975, pp. 32350 - 32360 FEDERAL RESERVE SYSTEM [ 12 CFR Part 226 ] [Reg. Z] TRUTH IN LENDING Fair Credit Billing Amendments On May 5, 1975, the Board of Gover nors published for comment In the Fed eral Register (40 F.R. 19489) proposed regulations implementing the Fair Credit Billing Act (Title m of Pub. L. 93-495). The comment period on this proposal was initially set to terminate on May 30 and was subsequently extended through June 20, 1975 (40 F.R. 23896). Following the receipt of approximately 300 com ments the Board on July 24, 1975, an nounced in the Federal Register (40 F.R. 30986) its intent to publish revised regu lations implementing the Fair Credit Billing Act (Title HI of Pub. L. 93-495) for comment and to hold informal hear ings August 5 and 6, 1975, on these re vised proposals. The comment period on these revised regulations, initially set to terminate on August 12, has been ex tended to August 18,1975. The changes made in revised regula tory proposals contained herein are re sponsive to comments received. Many of the changes are minor adjustments in drafting to eliminate ambiguities. The more significant alterations in the pro posed regulations which result in sub stantive revisions include: (1) The definition of a billing error (§ 226.2 (j) (1)) has been refined to spe cifically include: (a) A misdescription or insufficient description of the transaction, (b) A reflection of a transaction which was not made to the customer or to someone authorized to use his account and from which use the customer receives no benefit, or (c) A misstatement as to the amount of the transaction or as to the date that the transaction took place. (2) The definition of billing error (§ 226.2(j) (3)) has also been adjusted to reflect goods or services not accepted because they differ from what was speci fied by agreement in that they were de livered in the wrong quantity, to the wrong location, or were delivered late. However, any dispute with respect to the quality of goods or services in the physical possession of the customer is expressly excluded from this particular definition of billing error. (3) Section 226.4(i) relating to price differentials offered by sellers for pay ment in cash has been amended to in clude surcharges of up to five per cent. Such surcharges under the amended pro posal may be imposed without the need to disclose them as part of the finance charge. (4) Draft language has been included in § 226.6(b) (2) to set forth proposed rules regarding the treatment of incon sistent State laws under section 171 (a^ of the Act. Particular difficulty has been experi enced in drafting these provisions in light of (1) the need to carry out the Con gressional direction that State law shall be preempted only to the extent incon sistent with Federal law and shall be pre served to the extent it gives “greater protection” to consumers; and (2) the difficulty of wending through the diver sity of State provisions, of ascertaining which items can be considered in isola tion or should be considered as steps in procedure and, in many instances, of deciding what constitutes “greater pro tection.” Comment is invited (especially from persons with experience with State law) 32351 * < • ^ on the sufficiency and clarity of the pro have been adjusted to remove the refer posed rules, as well as on any other as ence to standing authorizations for re pects of the Implementation of section funds to customers. However, overpay 171(a). ments must be credited in the same (5) The statement of fair credit bill manner as are regular payments, and re ing rights required to be given to new funds must be made within 5 business customers Initially and semiannually days of receipt of a specific refund re thereafter (§ 226.7(a) (9) and § 226.7(d)) quest. may be printed on both sides of one page (10) The provision relating to the as and only those rights applicable to a sertion of claims and defenses against a given creditor’s plan need be included. card issuer when the merchant fails to (6) The required disclosure on the pe satisfactorily resolve disputes as to goods riodic statement of the outstanding bal or services (§ 26.13 ( i) ) has been adjusted ance at the beginning and close of the to exclude cash advance check transac billing cycle in § 226.7(b) (1) (1) and (ix) tions which are unrelated to any specific has been expanded to include a specific purchase of goods or services. The regula indication when the outstanding balance tion has been clarified to indicate that is a credit balance. the mere honoring of a credit card does (7) The provisions dealing with the not remove the distance and dollar Identification of transactions on a pe amount limitations set forth in the statu riodic statement (§ 226.7(b) (1) (ii)) have tory section. A new provision has been been amended to cover cash advance added prohibiting the issuance of an ad transactions. In addition, the footnoted verse credit report merely because the definition of related persons has been customer asserts his statutory rights. adjusted to include franchised or licensed The footnote discussing tort claims has sellers of the creditor’s product, sellers been deleted as unnecessary, because of who assign or sell open end customer the statutory limitations on recovery to sales accounts, and sellers who arrange the amount outstanding in the cus for open end credit. These provisions tomer’s account. Implement section 4 ll of Title IV of (11) The provision relating to prompt Pub. L. 93-495 and were initially pub notification of returns (§ 226.13(k)) has lished in the F e d e r a l R e g i s t e r on June been amended to require that the seller, 24, 1975 (40 P.R. 26571). within 5 business days of any return, (8) The rules regarding prompt cred transmit notice thereof into the normal iting of payments (§ 226.7(g)) have been channels through which charges are adjusted as follows: handled and that the customer’s card (a) Each creditor must specify atIssuer credit the customer’s account least one location at which payments within 3 business days of receipt of such received will be credited as of the date notice. of receipt. (12) The provisions prohibiting cer (b) Payments received at such loca tain acts by card issuers (§ 226.13(1)) tions must be credited as of the date of have been amended to require card is receipt, except that during a transitional suers to notify participating merchants period, partial payments on accounts of the invalidity of any contract provi where finance charges are computed on sions prohibiting merchants from offer the basis of daily balances or average ing discounts for cash payments in lieu dally balances received at such address of use of a credit card or from imposing must be credited promptly (but in no surcharges on credit card purchases. In event later than 3 business days follow addition, the provision prohibiting tie-in ing the date of receipt). Delayed credit services has been clarified to the effect ing in these cases is allowed to provide that a card issuer may not require a a transition period for creditors to over participating merchant to open a deposit come operational problems. The length account or to procure any other service of this transition period has yet to be n o t essential to th e operation of a credit determined. card plan. The term “device” has been (c) If the creditor accepts payments omitted from this provision. at locations other than that specified in (13) The provision relating to the cor paragraph (a) above, crediting of such rection of billing errors (§ 226.14(a)) has payments may be delayed up to 3 busi been amended to permit the creditor to ness days, provided the customer is noti rely on a customer’s oral agreement that fied of the possibility of such delay. any alleged error has been resolved to his (d) Payments need not be credited as satisfaction; the requirement of written of the date of receipt, if a delay in notification by the customer indicating crediting does not result in the imposi that the dispute has been resolved has tion of finance charges or later payment been omitted. charges. In any event, the crediting date (14) The provision relating to the ad of payments would be disclosed on the justment of finance charges on disputed customer’s periodic statement under the amounts (§ 226.14(b)) has been amended proposed amendment to § 226.7(b) (iii). to clarify that the creditor need adjust (e) If the creditor fails to credit pay the customer’s account only where the ments in accordance with the timing investigation of a billing dispute indi provisions of (b), (c), or (d), he must cates that an error has been made, in adjust the customer’s account during the cluding any error in the amount, descrip next billing cycle for any finance charges tion, or date of the transaction, failure that were imposed as a result of the de to mail the statement to the customer’s lay. current address, in billing for goods or (9) The provisions relating to prompt services not delivered or accepted by the refund of overpayments (§ 226.7(h)) customer in accordance with any agree ment, or any accounting error in the im position of charges to the account. How ever, if the creditor has made no error, then he may collect finance charges as usual. In addition, this section has been clarified to the effect that a creditor need not remove from a customer’s account and place into a suspense or other ac count any disputed amounts as well as finance charges on the disputed amounts during the error resolution period. How ever, the creditor must clearly disclose on the periodic statement that the customer need not pay any amount in dispute. A specific amount in dispute need not be identified or disclosed on the periodic periodic statement. (15) The provisions dealing with pro hibited offsets (§ 226.14(c)) have been clarified to the effect that they only re late to accounts maintained by the creditor. In addition, these provisions have been amended to provide that the creditor must reverse any automatic debiting of a customer’s account if he re ceives written notice of a billing error within 16 days of mailing the periodic statement. (16) The provisions relating to credit reports on amounts in dispute (§ 226.14 (e )) have been amended to require cred itors, in the case where notification of a billing error has been received subse quent to the issuance of a delinquent credit report, to give notice of the billing dispute to only those parties who re ceived the report of delinquency and who are in the business of collecting and dis seminating information about the credit worthiness of customers. Notification to such parties must occur within one bill ing cycle. Pursuant to the authority granted in 15 U.S.C. 1604 (1970) the Board proposes to amend Regulation Z, 12 CFR Part 226, as follows: 1. To implement section 302, § 226.1 (a) would be amended as follows: a. Section 226.1(a) (1) is revised as set forth below. b. Section 226.1(a)(2) is amended by inserting the following sentence immedi ately before the last sentence to read as set forth below. § 2 2 6 .1 A uthority, scop e, and purpose, etc. (a) A uthority, scope, and purpose. (1) This Part comprises the regulations is sued by the Board of Governors of the Federal Reserve System pursuant to Title I (Truth in Lending Act) and Title V (General Provisions) of the Consumer Credit Protection Act, as amended (15 U.S.C. 1601 et seq.). Except as otherwise provided herein, this Part, within the context of its related provisions, applies to all persons who are creditors, as de fined in paragraph(s) of § 226.2. (2) • * • In addition, this part is de signed to assist the customer to resolve credit billing disputes in a fair and timely manner, to regulate certain bill ing and credit card practices, and t o strengthen the legal rights of con sumers. • * • 32352 §§ 226.2, 226.13 [Amended] 2. C ertain p aragraph s of §§ 226.2 an d 226.13 would be redesignated as shown below. Old section. No. New section No. 2 2 6 .1 3 (a)(1 )-------------------------- 226.2(a) 2 2 6 .1 3 (a )(2 )-------------------------- 226.2(C) 2 2 6 .1 3 (a )(3 )-------------------------- 226.2(1) 2 2 6 .1 3 (a)(4 )--------------------- 226.2 (m ) 2 2 6 .1 3 (a)(6 )-------------------------- 226.2(r) 2 2 6 .1 3 (a)(7 )---------------- -------- 226.2(11) 22 6 .2 (a)-------------------------------- 226.2(b) 2 26.2(b)-------------------------------- 226.2(d) 226.2(c)--------------------------- 226.2(e) 2 26.2(d)-------------------------------- 226.2(f) 226.2(e)-------------------------------- 226.2(g) 226.2(f) ---------- ---------------------- 226.2(h) 2 26.2(g)-------------------------------- 226.2(1) 2 26 .2(h )-------------------------------- 226.2 (k) 226.2(1)--------------------------------- 226.2 (n) 226.2 ( j ) --------------------------------- 226.2(0) 226.2 ( k ) -------------------------------- 226.2(p) 226.2(1)--------------------------------- 226.2(q) 226.2 (m )------------------------------- 226.2 (s) 226.2 ( n ) -------------------------------- 226.2 (t) 226 .2 ( 0 ) -------------------------------226.2 (u ) 2 26.2(p)-------------------------------- 226.2(v) 226.2 ( q ) -------------------------------- 226.2(w) 226.2 ( r ) -------------------------------- 226.2(x) 226.2 ( s ) -------------------------------- 226.2(y) 226.2 ( t ) -------------------------------- 226.2 (z) 2 2 6.2 (u)-------------------------------- 226.2 (aa) 226.2 ( v ) -------------------------------- 226.2 (bb) 226.2(w )_______ ____________ 226.2 (dd) 226.2(x)-------------------------------- 226.2 (ee) 226.2 ( y ) ----------------------------- 226.2 (ff) 226.2(z)-------------------------------- 226.2(gg) 226.2 ( a a ) ____________________ 226.2(hh) 2 26.2(bb)------------------------------ 226.2(j]) 226.2 (c c )____________________ 226.2 (kk) 22 6.2 (d d)___________________ 226.2(11) (2) A reflection on a periodic statement of an extension of credit or indebtedness for which the customer requests explana tion or clarification, including requests for copies of documentary evidence of the indebtedness reflected therein, or (3) A reflection on a periodic state ment of an extension of credit for prop erty or services not accepted by the cus tomer or his designee, or not delivered to the customer or his designee in accord ance with any agreement made in con nection with the transaction,1 or (4) Any failure to properly reflect on a periodic statement, a payment or other credit to the customer’s account, or (5) A computation error or similar error of an accounting nature made by the creditor on a periodic statement, in cluding errors in computing finance charges or late payment charges, or (6) A failure to mail or deliver a cus tomer’s periodic statement to his current designated address, if the creditor has received notification of the change of address at least 10 days prior to the closing date of a billing cycle for which a finance charge, late payment charge, or an additional minimum payment is im posed. (u) “Customer” means (1) a card holder or (2) a natural person to Whom consumer credit is offered or to whom it is or will be extended, and includes a comaker, endorser, guarantor, or surety for such natural person who is or may be obligated to repay the extension of consumer credit. * * * * * (x) “Open end credit” means con sumer credit extended on an account pursuant to a plan under which (1) the creditor may permit the customer to make purchases or obtain loans, from time to time, directly from the creditor or indirectly by use of a credit card, check, or other device, as the plan may provide; (2) the customer has the pri vilege of paying the balance in full or in instalments; and (3) a finance charge may be computed by the creditor from time to time on an outstanding unpaid balance. For purposes of the require ments of §§ 226.7(a) (6), (7), (8), and (9); 226.7(b) (1) (i), (ii), (iii), (ix), and (x ) ; 226.7(b) (2); 226.7 (c), (d ), (f), (g), (h ), and ( i) ; 226.13 (i), ( j ) , and (k ); and 226.14, the term includes consumer credit extended on an account by use of a credit card, whether or not a finance charge may be imposed. The term does not in * * * * * (p) “Consumer credit” means credit clude negotiated advances under an open offered or extended to a natural person, end real estate mortgage or a letter of in which the money, property, or service credit. * * * * * which is the subject of the transaction is (cc) “Proper written notification of a primarily for personal, family, household, or agricultural purposes. “Consumer billing error” is any written notification 3. To im plem ent sections 103 and 161, loan” is one type of “consumer credit.” (other than notice on a payment medium (q) “Credit” means the right granted or other material accompanying the pe in § 226.2, redesignated parag rap h s ( h ) , (p ), (q), (s), (u ), an d (x) would be re by a creditor to a customer to defer pay riodic statement if the creditor so stip vised and new parag rap h s (j) and (cc) ment of debt, incur debt and defer its ulates in the disclosure required by payment, or purchase property or serv § 226.7(a) (9), (d), and (i)), received at would be added as set fo rth below: ices and defer payment therefor. (See the address disclosed under § 226.7 § 2 2 6 .2 D efin ition s and rules o f con also paragraph (jj) of this section.) (b) (1) (x) within 60 days of the first struction. mailing or delivering to the customer’s * * * * * current designated address (as required (h) “Arrange for the extension of (s) “Creditor” means a person who in in § 226.7(b)) of the periodic statement the ordinary course of business regularly on which the disputed item(s) or credit” means to provide or offer to pro extends or arranges extension of vide consumer credit^ which is or will be consumer credit, or for the to extend or amount(s) is reflected in which the cus offers extended by another person under a busi arrange for the extension of such credit, tomer (1) Sets forth or otherwise enables the ness or other relationship pursuant to which is which the person arranging such credit than fourpayable by agreement in more creditor to identify the name and ac instalments, or for which the count number (if any) of the customer, (1) Receives or will receive a fee, com payment of a finance charge is or may (2) Indicates the customer’s belief pensation, or other consideration for be required, whether in connection with such service, or loans, sales of property or services, or that the periodic statement contains a (2) Has knowledge of the credit terms otherwise. For purposes of the require billing error and the suspected amount and participates in the preparation of the ments of §§ 226.7(a) (6), (7), (8), and of such error, and (3) Sets forth the reasons for such contract documents required in connec (9); 226.7(b) (1) (i), (ii), (iii), (ix),and tion with the extension of credit. (x) ; 226.7(b) (2); 226.7 (c), (d ), (f), (g ), belief, to the extent applicable or known It does not include honoring a credit card (h), and ( i) ; 226.13; and 226.14, the by the customer. * * * * * or similar device where no finance charge term “creditor” shall also include card is imposed at the time of that trans issuers, whether or not the payment of § 2 2 6 .3 [A m e n d ed ]. a finance charge is or may be required. action. 4. Footnote in § 226.3 would be redes For purposes of the requirements of * * * * * § 226.4(i) and 226.13(k), the term “credi ignated as follows: Footnote 1 is redesig (j) “Billing error” means: tor” shall include any person who honors nated la, footnote la is redesignated lb, (1) A reflection on or with a periodic credit card. a and new footnote 1 is added to read as statement of an extension of credit which follows: was not made to the customer or to a person who had actual, implied, or ap 1 The delivery of property or services differ 1 The delivery of property or services differ parent authority of the customer to use en t from th a t described In any agreement, ent from th at described in any agreement, the delivery of the wrong quantity, late deliv de the account and from which use the cus the delivery of th e wrong quantity, lateshall ery, or delivery to the wrong location shall livery, or delivery to th e wrong location tomer received no benefit, or, if made, be considered to be a billing error subject to be considered to be a billing error subject to was misidentified, insufficiently identi th is paragraph, bu t any dispute with respect th is paragraph, bu t any dispute w ith respect of property in the physical property in the physical fied, or was not in the amount indicated to th e qualitythof customer or services per to the qualitythe custom er or services per possession of possession of e or on the date specified on or with the formed for the custom er shall not be con formed for the custom er shall not be consid sidered a billing error under this paragraph. ered a billing error under this paragraph. periodic statement, or 32353 5. To Implement section 167, § 226.4(1) this Part, State law is inconsistent with would be added as follows: the requirements of the Act and this Part, within the meaning of section 111(a) of § 2 2 6 .4 D eterm in ation o f fin an ce charge. the Act to the extent that it: (1) Requires a creditor to make dis (i) Price differentials lor payments inclosures or take actions different from the cash. (1) Notwithstanding any other pro requirements of this Part with respect to vision of this section, any price differen form, content, terminology, or time of tial which a person offers, allows, or delivery; otherwise makes available for the pur pose of inducing payment for a purchase (2) (1) To the extent that any State by cash, check, or similar means rather law with respect to credit billing prac than by use of a credit card account, tices is inconsistent with Chapter 4 of whether or not a credit card is physically the Act and the implementing provisions used, is not a finance charge: Provided, of this Part, such State law is preempted, That: but no such State law is inconsistent if (1) Such price differential does not ex it gives greater protection to the con ceed 5 per cent when computed or ex sumer that does this Part. The fact that pressed as a percentage of the tag, posted, a creditor must comply with a State law or advertised price of the property or which is inconsistent with this Part does services which are the subject of the not excuse the creditor from the obliga transaction, tion to comply with this Part. The Board (ii) Such price differential is available hereby determines that certain State to all prospective buyers, and that fact is laws are inconsistent and certain State clearly and conspicuously disclosed by a laws are not, within the meaning of sec sign or display posted at or near each tions 171(a) and 111(a) of the Act, as public entrance to the place of business set forth below. wherein such price differential is offered, (ii) Subject to the following provisions and at all locations within the place of of § 226.6(b) (2), the Issue of whether a business where a purchase may be paid State law is inconsistent with this Part, for, and as contemplated by the preceding para (iii) If an offer of property or services graph, depends upon whether or not a is advertised In any medium or if offers creditor can comply with the State law are invited or accepted through the mail, without violating this Part; if the credi over the telephone, or by means other tor can comply with the State law with than personal contact between the cus out violating this Part, the State law is tomer and the person offering such a not inconsistent with this Part, but, if price differential, and if customers are the creditor cannot comply with the allowed to pay by use of a credit card or State law without violating this Part, the Its underlying account and such fact is State law is inconsistent with this Part. disclosed in the advertisement, telephone (iii) With respect to any State law contact, or in other correspondence, the which is similar to section 161 of the Act availability of a price differential for pay in specifying particular actions to be ments in cash must be clearly and con taken by the customer and the creditor spicuously disclosed in any advertisement in the process of resolving billing errors, for such offerings and, in any case, be if compliance by the customer with such fore the transaction has been completed State law as to any stage of the process by use of the credit card or its underlying would constitute noncompliance with this account. Part, and, hence, cause the customer to (2) With respect to any price differen lose any rights under this Part, then the tial to cash purchasers in excess of 5 per State law as to that portion of the proc cent, the total amount of any such price ess is inconsistent with this Part: Pro differential shall constitute a finance vided, That a State law Is not inconsist charge under § 226.4(a) to be disclosed in ent with this Part to the extent that it accordance with § 226.7(e). permits a customer to set in motion the (3) The availability of any price differ State procedure for resolving billing ential for payments in cash may be lim errors after the time allowed for setting ited by the person offering such price dif in motion the comparable procedure un ferentials to certain types of property or der this Part has expired, and in such services or to certain outlets maintained circumstances (when the time limit im by the person, provided that such limita posed by this Part has expired) the entire tions are clearly and conspicuously dis State law shall have full force and effect. closed, as applicable, in conjunction with (iv) With respect to any State law any notice as prescribed by paragraphs which requires a creditor to notify a cus (ii) and (iii) of this section. tomer of the customer’s rights or creditor’s responsibilities under State 6. To implement section 171 (a) and to provide a transition period to obtain new law, similar to those under sections 161, forms, § 226.6 would be amended by re 162, or 170 of the Act, such State law Is vising paragraps (b) (1) (1) and (2) (1) inconsistent with this Part to the extent that it would require the creditor to no thru (v) and paragraph (k ). tify the customer of any provision of § 2 2 6 .6 G eneral disclosu re req u ire State law duplicative of or inconsistent m en ts. with this Part, and the creditor shall not * • * * • notify the customer of any such pro (b) Inconsistent State requirements. vision. When a creditor gives written (1) With respect to the requirements of notice to any customer of the customer’s rights under any provision of State law which would permit a customer to set in motion the State procedure for resolving billing errors after the time allowed for setting in motion the comparable proce dure under this Part has expired, the creditor shall clearly and conspicuously set forth in the notice that reliance upon the longer time period available under the State law may cause the customer to lose important rights which could be pre served by acting more promptly under the Federal law. (v) To the extent that any State law applies to any case not clearly covered by the above determinations, the Board hereby determines that the State law is inconsistent, as contemplated by § 226.6 (b) (2) ( i ) ; but the Governor, Attorney General or any official of the State hav ing responsibilities under such State law may apply to the Board for a contrary determination. * * * * * (k) Transition period. Any creditor who can demonstrate that he has taken bona fide steps, prior to October 28,1975, to obtain printed forms which are neces sary to comply with the requirements of this Part may, until such forms are re ceived but in no event later than April 30, 1976, utilize existing supplies of printed forms for the purpose of complying with the disclosure requirements of this Part: Provided, That such forms are altered or supplemented as necessary to assure that all of the items of information the creditor is required to disclose to the cus tomer are set forth clearly and con spicuously. * * * * * 7. To implement sections 127(a)(8), 127(b)(1 1 ),127(c),163, 164, 165, and 167, § 226.7 would be amended as follows: a. Paragraph (a) (9) is added as set forth below. b. The text following the heading of paragraph (b) is redesignated as para graph (b )(1). c. Paragraphs (b) (1) through (9) are redesignated as paragraphs (b) (1) (i) through (ix). d. Paragraph (b) (1) (x) is added.as set forth below. e. Redesignated paragraphs (b) (1) (i), (ii), (iii), (v), and (ix) are revised as set forth below. f. Paragraph b) (2) Is added as set forth below. g. Paragraph (c) (1) and (2) are re vised, paragraph (c) (3) is amended by adding a last sentence, and (c) (4) is added to read as set forth below. h. Paragraphs (d) and (e) are redesig nated as paragraphs (e) and ( f ) ; new paragraphs (d), (g), (h), and (1) are added, and redesignated paragraph (e) is revised as set forth below. § 2 2 6 .7 O pen en d crcdit accou nts— sp e cific disclosu res. (a) • • * (9) The following notice: "N O T IC E : See accompanying statement for impor tant information regarding your rights 32354 to dispute billing errors” and a separate statement containing substantially the following text,8 as applicable, written b clearly and conspicuously, shall accom pany such a statement; or the following text without the preceding notice may be included on the statement required by paragraph (a) of this section if disclosed clearly and conspicuously; or the follow ing text may be included on the reverse side of the statement required by para graph (a) of this section with the follow ing notice on the face of the statement: “N O T IC E : See reverse side for impor tant information regarding your rights to dispute billing errors.”: I n C a se o f E r r o r s o n Y o u r B il l T he Federal T r u th in L ending Act requires p ro m p t correction of billing m istakes. 1. I f you w ant to preserve your rig h ts u n d er th e Act, h e re ’s w h a t to do if you th in k your bill is wrong or if you need m ore in fo rm atio n a b o u t a n ite m on your b ill: a. Do n o t w rite on th e bill. On a separate sh e e t of pap er w rite [A ltern ate : W rite on th e bill o r o th e r sheet of paper] (you m ay tele p h o ne y our in q u iry b u t doing so w ill not ■preserve yo ur rights un de r this law) th e fol lowing : 1. Your nam e a n d a cco u nt n u m b er (if a n y ) . ii. Describe th e erro r an d w hy (to th e ex t e n t you can) you believe it is a n error. I f you need only m ore in fo rm atio n , explain th e ite m you are n o t sure ab o ut, a n d if you wish, ask for evidence of th e charge su ch as a copy of th e charge slip. Do n o t send in your copy of a sales slip or o th er d o cum ent unless you have a d u p licate copy for your records. iii. T he dollar a m o u n t of th e suspected error. iv. Any o th e r in fo rm a tio n (such as your address) w hich you th in k will help th e cred ito r to id entify you or th e reason for your co m p la in t or inquiry. b. Send y our billing error notice to th e address on your bill w hich is listed afte r th e words: “Send In q u irie s t o : ” \ A ltern ate: Send your billing error notice to: (creditor’s name an d address) ]. Mail i t as soon as you can, b u t in any case early enough to reach th e creditor w ith in 60 days a fte r th e bill was m ailed to you. If you have a u th o rized your b an k to a u to m atically pay from your checking or savings a ccou n t a ny cred it card bills from t h a t bank, you can stop or reverse p aym ent on any a m o u n t you th in k is wrong by m ailing your notice w ith in 16 days a fte r th e bill was se n t to you. You do n o t have to m eet th is 16 day deadline, th o u g h , to get your bill corrected. 2. T he cred ito r m u st acknowledge all le t ters p o in tin g o u t possible errors w ith in 30 days of receipt, unless th e creditor is able to c o rrect your bill d u rin g t h a t 30 days. W ithin 90 days a fte r receiving your letter, the c reditor m u st e ith e r correct th e error or show why th e creditor believes th e bill was correct. Once th e creditor has explained th e bill, th e c reditor h as no f u rth e r obligation to you even th o u g h you still believe t h a t th ere is an error, except as provided in p arag rap h 5 below. 3. A fter th e creditor has been notified, n e ith e r th e creditor nor a n atto rn e y n or a collection agency m ay send you letters or take o th e r collection actio n w ith respect to th e a m o u n t in dispute; b u t periodic sta te «'• W herever th e word “cred ito r” appears or is referred to in th e sta te m en t, th e creditor m ay s u b s titu te app ro p riate references, such as “com pany,” “b a n k ,” “we” or a specific nam e. m ents may be sent to you, and th e disputed am ount can be applied against your credit lim it. You cannot be threatened w ith damage to your credit rating or sued for th e am ount in question, nor can th e disputed am ount be reported to a credit bureau or to other creditors as delinquent untU the creditor has answered your inquiry. 4. I f i t is d eterm in ed t h a t th e cred ito r h as m ade a m istake o n your bill, you will n o t have to pay any finance charges on any dis p u te d am o u n t. If it tu r n s o u t t h a t th e credi to r h as n o t m ade a n error, you m ay have to pay finance charges on th e a m o u n t in dis p u te, and you will have to m ake u p any m issed m in im u m or req u ired p aym en ts on th e d isp u ted a m o u nt. T he creditor m u st send you a s ta te m e n t of w h a t you owe, a n d you m u st be given th e tim e to pay w hich you norm ally are given to pay u n d isp u ted a m o u n ts before any more finance charges or late p ay m en t charges can be charged to you. 5. If th e cred ito r’s exp lan atio n does n o t satisfy you an d you n o tify th e cred ito r in w ritin g w ith in 10 days t h a t you still refuse to pay th e d isp u ted a m o u n t, th e creditor m ay re p o rt you to credit b u re au s an d o th e r credi to rs a n d m ay p u rsu e reg ular collection p ro cedures. B u t th e cred ito r m u st tell th e m t h a t you do n o t th in k you owe th e money, a n d th e creditor m u st le t you know to w hom su ch repo rts were m ade. Once th e m a tte r has been se ttle d betw een you a n d th e creditor, th e creditor m u s t send follow -up notices to tho se to w hom th e creditor rep o rted you as d e lin q u e n t. 6. If th e creditor does n o t follow th ese rules, th e creditor is n o t allowed to collect th e first $50 of a d isp u ted a m ou n t, even if th e bill tu r n s o u t to be correct. 7. If you have a problem w ith goods or services p u rchased w ith a cred it card, you m ay have th e rig h t n o t to pay th e rem ainin g a m o u n t due on th em , if you first try in good f a ith to re tu r n th e m or give th e m e rc h a n t a chance to correct th e problem . T here are two lim itatio n s on th is rig h t: a. You m u st have b o u g h t th em in your hom e sta te or w ith in 100 m iles of your c u r re n t m ailing address (w hichever is f a r th e r ) ; and b. T he purchase price m u st have been m ore th a n $50. However, these lim itatio n s do n o t apply if th e m e rc h a n t is owned or operated by th e creditor, or if th e cred ito r m ailed you the a d v ertisem ent for th e goods or services. (ii) (A) In cases in which an actual copy of the document evidencing the credit transaction accompanies the pe riodic statement, the amount of the transaction and either the date of the transaction or the date the transaction is debited to the customer’s account; or (B) In cases in which an actual copy of the document evidencing the credit transaction does not accompany the pe riodic statement, is least: ( 1) The date on which the transacaction took place7 and the amount of the transaction; provided that, with respect to transactions in which the creditor and the seller are not the same person or related persons,7 the creditor may rely * upon and disclose the information sup plied by the seller with respect to the date and amount of the transaction; and (2) A brief identification7 of the b property or services purchased in cases in which the creditor and the seller are the same person or related persons, or the seller’s name and address (city and state or foreign country, using under standable and generally accepted abbre viations if the creditor so desires) where the transaction took place in cases in which the creditor and the seller are not the same person or related persons. (C) Notwithstanding the provisions of paragraphs (A) and (B), in cases in which a transaction involving a cash advance or overdraft checking plan is reflected on the periodic statement, at least: (1) An actual copy of the document evidencing the transaction which shows the amount of the transaction and either the date of the transaction, the date the transaction was debited to the customer’s account, or the date placed on the document or instrument by the customer (if the customer signed the document or instrument); or 7 W ith respect to tran sac tio n s w hich are n o t billed in fu ll on any single s ta te m e n t b u t for which preco m p u ted in stallm e n ts are (b) Periodic statements required, < 1 billed periodically, th e d a te th e tra n sa c tio n ") place for th is Except in the case of an account which tak es be deem ed purposes of te on p aragrap h to be th d a w hich th e the creditor deems to be uncollectible or shallu n t is debited to th e ecu sto m e r’s account. am o with respect to which delinqueny collec 7* For purposes of th is parag rap h, a person tion procedures have been instituted, the is n o t related to th e creditor sim ply because creditor of any open end credit account h e a n d th e creditor have a n ag reem ent or shall mail or deliver to the customer’s co n tra c t p u rs u a n t to w hich h e is a u tho rized o r th e cred r’s credit card n d e r th e current designated address (if the credi to h onspecified in itoe agreem ent oruco n tract. term s th tor has received notice of the customer’s F ran chised or licensed sellers of a c red ito r’s change of address 10 days prior to the p ro d u c t shall be considered to be re la ted to for purposes of th is p closing date of the previous billing cycle) th e creditor assign or sell open end aragraph. Sellers who custom er for each billing cycle at the end of which sales accou n ts to a creditor or arrang e for su c h cred it u n d e r a n open end c red it p lan there is an outstanding undisputed debit w hich allows th e custom er to use th e cred it or credit balance in excess of $1 in that only in tran sac tio n s w ith t h a t seller shall be account or with respect to which a fi considered related to th e creditor for p u r nance charge is imposed, a statement or poses of th is p aragraph. 7b For purposes of th is parag rap h , designa statements which the customer may re tio n s su c h as “m erch and ise” or “m iscel tain, setting forth in accordance with lan e o u s” shall n o t be considered sufficient paragraph (c) of this section each of the id entification of goods or services, b u t a re f erence e p a rtm e n in a sales following items to the extent applicable: m e n t wto a daccurately t conveys th ee stab lish hich id en tifi (i) The outstanding balance in thec atio n of th e ty pe(s) of p roperty or services account at the beginning of the billing w hich are available in su c h d e p a rtm e n t shall be sufficient u n e th cycle, using the term “previous balance,” catio n m ay be dmrade is p aragraph. Id e n tifi on a n accom panying and in the case of a credit balance, an slip or by symbol, re la tin g to a n id en tifica tio n list p rin te d on th e sta te m en t. appropriate identification as such. 32355 (2) A description of the transaction, (ix) The closing date of the billing for important information” or “NOTICE: which characterizes it as a cash advance, cycle and the outstanding balance in the See accompany statement(s) for impor loan, overdraft loan, or other designa account on that date, using the term tant information” or “NOTICE: See re tion as appropriate, and which includes “new balance,” and in the case of a credit verse side and accompanying state the date of the transactionT or the date balance, appropriately identified as such, m en ts) for important information,” e which appears on the document evi accompanied by the statement of the and the disclosures shall not be sepa dencing the transaction (if the cus date by which, or the period, if any, rated so as to confuse or mislead the tomer signed the document or instru within which, payment must be made to customer or obscure or detract attention avoid additional finance charges, except from the information required to be ment) . This paragraph shall apply to any that the creditor may, at his option and disclosed. (d) Semiannual statement required. case in which a transaction involving without disclosure, impose no such ad the use of a cash advance check issued ditional finance charges if payment is (1) The creditor shall mail or deliver by the creditor for use with the open end received after such date or termination of during two billing cycles per year to each customer entitled to receive a periodic credit account is reflected on a periodic such period. (x) An address to be used by the credi statement under § 226.7 (b) for such bill statement. (D) In a case in which any of the in tor, for the purpose of receiving billing ing cycle, the statement required by formation with regard to the date of the inquiries from customers. Such address 5 226.7(a)(9), written clearly and con transaction, the description of the goods shall be preceded by the caption: “Send spicuously either on the face and reverse and services purchased, or the seller’s Inquiries To:”, or other similar langauge of a separate page or included with the name and address as required by para indicating that the address is the proper disclosures required by paragraph (b) of this section. graph (B) is not available to the creditor, location to send such inquiries. (2) If the terms of the open end credit (2) The semiannual statement shall be an identifying number or symbol which appears on the document evidencing the plan provide a time period within which mailed or delivered not less than 5 nor credit transaction given to the customer the customer may repay any portion of more than 7 months after the month in at the time of the transaction must be the new balance without incurring an which the last preceding such notice was disclosed. The provisions of the first additional finance charge or a late pay mailed or delivered, provided that, (1) In any case the creditor shall mail sentence of this paragraph shall not ment charge, no such charge may be im relieve the creditor of responsibility for posed with respect to any portion of such or deliver such statements at least twice maintaining procedures reasonably new balance unless the periodic state In any 12 month calendar period, and ment disclosing such new balance is (ii) The first semiannual statement to adapted to procure such information. (iii) The amounts and dates of credit mailed or delivered to the customer’s cur any new customer may be mailed or de ing to the account during the billing cycle rent designated address (if the creditor livered to that customer during the next for payments, using the term “pay has received notice of the customer’s regularly scheduled mailing or delivery ments,” and for other credits including change or address 10 days prior to the of semiannual statements in which he is returns, rebates of finance charges, and closing date of the previous billing cycle) entitled to receive a semiannual notice adjustments, using the term “credits,” at least 14 days prior to the date specified under paragraph (d) (1) of this section. (3) If the creditor chooses to alter the and unless previously furnished a brief in the statement as being the date by identification of each of the items in which payment of the new balance must cycle of mailing or delivering semiannual be made in order to avoid the imposition statements, the creditor may mail or de cluded in such other credits. of that finance charge or late payment liver the semiannual statement less than * * * * * charge, except that such time limitation 5 months after the last preceding such *(v) Each periodic rate, using the shall not apply in any case where the term “periodic rate” (or “rates”), that creditor has been prevented, delayed, statement was mailed or delivered, pro vided that the or delivers may be used to compute the finance or hindered in mailing or delivering such at least 3 suchcreditor mailsin the next statements charge (whether or not applied during periodic statement within such time limit twelve months computed from the month the billing cycle), the range of balances because of an act of God, war, civil dis in which the last preceding semiannual to which it is applicable, and the cor order, natural disaster, or strike. statement was mailed or delivered. responding annual percentage rate de (c) * * * t4) Nothing in this section shall be termined by multiplying the periodic (1) The information required to be rate by the number of periods in a year. disclosed under paragraph (b) (1) (ii) of construed to prohibit a creditor from The words "corresponding annual per this section and itemization of the mailing or delivering the statement re centage rate,” “corresponding nominal amount of “credits” disclosed under quired by this section more frequently annual percentage rate,” “nominal an paragraph (b)(1) (iii) of this section than semiannually. (e) Finance charge imposed at the nual percentage rate,” or “annual per and of the amount of any finance charge centage rate” (or "rates”) may be used required to be disclosed under paragraph time of transaction. (1) Any creditor, to describe the corresponding annual (b) (1) (iv) of this section, may be made other than the creditor of the open end percentage rate. The requirements of on the reverse side of the periodic state credit account, who imposes a finance § 226.6(a) of this Part with respect to ment or on a separate accompanying charge not excepted by § 226.4(i) Price disclosing the term “annual percentage statem ent(s), provided that the totals of differentials for payments in cash, at the rate” more conspicuously than other re such respective amounts are disclosed on time of honoring a customer's credit quired terminology shall not be appli the face of the periodic statement; and card, shall make the disclosures required under paragraphs (b) (2) and (d) of cable to the disclosure made under this (2) The disclosures required under paragraph, although such term (or words paragraph (b) (1) (v) and (b) (1) (viii) of § 226.8 Credit other than open end— incorporating such term) may, at the this section, except the balance on which specific disclosures, at the time of that creditor’s option, be shown as con the finance charge was computed, may transaction, and the annual percentage rate to be disclosed shall be determined spicuously as the terminology required reverse peri under (b)(1) (vi) of this paragraph. be made on theor on theside of thesingle by dividing the amount of the finance odic statement face of a Where a minimum charge may be ap supplemental statement which shall ac charge by the amount financed and mul tiplying the quotient (expressed as a per plicable to the account, the amount of company the periodic statement. centage) by 12. such minimum charge shall be dis (3) The disclosure required by para closed.9* (2) The creditor of the open end credit graph (b)(1) (x) of this section may account shall disregard any charge im * * * * * be made on the reverse side of the peri posed under this paragraph for purposes odic statement. T In cases In which an am ount is debited e (4) If the creditor exercises any of the of the disclosure requirements of para to a custom er’s open end credit account u n options provided under this paragraph, graphs (a) and (b) of this section. der an overdraft checking plan, th e date * * * * * of debiting the open end credit account shaU the face of the periodic statement shall (g) Prompt crediting of payments. Re be considered th e date of th e transaction contain one of the following notices, as applicable: “NOTICE: See reverse side gardless of the date of actual posting of for purposes of th is paragraph. 32356 a payment to an account, such payment in excess of the new 'balance (as pro (ii) The date by which, or the period, shall be credited to the customer’s ac vided in § 226.7(b) (1) (ix )) to which the count as of the date such payment Is payment is to be applied, the creditor if any, within which payment must be made in order to avoid late payment or received by the creditor and no finance shall: delinqency charges. charge or late payment charge shall be (1) Credit the customer’s account with (2) If the creditor is required to send imposed with respect to the amount of the total amount of the payment as of such payment which is properly received the date of receipt as specified in para a periodic statement under paragraph(q) of this section, the requirements of by the creditor on or before the time graph (g) of this section, or §§ 226.7(b) (1) (i), (ii), (iii), (ix) and (x ), indicated by the creditor as necessary to (ii) Credit the customer’s account and § 226.7(b) (2) shall be met, as ap avoid imposition thereof: Provided, with an amount equal to the total new plicable, in addition to the disclosures That: balance in the manner prescribed by this paragraph. (1) If a creditor fails to post the cus paragraph (g) of this section and required* by * *(o) * tomer’s payment in time to avoid the promptly (in no case more than 5 busi imposition of finance charges or late ness days from the creditor’s receipt of payment charges (except those charges the payment) refund the excess amount. (6) If a transaction subject to § 226.8 resulting from the delays allowed in par (2) Notwithstanding the provisions of (o) is debited to an open end credit ac agraphs (g) (3) and (5) of this section), paragraph (g)(1) of this section, a count, disclosures shall be made as speci the creditor shall adjust the customer’s creditor shall refund any excess pay fied in paragraph (1) of this section and account so that the finance charges or ments of $1 or more promptly (in no case also as specified in § 226.7. The full late payment charges are credited to the more than 5 business days from receipt amount of the obligation including the account during the customer’s next bill of the customer’s request) if the custom amount of the discount may be debited to the open end credit account, under ing cycle. er requests such a refund in writing. (2) For the purpose of this paragraph, (3) A creditor may refund any excess § 226.7(b) (1) (ii), and the amount of any the creditor may specify reasonable re payment of any amount, whether or not finance charge representing the discount need not be added to any other finance quirements with respect to the form, requested by the customer. amount, manner, location, and time for (i) Open and credit accounts existingcharge for the purpose of computing and the crediting of payments, except that: on October 28, 1975. In the case of any disclosing the total amount of finance (i) If no particular hour of the day open end credit account in existence and charge and the annual percentage rate 3 has been clearly indicated to the cus in which a balance of more than $1 re under § 226.5(a) and § 226.7.1 4 tomer on the periodic statement as the mains unpaid at or after the closing date * * * * * time by which payment must be received of the creditor’s first full billing cycle (q) Credit card accounts. In addition by the creditor in order to obtain credit after October 28,1975, and which balance to the requirements of this section, con ing to the customer’s account on such is deemed to be collectible and with re sumer credit other than open end which date, payments made prior to the close spect to which delinquency collection is extended on an account by use of a of business on that day must be credited procedures have not been instituted, the credit card shall also be subject to the items described in paragraph (a) of’this requirements of §§ 226.7(a) (6), (7), (8) as of that date, and (ii) If no location(s) has been clearly section, to the extent applicable and not and (9); 226.7(b) (1) (1), (11), (ill), (iX) , indicated on the periodic statement or on previously required to be disclosed to the and (x ) ; 226.7(c), (d), (g ), (h ), and ( i) ; a return envelope accompanying the pe customer, shall be disclosed in the form 226.13(i), (j), and (k ); and 226.14, to the riodic statement as the location(s) at prescribed in paragraph (a) of this sec extent not required by other portions of which payment may be made, then pay tion, and mailed or delivered to the cus this section. ment at any location where the creditor tomer not later than the time of mailing 9. Section 226.11(a) (2) and (3) would conducts business shall be credited as of or delivery of the periodic statement re be revised as follows: the date such payment is presented, and quired under paragraph (b) of this sec § 2 2 6 .1 1 Com parative ind ex o f credit (iii) If no particular manner of pay tion for that billing cycle. cost for op en end credit. ment has been clearly indicated on the 8. To implement section 103(f) and to (a) * * * periodic statement, then payment by clarify certain disclosure requirements check, cash, money order, bank draft, or with respect to credit other than open other similar instrument in properly ne end which is extended on an account by (2) Shall recompute the Comparative gotiable form shall constitute proper use of a credit card, § 226.8 (n) and (o) manner of payment. (6) would be revised and (q) would be Index of Credit Cost in accordance with paragraph (b) of this section based upon (3) If the creditor accepts payment at added as follows: locations other than those specified un any new open end credit account terms § 2 2 6 .8 Credit other than op en end— der paragraph (g) (2) (ii) of this section, to be adopted and shall disclose the new sp ecific disclosures. the creditor shall credit the customer’s Comparative Index of Credit Cost in ac account promptly (in no case later than cordance with paragraph (c) (2) of this 3 business days), provided that the possi (n) Periodic statements. (1) If a bility of such delay is clearly disclosed creditor transmits a periodic billing section concurrently with the notice re to the customer on the periodic state statem ent1 other than a delinquency quired under paragraph (f) of § 226.7. J ment. (3) Shall, when making such disclo notice, payment coupon book, or payment (4) Payments need not be credited as passbook, or a statement, billing, or ad sure under the provisions of paragraphs of the date of receipt (but in any case vice relating exclusively to amounts to (a) (5) and (b) (1) (vii) of § 226.7, make must be credited promptly) if a delay in be paid by the customer as escrows for crediting does not result in the imposi payment of taxes, insurance, and water, the disclosure to all open end credit ac tion of any finance charges or late pay sewer, and land rents, it shall be in a count customers; and ment charges for that billing cycle or a form which the customer may retain and * * * * * later billing cycle. shall set forth: 10. To implement section 171, § 226.12 (5) If, because of operational limita (i) The annual percentage rate or(a) and (b) would be revised as follows: tions, the creditor is unable to credit a rates partial payment made on an average and unless exempted by § 226.8(b) (2); § 2 2 6 .1 2 E x em p tio n o f certain State daily balance or daily balance account regulated transactions. as of the date of receipt, a creditor may (a) Exemption for State regulated credit such payment promptly (in no 13 Any statem ent, notice, or reminder of case more than 3 business days) until paym ent due on any transaction payable In transactions. In accordance with the Instalm ents which is mailed or delivered provisions of Supplements II, IV, and V (h) Crediting and refunding excessperiodically to th e custom er in advance of to Regulation Z, any State may make ap payments. ( ) Whenever a customer th e due date of th e Instalm ent shall be a 1 periodic billing statem ent for the purpose of plication to the Board for exemption of mails or delivers payment to the creditor th is paragraph. any class of transactions within the State 32357 from the requirements of Chapters 2 and two years preceding the unauthorized dinarily required for transmission, whichever is earlier. 4 of the Act and the corresponding provi use; and (4) The card issuer has provided the (f) Action to enforce liability. In any sions of this Part: Provided, That: (1) The Board determines that, under cardholder with an addressed notifica action by a card issuer to enforce liability the law of that State, that class of trans tion requiring no postage to be paid by for the use of a credit card, the burden actions is subject to requirements sub the cardholder which may be mailed of proof is upon the card issuer to show stantially similar to those imposed under by the cardholder in the event of the that the use was authorized or, if the use Chapter 2 or Chapter 4 of the Act or loss, theft, or possible unauthorized use was unauthorized, then the burden of proof is upon the card issuer to show both and the corresponding provisions of of the credit card. (c) Other conditions of liability. In ad that the conditions of liability for the un this Part; or in the case of Chapter 4, the consumer is afforded greater protec dition to the conditions of liability in authorized use of a credit card, as set tion than is afforded under Chapter 4 of paragraph (b) of this section, no card forth in paragraphs (b) and (c) of this holder shall be liable for the unauthor section, have been met. the Act, and (g) Effect on other applicable law or (2) There is adequate provision for ized use of any credit card which was issued after January 24, 1971, and, re agreement. Nothing in this section im enforcement. (b) Procedures and criteria. The pro gardless of the date of its issuance, after poses liability upon a cardholder for the cedures and criteria under which any January 24, 1972, no cardholder shall be unauthorized use of a credit card in ex State may apply for the determination liable for the unauthorized use of any cess of his liability for such use under provided for in paragraph (a) of this credit card, unless the card issuer has other applicable law or under any agree section are set forth in Supplement II provided a method whereby the user of ment with the card issuer. (h) Business use of credit cards. If 10 to Regulation Z with respect to disclosure such card can be identified as the person and rescission requirements (sections authorized to use it, such as by signa or more credit cards are issued by one 121-131 of Chapter 2), Supplement IV ture, photograph, or fingerprint on the card issuer for use by the employees of with respect to the prohibition of the is credit card or by electronic or mechanical a single business or other organization, nothing in this section prohibits the card suance of unsolicited credit cards and confirmation. (d) Notice to cardholder. The notice issuer from agreeing by contract with the liability of the cardholder for un authorized use of a credit card (section to cardholder pursuant to paragraph (b) such business or other organization as to 132-133 of Chapter 2), and in Supple (3) of this section may be given by print liability for unauthorized use of any such ment V which will be issued on or before ing the notice on the credit card, or by credit cards without regard to the provi October 28, 1975, with respect to fair any other means reasonably assuring the sions of this section, but in no case may credit billing requirements (sections 161 receipt thereof by the cardholder. An ac any business or other organization or 171 of Chapter 4). ceptable form of notice must state that card issuer impose liability on any em liability shall not exceed $50 (or any les ployee of such business or other organiza loss, theft, or tion with respect to unauthorized use of 11. To implement sections 166, 167, ser amount), that notice of may be possible use credit card 168, 169, and 170, § 226.13 would be orally orunauthorizedand the namegiven such and subject except in accordance in writing, and with to the other liability amended as follows: this section. address of the party a. Paragraphs (a) (1) through (4), It may include any to receive the notice. limitations ofof cardholder to assert additional (i) and (a) (6) and (7), are incorporated tion which is not inconsistent informa claimsRight or into § 226.2 as shown in the redesignation provisions of this section. An with the (1) When defenses against card issuer. example a creditor who provides prop table of paragraph 2 above. erty or services fails to satisfactorily re of an acceptable notice is as follows: b. Paragraph (a) (5) is deleted. “You may be liable for the unauthor solve a dispute as to property or services c. Paragraphs (b) through (i) are re card by of a credit card in designated as paragraphs (a) through ized use of your creditcredit[or other term purchased withuseconsumer credit trans a which describes the device]. You connection (h). d. Paragraphs (a) through (h) are will not be liable for unauthorized use action, the cardholder may assert all revised and paragraphs (i), (j), (k ), and which occurs after you notify [name of claims (other than tort claims) and de card issuer or his designee1 at [address! fenses arising out of the transaction and (1) are added as set forth below. orally or in writing of loss, theft, or pos relating to such failure against the card § 226.13 Credit card transactions— sp e sible unauthorized use. In any case liabil issuer and the cardholder may withhold cial req uirem en ts. ity shall not exceed [insert $50 or any payment up to the amount of credit out (a) Issuance of credit cards. Regard lesser amount under other applicable law standing with respect to the property less of whether a credit card is to be or under any agreement with the card or services which gave rise to the dispute and any finance charges or late payment used for personal, family, household, holder].” (e) Notice to card issuer. For the pur charges imposed on that amount if : agricultural, business or commercial pur (i) The cardholder has made a good poses, no credit card shall be issued to poses of this section, a cardholder noti fies a card issuer by taking such steps as faith attempt to obtain satisfactory res any person except: (1) In response to a request or ap may be reasonably required in the ordi olution of the disagreement or problem nary course of business to provide the relative to the transaction from the per plication therefor, or (2) As a renewal of, or in substitution card issuer with the pertinent informa son honoring the credit card, (ii) The amount of credit extended by for, an accepted credit card whether such tion with respect to loss, theft, or possible card is issued by the same or a successor unauthorized use of any credit card, the card issuer to the customer to obtain whether or not any particular officer, em the property or services which resulted card issuer. (b) Conditions of liability of card ployee, or agent of the card issuer does, in the assertion of the claim or defense holder. a cardholder shall be liable for in fact, receive such notice or informa by the cardholder exceeds $50, and (iii) The initial transaction which unauthorized use of each credit card is tion. Irrespective of the form of notice provided under paragraph (b) (4) of this gave rise to the assertion of the claim or sued only if, (1) The credit card is an accepted section, at the option of the cardholder, defense by the customer occurred in the notice may be giyen to the card issuer or same State as the cardholder’s current credit card; (2) Such liability does not exceed the his designee in person or by telephone or designated address or within 100 miles lesser of $50 or the amount of money, by letter, telegram, radiogram, cable from such address (whichever is greater), property, labor, or services obtained by gram, or, other written communication except that the limitations stated In such use prior to notification of the card which sets forth the pertinent informa paragraphs (ii) and (iii) of this section issuer pursuant to paragraph (e) of this tion. Notice by mail, telegram, radio shall not apply when the person honor section; gram, cablegram, or other written com ing the credit card: (A) (3) The card issuer has given adequate munication shall be considered given at suer, orIs the same person as the card is notice to the cardholder of his poten the time of receipt or, whether or not re (B) Is controlled, directly or indi tial liability on the credit card or within ceived, at the expiration of the time or rectly, by the card issuer, or 32358 (C) Is under the direct or indirect control of a third person who also di rectly or indirectly controls the card is suer, or (D) Controls, directly or indirectly, the card issuer, or (E) Is a franchised dealer in the card issuer’s products or services, or (P) Has obtained the order for the transaction relative to which the claim(s) or defense(s) is asserted through a mail solicitation made by or participated in by the card issuer, in which the cardholder is solicited to enter into such transaction by using the credit card issued by the card issuer. Simply honoring or indicating that a person honors a particular credit card .shall not be deemed to be any of the re lationships or connections described in paragraphs (A) through (P) for thfe purpose of removing the dollar and dis tance limitations. (2) The amount of the claims or de fenses assertable by the cardholder under this section may not exceed the amount of credit outstanding with respect to the transaction which gave rise to the asser tion of the claim(s) or defense(s) at the time the cardholder first notifies the card issuer or the person honoring the credit card for such transaction of the exists ence of such claim (s) or defense(s). For purposes of determining the amount of credit outstanding with respect to such transactions as provided in the preced ing sentence, payments and other credits to the cardholder’s account will be deemed to have been applied, in the order indicated, to the payment o f: (i) Late charges in the order of entry to the account; (ii) Finance charges in the order of entry to the account; (iii) Any other debits in the order in which each debit entry was made to the account; and (iv) When more than one item is in cluded in a single extension of credit, credits are to be distributed pro rata ac cording to prices and applicable taxes. (3) This section does not apply to cash advances obtained with a credit card when the advance is unrelated to any specific credit sale item (4) If the customer refuses to pay the amount of credit outstanding with re spect to the property or services which gave rise to the claim or defense under this section, the creditor may not report to any person that particular amount as delinquent. (j) Prohibition of offsets by card is suer. (1 )A card issuer may not take any action to offset a cardholder’s indebted ness arising in connection with a con sumer credit transaction under the rel evant credit card plan against funds of the cardholder held on deposit with the (ii) Require any person who honors card issuer unless a court order1 is # the card issuer’s credit card to open or obtained. (2) The prohibition in paragraph (j) maintain a deposit account or procure (1) of this section does not apply to credit any other service not essential to the card plans whereby the cardholder au operation of the credit card plan from thorizes the card issuer as a method of the card issuer, its subsidiary, agent, or payment to periodically deduct all or a any other person, as a condition of par portion of the cardholder’s credit card ticipation in a credit card plan. (2) Within 30 days of the effective debt from his deposit account with the card issuer (subject to the limitations in date of these regulations, any card is suer with existing contracts which In § 226.14(c)): Provided, That: (1) Such automatic debit was previ clude either one or both of the restric ously authorized in writing by the card tive clauses prohibited in paragraph (1) holder, or shall inform all parties to the contract (ii) With respect to such automatic that such provisions are inapplicable and debit accounts in existence on October 28, no longer enforceable. 1975, the card issuer has given notice of 12. To implement sections 161, 162, the provisions of paragraph (j) of this and 170, § 226.14 would be added as section to such accounts prior to renewal follows: of the authorization (in no case later § 2 2 6 .1 4 B illin g errors— resolu tion pro than October 28, 1976). cedure. (k) Prompt notification of returns. (1) When any creditor other than the card (a) Correction of billing errors. After issuer accepts the return of property or the creditor receives proper written no forgives a debt for services which Is to tification of a billing error reflected on be reflected as a credit to the customer’s a periodic statement from a customer, open end credit card account, he shall unless the customer has subsequently promptly (in no case later than 5 busi agreed that the periodic statement is ness days from the date the return is correct, the creditor shall: accepted) transmit a statement with re (1) Not later than 30 days after re spect thereto to the card issuer through ceipt of such notification, mail or deliver the normal channels established by the written acknowledgment thereof to the card issuer for the transmittal of such customer’s current designated address, statements. unless the appropriate actions in para (2) Upon receipt of a credit statement, graph (2) of this section are taken within the card issuer shall credit the customer’s such 30 day period; and account promptly (in no case later than (2) Resolve the dispute not later than 3 business days from receipt of the re 2 complete billing cycles (in no event fund statement) with the amount of the more than 90 days) from the date of re refund. ceipt of the notice of billing error and (3) If it is a creditor’s policy to give prior to any action by the creditor to 7 cash refunds to cash customers, he must collect1 any portion of the amount (s) also give credit or cash refunds to credit indicated by the* customer as being in card customers, unless he clearly and dispute or any finance charges or late conspicuously discloses that he does not payment charges computed on such dis give credit or cash refunds for returns at puted amount (s) by (i) Correcting the customer’s account the time the transaction is consum mated. Nothing in this section shall be in accordance with paragraph (b) (2) of construed to require that a seller give this section and mailing or delivering to refunds for returns nor shall it be con the customer a written notification of strued to require the institution of any corrections; " or (ii) Correcting the customer’s account particular refund policy. by a differing amount from that indi (1) Prohibited acts of card issuers. (1) cated by the customer as being errone No card issuer may, by contract or ously billed in accordance with para otherwise, graph (b) (2) of this section and mailing (i) Prohibit any person from offering any price differentials to all customers 17 If, despite reasonable procedures estab of such person, including cardholder cus lished by th e creditor to assure com pliance w ith th is paragraph, the creditor or his agent, tomers, to induce such customers to pay ithin business days by cash, check, or other similar means w ritten 2 notification of after receiving proper w a billing error pur rather than by use of a credit card or suant to this section, inadvertently takes its underlying account for the purchase action to collect in contravention of th is paragraph, such inadvertent action to collect of property or services; or wiU not be considered in violation of th is paragraph. 14 This paragraph does n o t alter or affect “ A notice on a subsequent billing sta te the right o f a card issuer acting under State m ent clearly identifying any am ount credited law to attach or otherwise levy upon funds to th e custom er’s account pursuant to a of a cardholder held on deposit w ith th e card billing error notice is one type of a proper Issuer If th a t remedy Is constitutionally transm ittal of a written notification of corrections. available to creditors generally. 32359 or delivering to the customer an explana erate the customer’s entire debt solely with respect to which the customer has tion of the change (s), accompanied by because the customer has exercised rights indicated a belief that such account con tains a billing error solely because of the copies of documentary evidence of the provided by the Act or this Part. (2) With respect to an erroneous bill customer’s refusal or failure to pay the customer’s indebtedness as to the amount in dispute, if such evidence is requested ing, the creditor must credit the cus amount indicated to be in error. This tomer’s account in any amount erro paragraph does not prohibit the creditor by the customer; or (iii) Mailing or delivering a written neously billed plus any finance charges or from applying any such amount to the explanation or clarification to the cus late payment charges imposed as a result customer’s credit limitation. (e) Credit reports on amounts in dis tomer, after having conducted a reason of the erroneous billing. An erroneous able investigation setting forth, to the billing by a creditor includes, but is not pute. (1) After receiving a proper writ extent applicable, the reasons why the limited to, a misidentification, insuffi ten notification of a billing error pursu creditor believes the amount(s) was cor cient identification, or incorrect date of ant to this section, neither the creditor rectly shown on the periodic statement a transaction; a mailing of the periodic nor his agent may directly or indirectly and, if the customer so requests, furnish statement to the wrong address; im threaten to report adversely to any per ing copies of documentary evidence of proper crediting of payments or other son on the customer’s credit standing or the customer’s indebtedness with respect credits; computation errors; or a billing credit rating because of the customer’s failure to pay the amount specified in to a disputed amount. In any case where for property or services not accepted or such notification as being in error or any delivered in accordance with any agree the customer alleges that the periodic ment; as well as mistakes in dollar finance charge imposed on the disputed statement reflects property or services amounts. amount, nor shall such amount be re not delivered to the customer or his desig 8 (3) After completion of the dispute ported as delinquent1 to any third per nee in accordance with any agreement resolution procedure in § 226.14(a), the son unless such amount remains unpaid made in connection with the transaction creditor shall promptly mail or deliver after the creditor has complied with all giving rise to the disputed amount, a to the customer a statement of any the requirements of this section and has creditor may not construe such amount amount owned by the customer according allowed that customer the same number of days thereafter as he customarily or to be correctly shown on the billing to the requirement of § 226.7(b) (2). (4) Nothing in this section shall be by credit agreement allows, whichever statement unless the creditor determines, upon reasonable investigation, that such construed to prohibit the mailing or de is longer (in no case less than 10 days), property or services were actually de livery of periodic statements which in for the customer to pay undisputed livered, mailed, or otherwise sent to the clude disputed amounts to the customer, amounts so as to avoid the imposition of customer or his designee and provides the provided that the creditor indicates to additional finance charges or late pay customer with a written statement ex the customer on the face of the periodic ment charges. If, despite reasonable pro plaining such determination. In any case statement that payment of the amount cedures established by the creditor to as where the customer alleges that an in dispute is not required pending the sure compliance with this paragraph, the amount of a transaction reflected on the creditor’s compliance with the provisions creditor or his agent, within 2 business days after receiving proper written noti periodic statement is improper because of this section. (5) Nothing in this section shall pro fication of a billing error pursuant to this the person honoring the credit card has made an incorrect report to the card hibit any action by a creditor to collect section, inadvertently takes action in issuer of the amount which should have any amount which has not been indi contravention of this paragraph, such been charged, the card issuer may not cated by the customer to contain a billing inadvertent action will not be considered in violation of this paragraph. construe such amount to be correctly re error. (c) Automatic debit of disputed (2) If, within the time limit allowed flected on the periodic statement unless the creditor determines, upon reasonable amounts. (1) In the case of credit plans for payment in paragraph (e) (1) of this investigation, that the proper amount is where the cardholder has agreed to per section, the creditor receives a further shown on the periodic statement and mit the card issuer to periodically pay written notification from the customer provides the customer with a written the cardholder’s indebtedness by deduct that any portion of a previously disputed statement explaining such determination. ing the appropriate amount from the amount is still in dispute, the creditor After complying with the provisions cardholder’s deposit account, and if the may not report to any third party that of paragraph (a) of this section with card issuer receives a proper written such amount is delinquent, unless the respect to an alleged billing error, a cred notification of a billing error within 16 creditor also reports that the amount or itor has no further responsibility under days from the date of mailing or delivery account is in dispute and, at the same of the periodic statement this section if the obligor continues to suspected billing error firston which the time, notifies the customer in writing of appears, the the name and address of each party to make substantially the same allegation card issuer shall: whom the creditor is reporting informa with respect to such error, except as pro (1) Prevent the automatic debiting of vided under paragraph (e) of this any disputed amounts if receipt of such tion concerning the disputed amount. If, pursuant to this section, a creditor has section. notification precedes the automatic reported a disputed amount as being (b) Minimum payments and finance debiting of the cardholder’s account, or delinquent to any third person, the cred charges on disputed amounts. (1) When (ii) (in no case more a customer is permitted to make a mini than one Promptlyday after receiptno the itor shall report promptly in writing to business of mum payment, he need only make a notice) restore to the cardholder’s de any person to whom such report was minimum payment calculated on the posit account any portion of the disputed made any subsequent resolution of the basis of amounts not in dispute. When amount which was previously deducted, reported delinquency. (3) If a creditor has reported an the disputed amount is only a part of the if receipt of such notification follows the total amount of an item, the customer automatic debiting of the cardholder’s amount as being delinquent to a third party which is in the business of col remains obligated to pay the amount not account for any disputed amounts. in dispute, and any minimum payment (2) Nothing in this subsection shall lecting and disseminating information and finance charges or late payment limit the cardholder’s right to dispute an relating to the credit worthiness of cus charges may be collected on the undis amount he believes to be in error within tomers, and such amount is subsequently puted amount. If, at the completion of 60 days of the mailing or delivery of the the error resolution procedure, it is de erroneous periodic statement, as other disputed by the customer in accordance with the requirements of paragraph (a) termined that the customer owes some wise provided in this section. or all of the disputed amount, the cred of this section, the creditor shall, within (d) Closing of accounts. A creditor itor may require payment of any mini may not, prior to complying with the re mum payment amounts which the cus 19 N othing in th is p arag rap h p ro h ib its a tomer did not pay because of the dispute. quirements of paragraphs (a) and (b) of creditor fro m rep o rtin g th e d isp u ted a m o u n t The creditor may not, however, accel this section, restrict or close an account or a ccou n t as being in dispute. 32360 one billing cycle after receipt by the creditor of proper Written notification of the billing error, mail or deliver a writ ten notice to each such third party to whom the delinquency was reported that the amount is in dispute. (f) Forfeiture penalty. (1) Any creditor who fails to comply with the requirements of this section forfeits any right to collect from the customer the amount indicated by the customer as be ing in error, whether or not such amount is in fact in error, and any corresponding finance charges, provided that the amount so forfeited under this section shall not exceed $50 for each item or transaction on a periodic statement in dicated by the customer as being in error. In no case shall a creditor forfeit any amount for an error in a total figure or subtotal figure reflected on a statement which is caused solely by an error in an other item which is the subject of a dis pute, nor shall a creditor suffer any for the Federal Reserve System (12 CFR feit more than once for any item or 262.2(a)). transaction which may appear on a pe Interested persons are invited to sub riodic statement. mit relevant data, views, or arguments (2) Nothing in this subsection shall be concerning this proposal, including pos construed to limit a customer’s right to sible effects on the cost and the avail- f recover under section 130 of the Act. ability of consumer credit. Any such (g) Exceptions to general rule. This material should be submitted in writing < section does not apply to credit other to the Secretary, Board of Governors of | than open end, whether or not a periodic the Federal Reserve System, Washing- . statement is mailed or delivered, unless ton, D.C. 20551, to be received not later r it is consumer credit extended on an ac than August 18, 1975. Such material will count by use of a credit card. be made available for inspection and 13. Draft regulations to implement copying upon request, except as provided section 409 of Title IV of Pub. L. 93-495 will be issued by the Board at a later in § 261.6(a) of the Board’s Rules Re garding Availability of Information. date. 14. The effective date of these regula By order of the Board of Governors, tions shall be October 28, 1975. July 30, 1975. 15. This notice is published pursuant [ s e a l] T h e o d o r e E. A l l i s o n , to section 553(b) of Title 5, United States Secretary of the Board. Code, and § 262.2(a) of the Rules of [FR Doc.75-20254Filed 7-31-75;8:45 am ] Procedure of the Board of Governors of I I ►
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