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Rule

Truth in Lending

Action

Final Rule.

Summary

The Board is amending Regulation Z, which implements the Truth in Lending Act, and the staff commentary to the regulation in order to implement provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 that are effective on February 22, 2010. The rule establishes a number of new substantive and disclosure requirements to establish fair and transparent practices pertaining to open-end consumer credit plans, including credit card accounts. In particular, the rule limits the application of increased rates to existing credit card balances, requires credit card issuers to consider a consumer's ability to make the required payments, establishes special requirements for extensions of credit to consumers who are under the age of 21, and limits the assessment of fees for exceeding the credit limit on a credit card account.

 

Table of Contents Back to Top

DATES: Back to Top

Effective date. The rule is effective February 22, 2010.

Mandatory compliance dates. The mandatory compliance date for the portion of § 226.5(a)(2)(iii) regarding use of the term “fixed” and for §§ 226.5(b)(2)(ii), 226.7(b)(11), 226.7(b)(12), 226.7(b)(13), 226.9(c)(2) (except for 226.9(c)(2)(iv)(D)), 226.9(e), 226.9(g) (except for 226.9(g)(3)(ii)), 226.9(h), 226.10, 226.11(c), 226.16(f), and §§ 226.51-226.58 is February 22, 2010. The mandatory compliance date for all other provisions of this final rule is July 1, 2010.

FOR FURTHER INFORMATION CONTACT: Back to Top

Jennifer S. Benson or Stephen Shin, Attorneys, Amy Henderson, Benjamin K. Olson, or Vivian Wong, Senior Attorneys, or Krista Ayoub or Ky Tran-Trong, Counsels, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, at (202) 452-3667 or 452-2412; for users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION: Back to Top

I. Background and Implementation of the Credit Card Act Back to Top

January 2009 Regulation Z and FTC Act Rules

On December 18, 2008, the Board adopted two final rules pertaining to open-end (not home-secured) credit. These rules were published in the Federal Register on January 29, 2009. The first rule makes comprehensive changes to Regulation Z's provisions applicable to open-end (not home-secured) credit, including amendments that affect all of the five major types of required disclosures: Credit card applications and solicitations, account-opening disclosures, periodic statements, notices of changes in terms, and advertisements. See 74 FR 5244 (January 2009 Regulation Z Rule). The second is a joint rule published with the Office of Thrift Supervision (OTS) and the National Credit Union Administration (NCUA) under the Federal Trade Commission Act (FTC Act) to protect consumers from unfair acts or practices with respect to consumer credit card accounts. See 74 FR 5498 (January 2009 FTC Act Rule). The effective date for both rules is July 1, 2010.

On May 5, 2009, the Board published proposed clarifications and technical amendments to the January 2009 Regulation Z Rule (May 2009 Regulation Z Proposed Clarifications) in the Federal Register. See 74 FR 20784. The Board, the OTS, and the NCUA (collectively, the Agencies) concurrently published proposed clarifications and technical amendments to the January 2009 FTC Act Rule. See 74 FR 20804 (May 2009 FTC Act Rule Proposed Clarifications). In both cases, as stated in the Federal Register, these proposals were intended to clarify and facilitate compliance with the consumer protections contained in the January 2009 final rules and not to reconsider the need for—or the extent of—those protections. The comment period on both of these proposed sets of amendments ended on June 4, 2009.

The Credit Card Act

On May 22, 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act) was signed into law. Public Law No. 111-24, 123 Stat. 1734 (2009). The Credit Card Act primarily amends the Truth in Lending Act (TILA) and establishes a number of new substantive and disclosure requirements to establish fair and transparent practices pertaining to open-end consumer credit plans. Several of the provisions of the Credit Card Act are similar to provisions in the Board's January 2009 Regulation Z and FTC Act Rules, while other portions of the Credit Card Act address practices or mandate disclosures that were not addressed in the Board's rules.

The requirements of the Credit Card Act that pertain to credit cards or other open-end credit for which the Board has rulemaking authority become effective in three stages. First, provisions generally requiring that consumers receive 45 days' advance notice of interest rate increases and significant changes in terms (new TILA Section 127(i)) and provisions regarding the amount of time that consumers have to make payments (revised TILA Section 163) became effective on August 20, 2009 (90 days after enactment of the Credit Card Act). A majority of the requirements under the Credit Card Act for which the Board has rulemaking authority, including, among other things, provisions regarding interest rate increases (revised TILA Section 171), over-the-limit transactions (new TILA Section 127(k)), and student cards (new TILA Sections 127(c)(8), 127(p), and 140(f)) become effective on February 22, 2010 (9 months after enactment). Finally, two provisions of the Credit Card Act addressing the reasonableness and proportionality of penalty fees and charges (new TILA Section 149) and re-evaluation by creditors of rate increases (new TILA Section 148) are effective on August 22, 2010 (15 months after enactment). The Credit Card Act also requires the Board to conduct several studies and to make several reports to Congress, and sets forth differing time periods in which these studies and reports must be completed.

As is discussed further in the supplementary information to § 226.5(b)(2), on November 6, 2009, TILA Section 163 was further amended by the Credit CARD Technical Corrections Act of 2009 (Technical Corrections Act), which narrowed the application of the requirement regarding the time consumers receive to pay to credit card accounts. Public Law 111-93, 123 Stat. 2998 (Nov. 6, 2009). The Board is as adopting amendments to § 226.5(b)(2) to conform to the requirements of TILA Section 163 as amended by the Technical Corrections Act.

Implementation of Credit Card Act

On July 22, 2009, the Board published an interim final rule to implement those provisions of the Credit Card Act that became effective on August 20, 2009 (July 2009 Regulation Z Interim Final Rule). See 74 FR 36077. As discussed in the supplementary information to the July 2009 Regulation Z Interim Final Rule, the Board is implementing the provisions of the Credit Card Act in stages, consistent with the statutory timeline established by Congress. Accordingly, the interim final rule implemented those provisions of the statute that became effective August 20, 2009, primarily addressing change-in-terms notice requirements and the amount of time that consumers have to make payments. The Board issued rules in interim final form based on its determination that, given the short implementation period established by the Credit Card Act and the fact that similar rules were already the subject of notice-and-comment rulemaking, it would be impracticable and unnecessary to issue a proposal for public comment followed by a final rule. The Board solicited comment on the interim final rule; the comment period ended on September 21, 2009. The Board has considered comments on the interim final rule in connection with this rule.

On October 21, 2009 the Board published a proposed rule in the Federal Register to implement the provisions of the Credit Card Act that become effective February 22, 2010 (October 2009 Regulation Z Proposal). 74 FR 54124. The comment period on the October 2009 Regulation Z Proposal closed on November 20, 2009. The Board received approximately 150 comments in response to the proposed rule, including comments from credit card issuers, trade associations, consumer groups, individual consumers, and a member of Congress. As discussed in more detail elsewhere in this supplementary information, the Board has considered comments received on the October 2009 Regulation Z Proposal in adopting this final rule.

The Board is separately considering the two remaining provisions under the Credit Card Act regarding reasonable and proportional penalty fees and charges and the re-evaluation of rate increases, and intends to finalize implementing regulations upon notice and after giving the public an opportunity to comment.

To the extent appropriate, the Board has used its January 2009 rules and the underlying rationale as the basis for its rulemakings under the Credit Card Act. This final rule incorporates in substance those portions of the Board's January 2009 Regulation Z Rule that are unaffected by the Credit Card Act, except as specifically noted in V. Section-by-Section Analysis. Because the requirements of the Board's January 2009 Regulation Z and FTC Act Rules are incorporated in this rule, the Board is publishing elsewhere in this Federal Register two notices withdrawing the January 2009 Regulation Z Rule and its January 2009 FTC Act Rule.

Provisions of January 2009 Regulation Z Rule Applicable to HELOCs

The final rule incorporates several sections of the January 2009 Regulation Z Rule that are applicable only to home-equity lines of credit subject to the requirements of § 226.5b (HELOCs). In particular, the final rule includes new §§ 226.6(a), 226.7(a) and 226.9(c)(1), which are identical to the analogous provisions adopted in the January 2009 Regulation Z Rule. These sections, as discussed in the supplementary information to the January 2009 Regulation Z Rule, are intended to preserve the existing requirements of Regulation Z for home-equity lines of credit until the Board's ongoing review of the rules that apply to HELOCs is completed. On August 26, 2009, the Board published proposed revisions to those portions of Regulation Z affecting HELOCs in the Federal Register. See 74 FR 43428 (August 2009 Regulation Z HELOC Proposal). This final rule is not intended to amend or otherwise affect the August 2009 Regulation Z HELOC Proposal. However, the Board believes that these sections are necessary to give HELOC creditors clear guidance on how to comply with Regulation Z after the effective date of this rule but prior to the effective date of the forthcoming final rules directly addressing HELOCs.

Finally, the Board has incorporated in the regulatory text and commentary for §§ 226.1, 226.2, and 226.3 several changes that were adopted in the Board's recent rulemaking pertaining to private education loans. See 74 FR 41194 (August 14, 2009) for further discussion of these changes.

Effective Date and Mandatory Compliance Dates

As noted above, the effective date of the Board's January 2009 Regulation Z Rule was July 1, 2010. However, the effective date of the provisions of the Credit Card Act implemented by this final rule is February 22, 2010. Many of the provisions of the Credit Card Act as implemented by this final rule are closely related to provisions of the January 2009 Regulation Z Rule. For example, § 226.9(c)(2)(ii), which describes “significant changes in terms” for which 45 days' advance notice is required, cross-references § 226.6(b)(1) and (b)(2) as adopted in the January 2009 Regulation Z Rule.

For consistency with the Credit Card Act, the Board is making the effective date for the final rule February 22, 2010. However, in the October 2009 Regulation Z Proposal, the Board solicited comment on whether compliance should be mandatory on February 22, 2010 for the provisions of the January 2009 Regulation Z Rule that are not directly affected by the Credit Card Act.

Many industry commenters urged the Board to retain the original July 1, 2010 mandatory compliance date for amendments to Regulation Z that are not specifically required by the Credit Card Act. These commenters noted that there would be significant operational issues associated with accelerating the effective date for all of the revisions contained in the January 2009 Regulation Z Rule that are not specific requirements of the Credit Card Act. Commenters noted that they have already allocated resources and planned for a July 1, 2010 mandatory compliance date for the January 2009 Regulation Z Rule and that it would be unworkable, if not impossible, to comply with all of the requirements of this final rule by February 22, 2010. The Board notes that this final rule is being issued less than two months prior to the February 22, 2010 effective date of the majority of the Credit Card Act requirements, and that an acceleration of the mandatory compliance date for provisions originally adopted in the January 2009 Regulation Z Rule that are not directly impacted by the Credit Card Act would be extremely burdensome for creditors. For some creditors, it may be impossible to implement these provisions by February 22, 2010. Accordingly, the Board is generally retaining a July 1, 2010 mandatory compliance date for those provisions originally adopted in the January 2009 Regulation Z Rule that are not requirements of the Credit Card Act. [1]

Accordingly, as discussed further in VI. Mandatory Compliance Dates, the mandatory compliance date for the portion of § 226.5(a)(2)(iii) regarding use of the term “fixed” and for §§ 226.5(b)(2)(ii), 226.7(b)(11), 226.7(b)(12), 226.7(b)(13), 226.9(c)(2) (except for 226.9(c)(2)(iv)(D)), 226.9(e), 226.9(g) (except for 226.9(g)(3)(ii)), 226.9(h), 226.10, 226.11(c), 226.16(f), and §§ 226.51-226.58 is February 22, 2010. The mandatory compliance date for all other provisions of this final rule is July 1, 2010.

II. Summary of Major Revisions Back to Top

A. Increases in Annual Percentage Rates

Existing balances. Consistent with the Credit Card Act, the final rule prohibits credit card issuers from applying increased annual percentage rates and certain fees and charges to existing credit card balances, except in the following circumstances: (1) When a temporary rate lasting at least six months expires; (2) when the rate is increased due to the operation of an index (i.e., when the rate is a variable rate); (3) when the minimum payment has not been received within 60 days after the due date; and (4) when the consumer successfully completes or fails to comply with the terms of a workout arrangement. In addition, when the annual percentage rate on an existing balance has been reduced pursuant to the Servicemembers Civil Relief Act (SCRA), the final rule permits the card issuer to increase that rate once the SCRA ceases to apply.

New transactions. The final rule implements the Credit Card Act's prohibition on increasing an annual percentage rate during the first year after an account is opened. After the first year, the final rule provides that a card issuer is permitted to increase the annual percentage rates that apply to new transactions so long as the issuer provides the consumer with 45 days advance notice of the increase.

B. Evaluation of Consumer's Ability To Pay

General requirements. The Credit Card Act prohibits credit card issuers from opening a new credit card account or increasing the credit limit for an existing credit card account unless the issuer considers the consumer's ability to make the required payments under the terms of the account. Because credit card accounts typically require consumers to make a minimum monthly payment that is a percentage of the total balance (plus, in some cases, accrued interest and fees), the final rule requires card issuers to consider the consumer's ability to make the required minimum payments.

However, because an issuer will not know the exact amount of a consumer's minimum payments at the time it is evaluating the consumer's ability to make those payments, the Board proposed to require issuers to use a reasonable method for estimating a consumer's minimum payments and proposed a safe harbor that issuers could use to satisfy this requirement. For example, with respect to the opening of a new credit card account, the proposed safe harbor provided that it would be reasonable for an issuer to estimate minimum payments based on a consumer's utilization of the full credit line using the minimum payment formula employed by the issuer with respect to the credit card product for which the consumer is being considered.

Based on comments received and further analysis, the final rule adopts these aspects of the proposal. In addition, the final rule provides that—if the applicable minimum payment formula includes fees and accrued interest—the estimated minimum payment must include mandatory fees and must include interest charges calculated using the annual percentage rate that will apply after any promotional or other temporary rate expires.

The proposed rule would also have specified the types of factors card issuers should review in considering a consumer's ability to make the required minimum payments. Specifically, it provided that an evaluation of a consumer's ability to pay must include a review of the consumer's income or assets as well as current obligations, and a creditor must establish reasonable policies and procedures for considering that information. When considering a consumer's income or assets and current obligations, an issuer would have been permitted to rely on information provided by the consumer or information in a consumer's credit report.

Based on comments received and further analysis, the final rule adopts these aspects of the proposal. In addition, when evaluating a consumer's ability to pay, the final rule requires issuers to consider the ratio of debt obligations to income, the ratio of debt obligations to assets, or the income the consumer will have after paying debt obligations (i.e., residual income). Furthermore, the final rule provides that it would be unreasonable for an issuer not to review any information about a consumer's income, assets, or current obligations, or to issue a credit card to a consumer who does not have any income or assets. Finally, in order to provide flexibility regarding consideration of income or assets, the final rule permits issuers to make a reasonable estimate of the consumer's income or assets based on empirically derived, demonstrably and statistically sound models.

Specific requirements for underage consumers. Consistent with the Credit Card Act, the final rule prohibits a creditor from issuing a credit card to a consumer who has not attained the age of 21 unless the consumer has submitted a written application that meets certain requirements. Specifically, the application must include either: (1) Information indicating that the underage consumer has the ability to make the required payments for the account; or (2) the signature of a cosigner who has attained the age of 21, who has the means to repay debts incurred by the underage consumer in connection with the account, and who assumes joint liability for such debts.

C. Marketing to Students

Prohibited inducements. The Credit Card Act limits a creditor's ability to offer a student at an institution of higher education any tangible item to induce the student to apply for or open an open-end consumer credit plan offered by the creditor. Specifically, the Credit Card Act prohibits such offers: (1) On the campus of an institution of higher education; (2) near the campus of an institution of higher education; or (3) at an event sponsored by or related to an institution of higher education.

The final rule contains official staff commentary to assist creditors in complying with these prohibitions. For example, the commentary clarifies that “tangible item” means a physical item (such as a gift card, t-shirt, or magazine subscription) and does not include non-physical items (such as discounts, rewards points, or promotional credit terms). The commentary also clarifies that a location that is within 1,000 feet of the border of the campus of an institution of higher education (as defined by the institution) is considered near the campus of that institution. Finally, consistent with guidance recently adopted by the Board with respect to certain private education loans, the commentary states that an event is related to an institution of higher education if the marketing of such event uses words, pictures, or symbols identified with the institution in a way that implies that the institution endorses or otherwise sponsors the event.

Disclosure and reporting requirements. The final rule also implements the provisions of the Credit Card Act requiring institutions of higher education to publicly disclose agreements with credit card issuers regarding the marketing of credit cards. The final rule states that an institution may comply with this requirement by, for example, posting the agreement on its Web site or by making the agreement available upon request.

In addition, the final rule implements the provisions of the Credit Card Act requiring card issuers to make annual reports to the Board regarding any business, marketing, or promotional agreements between the issuer and an institution of higher education (or an affiliated organization) regarding the issuance of credit cards to students at that institution. The first report must provide information regarding the 2009 calendar year and must be submitted to the Board by February 22, 2010. [2]

D. Fees or Charges for Transactions That Exceed the Credit Limit

Consumer consent requirement. Consistent with the Credit Card Act, the final rule requires credit card issuers to obtain a consumer's express consent (or opt-in) before imposing any fees on a consumer's credit card account for making an extension of credit that exceeds the account's credit limit. Prior to obtaining this consent, the issuer must disclose, among other things, the dollar amount of any fees or charges that will be assessed for an over-the-limit transaction as well as any increased rate that may apply if the consumer exceeds the credit limit. In addition, if the consumer consents, the issuer is also required to provide a notice of the consumer's right to revoke that consent on any periodic statement that reflects the imposition of an over-the-limit fee or charge.

The final rule applies these requirements to all consumers (including existing accountholders) if the issuer imposes a fee or charge for paying an over-the-limit transaction. Thus, after February 22, 2010, issuers are prohibited from assessing any over-the-limit fees or charges on an account until the consumer consents to the payment of transactions that exceed the credit limit.

Prohibited practices. Even if the consumer has affirmatively consented to the issuer's payment of over-the-limit transactions, the Credit Card Act prohibits certain practices in connection with the assessment of over-the-limit fees or charges. Consistent with these statutory prohibitions, the final rule would prohibit an issuer from imposing more than one over-the-limit fee or charge per billing cycle. In addition, an issuer could not impose an over-the-limit fee or charge on the account for the same over-the-limit transaction in more than three billing cycles.

The Credit Card Act also directs the Board to prescribe regulations that prevent unfair or deceptive acts or practices in connection with the manipulation of credit limits designed to increase over-the-limit fees or other penalty fees. Pursuant to this authority, the proposed rule would have prohibited issuers from assessing over-the-limit fees or charges that are caused by the issuer's failure to promptly replenish the consumer's available credit. The proposed rule would have also prohibited issuers from conditioning the amount of available credit on the consumer's consent to the payment of over-the-limit transactions. Finally, the proposed rule would have prohibited the imposition of any over-the-limit fees or charges if the credit limit is exceeded solely because of the issuer's assessment of fees or charges (including accrued interest charges) on the consumer's account. The final rule adopts these prohibitions.

E. Payment Allocation

When different rates apply to different balances on a credit card account, the Board's January 2009 FTC Act Rule required banks to allocate payments in excess of the minimum first to the balance with the highest rate or pro rata among the balances. The Credit Card Act contains a similar provision, except that excess payments must always be allocated first to the balance with the highest rate. In addition, the Credit Card Act provided that, when a balance on an account is subject to a deferred interest or similar program, excess payments must be allocated first to that balance during the last two billing cycles of the deferred interest period so that the consumer can pay the balance in full and avoid deferred interest charges.

The final rule mirrors the statutory requirements. However, in order to provide consumers who utilize deferred interest programs with an additional means of avoiding deferred interest charges, the final rule also permits issuers to allocate excess payments in the manner requested by the consumer at any point during a deferred interest period. This exception allows issuers to retain existing programs that permit consumers to, for example, pay off a deferred interest balance in installments over the course of the deferred interest period. However, this provision applies only when a balance on an account is subject to a deferred interest or similar program.

F. Timely Settlement of Estates

The Credit Card Act directs the Board to prescribe regulations requiring credit card issuers to establish procedures ensuring that any administrator of an estate can resolve the outstanding credit card balance of a deceased accountholder in a timely manner. The proposed rule would have imposed two specific requirements designed to enable administrators to determine the amount of and pay a deceased consumer's balance in a timely manner.

First, upon request by the administrator, the issuer would have been required to disclose the amount of the balance in a timely manner. The final rule adopts this requirement. Second, once an administrator has requested the account balance, the proposed rule would have prohibited the issuer from imposing additional fees and charges on the account so that the amount of the balance does not increase while the administrator is arranging for payment. However, because the Board was concerned that a permanent moratorium on fees and interest charges could be unduly burdensome, the proposal solicited comment on whether a particular period of time would generally be sufficient to enable an administrator to arrange for payment.

Based on comments received and further analysis, the Board believes that it would not be appropriate to permanently prohibit the accrual of interest on a credit card account once an administrator requests the account balance because interest will continue to accrue on other types of credit accounts that are part of the estate. Instead, the final rule provides that—if the administrator pays the balance stated by the issuer in full within 30 days—the issuer must waive any additional interest charges. However, the final rule retains the proposed prohibition on the imposition of additional fees so that the account is not, for example, assessed late payment fees or annual fees while the administrator is settling the estate.

G. On-Line Disclosure of Credit Card Agreements

The Credit Card Act requires issuers to post credit card agreements on their Web sites and to submit those agreements to the Board for posting on its Web site. The Credit Card Act further provides that the Board may establish exceptions to these requirements in any case where the administrative burden outweighs the benefit of increased transparency, such as where a credit card plan has a de minimis number of accountholders.

The final rule adopts the proposed requirement that issuers post on their Web sites or otherwise make available their credit card agreements with current cardholders. In addition, consistent with the Credit Card Act, the final rule generally requires that—no later than February 22, 2010—issuers submit to the Board for posting on its Web site all credit card agreements offered to the public as of December 31, 2009. Subsequent submissions are due on August 2, 2010 and on a quarterly basis thereafter. [3]

However, the final rule also adopts certain exceptions to this submission requirement. First, the final rule adopts the proposed de minimis exception for issuers with fewer than 10,000 open credit card accounts. Because the overwhelming majority of credit card accounts are held by issuers that have more than 10,000 open accounts, the information provided through the Board's Web site would still reflect virtually all of the terms available to consumers. Similarly, based on comments received and further analysis, the final rule provides that issuers are not required to submit agreements for private label plans offered on behalf of a single merchant or a group of affiliated merchants or for plans that are offered in order to test a new credit card product so long as the plan involves no more than 10,000 credit card accounts.

Second, the final rule adopts the proposed exception for agreements that are not currently offered to the public. The Board believes that the primary purpose of the information provided through the Board's Web site is to assist consumers in comparing credit card agreements offered by different issuers when shopping for a new credit card. Including agreements that are no longer offered to the public would not facilitate comparison shopping by consumers. In addition, including such agreements could create confusion regarding which terms are currently available.

G. Additional Provisions

The final rule also implements the following provisions of the Credit Card Act, all of which go into effect on February 22, 2010.

Limitations on fees. The Board's January 2009 FTC Act Rule prohibited banks from charging to a credit card account during the first year after account opening certain account-opening and other fees that, in total, constituted the majority of the initial credit limit. The Credit Card Act contains a similar provision, except that it applies to all fees (other than fees for late payments, returned payments, and exceeding the credit limit) and limits the total fees to 25% of the initial credit limit.

Double-cycle billing. The Board's January 2009 FTC Act Rule prohibited banks from imposing finance charges on balances for days in previous billing cycles as a result of the loss of a grace period (a practice sometimes referred to as “double-cycle billing”). The Credit Card Act contains a similar prohibition. In addition, when a consumer pays some but not all of a balance prior to expiration of a grace period, the Credit Card Act prohibits the issuer from imposing finance charges on the portion of the balance that has been repaid.

Fees for making payment. The Credit Card Act prohibits issuers from charging a fee for making a payment, except for payments involving an expedited service by a service representative of the issuer.

Minimum payments. The Board's January 2009 Regulation Z Rule implemented provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requiring creditors to provide a toll-free telephone number where consumers could receive an estimate of the time to repay their account balances if they made only the required minimum payment each month. The Credit Card Act substantially revised the statutory requirements for these disclosures. In particular, the Credit Card Act requires the following new disclosures on the periodic statement: (1) The amount of time and the total cost (interest and principal) involved in paying the balance in full making only minimum payments; and (2) the monthly payment amount required to pay off the balance in 36 months and the total cost (interest and principal) of repaying the balance in 36 months.

III. Statutory Authority Back to Top

General Rulemaking Authority

Section 2 of the Credit Card Act states that the Board “may issue such rules and publish such model forms as it considers necessary to carry out this Act and the amendments made by this Act.” This final rule implements several sections of the Credit Card Act, which amend TILA. TILA mandates that the Board prescribe regulations to carry out its purposes and specifically authorizes the Board, among other things, to do the following:

  • Issue regulations that contain such classifications, differentiations, or other provisions, or that provide for such adjustments and exceptions for any class of transactions, that in the Board's judgment are necessary or proper to effectuate the purposes of TILA, facilitate compliance with the act, or prevent circumvention or evasion. 15 U.S.C. 1604(a).
  • Exempt from all or part of TILA any class of transactions if the Board determines that TILA coverage does not provide a meaningful benefit to consumers in the form of useful information or protection. The Board must consider factors identified in the act and publish its rationale at the time it proposes an exemption for comment. 15 U.S.C. 1604(f).
  • Add or modify information required to be disclosed with credit and charge card applications or solicitations if the Board determines the action is necessary to carry out the purposes of, or prevent evasions of, the application and solicitation disclosure rules. 15 U.S.C. 1637(c)(5).
  • Require disclosures in advertisements of open-end plans. 15 U.S.C. 1663.

For the reasons discussed in this notice, the Board is using its specific authority under TILA and the Credit Card Act, in concurrence with other TILA provisions, to effectuate the purposes of TILA, to prevent the circumvention or evasion of TILA, and to facilitate compliance with the act.

Authority To Issue Final Rule With an Effective Date of February 22, 2010

Because the provisions of the Credit Card Act implemented by this final rule are effective on February 22, 2010, [4] this final rule is also effective on February 22, 2010 (except as otherwise provided). The Administrative Procedure Act (5 U.S.C. 551 et seq.) (APA) generally requires that rules be published not less than 30 days before their effective date. See 15 U.S.C. 553(d). However, the APA provides an exception when “otherwise provided by the agency for good cause found and published with the rule.”Id.§ 553(d)(3). Although the Board is issuing this final rule more than 30 days before February 22, 2010, it is unclear whether it will be published in the Federal Register more than 30 days before that date. [5] Accordingly, the Board finds that good cause exists to publish the final rule less than 30 days before the effective date.

Similarly, although 12 U.S.C. 4802(b)(1) generally requires that new regulations and amendments to existing regulations take effect on the first day of the calendar quarter which begins on or after the date on which the regulations are published in final form (in this case, April 1, 2010), the Board has determined that—in light of the statutory effective date—there is good cause for making this final rule effective on February 22, 2010. See 12 U.S.C. 4802(b)(1)(A) (providing an exception to the general requirement when “the agency determines, for good cause published with the regulation, that the regulations should become effective before such time”). Furthermore, the Board believes that providing creditors with guidance regarding compliance before April 1, 2010 is consistent with 12 U.S.C. 4802(b)(1)(C), which provides an exception to the general requirement when “the regulation is required to take effect on a date other than the date determined under [12 U.S.C. 4802(b)(1)] pursuant to any other Act of Congress.”

Finally, TILA Section 105(d) provides that any regulation of the Board (or any amendment or interpretation thereof) requiring any disclosure which differs from the disclosures previously required by Chapters 1, 4, or 5 of TILA (or by any regulation of the Board promulgated thereunder) shall have an effective date no earlier than “that October 1 which follows by at least six months the date of promulgation.” However, even assuming that TILA Section 105(d) applies to this final rule, the Board believes that the specific provision in Section 3 of the Credit Card Act governing effective dates overrides the general provision in TILA Section 105(d).

IV. Applicability of Provisions Back to Top

While several provisions under the Credit Card Act apply to all open-end credit, others apply only to certain types of open-end credit, such as credit card accounts under open-end consumer credit plans. As a result, the Board understands that some additional clarification may be helpful as to which provisions of the Credit Card Act as implemented in Regulation Z are applicable to which types of open-end credit products. In order to clarify the scope of the revisions to Regulation Z, the Board is providing the below table, which summarizes the applicability of each of the major revisions to Regulation Z. [6]

Provision Applicability
§ 226.5(a)(2)(iii) All open-end (not home-secured) consumer credit plans.
§ 226.5(b)(2)(ii)(A) Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.5(b)(2)(ii)(B) All open-end consumer credit plans.
§ 226.7(b)(11) Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.7(b)(12) Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.7(b)(14) All open-end (not home-secured) consumer credit plans.
§ 226.9(c)(2) All open-end (not home-secured) consumer credit plans.
§ 226.9(e) Credit or charge card accounts subject to § 226.5a.
§ 226.9(g) All open-end (not home-secured) consumer credit plans.
§ 226.9(h) Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.10(b)(2)(ii) All open-end consumer credit plans.
§ 226.10(b)(3) Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.10(d) All open-end consumer credit plans.
§ 226.10(e) Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.10(f) Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.11(c) Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.16(f) All open-end consumer credit plans.
§ 226.16(h) All open-end (not home-secured) consumer credit plans.
§ 226.51 Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.52 Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.53 Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.54 Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.55 Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.56 Credit card accounts under an open-end (not home-secured) consumer credit plan.
§ 226.57 Credit card accounts under an open-end (not home-secured) consumer credit plan, except that § 226.57(c) applies to all open-end consumer credit plans.
§ 226.58 Credit card accounts under an open-end (not home-secured) consumer credit plan.

V. Section-by-Section Analysis Back to Top

Section 226.2Definitions and Rules of Construction

2(a) Definitions

2(a)(15) Credit Card

In the January 2009 Regulation Z Rule, the Board revised § 226.2(a)(15) to read as follows: “Credit card means any card, plate, or other single credit device that may be used from time to time to obtain credit. Charge card means a credit card on an account for which no periodic rate is used to compute a finance charge.” 74 FR 5257. In order to clarify the application of certain provisions of the Credit Card Act that apply to “credit card account[s] under an open end consumer credit plan,” the October 2009 Regulation Z Proposal would have further revised § 226.2(a)(15) by adding a definition of “credit card account under an open-end (not home-secured) consumer credit plan.” Specifically, proposed § 226.2(a)(15)(ii) would have defined this term to mean any credit account accessed by a credit card except a credit card that accesses a home-equity plan subject to the requirements of § 226.5b or an overdraft line of credit accessed by a debit card. The Board proposed to move the definitions of “credit card” and “charge card” in the January 2009 Regulation Z Rule to § 226.2(a)(15)(i) and (iii), respectively.

The Board noted that the exclusion of credit cards that access a home-equity plan subject to § 226.5b was consistent with the approach adopted by the Board in the July 2009 Regulation Z Interim Final Rule. See 74 FR 36083. Specifically, in the interim final rule, the Board used its authority under TILA Section 105(a) and § 2 of the Credit Card Act to interpret the term “credit card account under an open-end consumer credit plan” in new TILA Section 127(i) to exclude home-equity lines of credit subject to § 226.5b, even if those lines could be accessed by a credit card. Instead, the Board applied the disclosure requirements in current § 226.9(c)(2)(i) and (g)(1) to “credit card accounts under an open-end (not home-secured) consumer credit plan.”See 74 FR 36094-36095. For consistency with the interim final rule, the Board proposed to generally use its authority under TILA Section 105(a) and § 2 of the Credit Card Act to apply the same interpretation to other provisions of the Credit Card Act that apply to a “credit card account under an open end consumer credit plan.”See, e.g., revised TILA § 127(j), (k), (l), (n); revised TILA § 171; new TILA §§ 140A, 148, 149, 172. [7] The Board noted that this interpretation was also consistent with the Board's historical treatment of HELOC accounts accessible by a credit card under TILA; for example, the credit and charge card application and solicitation disclosure requirements under § 226.5a expressly do not apply to home-equity plans accessible by a credit card that are subject to § 226.5b. See current § 226.5a(a)(3); revised § 226.5a(a)(5)(i), 74 FR 5403. The Board has issued the August 2009 Regulation Z HELOC Proposal to address changes to Regulation Z that it believes are necessary and appropriate for HELOCs and will consider any appropriate revisions to the requirements for HELOCs in connection with that review. Commenters generally supported this exclusion, which is adopted in the final rule.

The Board also proposed to interpret the term “credit card account under an open end consumer credit plan” to exclude a debit card that accesses an overdraft line of credit. Although such cards are “credit cards” under current § 226.2(a)(15), the Board has generally excluded them from the provisions of Regulation Z that specifically apply to credit cards. For example, as with credit cards that access HELOCs, the provisions in § 226.5a regarding credit and charge card applications and solicitations do not apply to overdraft lines of credit tied to asset accounts accessed by debit cards. See current § 226.5a(a)(3); revised § 226.5a(a)(5)(ii), 74 FR 5403.

Instead, Regulation E (Electronic Fund Transfers) generally governs debit cards that access overdraft lines of credit. See 12 CFR part 205. For example, Regulation E generally governs the issuance of debit cards that access an overdraft line of credit, although Regulation Z's issuance provisions apply to the addition of a credit feature (such as an overdraft line) to a debit card. See 12 CFR 205.12(a)(1)(ii) and (a)(2)(i). Similarly, when a transaction that debits a checking or other asset account also draws on an overdraft line of credit, Regulation Z treats the extension of credit as incident to an electronic fund transfer and the error resolution provisions in Regulation E generally govern the transaction. See 12 CFR 205.12 comment 12(a)-1.i. [8]

Consistent with this approach, the Board believes that debit cards that access overdraft lines of credit should not be subject to the regulations implementing the provisions of the Credit Card Act that apply to “credit card accounts under an open end consumer credit plan.” As discussed in the January 2009 Regulation Z Rule, the Board understands that overdraft lines of credit are not in wide use. [9] Furthermore, as a general matter, the Board understands that creditors do not generally engage in the practices addressed in the relevant provisions of the Credit Card Act with respect to overdraft lines of credit. For example, as discussed in the January 2009 Regulation Z Rule, overdraft lines of credit are not typically promoted as—or used for—long-term extensions of credit. See 74 FR 5331. Therefore, because proposed § 226.9(c)(2) would require a creditor to provide 45 days' notice before increasing an annual percentage rate for an overdraft line of credit, a creditor is unlikely to engage in the practices prohibited by revised TILA Section 171 with respect to the application of increased rates to existing balances. Similarly, because creditors generally do not apply different rates to different balances or provide grace periods with respect to overdraft lines of credit, the provisions in proposed §§ 226.53 and 226.54 would not provide any meaningful protection. Accordingly, the Board proposed to use its authority under TILA Section 105(a) and § 2 of the Credit Card Act to create an exception for debit cards that access an overdraft line of credit.

Commenters generally supported this exclusion, which is adopted in the final rule. Several industry commenters also requested that the Board exclude lines of credit accessed by a debit card that can be used only at automated teller machines and lines of credit accessed solely by account numbers. These commenters argued that—like overdraft lines of credit accessed by a debit card—these products are not “traditional” credit cards and that creditors may be less willing to provide these products if they are required to comply with the provisions of the Credit Card Act. They also noted that the Board has excluded these products from the disclosure requirements for credit and charge cards in § 226.5a and the definition of “consumer credit card account” in the January 2009 FTC Act Rule. See§ 226.5a(a)(5); 12 CFR 227.21(c), 74 FR 5560.

The Board believes that, as a general matter, Congress intended the Credit Card Act to apply broadly to products that meet the definition of a credit card. As discussed above, the Board's exclusion of HELOCs and overdraft lines of credit accessed by cards is based on the Board's determination that alternative forms of regulation exist that are better suited to protecting consumers from harm with respect to those products. No such alternative exists for lines of credit accessed solely by account numbers. Similarly, although the protections in Regulation E generally apply when a debit card is used at an automated teller machine to credit a deposit account with funds obtained from a line of credit, [10] Regulation E generally does not apply when a debit card is used at an automated teller machine to obtain cash from the line of credit. Furthermore, because it appears that both type of credit lines are more likely to be used for long-term extensions of credit than overdraft lines, consumers are more likely to experience substantial harm if—for example—an increased annual percentage rate is applied to an outstanding balance. [11] Thus, the Board does not believe that an exclusion is warranted for lines of credit accessed by a debit card that can be used only at automated teller machines or lines of credit accessed solely by account numbers.

Finally, the Board notes that the revisions to 226.2(a)(15) are not intended to alter the scope or coverage of provisions of Regulation Z that refer generally to credit cards or open-end credit rather than the new defined term “credit card account under an open-end (not home-secured) consumer credit plan.”

Section 226.5General Disclosure Requirements

5(a) Form of Disclosures

5(a)(2) Terminology

New TILA Section 127(m) (15) U.S.C. 1637(m)), as added by Section 103 of the Credit Card Act, states that with respect to the terms of any credit card account under an open-end consumer credit plan, the term “fixed,” when appearing in conjunction with a reference to the APR or interest rate applicable to such account, may only be used to refer to an APR or interest rate that will not change or vary for any reason over the period specified clearly and conspicuously in the terms of the account. In the January 2009 Regulation Z Rule, the Board had adopted §§ 226.5(a)(2)(iii) and 226.16(f) to restrict the use of the term “fixed,” or any similar term, to describe a rate disclosed in certain required disclosures and in advertisements only to instances when that rate would not increase until the expiration of a specified time period. If no time period is specified, then the term “fixed,” or any similar term, may not be used to describe the rate unless the rate will not increase while the plan is open. As discussed in the October 2009 Regulation Z Proposal, the Board believes that §§ 226.5(a)(2)(iii) and 226.16(f), as adopted in the January 2009 Regulation Z Rule, would be consistent with new TILA Section 127(m). Sections 226.5(a)(2)(iii) and 226.16(f) were therefore republished in the October 2009 Regulation Z Proposal to implement TILA Section 127(m). The Board did not receive any comments on §§ 226.5(a)(2)(iii) and 226.16(f), and they are adopted as proposed.

5(b) Time of Disclosures

5(b)(1) Account-Opening Disclosures

5(b)(1)(i) General Rule

In certain circumstances, a creditor may substitute or replace one credit card account with another credit card account. For example, if an existing cardholder requests additional features or benefits (such as rewards on purchases), the creditor may substitute or replace the existing credit card account with a new credit card account that provides those features or benefits. The Board also understands that creditors often charge higher annual percentage rates or annual fees to compensate for additional features and benefits. As discussed below, § 226.55 and its commentary address the application of the general prohibitions on increasing annual percentage rates, fees, and charges during the first year after account opening and on applying increased rates to existing balances in these circumstances. See§ 226.55(d); comments 55(b)(3)-3 and 55(d)-1 through -3.

In order to clarify the application of the disclosure requirements in §§ 226.6(b) and 226.9(c)(2) when one credit card account is substituted or replaced with another, the Board has adopted comment 5(b)(1)(i)-6, which states that, when a card issuer substitutes or replaces an existing credit card account with another credit card account, the card issuer must either provide notice of the terms of the new account consistent with § 226.6(b) or provide notice of the changes in the terms of the existing account consistent with § 226.9(c)(2). The Board understands that, when an existing cardholder requests new features or benefits, disclosure of the new terms pursuant to § 226.6(b) may be preferable because the cardholder generally will not want to wait 45 days for the new terms to take effect (as would be the case if notice were provided pursuant to § 226.9(c)(2)). Thus, this comment is intended to provide card issuers with flexibility regarding whether to treat the substitution or replacement as the opening of a new account (subject to § 226.6(b)) or a change in the terms of an existing account (subject to § 226.9(c)(2)).

However, the comment is not intended to permit card issuers to circumvent the disclosure requirements in § 226.9(c)(2) by treating a change in terms as the opening of a new account. Accordingly, the comment further states that whether a substitution or replacement results in the opening of a new account or a change in the terms of an existing account for purposes of the disclosure requirements in §§ 226.6(b) and 226.9(c)(2) is determined in light of all the relevant facts and circumstances.

The comment provides the following list of relevant facts and circumstances: (1) Whether the card issuer provides the consumer with a new credit card; (2) whether the card issuer provides the consumer with a new account number; (3) whether the account provides new features or benefits after the substitution or replacement (such as rewards on purchases); (4) whether the account can be used to conduct transactions at a greater or lesser number of merchants after the substitution or replacement; (5) whether the card issuer implemented the substitution or replacement on an individualized basis; and (6) whether the account becomes a different type of open-end plan after the substitution or replacement (such as when a charge card is replaced by a credit card). The comment states that, when most of these facts and circumstances are present, the substitution or replacement likely constitutes the opening of a new account for which § 226.6(b) disclosures are appropriate. However, the comment also states that, when few of these facts and circumstances are present, the substitution or replacement likely constitutes a change in the terms of an existing account for which § 226.9(c)(2) disclosures are appropriate. [12]

In the October 2009 Regulation Z Proposal, the Board solicited comment on whether additional facts and circumstances were relevant. The Board also solicited comment on alternative approaches to determining whether a substitution or replacement results in the opening of a new account or a change in the terms of an existing account for purposes of the disclosure requirements in §§ 226.6(b) and 226.9(c)(2).

On the one hand, consumer groups commenters stated that the Board's proposed approach was not sufficiently restrictive. They argued that § 226.9(c)(2) should apply whenever a credit card account is substituted or replaced with another credit card account so that consumers will always receive 45 days' notice before any significant new terms take effect. However, the Board is concerned that this strict approach may not be beneficial to consumers overall. As discussed above, when an existing cardholder has requested new features or benefits, the cardholder generally will not want to wait 45 days to receive those features or benefits. Although a card issuer could provide the new features or benefits immediately, it may not be willing to do so if it cannot simultaneously compensate for the additional features or benefits by, for example, charging a higher annual percentage rate on new transactions or adding an annual fee.

On the other hand, industry commenters stated that the Board's proposed approach was overly restrictive. They argued that § 226.6(b) should apply whenever the substitution or replacement was requested by the consumer so that the new terms can be applied immediately. However, the Board has generally declined to provide a consumer request exception to the 45-day notice requirement in § 226.9(c)(2) because of the difficulty of defining by regulation the circumstances under which a consumer is deemed to have requested a change versus the circumstances in which the change is “suggested” by the card issuer. See revised § 226.9(c)(2)(i). Thus, the Board does not believe that the determination of whether §§ 226.6(b) or 226.9(c)(2) applies should turn solely on whether a consumer has requested the replacement or substitution.

For the foregoing reasons, the Board believes that the proposed standard provides the appropriate degree of flexibility insofar as it states that whether §§ 226.6(b) or 226.9(c)(c)(2) applies is determined in light of the relevant facts and circumstances. However, in response to requests from commenters, the Board has clarified some of the listed facts and circumstances. Specifically, the Board has added the substitution or replacement of a retail card with a cobranded general purpose credit card as an example of a circumstance in which an account can be used to conduct transactions at a greater or lesser number of merchants after the substitution or replacement. Similarly, the Board has added a substitution or replacement in response to a consumer's request as an example of a substitution or replacement on an individualized basis. Finally, the Board has clarified that, notwithstanding the listed facts and circumstances, a card issuer that replaces a credit card or provides a new account number because the consumer has reported the card stolen or because the account appears to have been used for unauthorized transactions is not required to provide a notice under § 226.6(b) or 226.9(c)(2) unless the card issuer has changed a term of the account that is subject to §§ 226.6(b) or 226.9(c)(2).

5(b)(2) Periodic Statements

As amended by the Credit Card Act in May 2009, TILA Section 163 generally prohibited a creditor from treating a payment as late or imposing additional finance charges unless the creditor mailed or delivered the periodic statement at least 21 days before the payment due date and the expiration of any period within which any credit extended may be repaid without incurring a finance charge (i.e., a “grace period”). See Credit Card Act § 106(b)(1). Unlike most of the Credit Card Act's provisions, the amendments to Section 163 applied to all open-end consumer credit plans rather than just credit card accounts. [13] The Board's July 2009 Regulation Z Interim Final Rule implemented the amendments to TILA Section 163 by revising § 226.5(b)(2)(ii) and the accompanying official staff commentary. Both the statutory amendments and the interim final rule became effective on August 22, 2009. See Credit Card Act § 106(b)(2).

However, in November 2009, the Credit CARD Technical Corrections Act of 2009 (Technical Corrections Act) further amended TILA Section 163, narrowing application the requirement that statements be mailed or delivered at least 21 days before the payment due date to credit card accounts. Public Law 111-93, 123 Stat. 2998 (Nov. 6, 2009). [14] Accordingly, the Board adopts § 226.5(b)(2)(ii) and its commentary in this final rule with revisions implementing the Technical Corrections Act and clarifying aspects of the July 2009 interim final rule in response to comments.

5(b)(2)(ii) Mailing or Delivery

Prior to the Credit Card Act, TILA Section 163 required creditors to send periodic statements at least 14 days before the expiration of the grace period (if any), unless prevented from doing so by an act of God, war, natural disaster, strike, or other excusable or justifiable cause (as determined under regulations of the Board). 15 U.S.C. 1666b. The Board's Regulation Z, however, applied the 14-day requirement even when the consumer did not receive a grace period. Specifically, § 226.5(b)(2)(ii) required that creditors mail or deliver periodic statements 14 days before the date by which payment was due for purposes of avoiding not only finance charges as a result of the loss of a grace period but also any charges other than finance charges (such as late fees). See also comment 5(b)(2)(ii)-1.

In the January 2009 FTC Act Rule, the Board and the other Agencies prohibited institutions from treating payments on consumer credit card accounts as late for any purpose unless the institution provided a reasonable amount of time for consumers to make payment. See 12 CFR 227.22(a), 74 FR 5560; see also 74 FR 5508-5512. [15] This rule included a safe harbor for institutions that adopted reasonable procedures designed to ensure that periodic statements specifying the payment due date were mailed or delivered to consumers at least 21 days before the payment due date. See 12 CFR 227.22(b)(2), 74 FR 5560. The 21-day safe harbor was intended to allow seven days for the periodic statement to reach the consumer by mail, seven days for the consumer to review their statement and make payment, and seven days for that payment to reach the institution by mail. However, to avoid any potential conflict with the 14-day requirement in TILA Section 163(a), the rule expressly stated that it would not apply to any grace period provided by an institution. See 12 CFR 227.22(c), 74 FR 5560.

The Credit Card Act's amendments to TILA Section 163 codified aspects of the Board's § 226.5(b)(2)(ii) as well as the provision in the January 2009 FTC Act Rule regarding the mailing or delivery of periodic statements. Specifically, like the Board's § 226.5(b)(2)(ii), amended TILA Section 163 applies the mailing or delivery requirement to both the expiration of the grace period and the payment due date. In addition, similar to the January 2009 FTC Act Rule, amended TILA Section 163 adopts 21 days as the appropriate time period between the date on which the statement is mailed or delivered to the consumer and the date on which the consumer's payment must be received by the creditor to avoid adverse consequences.

Rather than establishing an absolute requirement that periodic statements be mailed or delivered 21 days in advance of the payment due date, amended TILA Section 163(a) codifies the same standard adopted by the Board and the other Agencies in the January 2009 FTC Act Rule, which requires creditors to adopt “reasonable procedures designed to ensure” that statements are mailed or delivered at least 21 days before the payment due date. Notably, however, the 21-day requirement for grace periods in amended TILA Section 163(b) does not include similar language regarding “reasonable procedures.” Because the payment due date generally coincides with the expiration of the grace period, the Board believes that it will facilitate compliance to apply a single standard to both circumstances. The “reasonable procedures” standard recognizes that, for issuers mailing hundreds of thousands of periodic statements each month, it would be difficult if not impossible to know whether a specific statement is mailed or delivered on a specific date. Furthermore, applying different standards could encourage creditors to establish a payment due date that is different from the date on which the grace period expires, which could lead to consumer confusion.

Accordingly, the Board's interim final rule amended § 226.5(b)(2)(ii) to require that creditors adopt reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days before the payment due date and the expiration of the grace period. In doing so, the Board relied on its authority under TILA Section 105(a) to make adjustments that are necessary or proper to effectuate the purposes of TILA and to facilitate compliance therewith. See 15 U.S.C. 1604(a).

For clarity, the interim final rule also amended § 226.5(b)(2)(ii) to define “grace period” as “a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate.” This definition is consistent with the definition of grace period adopted by the Board in its January 2009 Regulation Z Rule. See§§ 226.5a(b)(5), 226.6(b)(2)(v), 74 FR 5404, 5407; see also 74 FR 5291-5294, 5310.

Finally, the Credit Card Act removed prior TILA Section 163(b), which stated that the 14-day mailing requirement does not apply “in any case where a creditor has been prevented, delayed, or hindered in making timely mailing or delivery of [the] periodic statement within the time period specified * * * because of an act of God, war, natural disaster, strike, or other excusable or justifiable cause, as determined under regulations of the Board.” 15 U.S.C. 1666b(b). The Board believes that the Credit Card Act's removal of this language is consistent with the adoption of a “reasonable procedures” standard insofar as a creditor's procedures for responding to any of the situations listed in prior TILA Section 163(b) will now be evaluated for reasonableness. Accordingly, the interim final rule removed the language implementing prior TILA Section 163(b) from footnote 10 to § 226.5(b)(2)(ii). [16]

Commenters generally supported the interim final rule, with one notable exception. Credit unions and community bank commenters strongly opposed the interim final rule on the grounds that requiring creditors to mail or deliver periodic statements at least 21 days before the payment due date with respect to open-end consumer credit plans other than credit card accounts was unnecessary and unduly burdensome. In particular, these commenters noted that the requirement disproportionately impacted credit unions, which frequently provide open-end products with multiple due dates during a month (such as bi-weekly due dates that correspond to the dates on which the consumer is paid) as well as consolidated periodic statements for multiple open-end products with different due dates. These commenters argued that applying the 21-day requirement to these products would significantly increase costs by requiring multiple periodic statements or cause creditors to cease offering such products altogether. However, these commenters noted that the requirement that statements be provided at least 21 days before the expiration of a grace period was not problematic because these products do not provide a grace period.

The Technical Corrections Act addressed these concerns by narrowing the application of the 21-day requirement in TILA Section 163(a) to credit cards. However, open-end consumer credit plans that provide a grace period remain subject to the 21-day requirement in Section 163(b). The final rule revises § 226.5(b)(2)(ii) consistent with the Technical Corrections Act. Specifically, because the Technical Corrections Act amended TILA Section 163 to apply different requirements to different types of open-end credit accounts, the Board has reorganized § 226.5(b)(2)(ii) into § 226.5(b)(2)(ii)(A) and § 226.5(b)(2)(ii)(B). This reorganization does not reflect any substantive revision of the interim final rule beyond those changes necessary to implement the Technical Corrections Act.

5(b)(2)(ii)(A) Payment Due Date

Section 226.5(b)(2)(ii)(A)(1) provides that, for consumer credit card accounts under an open-end (not home-secured) consumer credit plan, a card issuer must adopt reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days prior to the payment due date. Furthermore, § 226.5(b)(2)(ii)(A)(2) provides that the card issuer must also adopt reasonable procedures designed to ensure that a required minimum periodic payment received by the card issuer within 21 days after mailing or delivery of the periodic statement disclosing the due date for that payment is not treated as late for any purpose.

For clarity and consistency, § 226.5(b)(2)(ii)(A)(1) provides that a periodic statement generally must be mailed or delivered at least 21 days before the payment due date disclosed pursuant to § 226.7(b)(11)(i)(A). As discussed in greater detail below, § 226.7(b)(11)(i)(A) implements the Credit Card Act's requirement that periodic statements for credit card accounts disclose a payment due date. See amended TILA Section 127(b)(12)(A). [17] The Board believes that—like the mailing or delivery requirements for periodic statements in the January 2009 FTC Act Rule—the Credit Card Act's amendments to TILA Section 163 are intended to ensure that consumers have a reasonable amount of time to make payment after receiving their periodic statements. For that reason, the Board believes that it is important to ensure that the payment due date disclosed pursuant to § 226.7(b)(11)(i)(A) is consistent with requirements of § 226.5(b)(2)(ii)(A). If creditors were permitted to disclose a payment due date on the periodic statement that was less than 21 days after mailing or delivery of the periodic statement, consumers could be misled into believing that they have less time to pay than provided under TILA Section 163 and § 226.5(b)(2)(ii)(A).

The interim final rule adopted a new comment 5(b)(2)(ii)-1, which clarifies that, under the “reasonable procedures” standard, a creditor is not required to determine the specific date on which periodic statements are mailed or delivered to each individual consumer. Instead, a creditor complies with § 226.5(b)(2)(ii) if it has adopted reasonable procedures designed to ensure that periodic statements are mailed or delivered to consumers no later than a certain number of days after the closing date of the billing cycle and adds that number of days to the 21-day period required by § 226.5(b)(2)(ii) when determining the payment due date and the date on which any grace period expires. For example, if a creditor has adopted reasonable procedures designed to ensure that periodic statements are mailed or delivered to consumers no later than three days after the closing date of the billing cycle, the payment due date and the date on which any grace period expires must be no less than 24 days after the closing date of the billing cycle. The final rule retains this comment with revisions to reflect the reorganization of § 226.5(b)(2)(ii). [18]

The interim final rule also adopted a new comment 5(b)(2)(ii)-2, which clarifies that treating a payment as late for any purpose includes increasing the annual percentage rate as a penalty, reporting the consumer as delinquent to a credit reporting agency, or assessing a late fee or any other fee based on the consumer's failure to make a payment within a specified amount of time or by a specified date. [19] Several commenters requested that the Board narrow or expand this language to clarify that certain activities are included or excluded. The current language is consistent with the Board's intent that the prohibition on treating a payment as late for purpose be broadly construed and that the list of examples be illustrative rather than exhaustive. Nevertheless, in order to provide additional clarity, the final rule amends comment 5(b)(2)(ii)-2 to provide two additional examples of activities that constitute treating a payment as late for purposes of § 226.5(b)(2)(ii)(A)(2): terminating benefits (such as rewards on purchases) and initiating collection activities. However, the provision of additional examples should not be construed as a determination by the Board that other activities would not constitute treating a payment as late for any purpose.

In the October 2009 Regulation Z Proposal, the Board proposed to amend other aspects of comment 5(b)(2)(ii)-2. In particular, the Board proposed to clarify that the prohibition in § 226.5(b)(2)(ii) on treating a payment as late for any purpose or collecting finance or other charges applies only during the 21-day period following mailing or delivery of the periodic statement stating the due date for that payment. Thus, if a creditor does not receive a payment within 21 days of mailing or delivery of the periodic statement, the prohibition does not apply and the creditor may, for example, impose a late payment fee. Commenters generally supported this clarification. Accordingly, the Board has adopted this guidance—with additional clarifications—in the final rule. In addition, for consistency with the reorganization of § 226.5(b)(2)(ii), the Board has moved the guidance regarding grace periods to comment 5(b)(2)(ii)-3.

5(b)(2)(ii)(B) Grace Period Expiration Date

Section 226.5(b)(2)(ii)(B)(1) provides that, for open-end consumer credit plans, a creditor must adopt reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days prior to the date on which any grace period expires. Furthermore, § 226.5(b)(2)(ii)(B)(2) provides that the creditor must also adopt reasonable procedures designed to ensure that the creditor does not impose finance charges as a result of the loss of a grace period if a payment that satisfies the terms of the grace period is received by the creditor within 21 days after mailing or delivery of the periodic statement. Finally, the interim final rule's definition of “grace period” has been moved to § 226.5(b)(2)(ii)(B)(3) without any substantive change.

The interim final rule adopted comment 5(b)(2)(ii)-3, which clarified that, for purposes of § 226.5(b)(2)(ii), “payment due date” generally excluded courtesy periods following the contractual due date during which a consumer could make payment without incurring a late payment fee. This comment was intended to address open-end consumer credit plans other than credit cards and therefore is not necessary in light of the Technical Corrections Act. [20] Accordingly, the guidance in current comment 5(b)(2)(ii)-3 has been replaced with guidance regarding application of the grace period requirements in § 226.5(b)(2)(ii)(B). Specifically, this comment incorporates current comment 5(b)(2)(ii)-4, which clarifies that the definition of “grace period” in § 226.5(b)(2)(ii) does not include a deferred interest or similar promotional program under which the consumer is not obligated to pay interest that accrues on a balance if that balance is paid in full prior to the expiration of a specified period of time. The comment also clarifies that courtesy periods following the payment due date during which a late payment fee will not be assessed are not grace periods for purposes of § 226.5(b)(2)(ii)(B) and provides a cross-reference to comments 7(b)(11)-1 and -2 for additional guidance regarding such periods.

Comment 5(b)(2)(ii)-3 also clarifies the applicability of § 226.5(b)(2)(ii)(B). Specifically, it states that § 226.5(b)(2)(ii)(B) applies if an account is eligible for a grace period when the periodic statement is mailed or delivered. It further states that § 226.5(b)(2)(ii)(B) does not require the creditor to provide a grace period or prohibit the creditor from placing limitations and conditions on a grace period to the extent consistent with § 226.5(b)(2)(ii)(B) and § 226.54. Finally, it states that the prohibition in § 226.5(b)(2)(ii)(B)(2) applies only during the 21-day period following mailing or delivery of the periodic statement and applies only when the creditor receives a payment that satisfies the terms of the grace period within that 21-day period. An illustrative example is provided.

As noted above, current comment 5(b)(2)(ii)-4 has been incorporated into comment 5(b)(2)(ii)-3. In its place, the Board has adopted guidance to address confusion regarding the interaction between the payment due date disclosure in proposed § 226.7(b)(11)(i)(A) and the 21-day requirements in § 226.5(b)(2)(ii) with respect to charge card accounts and charged-off accounts. Charge cards are typically products where outstanding balances cannot be carried over from one billing cycle to the next and are payable when the periodic statement is received. See§ 226.5a(b)(7). Therefore, the contractual payment due date for a charge card account is the date on which the consumer receives the periodic statement (although charge card issuers generally request that the consumer make payment by some later date). See comment 5a(b)(7)-1. Similarly, when an account is over 180 days past due and has been placed in charged off status, full payment is due immediately.

However, as discussed below, the Board has concluded that it would not be appropriate to apply the payment due date disclosure in § 226.7(b)(11)(i)(A) to periodic statements provided solely for charge card accounts or periodic statements provided for charged-off accounts where full payment of the entire account balance is due immediately. In addition, a card issuer could not comply with the requirement to mail or deliver the periodic statement 21 days before the payment due date if the payment due date is the date that the consumer receives the statement. Accordingly, comment 5(b)(2)(ii)-4 clarifies that, because the payment due date disclosure in § 226.7(b)(11)(i)(A) does not apply to periodic statements provided solely for charge card accounts or periodic statements provided for charged-off accounts where full payment of the entire account balance is due immediately, § 226.5(b)(2)(ii)(A)(1) does not apply to the mailing or delivery of periodic statements provided solely for such accounts.

Comment 5(b)(2)(ii)-4 further clarifies that, with respect to charge card accounts, § 226.5(b)(2)(ii)(A)(2) nevertheless requires the card issuer to have reasonable procedures designed to ensure that a payment is not treated as late for any purpose during the 21-day period following mailing or delivery of that statement. Thus, notwithstanding the contractual due date, consumers with charge card accounts must receive at least 21 days to make payment without penalty.

With respect to charged-off accounts, comment 5(b)(2)(ii)-4 clarifies that, as discussed above with respect to comment 5(b)(2)(ii)-2, a card issuer is only prohibited from treating a payment as late during the 21-day period following mailing or delivery of the periodic statement stating the due date for that payment. Thus, because a charged-off account will generally have several past due payments, the card issuer may continue to treat those payments as late during the 21-day period for new payments.

Comment 5(b)(2)(ii)-4 also clarifies the application of the grace period requirements in § 226.5(b)(2)(ii)(B) to charge card and charged-off accounts. Specifically, the comment states that § 226.5(b)(2)(ii)(B) does not apply to charge card accounts because, for purposes of § 226.5(b)(2)(ii)(B), a grace period is a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate and, consistent with § 226.2(a)(15)(iii), charge card accounts do not impose a finance charge based on a periodic rate. Similarly, the comment states that § 226.5(b)(2)(ii)(B) does not apply to charged-off accounts where full payment of the entire account balance is due immediately because such accounts do not provide a grace period.

The final rule does not alter current comment 5(b)(2)(ii)-5, which provides that, when a consumer initiates a request, the creditor may permit, but may not require, the consumer to pick up periodic statements. Finally, the Board has adopted the proposed revisions to comment 5(b)(2)(ii)-6, which amend the cross-reference to reflect the restructuring of the commentary to § 226.7.

Section 226.5aCredit and Charge Card Applications and Solicitations

5a(b) Required Disclosures

5a(b)(1) Annual Percentage Rate

The Board republished proposed comment 5a(b)(1)-9 in the October 2009 Regulation Z Proposal, which was originally published in the May 2009 Regulation Z Proposed Clarifications. The comment clarified that an issuer offering a deferred interest or similar plan may not disclose a rate as 0% due to the possibility that the consumer may not be obligated for interest pursuant to a deferred interest or similar transaction. The Board did not receive any comments opposing this provision, and the comment is adopted as proposed. The Board notes that comment 5a(b)(1)-9 would apply to account opening disclosures pursuant to comment 6(b)(1)-1.

5a(b)(5) Grace Period

Sections 226.5a(b)(5) and 6(b)(2)(v) require that creditors disclose, among other things, any conditions on the availability of a grace period. As discussed below with respect to § 226.54, the Credit Card Act provides that, when a consumer pays some but not all of the balance subject to a grace period prior to expiration of the grace period, the card issuer is prohibited from imposing finance charges on the portion of the balance paid. Industry commenters requested that the Board clarify that §§ 226.5a(b)(5) and 6(b)(2)(v) do not require card issuers to disclose this limitation.

In the January 2009 Regulation Z Rule, the Board provided the following model language for the disclosures required by §§ 226.5a(b)(5) and 6(b)(2)(v): “Your due date is at least 25 days after the close of each billing cycle. We will not charge you any interest on purchases if you pay your entire balance by the due date each month.”See, e.g., App. G-10(B). [21] This language was developed through extensive consumer testing. However, the Board has not been able to conduct additional consumer testing with respect to disclosure of the limitations on the imposition of finance charges in § 226.54. Accordingly, the Board is concerned that the inclusion of language attempting to describe those limitations could reduce the effectiveness of the disclosure.

Furthermore, the Board does not believe that such a disclosure is necessary insofar as the model language accurately states that a consumer generally will not be charged any interest on purchases if the entire purchase balance is paid by the due date. Thus, although § 226.54 limits the imposition of finance charges if the consumer pays less than the entire balance, the model language achieves its intended purpose of explaining succinctly how a consumer can avoid all interest charges.

Accordingly, the Board has created new comments 5a(b)(5)-4 and 6(b)(2)(v)-4, which clarify that §§ 226.5a(b)(5) and 6(b)(2)(v) do not require card issuers to disclose the limitations on the imposition of finance charges in § 226.54. For additional clarity, the Board also states in a new comment 7(b)(8)-3 that a card issuer is not required to include this disclosure when disclosing the date by which or the time period within which the new balance or any portion of the new balance must be paid to avoid additional finance charges pursuant to § 226.7(b)(8).

Section 226.6Account-Opening Disclosures

6(b) Rules Affecting Open-End (Not Home-Secured) Plans

6(b)(2)(i) Annual Percentage Rate

Section 226.6(b)(2)(i) sets forth disclosure requirements for rates that apply to open-end (not home-secured) accounts. Under the January 2009 Regulation Z Rule, creditors generally must disclose the specific APRs that will apply to the account in the table provided at account opening. The Board, however, provided a limited exception to this rule where the APRs that creditors may charge vary by state for accounts opened at the point of sale. See§ 226.6(b)(2)(i)(E). Pursuant to that exception, creditors imposing APRs that vary by state and providing the disclosures required by § 226.6(b) in person at the time an open-end (not home-secured) plan is established in connection with financing the purchase of goods or services may, at the creditor's option, disclose in the account-opening table either (1) the specific APR applicable to the consumer's account, or (2) the range of the APRs, if the disclosure includes a statement that the APR varies by state and refers the consumer to the account agreement or other disclosure provided with the account-opening summary table where the APR applicable to the consumer's account is disclosed, for example in a list of APRs for all states.

In the May 2009 Regulation Z Proposed Clarifications, the Board proposed to provide similar flexibility to the disclosure of APRs at the point of sale when rates vary based on the consumer's creditworthiness. Thus, the Board proposed to amend § 226.6(b)(2)(i)(E) to state that creditors providing the disclosures required by § 226.6(b) in person at the time an open-end (not home-secured) plan is established in connection with financing the purchase of goods or services may, at the creditor's option, disclose in the account-opening table either (1) the specific APR applicable to the consumer's account, or (2) the range of the APRs, if the disclosure includes a statement that the APR varies by state or depends on the consumer's creditworthiness, as applicable, and refers the consumer to an account agreement or other disclosure provided with the account-opening summary table where the APR applicable to the consumer's account is disclosed, for example in a separate document provided with the account-opening table.

The Board noted in the supplementary information to the proposed clarifications that if creditors are not given additional flexibility, some consumers could be disadvantaged because creditors may provide a single rate for all consumers rather than varying the rate, with some consumers receiving lower rates than would be offered under a single-rate plan. Thus, without the proposed change, some consumers may be harmed by receiving higher rates. Moreover, the Board noted its understanding that the operational changes necessary to provide the specific APR applicable to the consumer's account in the table at point of sale when that rate depends on the consumer's creditworthiness may be too burdensome and increase creditors' risk of inadvertent noncompliance. Currently, creditors that establish open-end plans at point of sale provide account-opening disclosures at point of sale before the first transaction, with a reference to the APR in a separate document provided with the account agreement, and commonly provide a second, additional set of disclosures which reflect the actual APR for the account when, for example, a credit card is sent to the consumer.

Industry commenters generally supported the proposed clarification, for the reasons stated by the Board in the supplementary information to the May 2009 Regulation Z Proposed Clarifications. Consumer group commenters opposed the proposed clarification. However, the Board notes that the consumer group comments were premised on consumer groups' understanding that the clarification would require disclosure of the actual rate that will apply to the consumer's account only at a later point of time, subsequent to when the other account-opening disclosures are provided at point of sale. The Board notes that the proposed clarification would require the disclosure of the specific APR that will apply to the consumer's account at the same time that other account-opening disclosures are provided at point of sale. The clarification would, however, provide creditors with the flexibility to disclose the specific APR on a separate page or document than the tabular disclosure.

The Board is adopting the clarification to § 226.6(b)(2)(i)(E) as proposed. The Board believes that permitting creditors to provide the specific APR information outside of the table at point of sale, with the expectation that consumers will also receive a second set of disclosures with the specific APR applicable to the consumer properly formatted in the account-opening table at a later time, strikes the appropriate balance between the burden on creditors and the need to disclose to consumers the specific APR applicable to the consumer's account in the account-opening table provided at point of sale. Under the final rule, the consumer must receive a disclosure of the actual APR that applies to the account at the point of sale, but that rate could be provided in a separate document.

6(b)(2)(v) Grace Period

See discussion regarding § 226.5a(b)(5).

6(b)(4) Disclosure of Rates for Open-End (Not Home-Secured) Plans

6(b)(4)(ii) Variable-Rate Accounts

Section 226.6(b)(4)(ii) as adopted in the January 2009 Regulation Z Rule sets forth the rules for variable-rate disclosures at account-opening, including accuracy requirements for the disclosed rate. The accuracy standard as adopted provides that a disclosed rate is accurate if it is in effect as of a “specified date” within 30 days before the disclosures are provided. See§ 226.6(b)(4)(ii)(G).

Currently, creditors generally update rate disclosures provided at point of sale only when the rates have changed. The Board understands that some confusion has arisen as to whether the new rule as adopted literally requires that the account-opening disclosure specify a date as of which the rate was accurate, and that this date must be within 30 days of when the disclosures are given. Such a requirement could pose operational challenges for disclosures provided at point of sale as it would require creditors to reprint disclosures periodically, even if the variable rate has not changed since the last time the disclosures were printed.

The Board did not intend such a result. Requiring creditors to update rate disclosures to specify a date within the past 30 days would impose a burden on creditors with no corresponding benefit to consumers, where the disclosed rate is still accurate within the last 30 days before the disclosures are provided. Accordingly, the Board proposed in May 2009 to revise the rule to clarify that a variable rate is accurate if it is a rate as of a specified date and this rate was in effect within the last 30 days before the disclosures are provided. No significant issues were raised by commenters on this clarification, which is adopted as proposed.

The Board is adopting one additional amendment to § 226.6(b)(4)(ii), to provide flexibility when variable rates are disclosed at point of sale. The Board understands that one consequence of the Credit Card Act's amendments regarding repricing of accounts, as implemented in § 226.55 of this final rule, is that private label and retail card issuers may be more likely to impose variable, rather than non-variable, rates when opening new accounts. The Board further understands that account-opening disclosures provided at point of sale are often pre-printed, which presents particular operational difficulties when those disclosures must be replaced at a large number of retail locations. As discussed above, the general accuracy standard for variable rates disclosed at account opening is that a variable rate is accurate if it is a rate as of a specified date and this rate was in effect within the last 30 days before the disclosures are provided. The Board notes that for a creditor establishing new open-end accounts at point of sale, this could mean that the disclosures at each retail location must be replaced each month, if the creditor's variable rate changes in accordance with an index value each month.

For reasons similar to those discussed above in the supplementary information to § 226.6(b)(2)(i)(E), the Board believes that additional flexibility is appropriate for issuers providing account-opening disclosures at point of sale when the rate being disclosed is a variable rate. The Board believes that permitting issuers to provide a variable rate in the table that is in effect within 90 days before the disclosures are provided, accompanied by a separate disclosure of a variable rate in effect within the last 30 days will strike the balance between operational burden on creditors and ensuring that consumers receive clear and timely disclosures of the terms that apply to their accounts.

Accordingly, the Board is adopting a new § 226.6(b)(4)(ii)(H), which states that creditors imposing annual percentage rates that vary according to an index that is not under the creditor's control that provide the disclosures required by § 226.6(b) in person at the time an open-end (not home-secured) plan is established in connection with financing the purchase of goods or services may disclose in the table a rate, or range of rates to the extent permitted by § 226.6(b)(2)(i)(E), that was in effect within the last 90 days before the disclosures are provided, along with a reference directing the consumer to the account agreement or other disclosure provided with the account-opening table where an annual percentage rate applicable to the consumer's account in effect within the last 30 days before the disclosures are provided is disclosed.

Section 226.7Periodic Statement

7(b) Rules Affecting Open-End (Not Home-Secured) Plans

7(b)(8) Grace Period

See discussion regarding § 226.5a(b)(5).

7(b)(11) Due Date; Late Payment Costs

In 2005, the Bankruptcy Act amended TILA to add Section 127(b)(12), which required creditors that charge a late payment fee to disclose on the periodic statement (1) the payment due date or, if the due date differs from when a late payment fee would be charged, the earliest date on which the late payment fee may be charged, and (2) the amount of the late payment fee. See 15 U.S.C. 1637(b)(12). In the January 2009 Regulation Z Rule, the Board implemented this section of TILA for open-end (not home-secured) credit plans. Specifically, the final rule added § 226.7(b)(11) to require creditors offering open-end (not home-secured) credit plans that charge a fee or impose a penalty rate for paying late to disclose on the periodic statement: The payment due date, and the amount of any late payment fee and any penalty APR that could be triggered by a late payment. For ease of reference, this supplementary information will refer to the disclosure of any late payment fee and any penalty APR that could be triggered by a late payment as “the late payment disclosures.”

Section 226.7(b)(13), as adopted in the January 2009 Regulation Z Rule, sets forth formatting requirements for the due date and the late payment disclosures. Specifically, § 226.7(b)(13) requires that the due date be disclosed on the front side of the first page of the periodic statement. Further, the amount of any late payment fee and any penalty APR that could be triggered by a late payment must be disclosed in close proximity to the due date.

Section 202 of the Credit Card Act amends TILA Section 127(b)(12) to provide that for a “credit card account under an open-end consumer credit plan,” a creditor that charges a late payment fee must disclose in a conspicuous location on the periodic statement (1) the payment due date, or, if the due date differs from when a late payment fee would be charged, the earliest date on which the late payment fee may be charged, and (2) the amount of the late payment fee. In addition, if a late payment may result in an increase in the APR applicable to the credit card account, a creditor also must provide on the periodic statement a disclosure of this fact, along with the applicable penalty APR. The disclosure related to the penalty APR must be placed in close proximity to the due-date disclosure discussed above.

In addition, Section 106 of the Credit Card Act adds new TILA Section 127(o), which requires that the payment due date for a credit card account under an open-end (not home-secured) consumer credit plan be the same day each month. 15 U.S.C. 1637(o).

As discussed in more detail below, in the October 2009 Regulation Z Proposal, the Board proposed to retain the due date and the late payment disclosure provisions adopted in § 226.7(b)(11) as part of the January 2009 Regulation Z Rule, with several revisions. Format requirements relating to the due date and the late payment disclosure provisions are discussed in more detail in the section-by-section analysis to § 226.7(b)(13).

Applicability of the due date and the late payment disclosure requirements. The due date and the late payment disclosures added to TILA Section 127(b)(12) by the Bankruptcy Act applied to all open-end credit plans. Consistent with TILA Section 127(b)(12), as added by the Bankruptcy Act, the due date and the late payment disclosures in § 226.7(b)(11) (as adopted in the January 2009 Regulation Z Rule) apply to all open-end (not home-secured) credit plans, including credit card accounts, overdraft lines of credit and other general purpose lines of credit that are not home secured.

The Credit Card Act amended TILA Section 127(b)(12) to apply the due date and the late payment disclosures only to creditors offering a credit card account under an open-end consumer credit plan. Consistent with newly-revised TILA Section 127(b)(12), in the October 2009 Regulation Z Proposal, the Board proposed to amend § 226.7(b)(11) to require the due date and the late payment disclosures only for a “credit card account under an open-end (not home-secured) consumer credit plan,” as that term would have been defined under proposed § 226.2(a)(15)(ii). Based on the proposed definition of “credit card account under an open-end (not home-secured) consumer credit plan,” the due date and the late payment disclosures would not have applied to (1) open-end credit plans that are not credit card accounts such as general purpose lines of credit that are not accessed by a credit card; (2) HELOC accounts subject to § 226.5b even if they are accessed by a credit card device; and (3) overdraft lines of credit even if they are accessed by a debit card. In addition, as discussed in more detail below, under proposed § 226.7(b)(11)(ii), the Board also proposed to exempt charge card accounts from the late payment disclosure requirements.

In response to the October 2009 Regulation Z Proposal, several consumer groups encouraged the Board to use its authority under Section 105(a) of TILA to require the payment due date and late payment disclosures for all open-end credit, not just “credit card accounts under an open-end (not home-secured) consumer credit plan.”

However, the final rule applies the payment due date and late payment disclosures only to credit card accounts under an open-end (not home-secured) consumer credit plan, as that term is defined in § 226.2(a)(15)(ii). Thus, the due date and the late payment disclosures would not apply to (1) open-end credit plans that are not credit card accounts such as general purpose lines of credit that are not accessed by a credit card; (2) HELOC accounts subject to § 226.5b even if they are accessed by a credit card device; and (3) overdraft lines of credit even if they are accessed by a debit card. In addition, as discussed in more detail below, under § 226.7(b)(11)(ii), the final rule also exempts charge card accounts and charged-off accounts from the payment due date and late payment disclosure requirements.

1. HELOC accounts. In the August 2009 Regulation Z HELOC Proposal, the Board did not propose to use its authority in TILA Section 105(a) to apply the due date and late payment disclosures to HELOC accounts subject to § 226.5b, even if they are accessed by a credit card device. In the supplemental information to the August 2009 Regulation Z HELOC Proposal, the Board stated its belief that the payment due date and late payment disclosures are not needed for HELOC accounts to effectuate the purposes of TILA. The consequences to a consumer of not making the minimum payment by the payment due date are less severe for HELOC accounts than for unsecured credit cards. Unlike with unsecured credit cards, creditors offering HELOC accounts subject to 226.5b typically do not impose a late-payment fee until 10-15 days after the payment is due. In addition, as proposed in the August 2009 Regulation Z HELOC Proposal, creditors offering HELOC accounts would be restricted from terminating and accelerating the account, permanently suspending the account or reducing the credit line, or imposing penalty rates or penalty fees (except for the contractual late-payment fee) for a consumer's failure to pay the minimum payment due on the account, unless the payment is more than 30 days late. For unsecured credit cards, under the Credit Card Act, after the first year an account is opened, unsecured credit card issuers may increase rates and fees on new transactions for a late payment, even if the consumer is only one day late in making the minimum payment. Unlike with unsecured credit cards, as proposed in the August 2009 Regulation HELOC Proposal, even after the first year that the account is open, creditors offering HELOC accounts subject to § 226.5b could not impose penalty rates or penalty fees (except for a contractual late-payment fee) on new transactions for a consumer's failure to pay the minimum payment on the account, unless the consumer's payment is more than 30 days late. For these reasons, the final rule does not extend the payment due date and late payment disclosures to HELOC accounts subject to § 226.5b, even if they are accessed by a credit card device.

2. Overdraft lines of credit and other general purpose credit lines. For several reasons, the Board also does not use its authority in TILA Section 105(a) to apply the due date and late payment disclosures to overdraft lines of credit (even if they are accessed by a debit card) and general purpose credit lines that are not accessed by a credit card. First, these lines of credit are not in wide use. The 2007 Survey of Consumer Finances data indicates that few families—1.7 percent—had a balance on lines of credit other than a home-equity line or credit card at the time of the interview. (By comparison, 73 percent of families had a credit card, and 60.3 percent of these families had a credit card balance at the time of the interview.) [22] Second, the Board is concerned that the operational costs of requiring creditors to comply with the payment due date and late payment disclosure requirements for overdraft lines of credit and other general purpose lines of credit may cause some institutions to no longer provide these products as accommodations to consumers, to the detriment of consumers who currently use these products. For these reasons, the final rule does not extend the payment due date and late payment disclosure requirements to overdraft lines of credit and other general purpose credit lines.

3. Charge card accounts. As discussed above, the late payment disclosures in TILA Section 127(b)(12), as amended by the Credit Card Act, apply to “creditors” offering credit card accounts under an open-end consumer credit plan. Issuers of “charge cards” (which are typically products where outstanding balances cannot be carried over from one billing period to the next and are payable when a periodic statement is received) are “creditors” for purposes of specifically enumerated TILA disclosure requirements. 15 U.S.C. 1602(f); § 226.2(a)(17). The late payment disclosure requirement in TILA Section 127(b)(12), as amended by the Credit Card Act, is not among those specifically enumerated.

Under the October 2009 Regulation Z Proposal, a charge card issuer would have been required to disclose the payment due date on the periodic statement that was the same day each month. However, under proposed § 226.7(b)(11)(ii), a charge card issuer would not have been required to disclose on the periodic statement the late payment disclosures, namely any late payment fee or penalty APR that could be triggered by a late payment. The Board noted that, as discussed above, the late payment disclosure requirements are not specifically enumerated in TILA Section 103(f) to apply to charge card issuers. In addition, the Board noted that for some charge card issuers, payments are not considered “late” for purposes of imposing a fee until a consumer fails to make payments in two consecutive billing cycles. Therefore, the Board concluded that it would be undesirable to encourage consumers who in January receive a statement with the balance due upon receipt, for example, to avoid paying the balance when due because a late payment fee may not be assessed until mid-February; if consumers routinely avoided paying a charge card balance by the due date, it could cause issuers to change their practice with respect to charge cards.

An industry commenter noted that charge cards should also be exempt from the requirement in new TILA Section 127(o) that the payment due date be the same day each month because that requirement, like the late payment disclosure requirements in revised TILA Section 127(b)(12), is not specifically enumerated in TILA Section 103(f) as applying to charge card issuers. Historically, however, the Board has generally used its authority under TILA Section 105(a) to apply the same requirements to credit and charge cards. See§ 226.2(a)(15); comment 2(a)(15)-3. The Board has taken a similar approach with respect to implementation of the Credit Card Act. See§ 226.2(a)(15)(ii). Nevertheless, in these circumstances, the Board believes that it would not be appropriate to apply the requirements in TILA Section 127(b)(12) and (o) to periodic statements provided solely for charge card accounts.

Charge card accounts generally require that the consumer pay the full balance upon receipt of the periodic statement. See comment 2(a)(15)-3. In practice, however, the Board understands that charge card issuers generally request that consumers make payment by some later date. See comment 5a(b)(7)-1. As discussed below, proposed comments 7(b)(11)-1 and -2 clarify that the payment due date disclosed pursuant to § 226.7(b)(11)(i)(A) must be the date on which the consumer is legally obligated to make payment, even if the contract or state law provides that a late payment fee cannot be assessed until some later date. Thus, proposed § 226.7(b)(11)(i)(A) would have required a charge card issuer to disclose that payment was due immediately upon receipt of the periodic statement. As discussed above with respect to § 226.5(b)(2)(ii), the Board believes that such a disclosure would be unnecessarily confusing for consumers and would prevent a charge card issuer from complying with the requirement that periodic statements be mailed or delivered 21 days before the payment due date. Instead, the Board believes that it is appropriate to amend proposed § 226.7(b)(11)(ii)(A) to exempt charge card periodic statements from the requirements of § 226.7(b)(11)(i).

However, as discussed above, charge card issuers are still prohibited by § 226.5(b)(2)(ii)(A)(2) from treating a payment as late for any purpose during the 21-day period following mailing or delivery of the periodic statement. Furthermore, § 226.7(b)(11)(ii) makes clear the exemption is for periodic statements provided solely for charge card accounts; periodic statements provided for credit card accounts with a charge card feature and revolving feature must comply with the due date and late payment disclosure provisions as to the revolving feature. The Board is also retaining comment app. G-9 (which was adopted in the January 2009 Regulation Z Rule). Comment app. G-9 explains that creditors offering card accounts with a charge card feature and a revolving feature may revise disclosures, such as the late payment disclosures and the repayment disclosures discussed in the section-by-section analysis to § 226.7(b)(12) below, to make clear the feature to which the disclosures apply.

4. Charged-off accounts. In response to the October 2009 Regulation Z Proposal, one commenter requested that credit card issuers not be required to provide the payment due date and late payment disclosures for charged-off accounts since, on those accounts, consumers are over 180 days late, the accounts have been placed in charge-off status, and full payment is due immediately. The final rule provides that the payment due date and late payment disclosures do not apply to a charged-off account where full payment of the entire account balance is due immediately. See§ 226.7(b)(11)(ii)(B). In these cases, it would be impossible for card issuers to ensure that the payment due date is the same day each month because the payment is due immediately upon receipt of the periodic statement, and issuers cannot control which day the periodic statement will be received. In addition, the late payment disclosures are not likely to be meaningful to consumers because consumers are likely aware of any penalties for late payment when an account is 180 days late.

5. Lines of credit accessed solely by account numbers. In response to the October 2009 Regulation Z Proposal, one commenter requested that the Board provide an exemption from the due date and late payment disclosures for lines of credit accessed solely by account numbers. This commenter believed that this exemption would simplify compliance issues, especially for smaller retailers offering in-house revolving open-end accounts, in view of some case law indicating that a reusable account number could constitute a “credit card.” The final rule does not contain a specific exemption from the payment due date and late payment disclosure requirements for lines of credit accessed solely by account numbers. The Board believes that consumers that use these lines of credit (to the extent they are considered credit card accounts) would benefit from the due date and late payment disclosures.

Payment due date. As adopted in the January 2009 Regulation Z Rule, § 226.7(b)(11) requires creditors offering open-end (not home-secured) credit to disclose the due date for a payment if a late payment fee or penalty rate could be imposed under the credit agreement, as discussed in more detail as follows. As adopted in the January 2009 Regulation Z Rule, § 226.7(b)(11) applies to all open-end (not home-secured) credit plans, even those plans that are not accessed by a credit card device. In the October 2009 Regulation Z Proposal, the Board proposed generally to retain the due date disclosure, except that this disclosure would have been required only for a card issuer offering a “credit card account under an open-end (not home-secured) consumer credit plan,” as that term would have been defined in proposed § 226.2(a)(15)(ii).

In addition, the Board proposed several other revisions to § 226.7(b)(11) in order to implement new TILA Section 127(o), which requires that the payment due date for a credit card account under an open-end (not home-secured) consumer credit plan be the same day each month. In addition to requiring that the due date disclosed be the same day each month, in order to implement new TILA Section 127(o), the Board proposed to require that the due date disclosure be provided regardless of whether a late payment fee or penalty rate could be imposed and proposed to require that the due date be disclosed for charge card accounts, although charge card issuers would not be required to provide the late payment disclosures set forth in proposed § 226.7(b)(11)(i)(B). The final rule retains this provision with one modification. For the reasons discussed above, the final rule amends proposed § 226.7(b)(11)(ii) to provide that the due date and late payment disclosure requirements do not apply to periodic statements provided solely for charge card accounts or to periodic statements provided for charged-off accounts where payment of the entire account balance is due immediately.

1. Courtesy periods. In the January 2009 Regulation Z Rule, § 226.7(b)(11) interpreted the due date to be a date that is required by the legal obligation. Comment 7(b)(11)-1 clarified that creditors need not disclose informal “courtesy periods” not part of the legal obligation that creditors may observe for a short period after the stated due date before a late payment fee is imposed, to account for minor delays in payments such as mail delays. In the October 2009 Regulation Z Proposal, the Board proposed to retain comment 7(b)(11)-1 with technical revisions to refer to card issuers, rather than creditors, consistent with the proposal to limit the due date and late payment disclosures to a “credit card account under an open-end (not home-secured) consumer credit plan,” as that term would have been defined in proposed § 226.2(a)(15)(ii). The Board received no comments on this provision. The final rule adopts comment 7(b)(11)-1 as proposed.

2. Assessment of late fees. Under TILA Section 127(b)(12), as revised by the Credit Card Act, a card issuer must disclose on periodic statements the payment due date or, if different, the earliest date on which the late payment fee may be charged. Some state laws require that a certain number of days must elapse following a due date before a late payment fee may be imposed. Under such a state law, the later date arguably would be required to be disclosed on periodic statements.

In the January 2009 Regulation Z Rule, the Board required creditors to disclose the due date under the terms of the legal obligation, and not a later date, such as when creditors are restricted by state or other law from imposing a late payment fee unless a payment is late for a certain number of days following the due date. Specifically, comment 7(b)(12)-2 (as adopted as part of the January 2009 Regulation Z Rule) notes that some state or other laws require that a certain number of days must elapse following a due date before a late payment fee may be imposed. For example, assume a payment is due on March 10 and state law provides that a late payment fee cannot be assessed before March 21. Comment 7(b)(11)-2 clarifies that creditors must disclose the due date under the terms of the legal obligation (March 10 in this example), and not a date different than the due date, such as when creditors are restricted by state or other law from imposing a late payment fee unless a payment is late for a certain number of days following the due date (March 21 in this example). Consumers' rights under state law to avoid the imposition of late payment fees during a specified period following a due date are unaffected by the disclosure requirement. In this example, the creditor would disclose March 10 as the due date for purposes of § 226.7(b)(11), even if under state law the creditor could not assess a late payment fee before March 21.

The Board was concerned that disclosure of the later date would not provide a meaningful benefit to consumers in the form of useful information or protection and would result in consumer confusion. In the example above, highlighting March 20 as the last date to avoid a late payment fee may mislead consumers into thinking that a payment made any time on or before March 20 would have no adverse financial consequences. However, failure to make a payment when due is considered an act of default under most credit contracts, and can trigger higher costs due to loss of a grace period, interest accrual, and perhaps penalty APRs. The Board considered additional disclosures on the periodic statement that would more fully explain the consequences of paying after the due date and before the date triggering the late payment fee, but such an approach appeared cumbersome and overly complicated.

For these reasons, notwithstanding TILA Section 127(b)(12) (as revised by the Credit Card Act), in the October 2009 Regulation Z Proposal, the Board proposed to continue to require card issuers to disclose the due date under the terms of the legal obligation, and not a later date, such as when creditors are restricted by state or other law from imposing a late payment fee unless a payment is late for a certain number of days following the due date.

Thus, the Board proposed to retain comment 7(b)(11)-2 with several revisions. First, the comment would have been revised to refer to card issuers, rather than creditors, consistent with the proposal to limit the due date and late payment disclosures to a “credit card account under an open-end (not home-secured) consumer credit plan,” as that term would have been defined in proposed § 226.2(a)(15)(ii). Second, the comment would have been revised to address the situation where the terms of the account agreement (rather than state law) limit a card issuer from imposing a late payment fee unless a payment is late a certain number of days following a due date. The Board proposed to revise comment 7(b)(11)-2 to provide that in this situation a card issuer must disclose the date the payment is due under the terms of the legal obligation, and not the later date when a late payment fee may be imposed under the contract.

The Board did not receive any comments on this aspect of the October 2009 Regulation Z Proposal. For the reasons described above, comment 7(b)(11)-2 is adopted as proposed. The Board adopts this exception to the TILA requirement to disclose the later date pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a).

3. Same due date each month. The Credit Card Act created a new TILA Section 127(o), which states in part that the payment due date for a credit card account under an open end consumer credit plan shall be the same day each month. The Board proposed to implement this requirement by revising § 226.7(b)(11)(i). The text the Board proposed to insert into amended § 226.7(b)(11)(i) generally tracked the statutory language in new TILA Section 127(o) and stated that for credit card accounts under open-end (not home-secured) consumer credit plans, the due date disclosed pursuant to § 226.7(b)(11)(i) must be the same day of the month for each billing cycle.

The Board proposed several new comments to clarify the requirement that the due date be the same day of the month for each billing cycle. Proposed comment 7(b)(11)-6 clarified that the same day of the month means the same numerical day of the month. The proposed comment noted that one example of a compliant practice would be to have a due date that is the 25th of every month. In contrast, it would not be permissible for the payment due date to be the same relative date, but not numerical date, of each month, such as the third Tuesday of the month. The Board believes that the intent of new TILA Section 127(o) is to promote predictability and to enhance consumer awareness of due dates each month to make it easier to make timely payments. The Board stated in the proposal that requiring the due date to be the same numerical day each month would effectuate the statute, and that the Board believed permitting the due date to be the same relative day each month would not as effectively promote predictability for consumers.

The Board noted that in practice the requirement that the due date be the same numerical date each month would preclude creditors from setting due dates that are the 29th, 30th, or 31st of the month. The Board is aware that some credit card issuers currently set due dates for a portion of their accounts on every day of the month, in order to distribute the burden associated with processing payments more evenly throughout the month. The Board solicited comment on any operational burden associated with processing additional payments received on the 1st through 28th of the month in those months with more than 28 days.

Several industry commenters requested that the Board permit creditors to set a due date that is the last day of each month, even though the last day of the month will fall on a different numerical date in some months. Other industry commenters stated that the rule should permit due dates that are the 29th or 30th of each month, noting that February is the only month that has fewer than 30 days. One commenter noted that there could be customer service problems with the rule as proposed, especially if a consumer requests a payment due date that is the last day of the month. The Board believes that the intent of new TILA Section 127(o) is that a consumer's due date be predictable and generally not change from month to month. However, comment 7(b)(11)-6 has been revised from the proposal to provide that a consumer's due date may be the last day of the month, notwithstanding the fact that this will not be the same numerical date for each month. The Board believes that consumers can generally understand what the last day of the month will be, and that this clarification effectuates the intent of new TILA Section 127(o) that consumer's due date be predictable from month to month.

Proposed comment 7(b)(11)(i)-7 provided that a creditor may adjust a consumer's due date from time to time, for example in response to a consumer-initiated request, provided that the new due date will be the same numerical date each month on an ongoing basis. The proposed comment cross-referenced existing comment 2(a)(4)-3 for guidance on transitional billing cycles that might result when the consumer's due date is changed. The Board stated its belief that it is appropriate to permit creditors to change the consumer's due date from time to time, for example, if the creditor wishes to honor a consumer request for a new due date that better coincides with the time of the month when the consumer is paid by his or her employer. While the proposed comment referred to consumer-initiated requests as one example of when a change in due date might occur, proposed § 226.7(b)(11)(i) and comment 7(b)(11)-7 did not prohibit changes in the consumer's due date from time to time that are not consumer-initiated, for example, if a creditor acquires a portfolio and changes the consumer's due date as it migrates acquired accounts onto its own systems.

The Board received only one comment on proposed comment 7(b)(11)(i)-7, which is adopted as proposed. One industry commenter stated that the guidance that the due date may be adjusted from time to time, but must be the same thereafter is overly restrictive. This commenter stated that consumers should be able to choose their desired due date. The Board believes that comment 7(b)(11)(i)-7 does permit sufficient flexibility for card issuers to permit consumers to change their due dates from time to time. However, the Board believes that clarification that the due date must generally be the same each month is necessary to effectuate the purposes of new TILA Section 127(o) and to provide predictability to consumers regarding their payment due dates.

Regulation Z's definition of “billing cycle” in § 226.2(a)(4) contemplates that the interval between the days or dates of regular periodic statements must be equal and no longer than a quarter of a year. Therefore, some creditors may have billing cycles that are two or three months in duration. The Board proposed comment 7(b)(11)-8 to clarify that new § 226.7(b)(11)(i) does not prohibit billing cycles that are two or three months, provided that the due date for each billing cycle is on the same numerical date of each month. The Board received no comments on comment 7(b)(11)-8, which is adopted as proposed.

Finally, the Board proposed comment 7(b)(11)-9 to clarify the relationship between §§ 226.7(b)(11)(i) and 226.10(d). As discussed elsewhere in this supplementary information, § 226.10(d) provides that if the payment due date is a day on which the creditor does not receive or accept payments by mail, the creditor is generally required to treat a payment received the next business day as timely. It is likely that, from time to time, a due date that is the same numerical date each month as required by § 226.7(b)(11)(i) may fall on a date on which the creditor does not accept or receive mailed payments, such as a holiday or weekend. Proposed comment 7(b)(11)-9 clarified that in such circumstances the creditor must disclose the due date according to the legal obligation between the parties, not the date as of which the creditor is permitted to treat the payment as late. For example, if the consumer's due date is the 4th of every month, a card issuer may not accept or receive payments by mail on Thursday, July 4. Pursuant to § 226.10(d), the creditor may not treat a mailed payment received on the following business day, Friday, July 5, as late for any purpose. The creditor must nonetheless, however, disclose July 4 as the due date on the periodic statement and may not disclose a July 5 due date.

Two industry commenters objected to proposed comment 7(b)(11)-9 and stated that creditors should be permitted to disclose the next business day as the due date if the regular due date falls on a weekend or holiday on which they do not receive or accept payments by mail. One commenter noted that this proposed requirement could create operational difficulties, because some creditors' systems do not process payments as timely if the payment is received after the posted due date on the periodic statement. The commenter stated that this would require some creditors to apply back-end due diligence to ensure that they are not inadvertently creating penalties, which can pose a significant burden on creditors.

The Board is adopting comment 7(b)(11)-9 as proposed. The Board believes that the purpose of TILA Section 127(o) is to promote consistency and predictability regarding a consumer's due date. The Board believes that predictability is not promoted by permitting creditors to disclose different numerical dates during months where the consumer's payment due date falls, for example, on a weekend or holiday when the card issuer does not receive or accept payments by mail. This is consistent with the approach that the Board has taken with regard to payment due dates in comments 7(b)(11)-1 and -2, where the due date disclosed is required to reflect the legal obligation between the parties, not any courtesy period offered by the creditor or required by state or other law.

Late payment fee and penalty APR. In the January 2009 Regulation Z Rule, the Board adopted § 226.7(b)(11) to require creditors offering open-end (not home-secured) credit plans that charge a fee or impose a penalty rate for paying late to disclose on the periodic statement the amount of any late payment fee and any penalty APR that could be triggered by a late payment (in addition to the payment due date discussed above). Consistent with TILA Section 127(b)(12), as revised by the Credit Card Act, proposed § 226.7(b)(11) would have continued to require that a card issuer disclose any late payment fee and any penalty APR that may be imposed on the account as a result of a late payment, in addition to the payment due date discussed above. No comments were received on this aspect of the proposal. The final rule adopts this provision as proposed.

Fee or rate triggered by multiple events. In the January 2009 Regulation Z Rule, the Board added comment 7(b)(11)-3 to provide guidance on complying with the late payment disclosure if a late fee or penalty APR is triggered after multiple events, such as two late payments in six months. Comment 7(b)(11)-3 provides that in such cases, the creditor may, but is not required to, disclose the late payment and penalty APR disclosure each month. The disclosures must be included on any periodic statement for which a late payment could trigger the late payment fee or penalty APR, such as after the consumer made one late payment in this example. In the October 2009 Regulation Z Proposal, the Board proposed to retain this comment with technical revisions to refer to card issuers, rather than creditors, consistent with the proposal to limit the late payment disclosures to a “credit card account under an open-end (not home-secured) consumer credit plan,” as that term would have been defined in proposed § 226.2(a)(15)(ii).

In response to the October 2009 Regulation Z Proposal, one commenter suggested that consumers would benefit from disclosure of the issuer's policy on late fee and penalty APRs on each periodic statement, whether or not the cardholder could trigger such consequences by making a late payment with respect to a particular billing period. The final rule retains comment 7(b)(11)-3 as proposed. The Board believes that issuers should be given the flexibility to tailor the late payment disclosure to the activity on the consumer's account, which will likely make the disclosure more useful to consumers.

Range of fees and rates. In the January 2009 Regulation Z Rule, § 226.7(b)(11)(i)(B) provides that if a range of late payment fees or penalty APRs could be imposed on the consumer's account, creditors may disclose the highest late payment fee and rate and at the creditor's option, an indication (such as using the phrase “up to”) that lower fees or rates may be imposed. Comment 7(b)(11)-4 was added to illustrate the requirement. The final rule also permits creditors to disclose a range of fees or rates. In the October 2009 Regulation Z Proposal, the Board proposed to retain § 226.7(b)(11)(i)(B) and comment 7(b)(11)-4 with technical revisions to refer to card issuers, rather than creditors, consistent with the proposal to limit the late payment disclosures to a “credit card account under an open-end (not home-secured) consumer credit plan,” as that term would have been defined in proposed § 226.2(a)(15)(ii). This approach recognizes the space constraints on periodic statements and provides card issuers flexibility in disclosing possible late payment fees and penalty rates.

In response to the October 2009 Regulation Z Proposal, one industry commenter requested that the Board allow credit card issuers to disclose a range of rates or a highest rate for a card program where different penalty APRs apply to different accounts in the program. According to the commenter, different penalty APRs may apply to consumers' accounts within the same card program because some consumers in a program may not have received a change in terms for a program (possibly because the account was not active at the time of the change), or the consumer may have opted out of a change in terms related to an increase in the penalty APR. The commenter indicates that some systems do not have the operational capability to tailor the periodic statement warning message as a variable message and include the precise penalty APR that applies to each account. The commenter believed that there is no detriment to a consumer in allowing a more generic warning message because the intent of the warning message is to give consumers notice that paying late can have serious consequences. Section 226.7(b)(11)(i)(B) and comment 7(b)(11)-4 are adopted as proposed. The Board did not amend these provisions to allow card issuers to disclose to a consumer a range of rates or highest rate for a card program, where those rates do not apply to a consumer's account. The Board is mindful of compliance costs associated with customizing the disclosure to reflect terms applicable to a consumer's account; however, the Board believes the purposes of TILA would not be served if a consumer received a late-payment disclosure for a penalty APR that exceeded, perhaps substantially, the penalty APR the consumer could be assessed under the terms of the legal obligation of the account. For that reason, § 226.7(b)(11)(i)(B) and comment 7(b)(11)-4 provide that ranges or the highest fee or penalty APR must be those applicable to the consumer's account. Accordingly, a creditor may state a range or highest penalty APR only if all penalty APRs in that range or the highest penalty APR would be permitted to be imposed on the consumer's account under the terms of the consumer's account.

Penalty APR in effect. In the January 2009 Regulation Z Rule, comment 7(b)(11)-5 was added to provide that if the highest penalty APR has previously been triggered on an account, the creditor may, but is not required to, delete as part of the late payment disclosure the amount of the penalty APR and the warning that the rate may be imposed for an untimely payment, as not applicable. Alternatively, the creditor may, but is not required to, modify the language to indicate that the penalty APR has been increased due to previous late payments, if applicable. In the October 2009 Regulation Z Proposal, the Board proposed to retain this comment with technical revisions to refer to card issuers, rather than creditors, consistent with the proposal to limit the late payment disclosures to a “credit card account under an open-end (not home-secured) consumer credit plan,” as that term would have been defined in proposed § 226.2(a)(15)(ii).

In response to the October 2009 Regulation Z Proposal, one commenter suggested that the Board revise comment 7(b)(11)-5 to provide that if the highest APR has previously been triggered on an account, a creditor must modify the language of the late payment disclosure to indicate that the penalty APR has been increased due to previous late payment. The final rule adopts comment 7(b)(11)-5 as proposed. To ease compliance burdens, the Board believes that it is appropriate to provide flexibility to card issuers in providing the late payment disclosure when the highest penalty APR has previously been triggered on the account. The Board notes that consumers will receive advance notice under § 226.9(g) when a penalty APR is being imposed on the consumer's account. In cases where the highest penalty APR has been imposed, the Board does not believe that allowing the late payment disclosures to continue to include the amount of the penalty APR and the warning that the rate may be imposed for an untimely payment is likely to confuse consumers.

7(b)(12) Repayment Disclosures

The Bankruptcy Act added TILA Section 127(b)(11) to require creditors that extend open-end credit to provide a disclosure on the front of each periodic statement in a prominent location about the effects of making only minimum payments. 15 U.S.C. 1637(b)(11). This disclosure included: (1) A “warning” statement indicating that making only the minimum payment will increase the interest the consumer pays and the time it takes to repay the consumer's balance; (2) a hypothetical example of how long it would take to pay off a specified balance if only minimum payments are made; and (3) a toll-free telephone number that the consumer may call to obtain an estimate of the time it would take to repay his or her actual account balance (“generic repayment estimate”). In order to standardize the information provided to consumers through the toll-free telephone numbers, the Bankruptcy Act directed the Board to prepare a “table” illustrating the approximate number of months it would take to repay an outstanding balance if the consumer pays only the required minimum monthly payments and if no other advances are made. The Board was directed to create the table by assuming a significant number of different APRs, account balances, and minimum payment amounts; the Board was required to provide instructional guidance on how the information contained in the table should be used to respond to consumers' requests.

Alternatively, the Bankruptcy Act provided that a creditor may use a toll-free telephone number to provide the actual number of months that it will take consumers to repay their outstanding balances (“actual repayment disclosure”) instead of providing an estimate based on the Board-created table. A creditor that does so would not need to include a hypothetical example on its periodic statements, but must disclose the warning statement and the toll-free telephone number on its periodic statements. 15 U.S.C. 1637(b)(11)(J)-(K).

For ease of reference, this supplementary information will refer to the above disclosures in the Bankruptcy Act about the effects of making only the minimum payment as “the minimum payment disclosures.”

In the January 2009 Regulation Z Rule, the Board implemented this section of TILA. In that rulemaking, the Board limited the minimum payment disclosures required by the Bankruptcy Act to credit card accounts, pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a). In addition, the final rule in § 226.7(b)(12) provided that credit card issuers could choose one of three ways to comply with the minimum payment disclosure requirements set forth in the Bankruptcy Act: (1) Provide on the periodic statement a warning about making only minimum payments, a hypothetical example, and a toll-free telephone number where consumers may obtain generic repayment estimates; (2) provide on the periodic statement a warning about making only minimum payments, and a toll-free telephone number where consumers may obtain actual repayment disclosures; or (3) provide on the periodic statement the actual repayment disclosure. The Board issued guidance in Appendix M1 to part 226 for how to calculate the generic repayment estimates, and guidance in Appendix M2 to part 226 for how to calculate the actual repayment disclosures. Appendix M3 to part 226 provided sample calculations for the generic repayment estimates and the actual repayment disclosures discussed in Appendices M1 and M2 to part 226.

The Credit Card Act substantially revised Section 127(b)(11) of TILA. Specifically, Section 201 of the Credit Card Act amends TILA Section 127(b)(11) to provide that creditors that extend open-end credit must provide the following disclosures on each periodic statement: (1) A “warning” statement indicating that making only the minimum payment will increase the interest the consumer pays and the time it takes to repay the consumer's balance; (2) the number of months that it would take to repay the outstanding balance if the consumer pays only the required minimum monthly payments and if no further advances are made; (3) the total cost to the consumer, including interest and principal payments, of paying that balance in full, if the consumer pays only the required minimum monthly payments and if no further advances are made; (4) the monthly payment amount that would be required for the consumer to pay off the outstanding balance in 36 months, if no further advances are made, and the total cost to the consumer, including interest and principal payments, of paying that balance in full if the consumer pays the balance over 36 months; and (5) a toll-free telephone number at which the consumer may receive information about credit counseling and debt management services. For ease of reference, this supplementary information will refer to the above disclosures in the Credit Card Act as “the repayment disclosures.”

The Credit Card Act provides that the repayment disclosures discussed above (except for the warning statement) must be disclosed in the form and manner which the Board prescribes by regulation and in a manner that avoids duplication; and be placed in a conspicuous and prominent location on the billing statement. By regulation, the Board must require that the disclosure of the repayment information (except for the warning statement) be in the form of a table that contains clear and concise headings for each item of information and provides a clear and concise form stating each item of information required to be disclosed under each such heading. In prescribing the table, the Board must require that all the information in the table, and not just a reference to the table, be placed on the billing statement and the items required to be included in the table must be listed in the order in which such items are set forth above. In prescribing the table, the statute states that the Board shall use terminology different from that used in the statute, if such terminology is more easily understood and conveys substantially the same meaning. With respect to the toll-free telephone number for providing information about credit counseling and debt management services, the Credit Card Act provides that the Board must issue guidelines by rule, in consultation with the Secretary of the Treasury, for the establishment and maintenance by creditors of a toll-free telephone number for purposes of providing information about accessing credit counseling and debt management services. These guidelines must ensure that referrals provided by the toll-free telephone number include only those nonprofit budget and credit counseling agencies approved by a U.S. bankruptcy trustee pursuant to 11 U.S.C. 111(a).

As discussed in more detail below, in the October 2009 Regulation Z Proposal, the Board proposed to revise § 226.7(b)(12) to implement Section 201 of the Credit Card Act.

Limiting the repayment disclosure requirements to credit card accounts. Under the Credit Card Act, the repayment disclosure requirements apply to all open-end accounts (such as credit card accounts, HELOCs, and general purpose credit lines). As discussed above, in the January 2009 Regulation Z Rule, the Board limited the minimum payment disclosures required by the Bankruptcy Act to credit card accounts. For similar reasons, in the October 2009 Regulation Z Proposal, the Board proposed to limit the repayment disclosures in the Credit Card Act to credit card accounts under open-end (not home-secured) consumer credit plans, as that term would have been defined in proposed § 226.2(a)(15)(ii).

As proposed, the final rule limits the repayment disclosures in the Credit Card Act to credit card accounts under open-end (not home-secured) consumer credit plans, as that term is defined in § 226.2(a)(15)(ii). As discussed in more detail in the section-by-section analysis to § 226.2(a)(15)(ii), the term “credit card account under an open-end (not home-secured) consumer credit plan” means any open-end account accessed by a credit card, except this term does not include HELOC accounts subject to § 226.5b that are accessed by a credit card device or overdraft lines of credit that are accessed by a debit card. Thus, based on the proposed exemption to limit the repayment disclosures to credit card accounts under open-end (not home-secured) consumer credit plans, the following products would be exempt from the repayment disclosures in TILA Section 127(b)(11), as set forth in the Credit Card Act: (1) HELOC accounts subject to § 226.5b even if they are accessed by a credit card device; (2) overdraft lines of credit even if they are accessed by a debit card; and (3) open-end credit plans that are not credit card accounts, such as general purpose lines of credit that are not accessed by a credit card.

The Board adopts this rule pursuant to its exception and exemption authorities under TILA Section 105. Section 105(a) authorizes the Board to make exceptions to TILA to effectuate the statute's purposes, which include facilitating consumers' ability to compare credit terms and helping consumers avoid the uninformed use of credit. See 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the Board to exempt any class of transactions from coverage under any part of TILA if the Board determines that coverage under that part does not provide a meaningful benefit to consumers in the form of useful information or protection. See 15 U.S.C. 1604(f)(1). The Board must make this determination in light of specific factors. See 15 U.S.C. 1604(f)(2). These factors are (1) the amount of the loan and whether the disclosure provides a benefit to consumers who are parties to the transaction involving a loan of such amount; (2) the extent to which the requirement complicates, hinders, or makes more expensive the credit process; (3) the status of the borrower, including any related financial arrangements of the borrower, the financial sophistication of the borrower relative to the type of transaction, and the importance to the borrower of the credit, related supporting property, and coverage under TILA; (4) whether the loan is secured by the principal residence of the borrower; and (5) whether the exemption would undermine the goal of consumer protection.

As discussed in more detail below, the Board has considered each of these factors carefully, and based on that review, believes that the exemption is appropriate.

1. HELOC accounts. In the August 2009 Regulation Z HELOC Proposal, the Board proposed that the repayment disclosures required by TILA Section 127(b)(11), as amended by the Credit Card Act, not apply to HELOC accounts, including HELOC accounts that can be accessed by a credit card device. See 74 FR 43428. The Board proposed this rule pursuant to its exception and exemption authorities under TILA Section 105(a) and 105(f), as discussed above. In the supplementary information to the August 2009 Regulation Z HELOC Proposal, the Board stated its belief that the minimum payment disclosures in the Credit Card Act would be of limited benefit to consumers for HELOC accounts and are not necessary to effectuate the purposes of TILA. First, the Board understands that most HELOCs have a fixed repayment period. Under the August 2009 Regulation Z HELOC Proposal, in proposed § 226.5b(c)(9)(i), creditors offering HELOCs subject to § 226.5b would be required to disclose the length of the plan, the length of the draw period and the length of any repayment period in the disclosures that must be given within three business days after application (but not later than account opening). In addition, this information also must be disclosed at account opening under proposed § 226.6(a)(2)(v)(A), as set forth in the August 2009 Regulation Z HELOC Proposal. Thus, for a HELOC account with a fixed repayment period, a consumer could learn from those disclosures the amount of time it would take to repay the HELOC account if the consumer only makes required minimum payments. The cost to creditors of providing this information a second time, including the costs to reprogram periodic statement systems, appears not to be justified by the limited benefit to consumers.

In addition, in the supplementary information to the August 2009 Regulation Z HELOC Proposal, the Board stated its belief that the disclosure about total cost to the consumer of paying the outstanding balance in full (if the consumer pays only the required minimum monthly payments and if no further advances are made) would not be useful to consumers for HELOC accounts because of the nature of consumers' use of HELOC accounts. The Board understands that HELOC consumers tend to use HELOC accounts for larger transactions that they can finance at a lower interest rate than is offered on unsecured credit cards, and intend to repay these transactions over the life of the HELOC account. By contrast, consumers tend to use unsecured credit cards to engage in a significant number of small dollar transactions per billing cycle, and may not intend to finance these transactions for many years. The Board also understands that HELOC consumers often will not have the ability to repay the balances on the HELOC account at the end of each billing cycle, or even within a few years. To illustrate, the Board's 2007 Survey of Consumer Finances data indicates that the median balance on HELOCs (for families that had a balance at the time of the interview) was $24,000, while the median balance on credit cards (for families that had a balance at the time of the interview) was $3,000. [23]

As discussed in the supplementary information to the August 2009 Regulation Z HELOC Proposal, the nature of consumers' use of HELOCs also supports the Board's belief that periodic disclosure of the monthly payment amount required for the consumer to pay off the outstanding balance in 36 months, and the total cost to the consumer of paying that balance in full if the consumer pays the balance over 36 months, would not provide useful information to consumers for HELOC accounts.

For all these reasons, the final rule exempts HELOC accounts (even when they are accessed by a credit card account) from the repayment disclosure requirements set forth in TILA Section 127(b)(11), as revised by the Credit Card Act.

2. Overdraft lines of credit and other general purpose credit lines. The final rule also exempts overdraft lines of credit (even if they are accessed by a debit card) and general purpose credit lines that are not accessed by a credit card from the repayment disclosure requirements set forth in TILA Section 127(b)(11), as revised by the Credit Card Act, for several reasons. 15 U.S.C. 1637(b)(11). First, these lines of credit are not in wide use. The 2007 Survey of Consumer Finances data indicates that few families—1.7 percent—had a balance on lines of credit other than a home-equity line or credit card at the time of the interview. (By comparison, 73 percent of families had a credit card, and 60.3 percent of these families had a credit card balance at the time of the interview.) [24] Second, these lines of credit typically are neither promoted, nor used, as long-term credit options of the kind for which the repayment disclosures are intended. Third, the Board is concerned that the operational costs of requiring creditors to comply with the repayment disclosure requirements for overdraft lines of credit and other general purpose lines of credit may cause some institutions to no longer provide these products as accommodations to consumers, to the detriment of consumers who currently use these products. For these reasons, the Board uses its TILA Section 105(a) and 105(f) authority (as discussed above) to exempt overdraft lines of credit and other general purpose credit lines from the repayment disclosure requirements, because in this context the Board believes the repayment disclosures are not necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a) and (f).

7(b)(12)(i) In General

TILA Section 127(b)(11)(A), as amended by the Credit Card Act, requires that a creditor that extends open-end credit must provide the following disclosures on each periodic statement: (1) A “warning” statement indicating that making only the minimum payment will increase the interest the consumer pays and the time it takes to repay the consumer's balance; (2) the number of months that it would take to repay the outstanding balance if the consumer pays only the required minimum monthly payments and if no further advances are made; (3) the total cost to the consumer, including interest and principal payments, of paying that balance in full, if the consumer pays only the required minimum monthly payments and if no further advances are made; (4) the monthly payment amount that would be required for the consumer to pay off the outstanding balance in 36 months, if no further advances are made, and the total cost to the consumer, including interest and principal payments, of paying that balance in full if the consumer pays the balance over 36 months; and (5) a toll-free telephone number at which the consumer may receive information about accessing credit counseling and debt management services.

In implementing these statutory disclosures, proposed § 226.7(b)(12)(i) would have set forth the repayment disclosures that a credit card issuer generally must provide on the periodic statement. As discussed in more detail below, proposed § 226.7(b)(12)(ii) would have set forth the repayment disclosures that a credit card issuer must provide on the periodic statement when negative or no amortization occurs on the account.

Warning statement. TILA Section 127(b)(11)(A), as amended by the Credit Card Act, requires that a creditor include the following statement on each periodic statement: “Minimum Payment Warning: Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance,” or a similar statement that is required by the Board pursuant to consumer testing. 15 U.S.C. 1637(b)(11)(A). Under proposed § 226.7(b)(12)(i)(A), if amortization occurs on the account, a credit card issuer generally would have been required to disclose the following statement with a bold heading on each periodic statement: “Minimum Payment Warning: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance.” The proposed warning statement would have contained several stylistic revisions to the statutory language, based on plain language principles, in an attempt to make the language of the warning more understandable to consumers.

The Board received no comments on this aspect of the proposal. The Board adopts the above warning statement as proposed. The Board tested the warning statement as part of the consumer testing conducted by the Board on credit card disclosures in relation to the January 2009 Regulation Z Rule. Participants in that consumer testing reviewed periodic statement disclosures with the warning statement, and they indicated they understood from this statement that paying only the minimum payment would increase both interest charges and the length of time it would take to pay off a balance.

Minimum payment disclosures. TILA Section 127(b)(11)(B)(i) and (ii), as amended by the Credit Card Act, requires that a creditor provide on each periodic statement: (1) The number of months that it would take to pay the entire amount of the outstanding balance, if the consumer pays only the required minimum monthly payments and if no further advances are made; and (2) the total cost to the consumer, including interest and principal payments, of paying that balance in full, if the consumer pays only the required minimum monthly payments and if no further advances are made. 15 U.S.C. 1637(b)(11)(B)(i) and (ii). In the October 2009 Regulation Z Proposal, the Board proposed new § 226.7(b)(12)(i)(B) and (C) to implement these statutory provisions.

1. Minimum payment repayment estimate. Under proposed § 226.7(b)(12)(i)(B), if amortization occurs on the account, a credit card issuer generally would have been required to disclose on each periodic statement the minimum payment repayment estimate, as described in proposed Appendix M1 to part 226. As described in more detail in the section-by-section analysis to Appendix M1 to part 226, the minimum payment repayment estimate would be an estimate of the number of months that it would take to pay the entire amount of the outstanding balance shown on the periodic statement, if the consumer pays only the required minimum monthly payments and if no further advances are made.

Proposed § 226.7(b)(12)(i)(B) would have provided that if the minimum payment repayment estimate is less than 2 years, a credit card issuer must disclose the estimate in months. Otherwise, the estimate would be disclosed in years. If the estimate is 2 years or more, the estimate would have been rounded to the nearest whole year, meaning that if the estimate contains a fractional year less than 0.5, the estimate would be rounded down to the nearest whole year. The estimate would have been rounded up to the nearest whole year if the estimate contains a fractional year equal to or greater than 0.5. In response to the October 2009 Regulation Z Proposal, several consumer groups commented that the minimum payment repayment estimate should not be rounded to the nearest year if the repayment period is 2 years or more. Instead, the Board should require in those cases that the minimum payment repayment estimate be disclosed in years and months. For example, assume a minimum payment repayment estimate of 209 months. The consumer groups suggest that credit card issuers should be required to disclose the repayment estimate of 209 months as 17 years and 5 months, instead of disclosing this repayment estimate as 17 years which would be required under the rounding rules set forth in the proposal. The consumer groups indicated that six months can be a significant amount of time for some consumers.

As proposed, the final rule in § 226.7(b)(12)(i)(B) provides that if the minimum payment repayment estimate is less than 2 years, a credit card issuer must disclose the estimate in months. Otherwise, the estimate would be disclosed in years. If the estimate is 2 years or more, the estimate would have been rounded to the nearest whole year. The Board adopts this provision of the final rule pursuant to the Board's authority to make adjustments to TILA's requirements to effectuate the statute's purposes, which include facilitating consumers' ability to compare credit terms and helping consumers avoid the uninformed use of credit. See 15 U.S.C. 1601(a), 1604(a). The Board believes that disclosing the estimated minimum payment repayment period in years (if the estimated payoff period is 2 years or more) allows consumers to better comprehend longer repayment periods without having to convert the repayment periods themselves from months to years. In consumer testing conducted by the Board on credit card disclosures in relation to the January 2009 Regulation Z Rule, participants reviewed disclosures with estimated minimum payment repayment periods in years, and they indicated they understood the length of time it would take to repay the balance if only minimum payments were made.

Thus, if the minimum payment repayment estimate is 2 years or more, the final rule does not require credit card issuers to disclose the minimum payment repayment estimate in years and months, such as disclosing the minimum payment repayment estimate of 209 months as 17 years and 5 months, instead of disclosing this repayment estimate as 17 years (which is required under the rounding rules set forth in the final rule). The Board recognizes that the minimum payment repayment estimates, as calculated in Appendix M1 to part 226, are estimates, calculated using a number of assumptions about current and future account terms. The Board believes that disclosing minimum payment repayment estimates that are 2 years or more in years and months might cause consumers to believe that the estimates are more accurate than they really are, especially for longer repayment periods. The Board believes that rounding the minimum payment repayment estimate to the nearest year (if the repayment estimate is 2 years or more) provides consumers with an appropriate estimate of how long it would take to repay the outstanding balance if only minimum payments are made.

2. Minimum payment total cost estimate. Consistent with TILA Section 127(b)(11)(B)(ii), as revised by the Credit Card Act, proposed § 226.7(b)(12)(i)(C) provided that if amortization occurs on the account, a credit card issuer generally must disclose on each periodic statement the minimum payment total cost estimate, as described in proposed Appendix M1 to part 226. As described in more detail in the section-by-section analysis to proposed Appendix M1 to part 226, the minimum payment total cost estimate would have been an estimate of the total dollar amount of the interest and principal that the consumer would pay if he or she made minimum payments for the length of time calculated as the minimum payment repayment estimate, as described in proposed Appendix M1 to part 226. Under the proposal, the minimum payment total cost estimate must be rounded to the nearest whole dollar. The final rule adopts this provision as proposed.

3. Disclosure of assumptions used to calculate the minimum payment repayment estimate and the minimum payment total cost estimate. Under proposed § 226.7(b)(12)(i)(D), a creditor would have been required to provide on the periodic statement the following statements: (1) A statement that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the current outstanding balance shown on the periodic statement; and (2) a statement that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that only minimum payments are made and no other amounts are added to the balance. The final rule adopts this provision as proposed. The Board believes that this information is needed to help consumers understand the minimum payment repayment estimate and the minimum payment total cost estimate. The final rule does not require issuers to disclose other assumptions used to calculate these estimates. The many assumptions that are necessary to calculate the minimum payment repayment estimate and the minimum payment total cost estimate are complex and unlikely to be meaningful or useful to most consumers.

Repayment disclosures based on repayment in 36 months. TILA Section 127(b)(11)(B)(iii), as revised by the Credit Card Act, requires that a creditor disclose on each periodic statement: (1) The monthly payment amount that would be required for the consumer to pay off the outstanding balance in 36 months, if no further advances are made; and (2) the total costs to the consumer, including interest and principal payments, of paying that balance in full if the consumer pays the balance over 36 months. 15 U.S.C. 1637(b)(11)(B)(iii).

1. Estimated monthly payment for repayment in 36 months and total cost estimate for repayment in 36 months. In implementing TILA Section 127(b)(11)(B)(iii), as revised by the Credit Card Act, proposed § 226.7(b)(12)(i)(F) provided that except when the minimum payment repayment estimate disclosed under proposed § 226.7(b)(12)(i)(B) is 3 years or less, a credit card issuer must disclose on each periodic statement the estimated monthly payment for repayment in 36 months and the total cost estimate for repayment in 36 months, as described in proposed Appendix M1 to part 226. As described in more detail in the section-by-section analysis to Appendix M1 to part 226, the proposed estimated monthly payment for repayment in 36 months would have been an estimate of the monthly payment amount that would be required to pay off the outstanding balance shown on the statement within 36 months, assuming the consumer paid the same amount each month for 36 months. Also, as described in Appendix M1 to part 226, the proposed total cost estimate for repayment in 36 months would have been the total dollar amount of the interest and principal that the consumer would pay if he or she made the estimated monthly payment each month for 36 months. Under the proposal, the estimated monthly payment for repayment in 36 months and the total cost estimate for repayment in 36 months would have been rounded to the nearest whole dollar. The final rule adopts these provisions as proposed, except with several additional exceptions to when the 36-month disclosures must be disclosed as discussed below.

2. Savings estimate for repayment in 36 months. In addition to the disclosure of the estimated monthly payment for repayment in 36 months and the total cost estimate for repayment in 36 months, proposed § 226.7(b)(12)(i)(F) also would have required that a credit card issuer generally must disclose on each periodic statement the savings estimate for repayment in 36 months, as described in proposed Appendix M1 to part 226. As described in proposed Appendix M1 to part 226, the savings estimate for repayment in 36 months would have been calculated as the difference between the minimum payment total cost estimate and the total cost estimate for repayment in 36 months. Thus, the savings estimate for repayment in 36 months would have represented an estimate of the amount of interest that a consumer would “save” if the consumer repaid the balance shown on the statement in 3 years by making the estimated monthly payment for repayment in 36 months each month, rather than making minimum payments each month. In response to the October 2009 Regulation Z Proposal, one commenter indicated that the Board should not require the savings estimate for repayment in 36 months because this disclosure would not be helpful to consumers. The final rule requires credit card issuers generally to disclose the savings estimate for repayment in 36 months on periodic statements, as proposed. The Board adopts this disclosure requirement pursuant to the Board's authority to make adjustments to TILA's requirements to effectuate the statute's purposes, which include facilitating consumers' ability to compare credit terms and helping consumers avoid the uninformed use of credit. See 15 U.S.C. 1601(a), 1604(a). The Board continues to believe that the savings estimate for repayment in 36 months will allow consumers more easily to understand the potential savings of paying the balance shown on the periodic statement in 3 years rather than making minimum payments each month. This potential savings appears to be Congress' purpose in requiring that the total cost for making minimum payments and the total cost for repayment in 36 months be disclosed on the periodic statement. The Board believes that including the savings estimate on the periodic statement allows consumers to comprehend better the potential savings without having to compute this amount themselves from the total cost estimates disclosed on the periodic statement. In consumer testing conducted by the Board on closed-end mortgage disclosures in relation to the August 2009 Regulation Z Closed-End Credit Proposal, some participants were shown two offers for mortgage loans with different APRs and different totals of payments. In that consumer testing, in comparing the two mortgage loans, participants tended not to calculate for themselves the difference between the total of payments for the two loans (i.e., the potential savings in choosing one loan over another), and use that amount to compare the two loans. Instead, participants tended to disregard the total of payments for both loans, because both totals were large numbers. Given the results of that consumer testing, the Board believes it is important to disclose the savings estimate on the periodic statement to focus consumers' attention explicitly on the potential savings of repaying the balance in 36 months.

3. Minimum payment repayment estimate disclosed on the periodic statement is three years or less. Under proposed § 226.7(b)(12)(i)(F), a credit card issuer would not have been required to provide the disclosures related to repayment in 36 months if the minimum payment repayment estimate disclosed under proposed § 226.7(b)(12)(i)(B) was 3 years or less. The Board retains this exemption in the final rule with several technical revisions. The Board adopts this exemption pursuant to the Board's authority exception and exemption authorities under TILA Section 105(a) and (f). The Board has considered the statutory factors carefully, and based on that review, believes that the exemption is appropriate. The Board believes that the estimated monthly payment for repayment in 36 months, and the total cost estimate for repayment in 36 months would not be useful and may be misleading to consumers where based on the minimum payments that would be due on the account, a consumer would be required to repay the outstanding balance in three years or less. For example, assume that based on the minimum payments due on an account, a consumer would repay his or her outstanding balance in two years if the consumer only makes minimum payments and take no additional advances. The consumer under the account terms would not have the option to repay the outstanding balance in 36 months (i.e., 3 years). In this example, disclosure of the estimated monthly payment for repayment in 36 months and the total cost estimate for repayment in 36 months would be misleading, because under the account terms the consumer does not have the option to make the estimated monthly payment each month for 36 months. Requiring that this information be disclosed on the periodic statement when it is might be misleading to consumers would undermine TILA's goal of consumer protection, and could make the credit process more expensive by requiring card issuers to incur costs to address customer confusion about these disclosures.

In the final rule, the provision that exempts credit card issuers from disclosing on the periodic statement the disclosures related to repayment in 36 months if the minimum payment repayment estimate disclosed under § 226.7(b)(12)(i)(B) is 3 years or less has been moved to § 226.7(b)(1)(i)(F)(2)(i). In addition, the language of this exemption has been revised to clarify that the exemption applies if the minimum payment repayment estimate disclosed on the periodic statement under § 226.7(b)(12)(i)(B) after rounding is 3 years or less. For example, under the final rule, if the minimum payment repayment estimate is 2 years 6 month to 3 years 5 months, issuers would be required to disclose on the periodic statement that it would take 3 years to pay off the balance in full if making only the minimum payment. In these cases, an issuer would not be required to disclose the 36-month disclosures on the periodic statement because the minimum payment repayment estimate disclosed to the consumer on the periodic statement (after rounding) is 3 years or less. Comment 7(b)(12)(i)(F)-1 has been added to clarify these disclosure rules.

4. Estimated monthly payment for repayment in 36 months is less than the minimum payment for a particular billing cycle. In response to the October 2009 Regulation Z Proposal, several commenters suggested that card issuer should not be required to disclose the 36-month disclosures in a billing cycle where the minimum payment for that billing cycle is higher than the payment amount that would be disclosed in order to pay off the account in 36 months (i.e., the estimated monthly payment for repayment in 36 months). One commenter indicated that this can occur for credit card programs that use a graduated payment schedule, which require a larger minimum payment in the initial months after a transaction on the account. This may also occur when an account is past due, and the required minimum payment for a particular billing cycle includes the entire past due amount. Commenters were concerned that disclosing an estimated monthly payment for repayment in 36 months in a billing cycle where this estimated payment is lower than the required minimum payment for that billing cycle might be confusing and even deceptive to consumers. A consumer that paid the estimated monthly payment for repayment in 36 months (which is lower than the required minimum payment that billing cycle) could incur a late fee and be subject to other penalties. The Board shares these concerns, and thus, the final rule provides that a card issuer is not required to disclose the 36-month disclosures for any billing cycle where the estimated monthly payment for repayment in 36 months, as described in Appendix M1 to part 226, rounded to the nearest whole dollar that is calculated for a particular billing cycle is less than the minimum payment required for the plan for that billing cycle. See§ 226.7(b)(12)(i)(F)(2)(ii). The Board adopts this exemption pursuant to the Board's authority exception and exemption authorities under TILA Section 105(a). The Board has considered the statutory factors carefully, and based on that review, believes that the exemption is appropriate. Requiring that the 36-month disclosures be disclosed on the periodic statement when they might be misleading to consumers would undermine TILA's goal of consumer protection, and could make the credit process more expensive by requiring card issuers to incur costs to address customer confusion about these disclosures.

5. A billing cycle where an account has both a balance on a revolving feature and on a fixed repayment feature. In response to the October 2009 Regulation Z Proposal, several commenters raised concerns that the 36-month disclosures could be misleading in a particular billing cycle where an account has both a balance in a revolving feature where the required minimum payments for this feature will not amortize that balance in a fixed amount of time specified in the account agreement and a balance in a fixed repayment feature where the required minimum payment for this fixed repayment feature will amortize that balance in a fixed amount of time specified in the account agreement which is less than 36 months. For example, assume a retail card has several features. One feature is a general revolving feature, where the required minimum payment for this feature does not pay off the balance in a fixed period of time. Another feature allows consumers to make specific types of purchases (such as furniture purchases, or other large purchases), with a required minimum payment that will pay off the purchase within a fixed period of time as set forth in the account agreement that is less than 36 months, such as one year. Commenters indicated that in many cases, where this type of account has balances on both the revolving feature and fixed repayment feature for a particular billing cycle, the required minimum due may initially be higher than what would be required to repay the entire account balance in 36 equal payments. In addition, calculation of the estimated monthly payment for repayment in 36 months assumes that the entire balance may be repaid in 36 months, while under the account agreement the balance in the fixed repayment feature must be repaid in a shorter timeframe. Based on these concerns, the Board amends the final rule to provide that a card issuer is not required to provide the 36-month disclosures on a periodic statement for a billing cycle where an account has both a balance in a revolving feature where the required minimum payments for this feature will not amortize that balance in a fixed amount of time specified in the account agreement and a balance in a fixed repayment feature where the required minimum payment for this fixed repayment feature will amortize that balance in a fixed amount of time specified in the account agreement which is less than 36 months. See§ 226.7(b)(12)(i)(F)(2)(iii). The Board adopts this exemption pursuant to the Board's authority exception and exemption authorities under TILA Section 105(a). The Board has considered the statutory factors carefully, and based on that review, believes that the exemption is appropriate. Requiring that the 36-month disclosures be disclosed on the periodic statement when they might be misleading to consumers would undermine TILA's goal of consumer protection, and could make the credit process more expensive by requiring card issuers to incur costs to address customer confusion about these disclosures.

6. Disclosure of assumptions used to calculate the 36-month disclosures. If a card issuer is required to provide the 36-month disclosures, proposed § 226.7(b)(12)(i)(F)(2) would have provided that a credit card issuer must disclose as part of those disclosures a statement that the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years. The final rule retains this provision as proposed, except that this provision is moved to § 226.7(b)(12)(i)(F)(1)(ii). The Board believes that this information is needed to help consumers understand the estimated monthly payment for repayment in 36 months. The final rule does not require issuers to disclose assumptions used to calculate this estimated monthly payment. The many assumptions that are necessary to calculate the estimated monthly payment for repayment in 36 months are complex and unlikely to be meaningful or useful to most consumers.

Disclosure of extremely long repayment periods. In response to the October 2009 Regulation Z Proposal, one commenter indicated that it had observed accounts that result in very long repayment periods. This commenter indicated that this situation usually results when the minimum payment requirements are very low in proportion to the APRs on the account. The commenter indicated that these scenarios result most frequently when issuers endeavor to provide temporary relief to consumers during periods of hardship, workout and disasters such as floods. This commenter indicated that requiring issuers to calculate and disclose these long repayment periods would cause compliance problems, because the software program cannot be written to execute an ad infinitum number of cycles. The commenter requested that the Board establish a reasonable maximum number of years for repayment and provide an appropriate statement disclosure message to reflect an account that exceeds the number of years and total costs provided.

With respect to these temporarily reduced minimum payments, the calculation of these long repayment periods often result from assuming that the temporary minimum payment will apply indefinitely. The Board notes that guidance provided in Appendix M1 to part 226 for how to handle temporary minimum payments may reduce the situations in which the calculation of a long repayment period would result. In particular, as discussed in more detail in the section-by-section analysis to Appendix M1 to part 226, Appendix M1 provides that if any promotional terms related to payments apply to a cardholder's account, such as a deferred billing plan where minimum payments are not required for 12 months, credit card issuers may assume no promotional terms apply to the account. In Appendix M1 to part 226, the term “promotional terms” is defined as terms of a cardholder's account that will expire in a fixed period of time, as set forth by the card issuer. Appendix M1 to part 226 clarifies that issuers have two alternatives for handling promotional minimum payments. Under the first alternative, an issuer may disregard the promotional minimum payment during the promotional period, and instead calculate the minimum payment repayment estimate using the standard minimum payment formula that is applicable to the account. For example, assume that a promotional minimum payment of $10 applies to an account for six months, and then after the promotional period expires, the minimum payment is calculated as 2 percent of the outstanding balance on the account or $20 whichever is greater. An issuer may assume during the promotional period that the $10 promotional minimum payment does not apply, and instead calculate the minimum payment disclosures based on the minimum payment formula of 2 percent of the outstanding balance or $20, whichever is greater. The Board notes that allowing issuers to disregard promotional payment terms on accounts where the promotional payment terms apply only for a limited amount of time eases the compliance burden on issuers, without a significant impact on the accuracy of the repayment estimates for consumers.

Under the second alternative, an issuer in calculating the minimum payment repayment estimate during the promotional period may choose not to disregard the promotional minimum payment but instead may calculate the minimum payments as they will be calculated over the duration of the account. In the above example, an issuer could calculate the minimum payment repayment estimate during the promotional period by assuming the $10 promotional minimum payment will apply for the first six months and then assuming the 2 percent or $20 (whichever is greater) minimum payment formula will apply until the balance is repaid. Appendix M1 to part 226 clarifies, however, that in calculating the minimum payment repayment estimate during a promotional period, an issuer may not assume that the promotional minimum payment will apply until the outstanding balance is paid off by making only minimum payments (assuming the repayment estimate is longer than the promotional period). In the above example, the issuer may not calculate the minimum payment repayment estimate during the promotional period by assuming that the $10 promotional minimum payment will apply beyond the six months until the outstanding balance is repaid.

While the Board believes that the above guidance for how to handle temporary minimum payments may reduce the situations in which the calculation of a long repayment period would result, the Board understands that there may still be circumstances where long repayment periods result, because the standard minimum payment is low in comparison to the APR that applies to the account. The final rule does not contain special rules for disclosing extremely long repayment periods, such as allowing credit card issuers to disclose long repayment periods as “over 100 years.” As proposed, the final rule requires a credit card issuer to disclose the minimum payment repayment estimate, as described in Appendix M1 to part 226, on the periodic statement even if that repayment period is extremely long, such as over 100 years. The Board believes that it was Congress' intent to require that estimates of the repayment periods be disclosed on periodic statements, even if the repayment periods are extremely long.

Toll-free telephone number. TILA Section 127(b)(11)(B)(iii), as revised by the Credit Card Act, requires that a creditor disclose on each periodic statement a toll-free telephone number at which the consumer may receive information about credit counseling and debt management services. 15 U.S.C. 1637(b)(11)(B)(iii). Proposed § 226.7(b)(12)(i)(E) provided that a credit card issuer generally must disclose on each periodic statement a toll-free telephone number where the consumer may obtain information about credit counseling services consistent with the requirements set forth in proposed § 226.7(b)(12)(iv). The final rule adopts this provision as proposed. As discussed in more detail below, § 226.7(b)(12)(iv) sets forth the information that a credit card issuer must provide through the toll-free telephone number.

7(b)(12)(ii) Negative or No Amortization

Negative or no amortization can occur if the required minimum payment is the same as or less than the total finance charges and other fees imposed during the billing cycle. Several major credit card issuers have established minimum payment requirements that prevent prolonged negative or no amortization. But some creditors may use a minimum payment formula that allows negative or no amortization (such as by requiring a payment of 2 percent of the outstanding balance, regardless of the finance charges or fees incurred).

The Credit Card Act appears to require the following disclosures even when negative or no amortization occurs: (1) A “warning” statement indicating that making only the minimum payment will increase the interest the consumer pays and the time it takes to repay the consumer's balance; (2) the number of months that it would take to repay the outstanding balance if the consumer pays only the required minimum monthly payments and if no further advances are made; (3) the total cost to the consumer, including interest and principal payments, of paying that balance in full, if the consumer pays only the required minimum monthly payments and if no further advances are made; (4) the monthly payment amount that would be required for the consumer to pay off the outstanding balance in 36 months, if no further advances are made, and the total cost to the consumer, including interest and principal payments, of paying that balance in full if the consumer pays the balance over 36 months; and (5) a toll-free telephone number at which the consumer may receive information about credit counseling and debt management services.

Nonetheless, for the reasons discussed in more detail below, in the October 2009 Regulation Z Proposal, the Board proposed to make adjustments to the above statutory requirements when negative or no amortization occurs. Specifically, when negative or no amortization occurs, the Board proposed in new § 226.7(b)(12)(ii) to require a credit card issuer to disclose to the consumer on the periodic statement the following information: (1) the following statement: “Minimum Payment Warning: Even if you make no more charges using this card, if you make only the minimum payment each month we estimate you will never pay off the balance shown on this statement because your payment will be less than the interest charged each month;” (2) the following statement: “If you make more than the minimum payment each period, you will pay less in interest and pay off your balance sooner;” (3) the estimated monthly payment for repayment in 36 months; (4) the fact that the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years; and (5) the toll-free telephone number for obtaining information about credit counseling services. The final rule adopts these disclosures, as proposed, pursuant to the Board's authority under TILA Section 105(a) to make adjustments or exceptions to effectuate the purposes of TILA. 15 U.S.C. 1604(a). When negative or no amortization occurs, the number of months to repay the balance shown on the statement if minimum payments are made and the total cost in interest and principal if the balance is repaid making only minimum payments cannot be calculated because the balance will never be repaid if only minimum payments are made. Under the final rule, these statutory disclosures are replaced with a warning that the consumer will never repay the balance if making minimum payments each month.

In addition, under the final rule, if negative or no amortization occurs, card issuers would be required to disclose the following statement: “If you make more than the minimum payment each period, you will pay less in interest and pay off your balance sooner.” This sentence is similar to, and accomplishes the goals of, the statutory warning statement, by informing consumers that they can pay less interest and pay off the balance sooner if the consumer pays more than the minimum payment each month.

In addition, consistent with TILA Section 127(b)(11) as revised by the Credit Card Act, if negative or no amortization occurs, under the final rule, a credit card issuer must disclose to the consumer the estimated monthly payment for repayment in 36 months and a statement of the fact the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years.

Under the final rule, if negative or no amortization occurs, a card issuer, however, would not disclose the total cost estimate for repayment in 36 months, as described in Appendix M1 to part 226. The Board adopts an exception to TILA's requirement to disclose the total cost estimate for repayment in 36 months pursuant to the Board's exception and exemption authorities under TILA Section 105(f).

The Board has considered each of the statutory factors carefully, and based on that review, believes that the exemption is appropriate. As discussed above, when negative or no amortization occurs, a minimum payment total cost estimate cannot be calculated because the balance shown on the statement will never be repaid if only minimum payments are made. Thus, under the final rule, a credit card issuer would not be required to disclose a minimum payment total cost estimate as described in proposed Appendix M1 to part 226. Because the minimum payment total cost estimate will not be disclosed when negative or no amortization occurs, the Board does not believe that the total cost estimate for repayment in 36 months would be useful to consumers. The Board believes that the total cost estimate for repayment in 36 months is useful when it can be compared to the minimum payment total cost estimate. Requiring that this information be disclosed on the periodic statement when it is not useful to consumers could distract consumers from more important information on the periodic statement, which could undermine TILA's goal of consumer protection.

7(b)(12)(iii) Format Requirements

As discussed above, TILA Section 127(b)(11)(D), as revised by the Credit Card Act, provides that the repayment disclosures (except for the warning statement) must be disclosed in the form and manner which the Board prescribes by regulation and in a manner that avoids duplication and must be placed in a conspicuous and prominent location on the billing statement. 15 U.S.C. 1637(b)(11)(D). By regulation, the Board must require that the disclosure of the repayment information (except for the warning statement) be in the form of a table that contains clear and concise headings for each item of information and provides a clear and concise form stating each item of information required to be disclosed under each such heading. In prescribing the table, the Board must require that all the information in the table, and not just a reference to the table, be placed on the billing statement. In addition, the items required to be included in the table must be listed in the following order: (1) The minimum payment repayment estimate; (2) the minimum payment total cost estimate; (3) the estimated monthly payment for repayment in 36 months; (4) the total cost estimate for repayment in 36 months; and (5) the toll-free telephone number. In prescribing the table, the Board must use terminology different from that used in the statute, if such terminology is more easily understood and conveys substantially the same meaning.

Samples G-18(C)(1), G-18(C)(2) and G-18(C)(3). Proposed § 226.7(b)(12)(iii) provided that a credit card issuer must provide the repayment disclosures in a format substantially similar to proposed Samples G 18(C)(1), G-18(C)(2) and G-18(C)(3) in Appendix G to part 226, as applicable.

Proposed Sample G-18(C)(1) would have applied when amortization occurs and the 36-month disclosures were required to be disclosed under proposed § 226.7(b)(12)(i)(F). In this case, as discussed above, a credit card issuer would have been required under proposed § 226.7(b)(12) to disclose on the periodic statement: (1) The warning statement; (2) the minimum payment repayment estimate; (3) the minimum payment total cost estimate; (4) the fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the current outstanding balance shown on the periodic statement, and the fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that only minimum payments are made and no other amounts are added to the balance; (5) the estimated monthly payment for repayment in 36 months; (6) the total cost estimate for repayment in 36 months; (7) the savings estimate for repayment in 36 months; (8) the fact that the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years; and (9) the toll-free telephone number for obtaining information about credit counseling services. Sample G-18(C)(1) is adopted as proposed, with technical edits to the heading of the sample form.

As shown in Sample G-18(C)(1), card issuers are required to provide the following disclosures in the form of a table with headings, content and format substantially similar to Sample G-18(C)(1): (1) The fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that only minimum payments are made; (2) the minimum payment repayment estimate; (3) the minimum payment total cost estimate, (4) the estimated monthly payment for repayment in 36 months; (5) the fact the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years; (6) total cost estimate for repayment in 36 months; and (7) the savings estimate for repayment in 36 months. The following information is incorporated into the headings for the table: (1) The fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the current outstanding balance shown on the periodic statement; and (2) the fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that no other amounts are added to the balance. The warning statement must be disclosed above the table and the toll-free telephone number must be disclosed below the table.

Proposed Sample G-18(C)(2) would have applied when amortization occurs and the 36-month disclosures were not required to be disclosed under proposed § 226.7(b)(12)(i)(F). In this case, as discussed above, a credit card issuer would have been required under proposed § 226.7(b)(12) to disclose on the periodic statement: (1) The warning statement; (2) the minimum payment repayment estimate; (3) the minimum payment total cost estimate; (4) the fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the current outstanding balance shown on the periodic statement, and the fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that only minimum payments are made and no other amounts are added to the balance; and (5) the toll-free telephone number for obtaining information about credit counseling services. Sample G-18(C)(2) is adopted as proposed, with technical edits to the heading of the sample form.

As shown in Sample G-18(C)(2), disclosure of the above information is similar in format to how this information is disclosed in Sample G-18(C)(1). Specifically, as shown in Sample G-18(C)(2), card issuers are required to disclose the following disclosures in the form of a table with headings, content and format substantially similar to Sample G-18(C)(2): (1) The fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that only minimum payments are made; (2) the minimum payment repayment estimate; and (3) the minimum payment total cost estimate. The following information is incorporated into the headings for the table: (1) The fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the current outstanding balance shown on the periodic statement; and (2) the fact that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that no other amounts are added to the balance. The warning statement must be disclosed above the table and the toll-free telephone number must be disclosed below the table.

Proposed Sample G-18(C)(3) would have applied when negative or no amortization occurs. In this case, as discussed above, a credit card issuer would have been required under proposed § 226.7(b)(12) to disclose on the periodic statement: (1) The following statement: “Minimum Payment Warning: Even if you make no more charges using this card, if you make only the minimum payment each month we estimate you will never pay off the balance shown on this statement because your payment will be less than the interest charged each month;” (2) the following statement: “If you make more than the minimum payment each period, you will pay less in interest and pay off your balance sooner;” (3) the estimated monthly payment for repayment in 36 months; (4) the fact the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years; and (5) the toll-free telephone number for obtaining information about credit counseling services. Sample G-18(C)(3) is adopted as proposed.

As shown in Sample G-18(C)(3), none of the above information would be required to be in the form of a table, notwithstanding TILA's requirement that the repayment information (except the warning statement) be in the form of a table. The Board adopts this exemption to this TILA requirement pursuant to the Board's authority exception and exemption authorities under TILA Section 105(a). The Board does not believe that the tabular format is a useful format for disclosing that negative or no amortization is occurring. The Board believes that a narrative format is better than a tabular format for communicating to consumers that making only minimum payments will not repay the balance shown on the periodic statement. For consistency, Sample G-18(C)(3) also provides the disclosures about repayment in 36 months in a narrative form as well. To help ensure that consumers notice the disclosures about negative or no amortization and the disclosures about repayment in 36 months, the Board would require that card issuers disclose certain key information in bold text, as shown in Sample G-18(C)(3).

As discussed above, TILA Section 127(b)(11)(D), as revised by the Credit Card Act, provides that the toll-free telephone number for obtaining credit counseling information must be disclosed in the table with: (1) The minimum payment repayment estimate; (2) the minimum payment total cost estimate; (3) the estimated monthly payment for repayment in 36 months; and (4) the total cost estimate for repayment in 36 months. As proposed, the final rule does not provide that the toll-free telephone number must be in a tabular format. See Samples G-18(C)(1), G-18(C)(2) and G-18(C)(3). The Board adopts this exemption pursuant to the Board's exception and exemption authorities under TILA Section 105(a), as discussed above. The Board believes that it might be confusing to consumers to include the toll-free telephone number in the table because it does not logically flow from the other information included in the table. To help ensure that the toll-free telephone number is noticeable to consumer, the final rule requires that the toll-free telephone number be grouped with the other repayment information.

Format requirements set forth in § 226.7(b)(13). Proposed § 226.7(b)(12)(iii) provided that a credit card issuer must provide the repayment disclosures in accordance with the format requirements of proposed § 226.7(b)(13). The final rule adopts this provision as proposed. As discussed in more detail in the section-by-section analysis to § 226.7(b)(13), the final rule in § 226.7(b)(13) requires that the repayment disclosures required to be disclosed under § 226.7(b)(12) must be disclosed closely proximate to the minimum payment due. In addition, under the final rule, the repayment disclosures must be grouped together with the due date, late payment fee and annual percentage rate, ending balance, and minimum payment due, and this information must be disclosed on the front of the first page of the periodic statement.

7(b)(12)(iv) Provision of Information About Credit Counseling Services

Section 201(c) of the Credit Card Act requires the Board to issue guidelines by rule, in consultation with the Secretary of the Treasury, for the establishment and maintenance by creditors of the toll-free number disclosed on the periodic statement from which consumers can obtain information about accessing credit counseling and debt management services. The Credit Card Act requires that these guidelines ensure that consumers are referred “only [to] those nonprofit and credit counseling agencies approved by a United States bankruptcy trustee pursuant to [11 U.S.C. 111(a)].” The Board proposed to implement Section 201(c) of the Credit Card Act in § 226.7(b)(12)(iv). In developing this final rule, the Board consulted with the Treasury Department as well as the Executive Office for United States Trustees.

Prior to filing a bankruptcy petition, a consumer generally must have received “an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted [the consumer] in performing a related budget analysis.” 11 U.S.C. 109(h). This briefing can only be provided by “nonprofit budget and credit counseling agencies that provide 1 or more [of these] services * * * [and are] currently approved by the United States trustee (or the bankruptcy administrator, if any).” 11 U.S.C. 111(a)(1); see also 11 U.S.C. 109(h). In order to be approved to provide credit counseling services, an agency must, among other things: be a nonprofit entity; demonstrate that it will provide qualified counselors, maintain adequate provision for safekeeping and payment of client funds, and provide adequate counseling with respect to client credit problems; charge only a reasonable fee for counseling services and make such services available without regard to ability to pay the fee; and provide trained counselors who receive no commissions or bonuses based on the outcome of the counseling services. See 11 U.S.C. 111(c).

Proposed § 226.7(b)(12)(iv)(A) required that a card issuer provide through the toll-free telephone number disclosed pursuant to proposed § 226.7(b)(12)(i)(E) or (ii)(E) the name, street address, telephone number, and Web site address for at least three organizations that have been approved by the United States Trustee or a bankruptcy administrator pursuant to 11 U.S.C. 111(a)(1) to provide credit counseling services in the state in which the billing address for the account is located or the state specified by the consumer. In addition, proposed § 226.7(b)(12)(iv)(B) required that, upon the request of the consumer and to the extent available from the United States Trustee or a bankruptcy administrator, the card issuer must provide the consumer with the name, street address, telephone number, and Web site address for at least one organization meeting the above requirements that provides credit counseling services in a language other than English that is specified by the consumer.

Several industry commenters stated that requiring card issuers to provide information regarding credit counseling through a toll-free number would be unduly burdensome, particularly for small institutions that do not currently have automated response systems for providing consumers with information about their accounts over the telephone. These commenters requested that card issuers instead be permitted to refer consumers to the United States Trustee or the Board. However, Section 201(c) of the Credit Card Act explicitly requires that card issuers establish and maintain a toll-free telephone number for providing information regarding approved credit counseling services. Nevertheless, as discussed below, the Board has made several revisions to proposed § 226.7(b)(12)(iv) in order to reduce the burden of compliance.

In particular, the Board has revised § 226.7(b)(12)(iv)(A) to clarify that card issuers are only required to disclose information regarding approved organizations to the extent available from the United States Trustee or a bankruptcy administrator. The United States Trustee collects the name, street address, telephone number, and Web site address for approved organizations and provides that information to the public through its Web site, organized by state. [25] For states where credit counseling organizations are approved by a bankruptcy administrator pursuant to 11 U.S.C. 111(a)(1), a card issuer can obtain this information from the relevant administrator. Accordingly, as discussed in the proposal, the information that § 226.7(b)(12)(iv) requires a card issuer to provide is readily available to issuers.

The Board has also revised § 226.7(b)(12)(iv)(A) to clarify that the card issuer must provide information regarding approved organizations in, at its option, either the state in which the billing address for the account is located or the state specified by the consumer. Furthermore, although the United States Trustee's Web site also organizes information regarding approved organizations by the language in which the organization can provide credit counseling services, the Board has removed the requirement in proposed § 226.7(b)(12)(iv)(B) that card issuers provide this information upon request. Although consumer group commenters supported the requirement, comments from small institutions argued that Section 201(c) does not expressly require provision of this information and that it would be particularly burdensome for card issuers to do so. Specifically, it would be difficult for a card issuer to use an automated response system to comply with a consumer's request for a particular language without listing each of the nearly thirty languages listed on the United States Trustee's Web site. Instead, a card issuer would have to train its customer service representatives to respond to such requests on an individualized basis. Accordingly, although information regarding approved organizations that provide credit counseling services in languages other than English can be useful to consumers, it appears that the costs associated with providing this information through the toll-free number outweigh the benefits. Instead, as discussed below, the Board has revised the proposed commentary to provide guidance for card issuers on how to handle requests for this type of information (such as by referring the consumer to the United States Trustee's Web site).

The Board has replaced proposed § 226.7(b)(12)(iv)(B) with a requirement that card issuers update information regarding approved organizations at least annually for consistency with the information provided by the United States Trustee or a bankruptcy administrator. This requirement was previously proposed as guidance in comment 7(b)(12)(iv)-2. In connection with that proposed guidance, the Board solicited comment on whether card issuers should be required to update the credit counseling information they provide to consumers more or less frequently. Commenters generally supported an annual requirement, which the Board has adopted. Although one credit counseling organization suggested that card issuers be required to coordinate their verification process with the United States Trustee's review of its approvals, the Board believes such a requirement would unnecessarily complicate the updating process.

Because different credit counseling organizations may provide different services and charge different fees, the Board stated in the proposal that providing information regarding at least three approved organizations would enable consumers to make a choice about the organization that best suits their needs. However, the Board solicited comment on whether card issuers should provide information regarding a different number of approved organizations. In response, commenters generally agreed that the provision of information regarding three approved organizations was appropriate, although some industry commenters argued that card issuers generally have an established relationship with one credit counseling organization and should not be required to disclose information regarding additional organizations. Because the Board believes that consumers should be provided with more than one option for obtaining credit counseling services, the final rule adopts the requirement that card issuers provide information regarding three approved organizations.

In addition, some credit counseling organizations and one city government consumer protection agency requested that the Board require card issuers to disclose information regarding at least one organization that operates in the consumer's local community. However, Section 201(c) of the Credit Card Act does not authorize the Board to impose this type of requirement. In addition, the Board believes that it would be difficult to develop workable standards for determining whether a particular organization operated in a consumer's community. Nevertheless, the Board emphasizes that nothing in § 226.7(b)(12)(iv) should be construed as preventing card issuers from providing information regarding organizations that have been approved by the United States Trustee or a bankruptcy administrator to provide credit counseling services in a consumer's community.

Proposed § 226.7(b)(12)(iv) relied in two respects on the Board's authority under TILA Section 105(a) to make adjustments or exceptions to effectuate the purposes of TILA or to facilitate compliance therewith. See 15 U.S.C. 1604(a). First, although revised TILA Section 127(b)(11)(B)(iv) and Section 201(c)(1) of the Credit Card Act refer to the creditors' obligation to provide information about accessing “credit counseling and debt management services,” proposed § 226.7(b)(12)(iv) only required the creditor to provide information about obtaining credit counseling services. [26] Although credit counseling may include information that assists the consumer in managing his or her debts, 11 U.S.C. 109(h) and 111(a)(1) do not require the United States Trustee or a bankruptcy administrator to approve organizations to provide debt management services. Because Section 201(c) of the Credit Card Act requires that creditors only provide information about organizations approved pursuant to 11 U.S.C. 111(a), the Board does not believe that Congress intended to require creditors to provide information about services that are not subject to that approval process. Accordingly, proposed § 226.7(b)(12)(iv) would not have required card issuers to disclose information about debt management services.

Second, although Section 201(c)(2) of the Credit Card Act refers to credit counseling organizations approved pursuant to 11 U.S.C. 111(a), proposed § 226.7(b)(12)(iv) clarified that creditors may provide information only regarding organizations approved pursuant to 11 U.S.C. 111(a)(1), which addresses the approval process for credit counseling organizations. In contrast, 11 U.S.C. 111(a)(2) addresses a different approval process for instructional courses concerning personal financial management.

Commenters did not object to these adjustments, which are adopted in the final rule. However, the United States Trustee and several credit counseling organizations requested that the Board clarify that the credit counseling services subject to review by the United States Trustee or a bankruptcy administrator are designed for consumers who are considering whether to file for bankruptcy and may not be helpful to consumers who are seeking more general credit counseling services. Based on these comments, the Board has made several revisions to the commentary for § 226.7(b)(12)(iv), which are discussed below.

Proposed comment 7(b)(12)(iv)-1 clarified that, when providing the information required by § 226.7(b)(12)(iv)(A), the card issuer may use the billing address for the account or, at its option, allow the consumer to specify a state. The comment also clarified that a card issuer does not satisfy the requirement to provide information regarding credit counseling agencies approved pursuant to 11 U.S.C. 111(a)(1) by providing information regarding providers that have been approved to offer personal financial management courses pursuant to 11 U.S.C. 111(a)(2). This comment has been revised for consistency with the revisions to § 226.7(b)(12)(iv)(A) but is otherwise adopted as proposed.

Proposed comment 7(b)(12)(iv)-2 clarified that a card issuer complies with the requirements of § 226.7(b)(12)(iv) if it provides the consumer with the information provided by the United States Trustee or a bankruptcy administrator, such as information provided on the Web site operated by the United States Trustee. If, for example, the Web site address for an organization approved by the United States Trustee is not available from the Web site operated by the United States Trustee, a card issuer is not required to provide a Web site address for that organization. However, at least annually, the card issuer must verify and update the information it provides for consistency with the information provided by the United States Trustee or a bankruptcy administrator. These aspects of the proposed comment have been revised for consistency with the revisions to § 226.7(b)(12)(iv) but are otherwise adopted as proposed.

However, because the Board understands that many nonprofit organizations provide credit counseling services under a name that is different than the legal name under which the organization has been approved by the United States Trustee or a bankruptcy administrator, the Board has revised comment 7(b)(12)(iv)-2 to clarify that, if requested by the organization, the card issuer may at its option disclose both the legal name and the name used by the organization. This clarification will reduce the possibility of consumer confusion in these circumstances while still ensuring that consumers can verify that card issuers are referring them to organizations approved by the United States Trustee or a bankruptcy administrator.

In addition, because the contact information provided by the United States Trustee or a bankruptcy administrator relates to pre-bankruptcy credit counseling, the Board has revised comment 7(b)(12)(iv)-2 to clarify that, at the request of an approved organization, a card issuer may at its option provide a street address, telephone number, or Web site address for the organization that is different than the street address, telephone number, or Web site address obtained from the United States Trustee or a bankruptcy administrator. This will enable card issuers to provide contact information that directs consumers to general credit counseling services rather than pre-bankruptcy counseling services. Furthermore, because some approved organizations may not provide general credit counseling services, the Board has revised comment 7(b)(12)(iv)-2 to clarify that, if requested by an approved organization, a card issuer must not provide information regarding that organization through the toll-free number.

As noted above, the Board has also revised the commentary to § 226.7(b)(12)(iv) to provide guidance regarding the handling of requests for information about approved organizations that provide credit counseling services in languages other than English. Specifically, comment 7(b)(12)(iv)-2 states that a card issuer may at its option provide such information through the toll-free number or, in the alternative, may state that such information is available from the Web site operated by the United States Trustee.

Finally, the Board has revised comment 7(b)(12)(iv)-2 to clarify that § 226.7(b)(12)(iv) does not require a card issuer to disclose that credit counseling organizations have been approved by the United States Trustee or a bankruptcy administrator. However, if a card issuer chooses to make such a disclosure, the revised comment clarifies that the card issuer must provide certain additional information in order to prevent consumer confusion. This revision responds to concerns raised by the United States Trustee that, if a consumer is informed that a credit counseling organization has been approved by the United States Trustee, the consumer may incorrectly assume that all credit counseling services provided by that organization are subject to approval by the United States Trustee. Accordingly, the revised comment clarifies that, in these circumstances, a card issuer must disclose the following additional information: (1) The United States Trustee or a bankruptcy administrator has determined that the organization meets the minimum requirements for nonprofit pre-bankruptcy budget and credit counseling; (2) the organization may provide other credit counseling services that have not been reviewed by the United States Trustee or a bankruptcy administrator; and (3) the United States Trustee or the bankruptcy administrator does not endorse or recommend any particular organization.

Proposed comment 7(b)(12)(iv)-3 clarified that, at their option, card issuers may use toll-free telephone numbers that connect consumers to automated systems, such as an interactive voice response system, through which consumers may obtain the information required by § 226.7(b)(12)(iv) by inputting information using a touch-tone telephone or similar device. This comment is adopted as proposed.

Proposed comment 7(b)(12)(iv)-4 clarified that a card issuer may provide a toll-free telephone number that is designed to handle customer service calls generally, so long as the option to receive the information required by § 226.7(b)(12)(iv) is prominently disclosed to the consumer. For automated systems, the option to receive the information required by § 226.7(b)(12)(iv) is prominently disclosed to the consumer if it is listed as one of the options in the first menu of options given to the consumer, such as “Press or say `3' if you would like information about credit counseling services.” If the automated system permits callers to select the language in which the call is conducted and in which information is provided, the menu to select the language may precede the menu with the option to receive information about accessing credit counseling services. The Board has adopted this comment as proposed.

Proposed comment 7(b)(12)(iv)-5 clarified that, at their option, card issuers may use a third party to establish and maintain a toll-free telephone number for use by the issuer to provide the information required by § 226.7(b)(12)(iv). This comment is adopted as proposed.

Proposed comment 7(b)(12)(iv)-6 clarified that, when providing the toll-free telephone number on the periodic statement pursuant to § 226.7(b)(12)(iv), a card issuer at its option may also include a reference to a Web site address (in addition to the toll-free telephone number) where its customers may obtain the information required by § 226.7(b)(12)(iv), so long as the information provided on the Web site complies with § 226.7(b)(12)(iv). The Web site address disclosed must take consumers directly to the Web page where information about accessing credit counseling may be obtained. In the alternative, the card issuer may disclose the Web site address for the Web page operated by the United States Trustee where consumers may obtain information about approved credit counseling organizations. This guidance is adopted as proposed. In addition, the Board has revised this comment to clarify that disclosing the United States Trustee's Web site address does not by itself constitute a statement that organizations have been approved by the United States Trustee for purposes of comment 7(b)(12)(iv)-2.

Finally, proposed comment 7(b)(12)(iv)-7 clarified that, if a consumer requests information about credit counseling services, the card issuer may not provide advertisements or marketing materials to the consumer (except for providing the name of the issuer) prior to providing the information required by § 226.7(b)(12)(iv). However, educational materials that do not solicit business are not considered advertisements or marketing materials for this purpose. The comment also provides examples of how the restriction on the provision of advertisements and marketing materials applies in the context of the toll-free number and a Web page. This comment is adopted as proposed.

7(b)(12)(v) Exemptions

As explained above, as proposed, the final rule provides that the repayment disclosures required under § 226.7(b)(12) be provided only for a “credit card account under an open-end (not home-secured) consumer credit plan,” as that term is defined in § 226.2(a)(15)(ii).

In addition, as discussed below, the final rule contains several additional exemptions from the repayment disclosure requirements pursuant to the Board's exception and exemption authorities under TILA Section 105(a) and (f).

As discussed in more detail below, the Board has considered the statutory factors carefully, and based on that review, believes that following exemptions are appropriate.

Exemption for charge cards. In the October 2009 Regulation Z Proposal, the Board proposed to exempt charge cards from the repayment disclosure requirements. Charge cards are used in connection with an account on which outstanding balances cannot be carried from one billing cycle to another and are payable when a periodic statement is received. The Board adopts this exemption as proposed. See§ 226.7(b)(12)(v)(A). The Board believes that the repayment disclosures would not be useful for consumers with charge card accounts.

Exemption where cardholders have paid their accounts in full for two consecutive billing cycles. In proposed § 226.7(b)(v)(B), the Board proposed to provide that a card issuer is not required to include the repayment disclosures on the periodic statement for a particular billing cycle immediately following two consecutive billing cycles in which the consumer paid the entire balance in full, had a zero balance or had a credit balance.

In response to the October 2009 Regulation Z Proposal, several consumer groups argued that this exemption should be deleted. These consumer groups believe that even consumers that pay their credit card accounts in full each month should be provided repayment disclosures because these disclosures will inform those consumers of the disadvantages of changing their payment behavior. These consumer groups believe these repayment disclosures would educate these consumers on the magnitude of the consequences of making only minimum payments and may induce these consumers to encourage their friends and family members not to make only the minimum payment each month on their credit card accounts. On the other hand, several industry commenters requested that the Board broaden this exception to not require repayment disclosures in a particular billing cycle if there is a zero balance or credit balance in the current cycle, regardless of whether this condition existed in the previous cycle.

The final rule retains this exception as proposed. The Board believes the two consecutive billing cycle approach strikes an appropriate balance between benefits to consumers of the repayment disclosures, and compliance burdens on issuers in providing the disclosures. Consumers who might benefit from the repayment disclosures would receive them. Consumers who carry a balance each month would always receive the repayment disclosures, and consumers who pay in full each month would not. Consumers who sometimes pay their bill in full and sometimes do not would receive the repayment disclosures if they do not pay in full two consecutive months (cycles). Also, if a consumer's typical payment behavior changes from paying in full to revolving, the consumer would begin receiving the repayment disclosures after not paying in full one billing cycle, when the disclosures would appear to be useful to the consumer. In addition, credit card issuers typically provide a grace period on new purchases to consumers (that is, creditors do not charge interest to consumers on new purchases) if consumers paid both the current balance and the previous balance in full. Thus, card issuers already currently capture payment history for consumers for two consecutive months (or cycles).

The Board notes that card issuers would not be required to use this exemption. A card issuer would be allowed to provide the repayment disclosures to all of its cardholders, even to those cardholders that fall within this exemption. If issuers choose to provide voluntarily the repayment disclosures to those cardholders that fall within this exemption, the Board would expect issuers to follow the disclosure rules set forth in proposed § 226.7(b)(12), the accompanying commentary, and Appendix M1 to part 226 for those cardholders.

Exemption where minimum payment would pay off the entire balance for a particular billing cycle. In proposed § 226.7(b)(12)(v)(C), the Board proposed to exempt a card issuer from providing the repayment disclosure requirements for a particular billing cycle where paying the minimum payment due for that billing cycle will pay the outstanding balance on the account for that billing cycle. For example, if the entire outstanding balance on an account for a particular billing cycle is $20 and the minimum payment is $20, an issuer would not need to comply with the repayment disclosure requirements for that particular billing cycle. The final rule retains this exemption as proposed. The Board believes that the repayment disclosures would not be helpful to consumers in this context.

As discussed in more detail below, the Board notes that this exemption also would apply to a charged-off account where payment of the entire account balance is due immediately. Comment 7(b)(12)(v)-1 is added to provide examples of when this exception would apply.

Other exemptions. In response to the October 2009 Regulation Z Proposal, several commenters requested that the Board include several additional exemptions to the repayment disclosures set forth in § 226.7(b)(12). These suggested exemptions are discussed below.

1. Fixed repayment periods. In the January 2009 Regulation Z Rule, the Board in § 226.7(b)(12)(v)(E) exempted a credit card account from the minimum payment disclosure requirements where a fixed repayment period for the account is specified in the account agreement and the required minimum payments will amortize the outstanding balance within the fixed repayment period. This exemption would be applicable to, for example, accounts that have been closed due to delinquency and the required monthly payment has been reduced or the balance decreased to accommodate a fixed payment for a fixed period of time designed to pay off the outstanding balance. See comment 7(b)(12)(v)-1.

In addition, in the January 2009 Regulation Z Rule, the Board in § 226.7(b)(12)(v)(F) exempted credit card issuers from providing the minimum payment disclosures on periodic statements in a billing cycle where the entire outstanding balance held by consumers in that billing cycle is subject to a fixed repayment period specified in the account agreement and the required minimum payments applicable to that balance will amortize the outstanding balance within the fixed repayment period. Some retail credit cards have several credit features associated with the account. One of the features may be a general revolving feature, where the required minimum payment for this feature does not pay off the balance in a specific period of time. The card also may have another feature that allows consumers to make specific types of purchases (such as furniture purchases, or other large purchases), and the required minimum payments for that feature will pay off the purchase within a fixed period of time, such as one year. This exemption was meant to cover retail cards where the entire outstanding balance held by a consumer in a particular billing cycle is subject to a fixed repayment period specified in the account agreement. On the other hand, this exemption would not have applied in those cases where all or part of the consumer's balance for a particular billing cycle is held in a general revolving feature, where the required minimum payment for this feature does not pay off the balance in a specific period of time set forth in the account agreement. See comment 7(b)(12)(v)-2.

In adopting these two exemptions to the minimum payment disclosure requirements in the January 2009 Regulation Z Rule, the Board stated that in these two situations, the minimum payment disclosure does not appear to provide additional information to consumers that they do not already have in their account agreements.

In the October 2009 Regulation Z Proposal, the Board proposed not to include these two exemptions in proposed § 226.7(b)(12)(v). In implementing Section 201 of the Credit Card Act, proposed § 226.7(b)(12) would require additional repayment information beyond the disclosure of the estimated length of time it would take to repay the outstanding balance if only minimum payments are made, which was the main type of information that was required to be disclosed under the January 2009 Regulation Z Rule. As discussed above, under proposed § 226.7(b)(12)(i), a card issuer would be required to disclose on the periodic statement information about the total costs in interest and principal to repay the outstanding balance if only minimum payments are made, and information about repayment of the outstanding balance in 36 months. Consumers would not know from the account agreements this additional information about the total cost in interest and principal of making minimum payments, and information about repayment of the outstanding balance in 36 months. Thus, in the proposal, the Board indicated that these two exemptions may no longer be appropriate given the additional repayment information that must be provided on the periodic statement pursuant to proposed § 226.7(b)(12). Nonetheless, the Board solicited comment on whether these exemptions should be retained. For example, the Board solicited comment on whether the repayment disclosures relating to repayment in 36 months would be helpful where a fixed repayment period longer than 3 years is specified in the account agreement and the required minimum payments will amortize the outstanding balance within the fixed repayment period. For these types of accounts, the Board solicited comment on whether consumers tend to enter into the agreement with the intent (and the ability) to repay the account balance over the life of the account, such that the disclosures for repayment of the account in 36 months would not be useful to consumers.

In response to the October 2009 Regulation Z Proposal, several consumer groups supported the Board's proposal not to include these two exemptions to the repayment disclosure requirements. On the other hand, several industry commenters indicated that with respect to these fixed repayment plans, consumers are quite sensitive to the repayment term and have selected the specific repayment term for each balance. These commenters suggest that in this context the proposed repayment disclosures are neither relevant nor helpful, and may be confusing if they tend to suggest that the selected repayment term is no longer available.

The final rule does not contain these two exemptions related to fixed repayment periods. As discussed above, when a fixed repayment period is set forth in the account agreement, the estimate of how long it would take to repay the outstanding balance if only minimum payments are made does not appear to provide additional information to consumers that they do not already have in their account agreements. Nonetheless, consumers would not know from the account agreements additional information about the total cost in interest and principal of making minimum payments, and information about repayment of the outstanding balance in 36 months, that is required to be disclosed on the periodic statement under the Credit Card Act. The Board believes this additional information would be helpful to consumers in managing their accounts, even for consumers that have previously selected the fixed repayment period that applies to the account. For example, assume the fixed repayment period set forth in the account agreement is 5 years. On the periodic statement, the consumer would be informed of the total cost of repaying the outstanding balance in 5 years, compared with the monthly payment and the total cost of repaying the outstanding balance in 3 years. In this example, this additional information on the periodic statement could be helpful to the consumer in deciding whether to repay the balance earlier than in 5 years.

2. Accounts in bankruptcy. In response to the October 2009 Regulation Z Proposal, one commenter requested that the Board include in the final rule an exemption from the repayment disclosures set forth in § 226.7(b)(12) in connection with sending monthly periodic statements or informational statements to customers who have filed for bankruptcy. This commenter indicated that it is possible that a debtor's attorney could argue that including the disclosures, such as the minimum payment warning and the minimum payment repayment estimate, on a monthly bankruptcy informational statement is an attempt to collect a debt in violation of the automatic stay imposed by Section 362 of the Bankruptcy Code or the permanent discharge injunction imposed under Section 524 of the Bankruptcy Code.

The Board does not believe that an exemption from the requirement to provide the repayment disclosures with respect to accounts in bankruptcy is needed. The Board notes that under § 226.5(b)(2), a creditor is not required to send a periodic statement under Regulation Z if delinquency collection proceedings have been instituted. Thus, if a consumer files for bankruptcy, creditors are not longer required to provide periodic statements to that consumer under Regulation Z. A creditor could continue to send periodic statements to consumers that have filed for bankruptcy (if permitted by law) without including the repayment disclosures on the periodic statements, because those periodic statements would not be required under Regulation Z and would not need to comply with the requirements of § 226.7.

3. Charged-off accounts. In response to the October 2009 Regulation Z Proposal, one industry commenter requested that the Board include in the final rule an exemption from the repayment disclosures for charged off accounts where consumers are 180 days late, the accounts have been placed in charge-off status and full payment is due immediately. The Board does not believe that a specific exemption is needed for charged-off accounts because charged-off accounts would be exempted from the repayment disclosures under another exemption. As discussed above, the final rule contains an exemption under which a card issuer is not required to provide the repayment disclosure requirements for a particular billing cycle where paying the minimum payment due for that billing cycle will pay the outstanding balance on the account for that billing cycle. Comment 7(b)(12)-1 clarifies that this exemption would apply to a charged-off account where payment of the entire account balance is due immediately.

4. Lines of credit accessed solely by account numbers. In response to the October 2009 Regulation Z Proposal, one commenter requested that the Board provide an exemption from the repayment disclosures for lines of credit accessed solely by account numbers. This commenter believed that this exemption would simplify compliance issues, especially for smaller retailers offering in-house revolving open-end accounts, in view of some case law indicating that a reusable account number could constitute a “credit card.” The final rule does not contain a specific exemption for lines of credit accessed solely by account numbers. The Board believes that consumers that use these lines of credit (to the extent they are considered credit card account) would benefit from the repayment disclosures.

7(b)(13) Format Requirements

Under the January 2009 Regulation Z Rule, creditors offering open-end (not home-secured) plans are required to disclose the payment due date (if a late payment fee or penalty rate may be imposed) on the front side of the first page of the periodic statement. The amount of any late payment fee and penalty APR that could be triggered by a late payment is required to be disclosed in close proximity to the due date. In addition, the ending balance and the minimum payment disclosures must be disclosed closely proximate to the minimum payment due. Also, the due date, late payment fee, penalty APR, ending balance, minimum payment due, and the minimum payment disclosures must be grouped together. See§ 226.7(b)(13). In the supplementary information to the January 2009 Regulation Z Rule, the Board stated that these formatting requirements were intended to fulfill Congress' intent to have the due date, late payment and minimum payment disclosures enhance consumers' understanding of the consequences of paying late or making only minimum payments, and were based on consumer testing conducted for the Board in relation to the January 2009 Regulation Z Rule that indicated improved understanding when related information is grouped together. For the reasons described below, the Board proposed in October 2009 to retain these format requirements, with several revisions. Proposed Sample G-18(D) in Appendix G to part 226 would have illustrated the proposed requirements.

Due date and late payment disclosures. As discussed above under the section-by-section analysis to § 226.7(b)(11), Section 202 of the Credit Card Act amends TILA Section 127(b)(12) to provide that for a “credit card account under an open-end consumer credit plan,” a creditor that charges a late payment fee must disclose in a conspicuous location on the periodic statement (1) the payment due date, or, if the due date differs from when a late payment fee would be charged, the earliest date on which the late payment fee may be charged, and (2) the amount of the late payment fee. In addition, if a late payment may result in an increase in the APR applicable to the credit card account, a creditor also must provide on the periodic statement a disclosure of this fact, along with the applicable penalty APR. The disclosure related to the penalty APR must be placed in close proximity to the due-date disclosure discussed above.

Consistent with TILA Section 127(b)(12), as revised by the Credit Card Act, in the October 2009 Regulation Z Proposal, the Board proposed to retain the requirement in § 226.7(b)(13) that credit card issuers disclose the payment due date on the front side of the first page of the periodic statement. In addition, credit card issuers would have been required to disclose the amount of any late payment fee and penalty APR that could be triggered by a late payment in close proximity to the due date. Also, the due date, late payment fee, penalty APR, ending balance, minimum payment due, and the repayment disclosures required by proposed § 226.7(b)(12) must be grouped together. See§ 226.7(b)(13). The final rule retains these formatting requirements, as proposed. The Board believes that these format requirements fulfill Congress' intent that the due date and late payment disclosures be grouped together and be disclosed in a conspicuous location on the periodic statement.

Repayment disclosures. As discussed above under the section-by-section analysis to § 226.7(b)(12), TILA Section 127(b)(11)(D), as revised by the Credit Card Act, provides that the repayment disclosures (except for the warning statement) must be disclosed in the form and manner which the Board prescribes by regulation and in a manner that avoids duplication and must be placed in a conspicuous and prominent location on the billing statement. 15 U.S.C. 1637(b)(11)(D).

Under proposed § 226.7(b)(13), the ending balance and the repayment disclosures required under proposed § 226.7(b)(12) must be disclosed closely proximate to the minimum payment due. In addition, proposed § 226.7(b)(13) provided that the repayment disclosures must be grouped together with the due date, late payment fee, penalty APR, ending balance, and minimum payment due, and this information must appear on the front of the first page of the periodic statement. The final rule retains these formatting requirements, as proposed. The Board believes that these format requirements fulfill Congress' intent that the repayment disclosures be placed in a conspicuous and prominent location on the billing statement.

Samples G-18(D), 18(E), 18(F) and 18(G). As adopted in the January 2009 Regulation Z Rule, Samples G-18(D) and G-18(E) in Appendix G to part 226 illustrate the requirement to group together the due date, late payment fee, penalty APR, ending balance, minimum payment due, and the repayment disclosures required by § 226.7(b)(12). Sample G-18(D) applies to credit cards and includes all of the above disclosures grouped together. Sample G-18(E) applies to non-credit card accounts, and includes all of the above disclosures except for the repayment disclosures because the repayment disclosures only apply to credit card accounts. Samples G-18(F) and G-18(G) illustrate the front side of sample periodic statements and show the disclosures listed above.

In the October 2009 Regulation Z Proposal, the Board proposed to revise Sample G-18(D), G-18(F) and G-18(G) to incorporate the new format requirements for the repayment disclosures, as shown in proposed Sample G-18(C)(1) and G-18(C)(2). See section-by-section analysis to § 226.7(b)(12) for a discussion of these new format requirements. The final rule adopts Sample G-18(D), G-18(F) and G-18(G) as proposed. In addition, as proposed, the final rule deletes Sample G-18(E) (which applies to non-credit card accounts) as unnecessary. The formatting requirements in § 226.7(b)(13) generally are applicable only to credit card issuers because the due date, late payment fee, penalty APR, and repayment disclosures would apply only to a “credit card account under an open-end (not home-secured) consumer credit plan,” as that term is defined in § 226.2(a)(15)(ii).

7(b)(14) Deferred Interest or Similar Transactions

In the October 2009 Regulation Z Proposal, the Board republished provisions and amendments related to periodic statement disclosures for deferred interest or similar transactions that were initially proposed in the May 2009 Regulation Z Proposed Clarifications. These included proposed revisions to comment 7(b)-1 and Sample G-18(H) as well as a proposed new § 226.7(b)(14). In addition, a related cross-reference in comment 5(b)(2)(ii)-1 was proposed to be updated.

Specifically, the Board proposed to revise comment 7(b)-1 to require creditors to provide consumers with information regarding deferred interest or similar balances on which interest may be imposed under a deferred interest or similar program, as well as the interest charges accruing during the term of a deferred interest or similar program. The Board also proposed to add a new § 226.7(b)(14) to require creditors to include on a consumer's periodic statement, for two billing cycles immediately preceding the date on which deferred interest or similar transactions must be paid in full in order to avoid the imposition of interest charges, a disclosure that the consumer must pay such transactions in full by that date in order to avoid being obligated for the accrued interest. Moreover, proposed Sample G-18(H) provided model language for making the disclosure required by proposed § 226.7(b)(14), and the Board proposed to require that the language used to make the disclosure under § 226.7(b)(14) be substantially similar to Sample G-18(H).

In general, commenters supported the Board's proposals to require certain periodic statement disclosures for deferred interest and other similar programs. Some industry commenters requested that the Board clarify that programs in which a consumer is not charged interest, whether or not the consumer pays the balance in full by a certain time, are not deferred interest programs that are subject to these periodic statement disclosures. One industry commenter also noted that the Board already proposed such clarification with respect to the advertising requirements for deferred interest and other similar programs. See proposed comment 16(h)-1. Accordingly, the Board has amended comment 7(b)-1 to reference the definition of “deferred interest” in § 226.16(h)(2) and associated commentary. The Board has also made technical amendments to comment 7(b)-1 to be consistent with the requirement in § 226.55(b)(1) that a promotional or other temporary rate program that expires after a specified period of time (including a deferred interest or similar program) last for at least six months.

Some consumer group and industry commenters also suggested amendments to the model language in Sample G-18(H). In particular, consumer group commenters suggested that language be added to clarify that minimum payments will not pay off the deferred interest balance. Industry commenters suggested that additional language may clarify for consumers how much they should pay in order to avoid finance charges when there are other balances on the account in addition to the deferred interest balance. The Board believes that the language in Sample G-18(H) sufficiently conveys the idea that in order to avoid interest charges on the deferred interest balance, consumers must pay such balance in full. While the additional language recommended by commenters may provide further information to consumers that may be helpful, each of the clauses suggested by commenters would not necessarily apply to all consumers in all situations. Therefore, the Board is opting not to include such clauses in Sample G-18(H). The Board notes, however, that the regulation does not prohibit creditors from providing these additional disclosures. Indeed, the Board encourages any additional disclosure that may be useful to consumers in avoiding finance charges. In response to these comments, however, the Board is amending § 226.7(b)(14) to require that language used to make the disclosure be similar, instead of substantially similar, to Sample G-18(H) in order to provide creditors with some flexibility.

Proposed § 226.7(b)(14) required the warning language only for the last two billing cycles preceding the billing cycle in which the deferred interest period ends. Consumer group commenters recommended that the disclosure be required on each periodic statement during the deferred interest period. Since § 226.53(b) permits issuers to allow consumers to request that payments in excess of the minimum payment be allocated to deferred interest balances any time during the deferred interest period, as discussed below, the Board believes that the disclosure required under § 226.7(b)(14) would be beneficial for consumers to see on each periodic statement issued during the deferred interest period from the time the deferred interest or similar transaction is reflected on a periodic statement. Section 226.7(b)(14) and comment 7(b)-1 have been amended accordingly.

Section 226.9Subsequent Disclosure Requirements

9(c) Change in Terms

Section 226.9(c) sets forth the advance notice requirements when a creditor changes the terms applicable to a consumer's account. As discussed below, the Board is adopting several changes to § 226.9(c)(2) and the associated staff commentary in order to conform to the new requirements of the Credit Card Act.

9(c)(1) Rules Affecting Home-Equity Plans

In the January 2009 Regulation Z Rule, the Board preserved the existing rules for changes in terms for home-equity lines of credit in a new § 226.9(c)(1), in order to clearly delineate the requirements for HELOCs from those applicable to other open-end credit. The Board noted that possible revisions to rules affecting HELOCs would be considered in the Board's review of home-secured credit, which was underway at the time that the January 2009 Regulation Z rule was published. On August 26, 2009, the Board published proposed revisions to those portions of Regulation Z affecting HELOCs in the Federal Register. In order to clarify that the October 2009 Regulation Z Proposal was not intended to amend or otherwise affect the August 2009 Regulation Z HELOC Proposal, the Board did not republish § 226.9(c)(1) in October 2009.

However, this final rule is being issued prior to completion of final rules regarding HELOCs. Therefore, the Board has incorporated § 226.9(c)(1), as adopted in the January 2009 Regulation Z Rule, in this final rule, to give HELOC creditors guidance on how to comply with change-in-terms requirements between the effective date of this rule and the effective date of the forthcoming HELOC rules.

9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans

Credit Card Act [27]

New TILA Section 127(i)(1) generally requires creditors to provide consumers with a written notice of an annual percentage rate increase at least 45 days prior to the effective date of the increase, for credit card accounts under an open-end consumer credit plan. 15 U.S.C. 1637(i)(1). The statute establishes several exceptions to this general requirement. 15 U.S.C. 1637(i)(1) and (i)(2). The first exception applies when the change is an increase in an annual percentage rate upon expiration of a specified period of time, provided that prior to commencement of that period, the creditor clearly and conspicuously disclosed to the consumer the length of the period and the rate that would apply after expiration of the period. The second exception applies to increases in variable annual percentage rates that change according to operation of a publicly available index that is not under the control of the creditor. Finally, a third exception applies to rate increases due to the completion of, or failure of a consumer to comply with, the terms of a workout or temporary hardship arrangement, provided that prior to the commencement of such arrangement the creditor clearly and conspicuously disclosed to the consumer the terms of the arrangement, including any increases due to completion or failure.

In addition to the rules in new TILA Section 127(i)(1) regarding rate increases, new TILA Section 127(i)(2) establishes a 45-day advance notice requirement for significant changes, as determined by rule of the Board, in the terms (including an increase in any fee or finance charge) of the cardholder agreement between the creditor and the consumer. 15 U.S.C. 1637(i)(2).

New TILA Section 127(i)(3) also establishes an additional content requirement for notices of interest rate increases or significant changes in terms provided pursuant to new TILA Section 127(i). 15 U.S.C. 1637(i)(3). Such notices are required to contain a brief statement of the consumer's right to cancel the account, pursuant to rules established by the Board, before the effective date of the rate increase or other change disclosed in the notice. In addition, new TILA Section 127(i)(4) states that closure or cancellation of an account pursuant to the consumer's right to cancel does not constitute a default under the existing cardholder agreement, and does not trigger an obligation to immediately repay the obligation in full or through a method less beneficial than those listed in revised TILA Section 171(c)(2). 15 U.S.C. 1637(i)(4). The disclosure associated with the right to cancel is discussed in the section-by-section analysis to § 226.9(c) and (g), while the substantive rules regarding this new right are discussed in the section-by-section analysis to § 226.9(h).

The Board implemented TILA Section 127(i), which was effective August 20, 2009, in the July 2009 Regulation Z Interim Final Rule. However, the Board is now implementing additional provisions of the Credit Card Act that are effective on February 22, 2010 that have an impact on the content of change-in-terms notices and the types of changes that are permissible upon provision of a change-in-terms notice pursuant to § 226.9(c) or (g). For example, revised TILA Section 171(a), which the Board is implementing in new § 226.55, as discussed elsewhere in this Federal Register notice generally prohibits increases in annual percentage rates, fees, and finance charges applicable to outstanding balances, subject to several exceptions. In addition, revised TILA Section 171(b) requires, for certain types of penalty rate increases, that the advance notice state the reason for a rate increase. Finally, for penalty rate increases applied to outstanding balances when the consumer fails to make a minimum payment within 60 days after the due date, as permitted by revised TILA Section 171(b)(4), a creditor is required to disclose in the notice of the increase that the increase will be terminated if the consumer makes the subsequent six minimum payments on time.

January 2009 Regulation Z Rule and July 2009 Regulation Z Interim Final Rule

As discussed in I. Background and Implementation of the Credit Card Act, the Board is implementing the changes contained in the Credit Card Act in a manner consistent with the January 2009 Regulation Z Rule, to the extent permitted under the statute. Accordingly, the Board is retaining those requirements of the January 2009 Regulation Z Rule that are not directly affected by the Credit Card Act concurrently with the promulgation of regulations implementing the provisions of the Credit Card Act effective February 22, 2010. [28] Consistent with this approach, the Board has used § 226.9(c)(2) of the January 2009 Regulation Z Rule as the basis for its regulations to implement the change-in-terms requirements of the Credit Card Act. Section 226.9(c)(2) also is intended, except where noted, to contain requirements that are substantively equivalent to the requirements of the July 2009 Regulation Z Interim Final Rule. Accordingly, the Board is adopting a revised version of § 226.9(c)(2) of the January 2009 Regulation Z Rule, with several amendments necessary to conform to the new Credit Card Act. This supplementary information focuses on highlighting those aspects in which § 226.9(c)(2) as adopted in this final rule differs from § 226.9(c)(2) of the January 2009 Regulation Z Rule.

May 2009 Regulation Z Proposed Clarifications

On May 5, 2009, the Board published for comment in the Federal Register proposed clarifications to the January 2009 Regulation Z Rule. See 74 FR 20784. Several of these proposed clarifications pertain to the advance notice requirements in § 226.9(c). The Board is adopting the May 2009 Regulation Z Proposed Clarifications that affect proposed § 226.9(c)(2), with revisions to the extent appropriate, as discussed further in this supplementary information.

9(c)(2)(i) Changes Where Written Advance Notice is Required

Section 226.9(c)(2) sets forth the change-in-terms notice requirements for open-end consumer credit plans that are not home-secured. Section 226.9(c)(2)(i) as proposed in October 2009 stated that a creditor must generally provide a written notice at least 45 days prior to the change, when any term required to be disclosed under § 226.6(b)(3), (b)(4), or (b)(5) is changed or the required minimum periodic payment is increased, unless an exception applies. As noted in the supplementary information to the proposal, this rule was intended to be substantively equivalent to § 226.9(c)(2) of the January 2009 Regulation Z Rule. The Board proposed to set forth the exceptions to this general rule in proposed paragraph (c)(2)(v). In addition, proposed (c)(2)(iii) provided that 45 days' advance notice is not required for those changes that the Board is not designating as “significant changes” in terms using its authority under new TILA Section 127(i). Section 226.9(c)(2)(iii), which is discussed in more detail elsewhere in this supplementary information, also is intended to be equivalent in substance to the Board's January 2009 Regulation Z Rule.

Proposed § 226.9(c)(2)(i) set forth two additional clarifications of the scope of the change-in-terms notice requirements, consistent with § 226.9(c)(2) of the January 2009 Regulation Z Rule. First, as proposed, the 45-day advance notice requirement would not apply if the consumer has agreed to the particular change; in that case, the notice need only be given before the effective date of the change. Second, proposed § 226.9(c)(2)(i) also noted that increases in the rate applicable to a consumer's account due to delinquency, default, or as a penalty described in § 226.9(g) that are not made by means of a change in the contractual terms of a consumer's account must be disclosed pursuant to that section.

Proposed § 226.9(c)(2) applied to all open-end (not home-secured) credit, consistent with the January 2009 Regulation Z Rule. TILA Section 127(i), as implemented in the July 2009 Regulation Z Interim Final Rule for the period between August 20, 2009 and February 22, 2010, applies only to credit card accounts under an open-end (not home-secured) consumer credit plan. However, the advance notice requirements adopted by the Board in January 2009 apply to all open-end (not home-secured) credit. For consistency with the January 2009 Regulation Z Rule, the proposal accordingly would have applied § 226.9(c)(2) to all open-end (not home-secured) credit. The final rule adopts this approach, which is consistent with the approach the Board adopted in the January 2009 Regulation Z Rule. The Board notes that while the general notice requirements are consistent for credit card accounts and other open-end credit that is not home-secured, there are certain content and other requirements, such as a consumer's right to reject certain changes in terms, that apply only to credit card accounts under an open-end (not home-secured) consumer credit plan. As discussed in more detail in the supplementary information to § 226.9(c)(2)(iv), the regulation applies such requirements only to credit card accounts under an open-end (not home-secured) consumer credit plan.

Section 226.9(c)(2)(i), as proposed and under the January 2009 Regulation Z Rule, provides that the 45-day advance notice timing requirement does not apply if the consumer has agreed to a particular change. In this case, notice must be given before the effective date of the change. Comment 9(c)(2)(i)-3, as adopted in the January 2009 Regulation Z Rule, states that the provision is intended for use in “unusual instances,” such as when a consumer substitutes collateral or when the creditor may advance additional credit only if a change relatively unique to that consumer is made. In the May 2009 Regulation Z Proposed Clarifications, the Board proposed to amend the comment to emphasize the limited scope of the exception and provide that the exception applies solely to the unique circumstances specifically identified in the comment. See 74 FR 20788. The proposed comment would also add an example of an occurrence that would not be considered an “agreement” for purposes of relieving the creditor of its responsibility to provide an advance change-in-terms notice. This proposed example stated that an “agreement” does not include a consumer's request to reopen a closed account or to upgrade an existing account to another account offered by the creditor with different credit or other features. Thus, a creditor that treats an upgrade of a consumer's account as a change in terms would be required to provide the consumer 45 days' advance notice before increasing the rate for new transactions or increasing the amount of any applicable fees to the account in those circumstances.

Commenters on the October 2009 Regulation Z Proposal and the May 2009 Regulation Z Proposed Clarifications raised concerns about the 45-day notice requirement causing an undue delay when a consumer requests that his or her account be changed to a different product offered by the creditor, for example to take advantage of a rewards or other program. The Board has addressed these concerns in comment 5(b)(1)(i)-6, discussed above. The Board also believes that the proposed clarification to comment 9(c)(2)(i)-3 is appropriate for those circumstances in which a creditor treats an upgrade of an account as a change-in-terms in accordance with proposed comment 5(b)(1)(i)-6. In addition, the Board continues to believe that it would be difficult to define by regulation the circumstances under which a consumer is deemed to have requested the account upgrade, versus circumstances in which the upgrade is suggested by the creditor. For these reasons, the Board is adopting the substantive guidance in proposed 9(c)(2)(i)-3. However, for clarity, the Board has moved this guidance into a new § 226.9(c)(2)(i)(B) of the regulation rather than including it in the commentary. Comment 9(c)(2)(i)-3, as adopted, contains a cross-reference to comment 5(b)(1)(i)-6.

The Board received a number of additional comments on § 226.9(c)(2), as are discussed below in further detail. However, the Board received no comments on the general approach in § 226.9(c)(2)(i), which is substantively equivalent to the rule the Board adopted in January 2009. Therefore, the Board is adopting § 226.9(c)(2)(i) generally as proposed (redesignated as § 226.9(c)(2)(i)(A)), with one technical amendment to correct a scrivener's error in the proposal.

9(c)(2)(ii) Significant Changes in Account Terms

Pursuant to new TILA Section 127(i), the Board has the authority to determine by rule what are significant changes in the terms of the cardholder agreement between a creditor and a consumer. The Board proposed § 226.9(c)(2)(ii) to identify which changes are significant changes in terms. Similar to the January 2009 Regulation Z Rule, proposed § 226.9(c)(2)(ii) stated that for the purposes of § 226.9(c), a significant change in account terms means changes to terms required to be disclosed in the table provided at account opening pursuant to § 226.6(b)(1) and (b)(2) or an increase in the required minimum periodic payment. The terms included in the account-opening table are those that the Board determined, based on its consumer testing, to be the most important to consumers. In the July 2009 Regulation Z Interim Final Rule, the Board had expressly listed these terms in § 226.9(c)(2)(ii). Because § 226.6(b) was not in effect as of August 20, 2009, the Board could not identify these terms by a cross-reference to § 226.6(b) in the proposal. However, proposed § 226.9(c)(2)(ii) was intended to be substantively equivalent to the list of terms included in § 226.9(c)(2)(ii) of the July 2009 Regulation Z Interim Final Rule.

Industry commenters generally were supportive of the Board's proposed definition of “significant change in account terms.” These commenters believed that the Board's proposed definition provided necessary clarity to creditors in determining for which changes 45 days' advance notice is required, and that it properly focused on changes in those terms that are the most important to consumers.

Consumer group commenters stated that the Board's proposed definition of “significant change in account terms” was overly restrictive, and that 45 days' advance notice should also be required for other types of fees and changes in terms. These commenters specifically noted the addition of security interests or a binding mandatory arbitration provision as changes for which advance notice should be required. In addition, they stated that fees should be permitted to be disclosed orally and immediately prior to their imposition only if they are fees or one-time or time-sensitive services. Consumer groups noted their concerns that the Board's list of “significant changes in account terms” could lead creditors to establish new types of fees that for which 45 days' advance disclosure would not be required.

The Board is adopting § 226.9(c)(2)(ii) generally as proposed. The Board continues to believe, based on its consumer testing, that the list of fees, categories of fees, and other terms required to be disclosed in a tabular format at account-opening includes those terms that are the most important to consumers. The Board notes that consumers will receive notice of any other types of charges imposed as part of the plan prior to their imposition, as required by § 226.5(b)(1)(ii). The Board also believes that TILA Section 127(i) does not require 45 days' advance notice for all changes in terms, because the statute specifically mentions “significant change[s],” and thus by its terms does not apply to all changes.

However, in response to consumer group comments, the Board has added the acquisition of a security interest to the list of significant changes for which 45 days' advance notice is required. The Board believes that if a creditor acquires or will acquire a security interest that was not previously disclosed under § 226.6(b)(5), this constitutes a change of which a consumer should be aware in advance. A consumer may wish to use a different form of financing or to otherwise adjust his or her use of the open-end plan in consideration of such a security interest. Under the final rule, a consumer will receive 45 days' advance notice of this change.

The Board is not adopting a requirement that creditors provide 45 days' advance notice of the addition of, or changes in the terms of, a mandatory arbitration clause. TILA does not address or require disclosures regarding arbitration for open-end credit plans, and Regulation Z's rules applicable to open-end credit have accordingly never addressed arbitration. Furthermore, the Board's regulations generally do not address the remedies for violations of Regulation Z and TILA; rather, the procedures and remedies for violations are addressed in the statute. Accordingly, the Board does not believe it is appropriate at this time to require disclosures regarding mandatory arbitration clauses under Regulation Z.

9(c)(2)(iii) Charges Not Covered by § 226.6(b)(1) and (b)(2)

Proposed § 226.9(c)(2)(iii) set forth the disclosure requirements for changes in terms required to be disclosed under § 226.6(b)(3) that are not significant changes in account terms described in § 226.9(c)(2)(ii). The Board proposed a 45-day notice period only for changes in the terms that are required to be disclosed as a part of the account-opening table under proposed § 226.6(b)(1) and (b)(2) or for increases in the required minimum periodic payment. A different disclosure requirement would apply when a creditor increases any component of a charge, or introduces a new charge, that is imposed as part of the plan under proposed § 226.6(b)(3) but is not required to be disclosed as part of the account-opening summary table under proposed § 226.6(b)(1) and (b)(2). Under those circumstances, the proposal required the creditor to either, at its option (1) provide at least 45 days' written advance notice before the change becomes effective, or (2) provide notice orally or in writing of the amount of the charge to an affected consumer at a relevant time before the consumer agrees to or becomes obligated to pay the charge. This is consistent with the requirements of both the January 2009 Regulation Z Rule and the July 2009 Regulation Z Interim Final Rule.

One consumer group commenter stated that if the 45-day advance notice requirement does not apply to all undisclosed charges, the Board should require written disclosures of all charges not required to be disclosed in the account-opening table. The Board is not adopting a requirement that notices given pursuant to § 226.9(c)(2)(iii) be in writing. The Board believes that oral disclosure of certain charges on a consumer's open-end (not home-secured) account may, in some circumstances, be more beneficial to a consumer than a written disclosure, because the oral disclosure can be provided at the time that the consumer is considering purchasing an incidental service from the creditor that has an associated charge. In such a case, it would unnecessarily delay the consumer's access to that service to require that a written disclosure be provided.

For the reasons discussed above and in the supplementary information to § 226.9(c)(2)(ii), the Board is adopting § 226.9(c)(2)(iii) as proposed. The Board continues to believe that there are some fees, such as fees for expedited delivery of a replacement card, that it may not be useful to disclose long in advance of when they become relevant to the consumer. For such fees, the Board believes that a more flexible approach, consistent with that adopted in the January 2009 Regulation Z Rule and the July 2009 Regulation Z Interim Final Rule is appropriate. Thus, if a consumer calls to request an expedited replacement card, the consumer could be informed of the amount of the fee in the telephone call in which the consumer requests the card. Otherwise, the consumer would have to wait 45 days from receipt of a change-in-terms notice to be able to order an expedited replacement card, which would likely negate the benefit to the consumer of receiving the expedited delivery service.

9(c)(2)(iv) Disclosure Requirements

General Content Requirements

Proposed § 226.9(c)(2)(iv) set forth the Board's proposed content and formatting requirements for change-in-terms notices required to be given for significant changes in account terms pursuant to proposed § 226.9(c)(2)(i). Proposed § 226.9(c)(2)(iv)(A) required such notices to include (1) a summary of the changes made to terms required by § 226.6(b)(1) and (b)(2) or of any increase in the required minimum periodic payment, (2) a statement that changes are being made to the account, (3) for accounts other than credit card accounts under an open-end consumer credit plan subject to § 226.9(c)(2)(iv)(B), a statement indicating that the consumer has the right to opt out of these changes, if applicable, and a reference to additional information describing the opt-out right provided in the notice, if applicable, (4) the date the changes will become effective, (5) if applicable, a statement that the consumer may find additional information about the summarized changes, and other changes to the account, in the notice, (6) if the creditor is changing a rate on the account other than a penalty rate, a statement that if a penalty rate currently applies to the consumer's account, the new rate referenced in the notice does not apply to the consumer's account until the consumer's account balances are no longer subject to the penalty rate, and (7) if the change in terms being disclosed is an increase in an annual percentage rate, the balances to which the increased rate will be applied and, if applicable, a statement identifying the balances to which the current rate will continue to apply as of the effective date of the change in terms.

Proposed § 226.9(c)(2)(iv)(A) generally mirrored the content required under § 226.9(c)(2)(iii) of the January 2009 Regulation Z Rule, except that the Board proposed to require a disclosure regarding any applicable right to opt out of changes under proposed § 226.9(c)(2)(iv)(A)(3) only if the change is being made to an open-end (not home-secured) credit plan that is not a credit card account subject to § 226.9(c)(2)(iv)(B). For credit card accounts, as discussed in the supplementary information to §§ 226.9(h) and 226.55, the Credit Card Act imposes independent substantive limitations on rate increases, and generally provides the consumer with a right to reject other significant changes being made to their accounts. A disclosure of this right to reject, when applicable, is required for credit card accounts under proposed § 226.9(c)(2)(iv)(B). Therefore, the Board believed a separate reference to other applicable opt-out rights is unnecessary and may be confusing to consumers, when the notice is given in connection with a change in terms applicable to a credit card account.

The Board received few comments on § 226.9(c)(2)(iv)(A), and it is generally adopted as proposed, except that § 226.9(c)(2)(iv)(A)(1) has been amended to refer to security interests being acquired by the creditor, for consistency with § 226.9(c)(2)(ii). The Board is amending comment 9(c)(2)(i)-5, regarding the form of a change in terms notice required for an additional security interest. The comment notes that a creditor must provide a description of the change consistent with § 226.9(c)(2)(iv), but that it may use a copy of the security agreement as the change-in-terms notice. The Board also has made a technical amendment to § 226.9(c)(2)(iv)(A)(1) to note that a description, rather than a summary, of any increase in the required minimum periodic payment be disclosed.

Several commenters noted that proposed Sample G-20, which sets forth a sample disclosure for an annual percentage rate increase for a credit card account, erroneously included a reference to the consumer's right to opt out of the change, which is not required by proposed § 226.9(c)(2)(iv)(A)(3) for credit card accounts. The reference to opt-out rights has been deleted from Sample G-20 in the final rule.

Consumer groups commented that notices provided in connection with rate increases should set forth the current rate as well as the increased rate that will apply. For the reasons discussed in the supplementary information to the January 2009 Regulation Z Rule, the Board is not adopting a requirement that a change-in-terms notice set forth the current rate or rates. See 74 FR 5244, 5347. As noted in that rulemaking, the main purpose of the change-in-terms notice is to inform consumers of the new rates that will apply to their accounts. The Board is concerned that disclosure of each current rate in the change-in-terms notice could contribute to information overload, particularly in light of new restrictions on repricing in § 226.55, which may lead to a consumer's account having multiple protected balances to which different rates apply.

One exception to the repricing rules set forth in § 226.55(b)(3) permits card issuers to increase the rate on new transactions for a credit card account under an open-end (not home-secured) consumer credit plan, provided that the creditor complies with the notice requirements in § 226.9(b), (c), or (g). Under this exception, the increased rate can apply only to transactions that occurred more than 14 days after provision of the applicable notice. One federal banking agency suggested that § 226.9(c) should expressly repeat the 14-day requirement and reference the advance notice exception set forth in § 226.55(b)(3), so that issuers do not have to cross-reference two sections in providing the notice required under § 226.9(c)(2). The Board believes that including an express reference to the 14-day requirement from § 226.55(b)(3) in § 226.9(c)(2) is not necessary. The Board expects that card issuers will be familiar with the substantive requirements regarding rate increases set forth in § 226.55(b)(3), and that a second detailed reference to those requirements in § 226.9(c)(2) therefore would be redundant.

Additional Content Requirements for Credit Card Accounts

Proposed § 226.9(c)(2)(iv)(B) set forth additional content requirements that are applicable only to credit card accounts under an open-end (not home-secured) consumer credit plan. In addition to the information required to be disclosed pursuant to § 226.9(c)(2)(iv)(A), the proposal required credit card issuers making significant changes to terms to disclose certain information regarding the consumer's right to reject the change pursuant to § 226.9(h). The substantive rule regarding the right to reject is discussed in connection with proposed § 226.9(h); however, the associated disclosure requirements are set forth in § 226.9(c)(2). In particular, the proposal provided that a card issuer must generally include in the notice (1) a statement that the consumer has the right to reject the change or changes prior to the effective date, unless the consumer fails to make a required minimum periodic payment within 60 days after the due date for that payment, (2) instructions for rejecting the change or changes, and a toll-free telephone number that the consumer may use to notify the creditor of the rejection, and (3) if applicable, a statement that if the consumer rejects the change or changes, the consumer's ability to use the account for further advances will be terminated or suspended. Proposed section 226.9(c)(2)(iv)(B) generally mirrored requirements made applicable to credit card issuers in the July 2009 Regulation Z Interim Final Rule.

The Board did not receive any significant comments on the content of disclosures regarding a consumer's right to reject certain significant changes to their account terms. Therefore, the content requirements in § 226.9(c)(2)(iv)(B)(1)-(3) are adopted as proposed.

The proposal provided that the right to reject does not apply to increases in the required minimum payment, an increase in an annual percentage rate applicable to a consumer's account, a change in the balance computation method applicable to a consumer's account necessary to comply with the new prohibition on use of “two-cycle” balance computation methods in proposed § 226.54, or changes due to the creditor not receiving the consumer's required minimum periodic payment within 60 days after the due date for that payment. The Board is adopting the exceptions to the right to reject as proposed, with one change. For the reasons discussed in the supplementary information to § 226.9(h), the proposed exception for increases in annual percentage rates has been adopted as an exception for all changes in annual percentage rates.

Rate Increases Resulting From Delinquency of More Than 60 Days

As discussed in the supplementary information to § 226.9(g), TILA Section 171(b)(4) requires several additional disclosures to be provided when the annual percentage rate applicable to a credit card account under an open-end consumer credit plan is increased due to the consumer's failure to make a minimum periodic payment within 60 days from the due date for that payment. In those circumstances, the notice must state the reason for the increase and disclose that the increase will cease to apply if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase. The Board proposed in § 226.9(g)(3)(i)(B) to set forth this additional content for rate increases pursuant to the exercise of a penalty pricing provision in the contract; however, the proposal contained no analogous disclosure requirements in § 226.9(c)(2) when the rate increase is made pursuant to a change in terms notice. One issuer commented that § 226.9(c)(2) also should set forth guidance for disclosing the 6-month cure right when a rate is increased via a change-in-terms notice due to a delinquency of more than 60 days. The final rule adopts new § 226.9(c)(2)(iv)(C), which implements the notice requirements contained in amended TILA Section 171(b)(4), as adopted by the Credit Card Act; the substantive requirements of TILA Section 171(b)(4) are discussed in proposed § 226.55(b)(4), as discussed below.

New § 226.9(c)(2)(iv)(C) requires the notice regarding the 6-month cure right to be provided if the change-in-terms notice is disclosing an increase in an annual percentage rate or a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) based on the consumer's failure to make a minimum periodic payment within 60 days from the due date for that payment. This differs from § 226.9(g)(3)(i)(B), in that it references fees of a type required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii). Section 226.9(c)(2) addresses changes in fees and interest rates, while § 226.9(g) applies only to interest rates; therefore, the reference to fees in § 226.9(c)(2)(iv)(C) has been included for conformity with the substantive requirements of § 226.55. The notice is required to state the reason for the increase and that the increase will cease to apply if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase.

Several industry commenters noted that the model forms for the table required to be provided at account opening disclose a cure right that is more advantageous to the consumer than the cure required by § 226.55. In particular, proposed Samples G-17(B) and G-17(C) state that a penalty rate will apply until the consumer makes six consecutive minimum payments when due. In contrast, the substantive right under § 226.55 applies only if the consumer makes the first six consecutive required minimum periodic payments when due, following the effective date of a rate increase due to the consumer's failure to make a required minimum periodic payment within 60 days of the due date. The Board is adopting the disclosure of penalty rates in Samples G-17(B) and G-17(C) as proposed. The Board notes that Samples G-17(B) and G-17(C) set forth two examples of how the disclosures required by § 226.6(b)(1) and (b)(2) can be made, and those samples can be adjusted as applicable to reflect a creditor's actual practices regarding penalty rates. A creditor is still free, under the final rule, to provide that the penalty APR will cease to apply if the consumer makes any six consecutive payments on time, although the substantive right in § 226.55 does not compel a creditor to do so. The Board does not wish to discourage creditors from providing more advantageous penalty pricing triggers than those that are required by the Credit Card Act and § 226.55.

Formatting Requirements

Proposed § 226.9(c)(2)(iv)(C) set forth the formatting requirements that would apply to notices required to be given pursuant to § 226.9(c)(2)(i). The proposed formatting requirements were generally the same as those that the Board adopted in § 226.9(c)(2)(iii) of the January 2009 Regulation Z Rule, except that the reference to the content of the notice included, when applicable, the information about the right to reject that credit card issuers must disclose pursuant to § 226.9(c)(2)(iv)(B). These formatting requirements are not affected by the Credit Card Act, and therefore the Board proposed to adopt them generally as adopted in January 2009. The Board received no significant comment on the formatting requirements, and § 226.9(c)(2)(iv)(D) (renumbered from proposed § 226.9(c)(2)(iv)(C)) is adopted as proposed.

As proposed, the Board is amending Sample G-20 and adding a new Sample G-21 to illustrate how a card issuer may comply with the requirements of § 226.9(c)(2)(iv). The Board is amending references to these samples in § 226.9(c)(2)(iv) and comment 9(c)(2)(iv)-8 accordingly. Sample G-20 is a disclosure of a rate increase applicable to a consumer's credit card account. The sample explains when the new rate will apply to new transactions and to which balances the current rate will continue to apply. Sample G-21 illustrates an increase in the consumer's late payment and returned payment fees, and sets forth the content required in order to disclose the consumer's right to reject those changes.

9(c)(2)(v) Notice Not Required

The Board proposed § 226.9(c)(2)(v) to set forth the exceptions to the general change-in-terms notice requirements for open-end (not home-secured) credit. With several exceptions, proposed § 226.9(c)(2)(v) was intended to be substantively equivalent to § 226.9(c)(2)(v) of the July 2009 Regulation Z Interim Final Rule, except that the Board proposed an additional express exception for the extension of a grace period. Proposed § 226.9(c)(2)(v)(A) set forth several exceptions that are in current § 226.9(c), including charges for documentary evidence, reductions of finance charges, suspension of future credit privileges (except as provided in § 226.9(c)(vi), discussed below), termination of an account or plan, or when the change results from an agreement involving a court proceeding. The Board did not include these changes in the set of “significant changes” giving rise to notice requirements pursuant to new TILA Section 127(i)(2). The Board stated that it believes 45 days' advance notice is not necessary for these changes, which are not of the type that generally result in the imposition of a fee or other charge on a consumer's account that could come as a costly surprise.

The Board received several comments on the exceptions in proposed § 226.9(c)(2)(v)(A) for termination of an account or plan and the suspension of future credit privileges. Consumer groups stated that notice should be required of credit limit decreases or account termination, either contemporaneously with or subsequent to those actions. In addition, one member of Congress stated that 45 days' advance notice should be required prior to account termination.

The Board is retaining the exceptions for account termination and suspension of credit privileges in the final rule. As stated in the proposal, the Board believes that for safety and soundness reasons, issuers generally have a legitimate interest in suspending credit privileges or terminating an account or plan when a consumer's creditworthiness deteriorates, and that 45 days' advance notice of these types of changes therefore would not be appropriate. With regard to the suspension of credit privileges, the Board notes that § 226.9(c)(vi) requires creditors to provide 45 days' advance notice that a consumer's credit limit has been decreased before an over-the-limit fee or penalty rate can be imposed solely for exceeding that newly decreased credit limit. The Board believes that § 226.9(c)(vi) will adequately ensure that consumers receive notice of a decrease in their credit limit prior to any adverse consequences as a result of the consumer exceeding the new credit limit.

Similarly, the Board does not believe that it is necessary to require notices of the termination of an account or the suspension of credit privileges contemporaneously with or immediately following such a termination or suspension. In many cases, consumers will receive subsequent notification of the termination of an account or the suspension of credit privileges pursuant to Regulation B. See 12 CFR part 202. The Board acknowledges that Regulation B does not require subsequent notification of the termination of an account or suspension of credit privileges in all cases, for example, when the action affects all or substantially all of a class of the creditor's accounts or is an action relating to an account taken in connection with inactivity, default, or delinquency as to that account. However, the Board believes that the benefit to consumers of requiring such a subsequent notice in all cases would be limited. If a consumer's account is terminated or suspended and the consumer attempts to use the account for new transactions, those transactions will be denied. The Board expects that in such circumstances most consumers would call the card issuer and be notified at that time of the suspension or termination of their account.

Increase in Annual Percentage Rate Upon Expiration of Specified Period of Time

Proposed § 226.9(c)(2)(v)(B) set forth an exception contained in the Credit Card Act for increases in annual percentage rates upon the expiration of a specified period of time, provided that prior to the commencement of that period, the creditor disclosed to the consumer clearly and conspicuously in writing the length of the period and the annual percentage rate that would apply after that period. The proposal required that this disclosure be provided in close proximity and equal prominence to any disclosure of the rate that applies during that period, ensuring that it would be provided at the same time the consumer is informed of the temporary rate. In addition, in order to fall within this exception, the annual percentage rate that applies after the period ends may not exceed the rate previously disclosed.

The proposed exception generally mirrored the statutory language, except for two additional requirements. First, the Board's proposal provided, consistent with July 2009 Regulation Z Interim Final Rule and the standard for Regulation Z disclosures under Subpart B, that the disclosure of the period and annual percentage rate that will apply after the period is generally required to be in writing. See§ 226.5(a)(1). Second, pursuant to its authority under TILA Section 105(a) to prescribe regulations to effectuate the purposes of TILA, the Board proposed to require that the disclosure of the length of the period and the annual percentage rate that would apply upon expiration of the period be set forth in close proximity and equal prominence to the disclosure of the rate that applies during the specified period of time. 15 U.S.C. 1604(a). The Board stated that it believes both of these requirements are appropriate in order to ensure that consumers receive, comprehend, and are able to retain the disclosures regarding the rates that will apply to their transactions.

Proposed comment 9(c)(2)(v)-5 clarified the timing of the disclosure requirements for telephone purchases financed by a merchant or private label credit card issuer. The Board is aware that the general requirement in the July 2009 Regulation Z Interim Final Rule that written disclosures be provided prior to commencement of the period during which a temporary rate will be in effect has caused some confusion for merchants who offer a promotional rate on the telephone to finance the purchase of goods. In order to clarify the application of the rule to such merchants, proposed comment 9(c)(2)(v)-5 stated that the timing requirements of § 226.9(c)(2)(v)(B) are deemed to have been met, and written disclosures required by § 226.9(c)(2)(v)(B) may be provided as soon as reasonably practicable after the first transaction subject to a temporary rate if: (1) The first transaction subject to the temporary rate occurs when a consumer contacts a merchant by telephone to purchase goods and at the same time the consumer accepts an offer to finance the purchase at the temporary rate; (2) the merchant or third-party creditor permits consumers to return any goods financed subject to the temporary rate and return the goods free of cost after the merchant or third-party creditor has provided the written disclosures required by § 226.9(c)(2)(v)(B); and (3) the disclosures required by § 226.9(c)(2)(v)(B) and the consumer's right to reject the temporary rate offer and return the goods are disclosed to the consumer as part of the offer to finance the purchase. This clarification mirrored a timing rule for account-opening disclosures provided by merchants financing the purchase of goods by telephone under § 226.5(b)(1)(iii) of the January 2009 Regulation Z Rule.

The Board received a large number of comments from retailers and private label card issuers raising concerns about the proposal and regarding the operational difficulties associated with providing the disclosures required by proposed § 226.9(c)(2)(v)(B). Specifically, these commenters stated that issuers should be permitted to provide consumers with a disclosure of an “up to” annual percentage rate, and not the specific rate that will apply to a consumer's account upon expiration of the promotion. The Board is not adopting this suggestion, for several reasons. First, the Board believes that the appropriate interpretation is that amended TILA Section 127(i)(1) (which cross-references new TILA Section 171(a)(1)) requires disclosure of the actual rate that will apply upon expiration of a temporary rate. Second, the Board believes that a disclosure of a range of rates or “up to” rate will not be as useful for consumers as a disclosure of the specific rate that will apply. The Board is aware that some private label card issuers and retailers permit consumers to make transactions at a promotional rate, even if the consumer's account is currently subject to a penalty rate. In this case, an “up to” rate disclosure would disclose the penalty rate, which would be much higher than the actual rate that will apply upon expiration of the promotion for most consumers. Thus, the disclosure would convey little useful information to a consumer whose account is not subject to the penalty rate.

Other retailers and private label card issuers suggested that the Board permit issuers to provide the required disclosures or a portion of the required disclosures with a receipt or other document. One such commenter stated that these disclosures should be permitted to be given at the conclusion of a transaction. The Board believes that amended TILA Section 127(i)(1) (which cross-references new TILA Section 171(a)(1)) clearly contemplates that the disclosures will be provided prior to commencement of the period during which the temporary rate will be in effect. Therefore, the final rule would not permit a creditor to provide the disclosures after conclusion of a transaction at point of sale.

However, the Board believes that it is appropriate to provide some flexibility for the formatting of notices of temporary rates provided at point of sale. The Board understands that private label and retail card issuers may offer different rates to different consumers based on their creditworthiness and other factors. In addition, some consumers' accounts may be at a penalty rate that differs from the standard rates on the portfolio. Commenters have indicated that there can be significant operational issues associated with ensuring that sales associates provide the correct disclosures to each consumer at point of sale when those consumers' rates vary. In order to address an analogous issue for the disclosures required to be given at account opening, the Board understands that card issuers disclose the rate that will apply to the consumer's account on a separate page which can be printed directly from the receipt terminal, as permitted by § 226.6(b)(2)(i)(E). The Board believes that a similar formatting rule is appropriate for disclosures of temporary rate offers. Accordingly, the Board is adopting a new comment 9(c)(2)(v)-7 which states that card issuers providing the disclosures required by § 226.9(c)(2)(v)(B) in person in connection with financing the purchase of goods or services may, at the creditor's option, disclose the annual percentage rate that would apply after expiration of the period on a separate page or document from the temporary rate and the length of the period, provided that the disclosure of the annual percentage rate that would apply after the expiration of the period is equally prominent to, and is provided at the same time as, the disclosure of the temporary rate and length of the period. The Board believes that this will ensure that consumers receive the disclosures required for a temporary rate offer, and will be aware of the rate that will apply after the temporary rate expires, while alleviating burden on retail and private label credit card issuers.

One industry commenter urged the Board to provide flexibility in the formatting of the promotional rate disclosures under § 226.9(c)(2)(v)(B), noting that any requirement that these disclosures be presented in a tabular format would present significant operational challenges. The Board notes that the proposal did not require that these disclosures be provided in a tabular format, and the final rule similarly does not require that the disclosures under § 226.9(c)(2)(v)(B) be presented in a table.

In the October 2009 Regulation Z Proposal, the Board stated, that for a brief period necessary to update their systems to disclose a single rate, issuers offering a deferred interest or other promotional rate program at point of sale could disclose a range of rates or an “up to” rate rather than a single rate. The Board noted that stating a range of rates or “up to” rate would only be permissible for a brief transition period and that it expected that merchants and creditors would disclose a single rate that will apply when a deferred interest or other promotional rate expires in accordance with § 226.9(c)(2)(v)(B) as soon as possible. The Board expects that all issuers will disclose a single rate by the February 22, 2010 effective date of this final rule. The Board notes that in addition to the exception to § 226.9(c)(2)'s advance notice requirements, provision of the notice pursuant to § 226.9(c)(2)(v)(B) now also is a condition of an exception to the substantive repricing rules in § 226.55(b)(1). Accordingly, the Board believes that it is particularly important that consumers receive notice of the specific rate that will apply upon expiration of a promotion, since the ability to raise the rate upon termination of the program is conditioned on the consumer's receipt of that disclosure.

Several industry commenters stated that the alternative timing rule for telephone purchases in proposed comment 9(c)(2)(v)-5 should apply to all telephone offers of temporary rate reductions. These commenters argued that consumers should not have to wait for written disclosures to be delivered prior to commencement of a temporary reduced rate, because that rate constitutes a beneficial change to the consumer. Several of these commenters indicated that a consumer who accepts a temporary rate offer by telephone should have a subsequent right to reject the offer for 45 days after provision of the written disclosures.

In response to these comments, the Board is adopting a revised comment 9(c)(2)(v)-5, which provides that the timing requirements of § 226.9(c)(2)(v)(B) are deemed to have been met, and written disclosures required by § 226.9(c)(2)(v)(B) may be provided as soon as reasonably practicable after the first transaction subject to a temporary rate, if: (i) The consumer accepts the offer of the temporary rate by telephone; (ii) the creditor permits the consumer to reject the temporary rate offer and have the rate or rates that previously applied to the consumer's balances reinstated for 45 days after the creditor mails or delivers the written disclosures required by § 226.9(c)(2)(v)(B); and (iii) the disclosures required by § 226.9(c)(2)(v)(B) and the consumer's right to reject the offer and have the rate or rates that previously applied to the consumer's account reinstated are disclosed to the consumer as part of the temporary rate offer. The Board believes that consumers who accept a promotional rate offer by telephone expect that the promotional rate will apply immediately upon their acceptance. The Board believes that requiring written disclosures prior to commencement of a temporary rate when offer is made by telephone and the required disclosures are provided orally would unnecessarily delay, in many cases, a benefit to the consumer. However, the Board believes that a consumer should have a right, subsequent to receiving written disclosures, to change his or her mind and reject the temporary rate offer. The Board believes that comment 9(c)(2)(v)-5, as adopted, ensures that consumers may take immediate advantage of promotions that they believe to be a benefit, while protecting consumers by allowing them to terminate the promotion, with no adverse consequences, upon receipt of written disclosures.

In addition to requesting that the disclosures under § 226.9(c)(2)(v)(B) be permitted to be provided by telephone, other industry commenters stated that these disclosures should be permitted to be provided electronically without regard to the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The Board is not providing an exception to the consumer consent requirements under the E-Sign Act at this time. The requirements of the E-Sign Act are implemented in Regulation Z in § 226.36, which states that a creditor is required to obtain a consumer's affirmative consent when providing disclosures related to a transaction. The Board believes that disclosure of a promotional or other temporary rate is a disclosure related to a transaction, and that consumers should only receive the disclosures under § 226.9(c)(2)(v)(B) electronically if they have affirmatively consented to receive disclosures in that form.

Several commenters asked the Board to provide additional clarification regarding the proposed requirement that the disclosures of the length of the period and the rate that will apply after the expiration of the period be disclosed in close proximity and equal prominence to the disclosure of the temporary rate. One card issuer indicated that the Board should require only that the disclosures required by § 226.9(c)(2)(v)(B) be provided in close proximity and equal prominence to the first listing of the promotional rate, analogous to what § 226.16(g) requires for disclosures of promotional rates in advertisements. The Board believes that this clarification is appropriate, and is adopting a new comment 9(c)(2)(v)-6, which states that the disclosures of the rate that will apply after expiration of the period and the length of the period are only required to be provided in close proximity and equal prominence to the first listing of the temporary rate in the disclosures provided to the consumer. The comment further states that for purposes of § 226.9(c)(2)(v)(B), the first statement of the temporary rate is the most prominent listing on the front side of the first page of the disclosure. The comment notes that if the temporary rate does not appear on the front side of the first page of the disclosure, then the first listing of the temporary rate is the most prominent listing of the temporary rate on the subsequent pages of the disclosure. The Board believes that this rule will ensure that consumers notice the disclosure of the rate that will apply after the temporary rate expires, by requiring that it be closely proximate and equally prominent to the most prominent disclosure of the temporary rate, while mitigating burden on issuers to present this disclosure multiple times in the materials provided to the consumer.

One industry commenter stated that there should be an exception analogous to § 226.9(c)(2)(v)(B) for promotional fee offerings. The Board is not adopting such an exception at this time. The Board notes that the exception in amended TILA Section 127(i)(1) (which cross-references new TILA Section 171(a)(1)) refers only to annual percentage rates and not to fees. The Board does not think a similar exception for fees is appropriate or necessary. Fees generally do not apply to a specific balance on the consumer's account, but rather, apply prospectively. Therefore, a creditor could reduce a fee pursuant to the exception in § 226.9(c)(2)(v) for reductions in finance or other charges, without having to provide advance notice of that reduction. The creditor could then increase the fee with prospective application after providing 45 days' advance notice pursuant to § 226.9(c). Nothing in the rule prohibits a creditor from providing notice of the increase in a fee at the same time it temporarily reduces the fee; a creditor could provide information regarding the temporary reduction in the same notice, provided that it is not interspersed with the content required to be disclosed pursuant to § 226.9(c)(2)(iv).

The Board proposed to retain comment 9(c)(2)(v)-6 from the July 2009 Regulation Z Interim Final Rule (redesignated as comment 9(c)(2)(v)-7) to clarify that an issuer offering a deferred interest or similar program may utilize the exception in § 226.9(c)(2)(v)(B). The proposed comment also provides examples of how the required disclosures can be made for deferred interest or similar programs. The Board did not receive any significant comment on the applicability of § 226.9(c)(2)(v)(B) to deferred interest plans, and continues to believe that the application of § 226.9(c)(2)(v)(B) to deferred interest arrangements is consistent with the Credit Card Act. The Board is adopting proposed comment 9(c)(2)(v)-7 (redesignated as comment 9(c)(2)(v)-9), in order to ensure that the final rule does not have unintended adverse consequences for deferred interest promotions. In order to ensure consistent treatment of deferred interest programs, the Board has added a cross-reference to comment 9(c)(2)(v)-9 indicating that for purposes of § 226.9(c)(2)(v)(B) and comment 9(c)(2)(v)-9, “deferred interest” has the same meaning as in § 226.16(h)(2) and associated commentary.

In October 2009, the Board proposed to retain comment 9(c)(2)(v)-5 from the July 2009 Regulation Z Interim Final Rule (redesignated as comment 9(c)(2)(v)-6), which is applicable to the exceptions in both § 226.9(c)(2)(v)(B) and (c)(2)(v)(D), and provides additional clarification regarding the disclosure of variable annual percentage rates. The comment provides that if the creditor is disclosing a variable rate, the notice must also state that the rate may vary and how the rate is determined. The comment sets forth an example of how a creditor may make this disclosure. The Board believes that the fact that a rate is variable is an important piece of information of which consumers should be aware prior to commencement of a deferred interest promotion, a promotional rate, or a stepped rate program. The Board received no comments on proposed comment 9(c)(2)(v)-6 and it is adopted as redesignated comment 9(c)(2)(v)-8.

Increases in Variable Rates

The Board proposed § 226.9(c)(2)(v)(C) to implement an exception in the Credit Card Act for increases in variable annual percentage rates in accordance with a credit card or other account agreement that provides for a change in the rate according to operation of an index that is not under the control of the creditor and is available to the general public. The Board proposed a minor amendment to the text of § 226.9(c)(2)(v)(C) as adopted in the July 2009 Regulation Z Interim Final Rule to reflect the fact that this exception would apply to all open-end (not home-secured) credit. The Board believes that even absent this express exception, such a rate increase would not generally be a change in the terms of the cardholder or other account agreement that gives rise to the requirement to provide 45 days' advance notice, because the index, margin, and frequency with which the annual percentage rate will vary will all be specified in the cardholder or other account agreement in advance. However, in order to clarify that 45 days' advance notice is not required for a rate increase that occurs due to adjustments in a variable rate tied to an index beyond the creditor's control, the Board proposed to retain § 226.9(c)(2)(v)(C) of the July 2009 Regulation Z Interim Final Rule.

The Board received no significant comment on § 226.9(c)(2)(v)(C), which is adopted as proposed. The Board notes that, as discussed in the supplementary information to § 226.55(b)(2), it is adopting additional commentary clarifying when an index is deemed to be outside of an issuer's control, in order to address certain practices regarding variable rate “floors” and the adjustment or resetting of variable rates to account for changes in the index. The Board is adopting a new comment 9(c)(2)(v)-11, which cross-references the guidance in comment 55(b)(2)-2.

Exception for Workout or Temporary Hardship Arrangements

In the October 2009 Regulation Z Proposal, the Board proposed to retain § 226.9(c)(2)(v)(D) to implement a statutory exception in amended TILA Section 127(i)(1) (which cross-references new TILA Section 171(b)(3)), for increases in rates or fees or charges due to the completion of, or a consumer's failure to comply with the terms of, a workout or temporary hardship arrangement provided that the annual percentage rate or fee or charge applicable to a category of transactions following the increase does not exceed the rate that applied prior to the commencement of the workout or temporary hardship arrangement. Proposed § 226.9(c)(2)(v)(D) was substantively equivalent to the analogous provision included in the July 2009 Regulation Z Interim Final Rule.

The exception in proposed § 226.9(c)(2)(v)(D) applied both to completion of or failure to comply with a workout arrangement. The proposed exception was conditioned on the creditor's having clearly and conspicuously disclosed, prior to the commencement of the arrangement, the terms of the arrangement (including any such increases due to such completion). The Board notes that the statutory exception applies in the event of either completion of, or failure to comply with, the terms of such a workout or temporary hardship arrangement. This proposed exception generally mirrored the statutory language, except that the Board proposed to require that the disclosures regarding the workout or temporary hardship arrangement be in writing.

The Board also proposed to retain comment 9(c)(2)(v)-7 of the July 2009 Regulation Z Interim Final Rule (redesignated as comment 9(c)(2)(v)-8), which provides clarification as to what terms must be disclosed in connection with a workout or temporary hardship arrangement. The comment stated that in order for the exception to apply, the creditor must disclose to the consumer the rate that will apply to balances subject to the workout or temporary hardship arrangement, as well as the rate that will apply if the consumer completes or fails to comply with the terms of, the workout or temporary hardship arrangement. For consistency with proposed § 226.55(b)(5)(i), the Board proposed to revise the comment to also state that the creditor must disclose the amount of any reduced fee or charge of a type required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) that will apply to balances subject to the arrangement, as well as the fee or charge that will apply if the consumer completes or fails to comply with the terms of the arrangement. The proposal also required the notice to state, if applicable, that the consumer must make timely minimum payments in order to remain eligible for the workout or temporary hardship arrangement. The Board noted its belief that it is important for a consumer to be notified of his or her payment obligations pursuant to a workout or similar arrangement, and that the rate, fee or charge may be increased if he or she fails to make timely payments.

Several industry commenters stated that creditors should be permitted to provide the disclosures pursuant to § 226.9(c)(2)(v)(D) for workout or temporary hardship arrangements orally with subsequent written confirmation. These commenters noted that oral disclosure of the terms of a workout arrangement would permit creditors to reduce rates and fees as soon as the consumer agrees to the arrangement, but that a requirement that written disclosures be provided in advance could unnecessarily delay commencement of the arrangement. These commenters noted that workout arrangements unequivocally benefit consumers, so there is no consumer protection rationale for delaying relief until a creditor can provide written disclosures. Commenters further noted that the consumers who enter such arrangements are having trouble making the payments on their accounts, and that any delay can be detrimental to the consumer.

The Board notes that amended TILA Section 127(i) (which cross-references TILA Section 171(b)(3)) requires clear and conspicuous disclosure of the terms of a workout or temporary hardship arrangement prior to its commencement, but the statute does not contain an express requirement that these disclosures be in writing. The Board further understands that a delay in commencement of a workout or temporary hardship arrangement can have adverse consequences for a consumer. Therefore, § 226.9(c)(2)(v)(D) of the final rule provides that creditors may provide the disclosure of the terms of the workout or temporary hardship arrangement orally by telephone, provided that the creditor mails or delivers a written disclosure of the terms of the arrangement to the consumer as soon as reasonably practicable after the oral disclosure is provided. The Board notes that a consumer's rate can only be raised, upon completion or failure to comply with the terms of, a workout or temporary hardship arrangement, to the rate that applied prior to commencement of the arrangement. Therefore, the Board believes that consumers will be adequately protected by receiving written disclosures as soon as practicable after oral disclosures are provided.

In addition to requesting that the disclosures under § 226.9(c)(2)(v)(D) be permitted to be provided by telephone, other industry commenters stated that these disclosures should be permitted to be provided electronically without regard to the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The Board is not providing an exception to the consumer consent requirements under the E-Sign Act at this time. The Board believes that disclosure of the terms of a workout or other temporary hardship arrangement is a disclosure related to a transaction, and that consumers should only receive the disclosures under § 226.9(c)(2)(v)(D) electronically if they have affirmatively consented to receive disclosures in that form.

Several industry commenters requested that the Board extend the exception in § 226.9(c)(2)(v)(D) to address the reduction of the consumer's minimum periodic payment as part of a workout or temporary hardship arrangement. The Board understands that a requirement that 45 days' advance notice be given prior to reinstating the prior minimum payment requirements could lead to negative amortization for a period of 45 days or more, when the consumer's rate or rates are increased as a result of the completion of or failure to comply with the terms of, the workout or temporary hardship arrangement. Therefore, the Board has amended § 226.9(c)(2)(v)(D) and comment 9(c)(2)(v)-10 (proposed as comment 9(c)(2)(v)-8) to provide that increases in the required minimum periodic payment are covered by the exception in § 226.9(c)(2)(v)(D), but that such increases in the minimum payment must be disclosed as part of the terms of the workout or temporary hardship arrangement. As with rate increases, a consumer's required minimum periodic payment can only be increased to the required minimum periodic payment prior to commencement of the workout or temporary hardship arrangement in order to qualify for the exception.

One industry commenter asked the Board to simplify the content requirements for the notice required to be given prior to commencement of a workout or temporary hardship arrangement. The issuer stated that the notice could be confusing for consumers because they may have different annual percentage rates applicable to different categories of transactions, promotional rates in effect, and protected balances under § 226.55. While the Board acknowledges that the disclosure of the various annual percentage rates applicable to a consumer's account could be complex, the Board believes that a consumer should be aware of all of the annual percentage rates and fees that would be applicable upon completion of, or failure to comply with, the workout or temporary hardship arrangement. Therefore, the Board is adopting comment 9(c)(2)(v)-10 (proposed as comment 9(c)(2)(v)-8) generally as proposed, except for the addition of a reference to changes in the required minimum periodic payment, discussed above.

Additional Exceptions

A number of commenters urged the Board to adopt additional exceptions to the requirement to provide 45 days' advance notice of significant changes in account terms. Several industry commenters stated that the Board should provide an exception to the advance notice requirements for rate increases made when the provisions of the Servicemembers Civil Relief Act (SCRA), 50 U.S.C. app. 501 et seq., which in some circumstances requires reductions in consumers' interest rates when they are engaged in military service, cease to apply. These commenters noted that proposed § 226.55 provided an exception to the substantive repricing requirements in these circumstances. However, the Board is not adopting an analogous exception to the notice requirements in § 226.9. The Board believes that consumers formerly engaged in military service should receive advance notice when a higher rate will begin to apply to their accounts. A consumer may not be aware of exactly when the SCRA's protections cease to apply and may choose, in reliance on the notice, to change his or her account usage or utilize another source of financing in order to mitigate the impact of the rate increase.

One industry trade association requested an exception to the 45-day advance notice requirement for termination of a preferential rate for employees. The Board notes that it expressly removed such an exception historically set forth in comment 9(c)-1 in the January 2009 Regulation Z Rule. For the reasons discussed in the supplementary information to the January 2009 Regulation Z Rule, the Board is not restoring that exception in this final rule. See 74 FR 5244, 5346.

Finally, one industry commenter requested an exception to the advance notice requirements when a change in terms is favorable to a consumer, such as the extension of a grace period, even if it does not involve a reduction in a finance charge. The commenter noted that, for such changes, an issuer also may not want to provide a right to reject under § 226.9(h), because rejecting the change would be unfavorable to the consumer. While the Board notes that, consistent with the proposal, the final rule creates an exception to the advance notice requirements for extensions of the grace period, the Board is not adopting a more general exception to the advance notice requirements for favorable changes at this time. With the exception of reductions in finance or other charges, the Board believes that it is difficult to articulate criteria for when other types of changes are beneficial to a consumer.

9(c)(2)(vi) Reduction of the Credit Limit

Consistent with the January 2009 Regulation Z Rule and the July 2009 Regulation Z Interim Final Rule, the Board proposed to retain § 226.9(c)(2)(vi) to address notices of changes in a consumer's credit limit. Section 226.9(c)(2)(vi) requires an issuer to provide a consumer with 45 days' advance notice that a credit limit is being decreased or will be decreased prior to the imposition of any over-the-limit fee or penalty rate imposed solely as the result of the balance exceeding the newly decreased credit limit. The Board did not propose to include a decrease in a consumer's credit limit itself as a significant change in a term that requires 45 days' advance notice, for several reasons. First, the Board recognizes that creditors have a legitimate interest in mitigating the risk of a loss when a consumer's creditworthiness deteriorates, and believes there would be safety and soundness concerns with requiring creditors to wait 45 days to reduce a credit limit. Second, the consumer's credit limit is not a term generally required to be disclosed under Regulation Z or TILA. Finally, the Board stated its belief that § 226.9(c)(2)(vi) adequately protects consumers against the two most costly surprises potentially associated with a reduction in the credit limit, namely, fees and rate increases, while giving a consumer adequate time to mitigate the effect of the credit line reduction.

The Board received no significant comment on § 226.9(c)(2)(vi), which is adopted as proposed. The Board notes that consumer group commenters stated that the final rule should also require disclosure of a credit line decrease either contemporaneously with the decrease or shortly thereafter; for the reasons discussed above in the section-by-section analysis to § 226.9(c)(2)(v), the Board is not adopting such a requirement at this time.

The Board notes that the final rule contains additional protections against a credit line decrease. First, § 226.55 prohibits a card issuer from applying an increased rate, fee, or charge to an existing balance as a result of transactions that exceeded the credit limit. In addition, § 226.56 allows a card issuer to charge a fee for transactions that exceed the credit limit only when the consumer has consented to such transactions.

Additional Changes to Commentary to § 226.9(c)(2)

The commentary to § 226.9(c)(2) generally is consistent with the commentary to § 226.9(c)(2) of the January 2009 Regulation Z Rule, except for technical changes or changes discussed below. In addition, as discussed above, the Board is adopting several new comments to § 226.9(c)(2)(v) and has renumbered the remaining commentary accordingly.

In October 2009, the Board proposed to amend comment 9(c)(2)(i)-6 to reference examples in § 226.55 that illustrate how the advance notice requirements in § 226.9(c) relate to the substantive rule regarding rate increases in proposed § 226.55. In the January 2009 Regulation Z Rule, comment 9(c)(2)(i)-6 referred to the commentary to § 226.9(g). Because, as discussed in the supplementary information to § 226.55, the Credit Card Act moved the substantive rule regarding rate increases into Regulation Z, the Board believed that it is not necessary to repeat the examples under § 226.9. The Board received no comments on the proposed amendments to comment 9(c)(2)(i)-6, which are adopted as proposed.

The Board also proposed to amend comment 9(c)(2)(v)-2 (adopted in the January 2009 Regulation Z Rule as comment 9(c)(2)(iv)-2) in order to conform with the new substantive and notice requirements of the Credit Card Act. This comment addresses the disclosures that must be given when a credit program allows consumers to skip or reduce one or more payments during the year or involves temporary reductions in finance charges. However, new § 226.9(c)(2)(v)(B) requires a creditor to provide a notice of the period for which a temporarily reduced rate will be in effect, as well as a disclosure of the rate that will apply after that period, in order for a creditor to be permitted to increase the rate at the end of the period without providing 45 days' advance notice. Similarly, § 226.55, discussed elsewhere in this supplementary information, requires a creditor to provide advance notice of a temporarily reduced rate if a creditor wants to preserve the ability to raise the rate on balances subject to that temporarily reduced rate. Accordingly, the Board is proposing amendments to clarify that if a credit program involves temporary reductions in an interest rate, no notice of the change in terms is required either prior to the reduction or upon resumption of the higher rates if these features are disclosed in advance in accordance with the requirements of § 226.9(c)(2)(v)(B). See proposed comment 55(b)-3. The proposed comment further clarifies that if a creditor does not provide advance notice in accordance with § 226.9(c)(2)(v)(B), that it must provide a notice that complies with the timing requirements of § 226.9(c)(2)(i) and the content and format requirements of § 226.9(c)(2)(iv)(A), (B) (if applicable), (C) (if applicable), and (D). The proposed comment notes that creditors should refer to § 226.55 for additional restrictions on resuming the original rate that is applicable to credit card accounts under an open-end (not home-secured) plan.

Relationship Between § 226.9(c)(2) and (b)

In the October 2009 Regulation Z Proposal, the Board republished proposed amendments to § 226.9(c)(2)(v) and comments 9(c)(2)-4 and 9(c)(2)(i)-3 that were part of the May 2009 Regulation Z Proposed Clarifications. Several of the Board's proposed revisions to § 226.9(c)(2)(v) (proposed in May 2009 as § 226.9(c)(2)(iv)) and proposed comment 9(c)(2)-4 were to clarify the relationship between the change-in-terms requirements of § 226.9(c) and the notice provisions of § 226.9(b) that apply when a creditor adds a credit feature or delivers a credit access device for an existing open-end plan. See 74 FR 20787 for further discussion of these proposed amendments. Commenters that addressed this aspect of the proposal generally supported these proposed clarifications, which are adopted as proposed.

9(e) Disclosures Upon Renewal of Credit or Charge Card

The Credit Card Act amended TILA Section 127(d), which sets forth the disclosures that card issuers must provide in connection with renewal of a consumer's credit or charge card account. 15 U.S.C. 1637(d). TILA Section 127(d) is implemented in § 226.9(e), which has historically required card issuers that assess an annual or other fee based on inactivity or activity, on a credit card account of the type subject to § 226.5a, to provide a renewal notice before the fee is imposed. The creditor must provide disclosures required for credit card applications and solicitations (although not in a tabular format) and must inform the consumer that the renewal fee can be avoided by terminating the account by a certain date. The notice must generally be provided at least 30 days or one billing cycle, whichever is less, before the renewal fee is assessed on the account. Under current § 226.9(e), there is an alternative delayed notice procedure where the fee can be assessed provided the fee is reversed if the consumer is given notice and chooses to terminate the account.

Alternative Delayed Notice

The Credit Card Act amended TILA Section 127(d) to eliminate the provision permitting creditors to provide an alternative delayed notice. Thus, the statute requires card issuers to provide the renewal notice described in § 226.9(e)(1) prior to imposition of any annual or other periodic fee to renew a credit or charge card account of the type subject to § 226.5a, including any fee based on account activity or inactivity. Card issuers may no longer assess the fee and provide a delayed notice offering the consumer the opportunity to terminate the account and have the fee reversed. Accordingly, the Board proposed to delete § 226.9(e)(2) and to renumber § 226.9(e)(3) as § 226.9(e)(2). The Board proposed technical conforming changes to comments 9(e)-7, 9(e)(2)-1 (currently comment 9(e)(3)-1), and 9(e)(2)-2 (currently comment 9(e)(3)-2).

Consumer groups commented that the Board's final rule should permit the alternative delayed disclosure. These commenters believe that the deletion of TILA Section 127(d)(2) was a drafting error, and that the Board should use its authority under TILA Section 105(a) to restore the alternative delayed notice procedure. These commenters stated that restoring § 226.9(e)(2) would benefit both consumers and issuers, because consumers are in their opinion more likely to notice the fee and exercise their right to cancel the card if the fee appears on the periodic statement.

The Board believes that the language of Section 203 of the Credit Card Act, which amended TILA Section 127(d), clearly deletes the statutory basis for the alternative delayed notice. Therefore, the Board does not believe that use of its TILA Section 105(a) authority is appropriate at this time to override this express statutory provision. The final rule deletes § 226.9(e)(2) and renumbers § 226.9(e)(3) as § 226.9(e)(2), as proposed. Similarly, the Board is adopting the technical conforming changes to comments 9(e)-7, 9(e)(2)-1 (currently comment 9(e)(3)-1), and 9(e)(2)-2 (currently comment 9(e)(3)-2), as proposed.

Terms Amended Since Last Renewal

As amended by the Credit Card Act, TILA Section 127(d) provides that a card issuer that has changed or amended any term of the account since the last renewal that has not been previously disclosed must provide the renewal disclosure, even if that card issuer does not charge an annual fee, periodic fee, or other fee for renewal of the credit or charge card account. The Board proposed to implement amended TILA Section 127(d) by making corresponding amendments to § 226.9(e)(1). Proposed § 226.9(e)(1) stated, in part, that any card issuer that has changed or amended any term of a cardholder's account required to be disclosed under § 226.6(b)(1) and (b)(2) that has not previously been disclosed to the consumer, shall mail or deliver written notice of the renewal to the cardholder. The Board proposed to use its authority pursuant to TILA Section 105(a) to clarify that the requirement to provide the renewal disclosures due to a change in account terms applies only if the change has not been previously disclosed and is a change of the type required to be disclosed in the table provided at account opening.

Several industry commenters stated that renewal disclosures should be required only if an annual or other renewal fee is assessed on a consumer's account. However, the Credit Card Act specifically amended TILA Section 127(d) to require renewal disclosures when creditors have changed or amended terms of the account since the last renewal that have not been previously disclosed. The Board therefore believes that a rule requiring renewal disclosures to be given only if an annual or other renewal fee is charged would not effectuate the statutory amendment.

Consumer groups stated that renewal disclosures should be required if any undisclosed change has been made to the account terms since the last renewal, not only if undisclosed changes have been made to terms required to be disclosed pursuant to § 226.6(b)(1) and (b)(2). Consumer groups argued that the language “any term of the account” in amended TILA Section 127(d) contemplates that renewal disclosures will be given if any term has been changed and not previously disclosed, regardless of the type of term. As discussed in the supplementary information to the proposal, the Board considered an interpretation of amended TILA Section 127(d), consistent with consumer group comments, that would have required that the renewal disclosures be provided for all changes in account terms that have not been previously disclosed, including changes that are not required to be disclosed pursuant to § 226.6(b)(1) and (b)(2). Such an interpretation of the statute would require that the renewal disclosures be given even when creditors have made relatively minor changes to the account terms, such as by increasing the amount of a fee to expedite delivery of a credit card. The Board noted that it believes providing a renewal notice in these circumstances would not provide a meaningful benefit to consumers.

The Board also noted that under such an interpretation, the renewal notice would in many cases not disclose the changed term, which would render it of little value to consumers. Amended TILA Section 127(d) requires only that the renewal disclosure contain the information set forth in TILA Sections 127(c)(1)(A) and (c)(4)(A), which are implemented in § 226.5a(b)(1) through (b)(7). These sections require disclosure of key terms of a credit card account including the annual percentage rates applicable to the account, annual or other periodic membership fees, minimum finance charges, transaction charges on purchases, the grace period, balance computation method, and disclosure of similar terms for charge card accounts. The Board notes that the required disclosures all address terms required to be disclosed pursuant to § 226.6(b)(1) and (b)(2). Therefore, if the rule required that the renewal disclosures be provided for any change in terms, such as a change in a fee for expediting delivery of a credit card, the renewal disclosures would not disclose the amount of the changed fee. The Board also notes that charges imposed as part of an open-end (not home-secured) plan that are not required to be disclosed pursuant to § 226.6(b)(1) and (b)(2) are required to be disclosed to consumers prior to their imposition pursuant to § 226.5(b)(1)(ii). Therefore, if a card issuer changed a charge imposed as part of an open-end (not home-secured) plan but had not previously disclosed that change, a consumer would receive disclosure prior to imposition of the charge.

For these reasons, the Board is adopting § 226.9(e)(1) as proposed. The Board believes that § 226.9(e)(1) as adopted strikes the appropriate balance between ensuring that consumers receive notice of important changes to their account terms that have not been previously disclosed and avoiding burden on issuers with little or no corresponding benefit to consumers. In most cases, changes to terms required to be disclosed pursuant to § 226.6(b)(1) and (b)(2) will be required to be disclosed 45 days in advance in accordance with § 226.9(c)(2). However, there are several types of changes to terms required to be disclosed under § 226.6(b)(1) and (b)(2) for which advance notice is not required under § 226.9(c)(2)(v)(1), including reductions in finance and other charges and the extension of a grace period. The Board believes that such changes are generally beneficial to the consumer, and therefore a 45-day advance notice requirement is not appropriate for these changes. However, the Board believes that requiring creditors to send consumers subject to such changes a notice prior to renewal disclosing key terms of their accounts will promote the informed use of credit by consumers. The notice will remind consumers of the key terms of their accounts, including any reduced rates or extended grace periods that apply, when consumers are making a decision as to whether to renew their account and how to use the account in the future.

One industry commenter requested that the Board clarify that disclosing a change in terms on a periodic statement is sufficient to constitute prior disclosure of that change for purposes of § 226.9(e). The Board believes that this generally is appropriate, and has adopted a new comment 9(e)-10 . Comment 9(e)-10 states that clear and conspicuous disclosure of a changed term on a periodic statement provided to a consumer prior to renewal of the consumer's account constitutes prior disclosure of that term for purposes of § 226.9(e)(1). The comment contains a cross-reference to § 226.9(c)(2) for additional timing, content, and formatting requirements that apply to certain changes in terms under that paragraph.

Consumer group commenters urged the Board to require that renewal disclosures be tabular, prominently located, and retainable. The Board is not imposing such a requirement at this time. The Board believes that the general requirements of § 226.5(a), which require that renewal disclosures be clear and conspicuous and in writing, are sufficient to ensure that renewal disclosures are noticeable to consumers.

Section 226.9(e)(1), consistent with the proposal, further clarifies the timing of the notice requirement when a card issuer has changed a term on the account but does not impose an annual or other periodic fee for renewal, by stating that if the card issuer has changed or amended any term required to be disclosed under § 226.6(b)(1) and (b)(2) and such changed or amended term has not previously been disclosed to the consumer, the notice shall be provided at least 30 days prior to the scheduled renewal date of the consumer's credit or charge card. Accordingly, card issuers that do not charge periodic or other fees for renewal of the credit or charge card account, and who have previously disclosed any changed terms pursuant to § 226.9(c)(2) are not required to provide renewal disclosures pursuant to proposed § 226.9(e).

9(g) Increase in Rates Due to Delinquency or Default or as a Penalty

9(g)(1) Increases Subject to This Section

The Board proposed to adopt § 226.9(g) substantially as adopted in the January 2009 Regulation Z Rule, except as required to be amended for conformity with the Credit Card Act. Proposed § 226.9(g), in combination with amendments to § 226.9(c), implemented the 45-day advance notice requirements for rate increases in new TILA Section 127(i). This approach is consistent with the Board's January 2009 Regulation Z Rule and the July 2009 Regulation Z Interim Final Rule, each of which included change-in-terms notice requirements in § 226.9(c) and increases in rates due to the consumer's default or delinquency or as a penalty for events specified in the account agreement in § 226.9(g). Proposed § 226.9(g)(1) set forth the general rule and stated that for open-end plans other than home-equity plans subject to the requirements of § 226.5b, a creditor must provide a written notice to each consumer who may be affected when a rate is increased due to a delinquency or default or as a penalty for one or more events specified in the account agreement. The Board received no significant comment on the general rule in § 226.9(g)(1), which is adopted as proposed.

9(g)(2) Timing of Written Notice

Proposed paragraph (g)(2) set forth the timing requirements for the notice described in paragraph (g)(1), and stated that the notice must be provided at least 45 days prior to the effective date of the increase. The notice must, however, be provided after the occurrence of the event that gave rise to the rate increase. That is, a creditor must provide the notice after the occurrence of the event or events that trigger a specific impending rate increase and may not send a general notice reminding the consumer of the conditions that may give rise to penalty pricing. For example, a creditor may send a consumer a notice pursuant to § 226.9(g) if the consumer makes a payment that is one day late disclosing a rate increase applicable to new transactions, in accordance with § 226.55. However, a more general notice reminding a consumer who makes timely payments that paying late may trigger imposition of a penalty rate would not be sufficient to meet the requirements of § 226.9(g) if the consumer subsequently makes a late payment. The Board received no significant comment on § 226.9(g)(2), which is adopted as proposed.

9(g)(3) Disclosure Requirements for Rate Increases

Proposed paragraph (g)(3) set forth the content and formatting requirements for notices provided pursuant to § 226.9(g). Proposed § 226.9(g)(3)(i)(A) set forth the content requirements applicable to all open-end (not home-secured) credit plans. Similar to the approach discussed above with regard to § 226.9(c)(2)(iv), the Board proposed a separate § 226.9(g)(3)(i)(B) that contained additional content requirements required under the Credit Card Act that are applicable only to credit card accounts under an open-end (not home-secured) consumer credit plan.

Proposed § 226.9(g)(3)(i)(A) provided that the notice must state that the delinquency, default, or penalty rate has been triggered, and the date on which the increased rate will apply. The notice also must state the circumstances under which the increased rate will cease to apply to the consumer's account or, if applicable, that the increased rate will remain in effect for a potentially indefinite time period. In addition, the notice must include a statement indicating to which balances the delinquency or default rate or penalty rate will be applied, and, if applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless a consumer fails to make a minimum periodic payment within 60 days from the due date for that payment.

Proposed § 226.9(g)(3)(i)(B) set forth additional content that credit card issuers must disclose if the rate increase is due to the consumer's failure to make a minimum periodic payment within 60 days from the due date for that payment. In those circumstances, the proposal required that the notice state the reason for the increase and disclose that the increase will cease to apply if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase. Proposed § 226.9(g)(3)(i)(B) implemented notice requirements contained in amended TILA Section 171(b)(4), as adopted by the Credit Card Act, and implemented in proposed § 226.55(b)(4), as discussed below.

Unlike § 226.9(g)(3) of the July 2009 Regulation Z Interim Final Rule, the notice proposed under § 226.9(g)(3) would not have required disclose the consumer's right to reject the application of the penalty rate. For the reasons discussed in the supplementary information to § 226.9(h), the Board is not providing a right to reject penalty rate increases in light of the new substantive rule on rate increases in proposed § 226.55. Accordingly, the proposal would not have required disclosure of a right to reject for penalty rate increases.

Proposed paragraph (g)(3)(ii) set forth the formatting requirements for a rate increase due to default, delinquency, or as a penalty. These requirements were substantively equivalent to the formatting rule adopted in § 226.9(g)(3)(ii) of the January 2009 Regulation Z Rule and would require the disclosures required under § 226.9(g)(3)(i) to be set forth in the form of a table. As discussed elsewhere in this Federal Register, the formatting requirements are not directly compelled by the Credit Card Act, and consequently the Board is retaining the original July 1, 2010 effective date of the January 2009 Regulation Z Rule for the tabular formatting requirements.

The Board proposed to amend Sample G-21 from the January 2009 Regulation Z Rule (redesignated as Sample G-22) and to add a new sample G-23 to illustrate how a card issuer may comply with the requirements of proposed § 226.9(g)(3)(i). The proposal would have amended references to these samples in comment 9(g)-8 accordingly. Proposed Sample G-22 is a disclosure of a rate increase applicable to a consumer's credit card account based on a late payment that is fewer than 60 days late. The sample explains when the new rate will apply to new transactions and to which balances the current rate will continue to apply. Sample G-23 discloses a rate increase based on a delinquency of more than 60 days, and includes the required content regarding the consumer's ability to cure the penalty pricing by making the next six consecutive minimum payments on time.

One industry commenter stated that § 226.9(g)(3) and Model Form G-23 should be revised to more accurately reflect the balances to which the consumer's cure right applies, when the consumer's rate is increased due to a delinquency of greater than 60 days. As discussed in the supplementary information to § 226.55(b)(4)(ii), the rule requires only that the rate be reduced on transactions that occurred prior to or within 14 days of the notice provided pursuant to § 226.9(c) or (g), when the consumer makes the first six required minimum periodic payments on time following the effective date of a rate increase due to a delinquency of more than 60 days. The Board believes that consumers could be confused by a notice, as proposed, that states only that the rate increase will cease to apply if the consumer, but does not distinguish between outstanding balances and new transactions. Accordingly, the Board has revised § 226.9(g)(3)(i)(B)(2) to require disclosure that the increase will cease to apply with respect to transactions that occurred prior to or within 14 days of provision of the notice, if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase. The Board has made a conforming change to Model Form G-23.

The Board received no other significant comment on the disclosure requirements in § 226.9(g)(3) and is otherwise is adopting § 226.9(g)(3) as proposed.

9(g)(4) Exceptions

Proposed § 226.9(g)(4) set forth an exception to the advance notice requirements of § 226.9(g), which is consistent with an analogous exception contained in the January 2009 Regulation Z Rule and July 2009 Regulation Z Interim Final Rule. Proposed § 226.9(g)(4) clarified the relationship between the notice requirements in § 226.9(c)(vi) and (g)(1) when the creditor decreases a consumer's credit limit and under the terms of the credit agreement a penalty rate may be imposed for extensions of credit that exceed the newly decreased credit limit. This exception is substantively equivalent to § 226.9(g)(4)(ii) of the January 2009 Regulation Z Rule. In addition, it is generally equivalent to § 226.9(g)(4)(ii) of the July 2009 Regulation Z Interim Final Rule, except that the proposed exception implemented content requirements analogous to those in proposed § 226.9(g)(3)(i) that pertain to whether the rate applies to outstanding balances or only to new transactions. See 74 FR 5355 for additional discussion of this exception. The Board received no comments on this exception, which is adopted as proposed.

As discussed in the supplementary information to the October 2009 Regulation Z Proposal, a second exception for an increase in an annual percentage rate due to the failure of a consumer to comply with a workout or temporary hardship arrangement contained in the July 2009 Regulation Z Interim Final Rule has been moved to § 226.9(c)(2)(v)(D).

The Board noted in the supplementary information to the proposal that one respect in which proposed § 226.9(g)(4) differs from the January 2009 Regulation Z Rule is that it did not contain an exception to the 45-day advance notice requirement for penalty rate increases if the consumer's account becomes more than 60 days delinquent prior to the effective date of a rate increase applicable to new transactions, for which a notice pursuant to § 226.9(g) has already been provided.

Industry commenters urged the Board to provide an exception that would permit creditors to send a notice disclosing a rate increase applicable to both a consumer's outstanding balances and new transactions, prior to the consumer's account becoming more than 60 days delinquent. These commenters stated that, as proposed, the rule would require issuers to wait at least 105 days prior to imposing rate increases as a result of the consumer paying more than 60 days late. These commenters also stated that a notice disclosing the consequences that would occur if a consumer paid more than 60 days late would give the consumer the opportunity to avoid the rate increase.

The Board is not adopting an exception that would permit a creditor to send a notice disclosing a rate increase applicable to both a consumer's outstanding balances and new transactions, prior to the consumer's failure to make a minimum payment within 60 days of the due date for that payment. As discussed in the supplementary information to § 226.9(g)(3)(i), amended TILA Section 171(b)(4)(A) requires that specific content be disclosed when a consumer's rate is increased based on a failure to make a minimum payment within 60 days of the due date for that payment. Specifically, TILA Section 171(b)(4)(A) requires the notice to state the reasons for the increase and that the increase will terminate no later than six months from the effective date of the change, provided that the consumer makes the minimum payments on time during that period. The Board believes that the intent of this provision is to create a right for consumers whose rate is increased based on a payment that is more than 60 days late to cure that penalty pricing in order to return to a lower interest rate.

The Board believes that the disclosures associated with this ability to cure will be the most useful to consumers if they receive them after they have already triggered such penalty pricing based on a delinquency of more than 60 days. Under the Board's proposed rule, creditors will be required to provide consumers with a notice specifically disclosing a rate increase based on a delinquency of more than 60 days, at least 45 days prior to the effective date of that increase. The notice will state the effective date of the rate increase, which will give consumers certainty as to the applicable 6-month period during which they must make timely payments in order to return to the lower rate. If creditors were permitted to raise the rate applicable to all of a consumer's balances without providing an additional notice, consumers may be unsure exactly when their account became more than 60 days delinquent and therefore may not know the period in which they need to make timely payments in order to return to a lower rate.

The Board believes that many creditors will impose rate increases applicable to new transactions for consumers who make late payments that are 60 or fewer days late. For notices of such rate increases provided pursuant to § 226.9(g), § 226.9(g)(3)(i)(A)(5) requires that the notice describe the balances to which the current rate will continue to apply unless the consumer fails to make a minimum periodic payment within 60 days of the due date for that payment. The Board believes that this will result in consumers receiving a notice of the consequences of paying more than 60 days late and, thus, will give consumers an opportunity to avoid a rate increase applicable to outstanding balances.

In addition, the Board notes that the Credit Card Act, as implemented in § 226.55(b)(4), does not permit a creditor to raise the interest rate applicable to a consumer's existing balances unless that consumer fails to make a minimum payment within 60 days from the due date. This differs from the Board's January 2009 FTC Act Rule, which permitted such a rate increase based on a failure to make a minimum payment within 30 days from the due date. The exception in § 226.9(g)(4)(iii) of the January 2009 Regulation Z Rule reflected the Board's understanding that some creditors might impose penalty pricing on new transactions based on a payment that is one or several days late, and therefore it might be a relatively common occurrence for consumers' accounts to become 30 days delinquent within the 45-day notice period provided for a rate increase applicable to new transactions. The Board believes that, given the 60-day period imposed by the Credit Card Act and § 226.55(b)(4), it will be less common for consumers' accounts to become delinquent within the original 45-day notice period provided for new transactions.

Proposed Changes to Commentary to § 226.9(g)

The commentary to § 226.9(g) generally is consistent with the commentary to § 226.9(g) of the January 2009 Regulation Z Rule, except for technical changes. In addition, the Board has amended comment 9(g)-1 to reference examples in § 226.55 that illustrate how the advance notice requirements in § 226.9(g) relate to the substantive rule regarding rate increases applicable to existing balances. Because, as discussed in the supplementary information to § 226.55, the Credit Card Act placed the substantive rule regarding rate increases into TILA and Regulation Z, the Board believes that it is not necessary to repeat the examples under § 226.9.

9(h) Consumer Rejection of Certain Significant Changes in Terms

In the July 2009 Regulation Z Interim Final Rule, the Board adopted § 226.9(h), which provided that, in certain circumstances, a consumer may reject significant changes to account terms and increases in annual percentage rates. See 74 FR 36087-36091, 36096, 36099-36101. Section 226.9(h) implemented new TILA Section 127(i)(3) and (4), which—like the other provisions of the Credit Card Act implemented in the July 2009 Regulation Z Interim Final Rule—went into effect on August 20, 2009. See Credit Card Act § 101(a) (new TILA Section 127(i)(3)-(4)). However, several aspects of § 226.9(h) were based on revised TILA Section 171, which—like the other statutory provisions addressed in this final rule—goes into effect on February 22, 2010. Accordingly, because the Board is now implementing revised TILA Section 171 in § 226.55, the Board has modified § 226.9(h) for clarity and consistency.

Application of Right To Reject to Increases in Annual Percentage Rate

Because revised TILA Section 171 renders the right to reject redundant in the context of rate increases, the Board has amended § 226.9(h) to apply that right only to other significant changes to an account term. Currently, § 226.9(h) provides that, if a consumer rejects an increase in an annual percentage rate prior to the effective date stated in the § 226.9(c) or (g) notice, the creditor cannot apply the increased rate to transactions that occurred within fourteen days after provision of the notice. See§ 226.9(h)(2)(i), (h)(3)(ii). However, under revised TILA Section 171 (as implemented in proposed § 226.55), a creditor is generally prohibited from applying an increased rate to transactions that occurred within fourteen days after provision of a § 226.9(c) or (g) notice regardless of whether the consumer rejects that increase. Similarly, although the exceptions in § 226.9(h)(3)(i) and revised TILA Section 171(b)(4) permit a creditor to apply an increased rate to an existing balance when an account becomes more than 60 days delinquent, revised TILA Section 171(b)(4)(B) (as implemented in proposed § 226.55(b)(4)(ii)) provides that the creditor must terminate the increase if the consumer makes the next six payments on or before the payment due date. Thus, with respect to rate increases, the right to reject does not provide consumers with any meaningful protections beyond those provided by revised TILA Section 171 and § 226.55. Accordingly, the Board believes that, on or after February 22, 2010, the right to reject will be unnecessary for rate increases. Indeed, once revised TILA Section 171 becomes effective, notifying consumers that they have a right to reject a rate increase could be misleading insofar as it could imply that a consumer who does so will receive some additional degree of protection (such as protection against increases in the rate that applies to future transactions).

Industry commenters strongly opposed the Board's establishment of a right to reject in the July 2009 Regulation Z Interim Final Rule but supported the revisions in the October 2009 Regulation Z Proposal. Consumer group commenters took the opposite position. In particular, along with a federal banking regulator, consumer group commenters argued that the Board should interpret the “right to cancel” in revised TILA Section 127(i)(3) as providing consumers with the right to reject increases in rates that apply to new transactions. However, the Board does not believe this interpretation would be consistent with the Credit Card Act's provisions regarding rate increases. As discussed in detail below with respect to § 226.55, the Credit Card Act generally prohibits card issuers from applying increased rates to existing balances while generally permitting card issuers to increase the rates that apply to new transactions after providing 45 days' advance notice. Furthermore, by prohibiting card issuers from applying an increased rate to transactions that occur during a 14-day period following provision of the notice of the increase, the Credit Card Act ensures that consumers can generally avoid application of increased rates to new transactions by ceasing to use their accounts after receiving the notice of the increase.

Accordingly, the final rule removes references to rate increases from § 226.9(h) and its commentary. Similarly, because the exception in § 226.9(h)(3)(ii) for transactions that occurred more than fourteen days after provision of the notice was based on revised TILA Section 171(d), [29] that exception has been removed from § 226.9(h) and incorporated into § 226.55. Finally, the Board has redesignated comment 9(h)(3)-1 as comment 9(h)-1 and amended it to clarify that § 226.9(h) does not apply to increases in an annual percentage rate.

As noted above, the Board has also revised § 226.9(c)(2)(iv)(B) to clarify that the right to reject does not apply to changes in an annual percentage rate that do not result in an immediate increase in rate (such as changes in the method used to calculate a variable rate or conversion of a variable rate to an equivalent fixed rate). As discussed below, consistent with the requirements in the Credit Card Act, § 226.55 generally prohibits a card issuer from applying any change in an annual percentage rate to an existing balance if that change could result in an increase in rate. See commentary to § 226.55(b)(2). However, because the Credit Card Act generally permits card issuers to change the rates that apply to new transactions, it would be inconsistent with the Act to apply the right to reject to such changes. Nevertheless, as with rate increases that apply to new transactions, the consumer will receive 45 days' advance notice of the change and thus can decide whether to continue using the account.

Industry and consumer group commenters also requested that the Board add or remove several exceptions to the right to reject. However, the Board does not believe that further revisions are warranted at this time. In particular, industry commenters argued that the right to reject should not apply when the consumer has consented to the change in terms, when the change is unambiguously in the consumer's favor, or in similar circumstances. As discussed elsewhere in this final rule, the Board believes that it would be difficult to develop workable standards for determining when a change has been requested by the consumer (rather than suggested by the issuer), when a change is unambiguously beneficial to the consumer, and so forth. Furthermore, an exception to the right to reject generally should not be necessary if the consumer has actually requested a change or if a change is clearly advantageous to the consumer.

Industry commenters also argued that the Board should exempt increases in fees from the right to reject if the fee is increased to a pre-disclosed amount after a specified period of time, similar to the exception for temporary rates in § 226.9(c)(2)(v)(B). However, as discussed above, § 226.9(c)(2)(v)(B) implements revised TILA Section 171(b)(1), which applies only to increases in annual percentage rates. The fact that the exceptions in Section 171(b)(3) and (b)(4) expressly apply to increases in rates and fees indicates that Congress intentionally excluded fees from Section 171(b)(1). Accordingly, the Board does not believe it would be appropriate to exclude increases in fees from the right to reject.

Consumer groups argued that the Board should remove the exception in § 226.9(h)(3) for accounts that are more than 60 days' delinquent. However, this exception is based on revised TILA Section 171(b)(4), which provides that the Credit Card Act's limitations on rate increases do not apply when an account is more than 60 days' past due. Accordingly, the Board believes that it is consistent with the intent of the Credit Card Act to provide card issuers with greater flexibility to adjust the account terms in these circumstances.

Consumer groups also argued that the Board should remove the exception in § 226.9(c)(2)(iv) for increases in the required minimum periodic payment. However, the Board believes that, as a general matter, increases in the required minimum payment can be advantageous for consumers insofar as they can increase repayment of the outstanding balance, which can reduce the cost of borrowing. Indeed, although the Credit Card Act limits issuers' ability to accelerate repayment in circumstances where the issuer cannot apply an increased rate to an existing balance (revised TILA Section 171(c)), the Act also encourages consumers to increase the repayment of credit card balances by requiring card issuers to disclose on the periodic statement the costs associated with making only the minimum payment (revised TILA Section 127(b)(11)). Furthermore, although consumer groups argued that card issuers could raise minimum payments to unaffordable levels in order to force accounts to become more than 60 days' past due (which would allow issuers to apply increased rates to existing balances), it seems unlikely that it would be in card issuers' interests to do so, given the high loss rates associated with accounts that become more than 60 days' delinquent. [30] Thus, the Board does not believe application of the right to reject to increases in the minimum payment is warranted at this time.

Repayment Restrictions

Because the repayment restrictions in § 226.9(h)(2)(iii) are based on revised TILA Section 171(c), the Board believes that those restrictions should be implemented with the rest of revised Section 171 in § 226.55. Section 226.9(h)(2)(iii) implemented new TILA Section 127(i)(4), which expressly incorporated the repayment methods in revised TILA Section 171(c)(2). Because the rest of revised Section 171 would not be effective until February 22, 2010, the July 2009 Regulation Z Interim Final Rule implemented new TILA Section 127(i)(4) by incorporating the repayment restrictions in Section 171(c)(2) into § 226.9(h)(2)(iii). See 74 FR 36089. However, the Board believes that—once revised TILA Section 171 becomes effective on February 22, 2010—these repayment restrictions should be moved to § 226.55(c). In addition to being duplicative, implementing revised TILA Section 171(c)'s repayment methods in both § 226.9(h) and § 226.55(c) would create the risk of inconsistency. Furthermore, because these restrictions will generally be of greater importance in the context of rate increases than other significant changes in terms, the Board believes they should be located in proposed § 226.55.

The Board did not receive significant comment on this aspect of the proposal. Accordingly, the final rule moves the provisions and commentary regarding repayment to § 226.55(c)(2) and amends § 226.9(h)(2)(iii) to include a cross-reference to § 226.55(c)(2).

Furthermore, the Board has amended comment 9(h)(2)(iii)-1 to clarify the application of the repayment methods listed in proposed § 226.55(c)(2) in the context of a rejection of a significant change in terms. As revised, this comment clarifies that, when applying the methods listed in § 226.55(c)(2) pursuant to § 226.9(h)(2)(iii), a creditor may utilize the date on which the creditor was notified of the rejection or a later date (such as the date on which the change would have gone into effect but for the rejection). For example, when a creditor increases an annual percentage rate pursuant to § 226.55(b)(3), § 226.55(c)(2)(ii) permits the creditor to establish an amortization period for a protected balance of not less than five years, beginning no earlier than the effective date of the increase. Accordingly, when a consumer rejects a significant change in terms pursuant to § 226.9(h)(1), § 226.9(h)(2)(iii) permits the creditor to establish an amortization period for the balance on the account of not less than five years, beginning no earlier than the date on which the creditor was notified of the rejection. The comment provides an illustrative example.

In addition, comment 9(h)(2)(iii)-2 has been revised to clarify the meaning of “the balance on the account” that is subject to the repayment restrictions in § 226.55(c)(2). The revised comment would clarify that, when applying the methods listed in § 226.55(c)(2) pursuant to § 226.9(h)(2)(iii), the provisions in § 226.55(c)(2) and the guidance in the commentary to § 226.55(c)(2) regarding protected balances also apply to a balance on the account subject to § 226.9(h)(2)(iii). Furthermore, the revised comment clarifies that, if a creditor terminates or suspends credit availability based on a consumer's rejection of a significant change in terms, the balance on the account for purposes of § 226.9(h)(2)(iii) is the balance at the end of the day on which credit availability was terminated or suspended. However, if a creditor does not terminate or suspend credit availability, the balance on the account for purposes of § 226.9(h)(2)(iii) is the balance on a date that is not earlier than the date on which the creditor was notified of the rejection. An example is provided.

Additional Revisions to Commentary

Consistent with the revisions discussed above, the Board has made non-substantive, technical amendments to the commentary to § 226.9(h). In addition, for organizational reasons, the Board has renumbered comments 9(h)(2)(ii)-1 and -2. Finally, the Board has amended comment 9(h)(2)(ii)-2 to clarify the application of the prohibition in § 226.9(h)(2)(ii) on imposing a fee or charge solely as a result of the consumer's rejection of a significant change in terms. In particular, the revised comment clarifies that, if credit availability is terminated or suspended as a result of the consumer's rejection, a creditor is prohibited from imposing a periodic fee that was not charged before the consumer rejected the change (such as a closed account fee).

Section 226.10Payments

Section 226.10, which implements TILA Section 164, currently contains rules regarding the prompt crediting of payments and is entitled “Prompt crediting of payments.” 15 U.S.C. 1666c. In October 2009, the Board proposed to implement several new provisions of the Credit Card Act regarding payments in § 226.10, such as requirements regarding the permissibility of certain fees to make expedited payments. Several of these rules do not pertain directly to the prompt crediting of payments, but more generally to the conditions that may be imposed upon payments. Accordingly, the Board proposed to amend the title of § 226.10 to “Payments” to more accurately reflect the content of amended § 226.10. The Board received no comments on this change, which is adopted as proposed.

226.10(b) Specific Requirements for Payments

Cut-Off Times for Payments

TILA Section 164 states that payments received by the creditor from a consumer for an open-end consumer credit plan shall be posted promptly to the account as specified in regulations of the Board. The Credit Card Act amended TILA Section 164 to state that the Board's regulations shall prevent a finance charge from being imposed on any consumer if the creditor has received the consumer's payment in readily identifiable form, by 5 p.m. on the date on which such payment is due, in the amount, manner, and location indicated by the creditor to avoid the imposition of such a finance charge. While amended TILA Section 164 generally mirrors current TILA Section 164, the Credit Card Act added the reference to a 5 p.m. cut-off time for payments received on the due date.

TILA Section 164 is implemented in § 226.10. The Board's January 2009 Regulation Z Rule addressed cut-off times by providing that a creditor may specify reasonable requirements for payments that enable most consumers to make conforming payments. Section 226.10(b)(2)(ii) of the January 2009 Regulation Z Rule stated that a creditor may set reasonable cut-off times for payments to be received by mail, by electronic means, by telephone, and in person. Amended § 226.10(b)(2)(ii) provided a safe harbor for the reasonable cut-off time requirement, stating that it would be reasonable for a creditor to set a cut-off time for payments by mail of 5 p.m. on the payment due date at the location specified by the creditor for the receipt of such payments. While this safe harbor referred only to payments received by mail, the Board noted in the supplementary information to the January 2009 Regulation Z Rule that it would continue to monitor other methods of payment in order to determine whether similar guidance was necessary. See 74 FR 5357.

As amended by the Credit Card Act, TILA Section 164 differs from § 226.10 of the January 2009 Regulation Z Rule in two respects. First, amended TILA Section 164 applies the requirement that a creditor treat a payment received by 5 p.m. on the due date as timely to all forms of payment, not only payments received by mail. In contrast, the safe harbor regarding cut-off times that the Board provided in § 226.10(b)(2)(ii) of the January 2009 Regulation Z Rule directly addressed only mailed payments. Second, while the Board's January 2009 Regulation Z Rule left open the possibility that in some circumstances, cut-off times earlier than 5 p.m. might be considered reasonable, amended TILA Section 164 prohibits cut-off times earlier than 5 p.m. on the due date in all circumstances.

In the October 2009 Regulation Z Proposal, the Board proposed to implement amended TILA Section 164 in a revised § 226.10(b)(2)(ii). Proposed § 226.10(b)(2)(ii) stated that a creditor may set reasonable cut-off times for payments to be received by mail, by electronic means, by telephone, and in person, provided that such cut-off times must be no earlier than 5 p.m. on the payment due date at the location specified by the creditor for the receipt of such payments. Creditors would be free to set later cut-off times; however, no cut-off time would be permitted to be earlier than 5 p.m. This paragraph, in accordance with amended TILA Section 164, would apply to payments received by mail, electronic means, telephone, or in person, not only payments received by mail. The Board is adopting § 226.10(b)(2)(ii) generally as proposed.

Consistent with the January 2009 Regulation Z Rule, proposed § 226.10(b)(2)(ii) referred to the time zone of the location specified by the creditor for the receipt of payments. The Board believed that this clarification was necessary to provide creditors with certainty regarding how to comply with the proposed rule, given that consumers may reside in different time zones from the creditor. The Board noted that a rule requiring a creditor to process payments differently based on the time zone at each consumer's billing address could impose significant operational burdens on creditors. The Board solicited comment on whether this clarification is appropriate for payments made by methods other than mail.

Consumer group commenters indicated that the cut-off time rule for electronic and telephone payments should refer to the consumer's time zone. These commenters believe that it is unfair for consumers to be penalized for making what they believe to be a timely payment based on their own time zone. In contrast, industry commenters stated that it is appropriate for the 5 p.m. cut-off time to be determined by reference to the time zone of the location specified for making payments, including for payments by means other than mail. These commenters specifically noted the operational burden that would be associated with a rule requiring a creditor to process payments differently based on the time zone of the consumer.

The final rule, consistent with the proposal, refers to the time zone of the location specified by the creditor for making payments. The Board believes that the benefit to consumers of a rule that refers to the time zone of the consumer's billing address would not outweigh the operational burden to creditors. As amended by the Credit Card Act, TILA contains a number of protections, including new periodic statement mailing requirements for credit card accounts implemented in § 226.5(b)(2)(ii), to ensure that consumers receive a sufficient period of time to make payments. The Board also notes that there may be consumers who are United States residents, such that Regulation Z would apply pursuant to comment 1(c)-1, but who have billing addresses that are outside of the United States. Thus, if the rule referred to the time zone of the consumer's billing address, a creditor might need to have many different payment processing procedures, including procedures for time zones outside of the United States.

Section 226.10(b)(2)(ii), consistent with the proposal, generally applies to payments made in person. However, as discussed below, the Credit Card Act amends TILA Section 127(b)(12) to establish a special rule for payments on credit card accounts made in person at branches of financial institutions, which the Board is implementing in a new § 226.10(b)(3). Notwithstanding the general rule in proposed § 226.10(b)(2)(ii), card issuers that are financial institutions that accept payments in person at a branch or office may not impose a cut-off time earlier than the close of business of that office or branch, even if the office or branch closes later than 5 p.m. The Board notes that this rule refers only to payments made in person at the branch or office. Payments made by other means such as by telephone, electronically, or by mail are subject to the general rule prohibiting cut-off times prior to 5 p.m., regardless of when a financial institution's branches or offices close. The Board notes that there may be creditors that are not financial institutions that accept payments in person, such as at a retail location, and thus is adopting a reference in § 226.10(b)(2)(ii) to payments made in person in order to address cut-off times for such creditors that are not also subject to proposed § 226.10(b)(3).

The Board notes that the Credit Card Act applies the 5 p.m. cut-off time requirement to all open-end credit plans, including open-end (home-secured) credit. Accordingly, § 226.10(b)(2)(ii), consistent with the proposal, applies to all open-end credit. This is consistent with current § 226.10, which applies to all open-end credit.

Other Requirements for Conforming Payments

One industry commenter asked the Board to clarify that an issuer can specify a single address for receiving conforming payments. The Board notes that § 226.10(b)(2)(v) provides “[s]pecifying one particular address for receiving payments” such as a post office box” as an example of a reasonable requirement for payments. Accordingly, the Board believes that no additional clarification is necessary. However, a creditor that specifies a single address for the receipt of conforming payments is still subject to the general requirement in § 226.10(b) that the requirement enable most consumers to make conforming payments.

The commenter further urged the Board to adopt a clarification to comment 10(b)-2, which states that if a creditor promotes electronic payment via its Web site, any payments made via the creditor's Web site are generally conforming payments for purposes of § 226.10(b). The commenter asked the Board to clarify that a creditor may set a cut-off time for payments via its Web site, consistent with the general rule in § 226.10(b). The Board agrees that this clarification is appropriate and has included a reference to the creditor's cut-off time in comment 10(b)-2.

Finally, the Board is adopting a technical revision to § 226.10(b)(4), which addresses nonconforming payments. Section 226.10(b)(4) states that if a creditor specifies, on or with the periodic statement, requirements for the consumer to follow in making payments, but accepts a payment that does not conform to the requirements, the creditor shall credit the payment within five days of receipt. The Board has amended § 226.10(b)(4) to clarify that a creditor may only specify such requirements as are permitted under § 226.10. For example, a creditor may not specify requirements for making payments that would be unreasonable under § 226.10(b)(2), such as a cut-off time for mailed payments of 4:00 p.m., and treat payments received by mail between 4:00 p.m. and 5:00 p.m. as non-conforming payments.

Payments Made at Financial Institution Branches

The Credit Card Act amends TILA Section 127(b)(12) to provide that, for creditors that are financial institutions which maintain branches or offices at which payments on credit card accounts are accepted in person, the date on which a consumer makes a payment on the account at the branch or office is the date on which the payment is considered to have been made for purposes of determining whether a late fee or charge may be imposed. 15 U.S.C. 1637(b)(12). The Board proposed to implement the requirements of amended TILA Section 127(b)(12) that pertain to payments made at branches or offices of a financial institution in new § 226.10(b)(3).

Proposed § 226.10(b)(3)(i) stated that a card issuer that is a financial institution shall not impose a cut-off time earlier than the close of business for payments made in person on a credit card account under an open-end (not home-secured) consumer credit plan at any branch or office of the card issuer at which such payments are accepted. The proposal further provided that payments made in person at a branch or office of the financial institution during the business hours of that branch or office shall be considered received on the date on which the consumer makes the payment. Proposed § 226.10(b)(3) interpreted amended TILA Section 127(b)(12) as requiring card issuers that are financial institutions to treat in-person payments they receive at branches or offices during business hours as conforming payments that must be credited as of the day the consumer makes the in-person payment. The Board believes that this is the appropriate reading of amended TILA Section 127(b)(12) because it is consistent with consumer expectations that in-person payments made at a branch of the financial institution will be credited on the same day that they are made.

Several industry commenters stated that the Board should clarify the relationship between § 226.10(b)(3) and the general rule in § 226.10(b)(2) regarding cut-off times. These commenters indicated that it was unclear whether the Board intended to require that bank branches remain open until 5 p.m. if a card issuer accepts in-person payments at a branch location. The Board did not intend to require branches or offices of financial institutions to remain open until 5 p.m. if in-person credit card payments are accepted at that location. The Board believes that such a rule might discourage financial institutions from accepting in-person payments, to the detriment of consumers. The Board therefore is adopting § 226.10(b)(3)(i) generally as proposed, but has clarified that, notwithstanding § 226.10(b)(2)(ii), a card issuer may impose a cut-off time earlier than 5 p.m. for payments on a credit card account under an open-end (not home-secured) consumer credit plan made in person at a branch or office of a card issuer that is a financial institution, if the close of business of the branch or office is earlier than 5 p.m. For example, if a branch or office of the card issuer closes at 3 p.m., the card issuer must treat in-person payments received at that branch prior to 3 p.m. as received on that date.

Several industry commenters stated that a card issuer should not be required to treat an in-person payment received at a branch or office as conforming, if the issuer does not promote payment at the branch. The Board believes that TILA Section 127(b)(12)(C) requires all card issuers that are financial institutions that accept payments in person at a branch or office to treat those payments as received on the date on which the consumer makes the payment. The Credit Card Act does not distinguish between circumstances where a card issuer promotes in-person payments at branches and circumstances where a card issuer accepts, but does not promote, such payments. The Board believes that the intent of TILA Section 127(b)(12)(C) is to require in-person payments to be treated as received on the same day, which is consistent with consumer expectations. Accordingly, § 226.10(b)(3) does not distinguish between financial institutions that promote in-person payments at a branch and financial institutions that accept, but do not promote, such payments.

Neither the Credit Card Act nor TILA defines “financial institution.” In order to give clarity to card issuers, the Board proposed to adopt a definition of “financial institution,” for purposes of § 226.10(b)(3), in a new § 226.10(b)(3)(ii). Proposed § 226.10(b)(3)(ii) stated that “financial institution” has the same meaning as “depository institution” as defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).

Industry commenters noted that the Board's proposed definition of “financial institution” excluded credit unions. Consumer groups stated that a broader definition of “financial institution” including entities other than depository institutions, such as retail locations that accept payments on store credit cards for that retailer, would be appropriate in light of consumer expectations. The Board has revised § 226.10(b)(3)(ii) in the final rule to cover credit unions, because omission of credit unions in the proposal was an unintentional oversight. Section 226.10(b)(3)(ii) of the final rule states that a “financial institution” means a bank, savings association, or credit union. The Board believes that a broader definition of “financial institution” that includes non-depository institutions, such as retail locations, would not be appropriate, because the primary business of such entities is not the provision of financial services. The Board believes that the statute's reference to “financial institutions” contemplates that not all card issuers will be covered by this rule. The Board believes that the definition it is adopting effectuates the purposes of amended TILA Section 127(b)(12) by including all banks, savings associations, and credit unions, while excluding entities such as retailers that should not be considered “financial institutions” for purposes of proposed § 226.10(b)(3).

In October, 2009, the Board proposed a new comment 10(b)-5 to clarify the application of proposed § 226.10(b)(3) for payments made at point of sale. Proposed comment 10(b)-5 stated that if a creditor that is a financial institution issues a credit card that can be used only for transactions with a particular merchant or merchants, and a consumer is able to make a payment on that credit card account at a retail location maintained by such a merchant, that retail location is not considered to be a branch or office of the creditor for purposes of § 226.10(b)(3).

One industry commenter commented in support of proposed comment 10(b)-5, but asked that it be expanded to cover co-branded cards in addition to private label credit cards. This commenter pointed out that as proposed, comment 10(b)-5 applied only to private label credit cards, but the Board's supplementary information referenced co-branded credit cards. Consumer groups indicated that they believe proposed comment 10(b)-5 is contrary to consumer expectations. These commenters further stated that if a bank branch must credit payments as of the date of in-person payment, consumers will come to expect and assume that retail locations that accept credit card payments should do the same. The Board is adopting comment 10(b)-5 generally as proposed, but has expanded the comment to address co-branded credit cards. The Board believes that the intent of TILA Section 127(b)(12) is to apply only to payments made at a branch or office of the creditor, not to payments made at a location maintained by a third party that is not the creditor. TILA Section 127(b)(12) is limited to branches or offices of a card issuer that is a financial institution, and accordingly the Board believes that the statute was not intended to address other types of locations where an in-person payment on a credit card account may be accepted.

Finally, the Board also proposed a new comment 10(b)-6 to clarify what constitutes a payment made “in person” at a branch or office of a financial institution. Proposed comment 10(b)-6 would state that for purposes of § 226.10(b)(3), payments made in person at a branch or office of a financial institution include payments made with the direct assistance of, or to, a branch or office employee, for example a teller at a bank branch. In contrast, the comment would provide that a payment made at the bank branch without the direct assistance of a branch or office employee, for example a payment placed in a branch or office mail slot, is not a payment made in person for purposes of § 226.10(b)(3). The Board believes that this is consistent with consumer expectations that payments made with the assistance of a financial institution employee will be credited immediately, while payments that are placed in a mail slot or other receptacle at the branch or office may require additional processing time. The Board received no significant comment on proposed comment 10(b)-6, and it is adopted as proposed.

One issuer asked the Board to clarify that in-person payments made at a branch or location of a card issuer's affiliate should not be treated as conforming payments, even if the affiliate shares the same logo or trademark as the card issuer. The Board understands that for many large financial institutions, the card issuing entity may be a separate legal entity from the affiliated depository institution or other affiliated entity. In such cases, the card issuing entity is not likely to have branches or offices at which a consumer can make a payment, while the affiliated depository institution or other affiliated entity may have such branches or offices. Therefore, as a practical matter, in many cases a consumer will only be able to make in-person payments on his or her credit card account at an affiliate of the card issuer, not at a branch of the card issuer itself. The Board believes that in such cases, it may not be apparent to consumers that they are in fact making payment at a legal entity different than their card issuer, especially when the affiliates share a logo or have similar names. Therefore, the Board believes that the clarification requested by the commenter is inappropriate. The Board is adopting a new comment 10(b)-7 which states that if an affiliate of a card issuer that is a financial institution shares a name with the card issuer, such as “ABC,” and accepts in-person payments on the card issuer's credit card accounts, those payments are subject to the requirements of § 226.10(b)(3).

10(d) Crediting of Payments When Creditor Does Not Receive or Accept Payments on Due Date

The Credit Card Act adopted a new TILA Section 127(o) that provides, in part, that if the payment due date for a credit card account under an open-end consumer credit plan is a day on which the creditor does not receive or accept payments by mail (including weekends and holidays), the creditor may not treat a payment received on the next business day as late for any purpose. 15 U.S.C. 1637(o). New TILA Section 127(o) is similar to § 226.10(d) of the Board's January 2009 Regulation Z Rule, with two notable differences. Amended § 226.10(d) of the January 2009 Regulation Z Rule stated that if the due date for payments is a day on which the creditor does not receive or accept payments by mail, the creditor may not treat a payment received by mail the next business day as late for any purpose. In contrast, new TILA Section 127(o) provides that if the due date is a day on which the creditor does not receive or accept payments by mail, the creditor may not treat a payment received the next business day as late for any purpose. TILA Section 127(o) applies to payments made by any method on a due date which is a day on which the creditor does not receive or accept mailed payments, and is not limited to payments received the next business day by mail. Second, new TILA Section 127(o) applies only to credit card accounts under an open-end consumer plan, while § 226.10(d) of the January 2009 rule applies to all open-end consumer credit.

The Board proposed to implement new TILA Section 127(o) in an amended § 226.10(d). The general rule in proposed § 226.10(d) would track the statutory language of new TILA Section 127(o) to state that if the due date for payments is a day on which the creditor does not receive or accept payments by mail, the creditor may generally not treat a payment received by any method the next business day as late for any purpose. The Board proposed, however, to provide that if the creditor accepts or receives payments made by a method other than mail, such as electronic or telephone payments, a due date on which the creditor does not receive or accept payments by mail, it is not required to treat a payment made by that method on the next business day as timely. The Board proposed this clarification using its authority under TILA Section 105(a) to make adjustments necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a).

Consumer group commenters stated that electronic and telephone payments should not be exempted from the rule for payments made on a due date which is a day on which the creditor does not receive or accept payments by mail. The Board notes that proposed § 226.10(d) did not create a general exemption for electronic or telephone payments, except when the creditor receives or accepts payments by those methods on a day on which it does not accept payments by mail. Under these circumstances, § 226.10(d) requires a creditor to credit a conforming electronic or telephone payment as of the day of receipt, and accordingly the fact that the creditor does not accept mailed payments on that day does not result in any detriment to a consumer who makes his or her payment electronically or by telephone.

The Board believes that it is not the intent of new TILA Section 127(o) to permit consumers who can make timely payments by methods other than mail, such as payments by phone, to have an extra day after the due date to make payments using those methods without those payments being treated as late. Rather, the Board believes that new TILA Section 127(o) was intended to address those limited circumstances in which a consumer cannot make a timely payment on the due date, for example if it falls on a weekend or holiday and the creditor does not accept or receive payments on that date. In those circumstances, without the protections of new TILA Section 127(o), the consumer would have to make a payment one or more days in advance of the due date in order to have that payment treated as timely. The Credit Card Act provides other protections designed to ensure that consumers have adequate time to make payments, such as amended TILA Section 163, which was implemented in § 226.5(b) in the July 2009 Regulation Z Interim Final Rule, which generally requires that creditors mail or deliver periodic statements to consumers at least 21 days in advance of the due date. For these reasons, the Board is adopting § 226.10(d) as proposed, except that the Board has restructured the paragraph for clarity.

An industry trade association asked the Board to clarify that § 226.10(d), which prohibits the treatment of a payment as late for any purpose, does not prohibit charging interest for the period between the due date on which the creditor does not accept payments by mail and the following business day. The Board believes, consistent with the approach it took in § 226.5(b)(2)(ii), that charging interest for the period between the due date and the following business day does not constitute treating a payment as late for any purpose, unless the delay results in the loss of a grace period. Accordingly, the Board is adopting new comment 10(d)-2, which cross-references the guidance on “treating a payment as late for any purpose” in comment 5(b)(2)(ii)-2. The comment also expressly states that when an account is not eligible for a grace period, imposing a finance charge due to a periodic interest rate does not constitute treating a payment as late.

One industry commenter asked the Board to clarify the operation of § 226.10(d) if a holiday on which an issuer does not accept payments is on a Friday, but the bank does accept payments by mail on the following Saturday. The Board believes that in this case, Saturday is the next business day for purposes of § 226.10(d). Accordingly, the Board has included a statement in § 226.10(d)(1) indicating that for the purposes of § 226.10(d), the “next business day” means the next day on which the creditor accepts or receives payments by mail.

Another industry commenter stated that the rule should provide that if a creditor receives multiple mail deliveries on the next business day following a due date on which it does not accept mailed payments, only payments in the first delivery should be required to be treated as timely. The Board believes that such a comment would not be appropriate, because if the creditor received or accepted mailed payments on the due date, payments in every mail delivery on that day would be timely, not just those payments received in the first mail delivery. The Board believes that consumers should accordingly have a full business day after a due date on which the creditor does not accept payments by mail in order to make a timely payment.

Finally, as proposed, amended § 226.10(d) applies to all open-end consumer credit plans, not just credit card accounts, even though new TILA Section 127(o) applies only to credit card accounts. The Board received no comments on the applicability of § 226.10(d) to open-end credit plans that are not credit card accounts. The Board believes that it is appropriate to have one consistent rule regarding the treatment of payments when the due date falls on a date on which the creditor does not receive or accept payments by mail. The Board believes that that Regulation Z should treat payments on an open-end plan that is not a credit card account the same as payments on a credit card account. Regardless of the type of open-end plan, if the payment due date is a day on which the creditor does not accept or receive payments by mail, a consumer should not be required to make payments prior to the due date in order for them to be treated as timely. This is consistent with § 226.10(d) of the January 2009 Regulation Z Rule, which set forth one consistent rule for all open-end credit.

10(e) Limitations on Fees Related to Method of Payment

The Credit Card Act adopted new TILA Section 127(l) which generally prohibits creditors, in connection with a credit card account under an open-end consumer credit plan, from imposing a separate fee to allow a consumer to repay an extension of credit or pay a finance charge, unless the payment involves an expedited service by a customer service representative. 15 U.S.C. 1637(l). In the October 2009 Regulation Z Proposal, the Board proposed to implement TILA Section 127(l) in § 226.10(e), which generally prohibits creditors, in connection with a credit card account under an open-end (not home-secured) consumer credit plan, from imposing a separate fee to allow consumers to make a payment by any method, such as mail, electronic, or telephone payments, unless such payment method involves an expedited service by a customer service representative of the creditor. The final rule adopts new § 226.10(e) as proposed.

Separate fee. Proposed comment 10(e)-1 defined “separate fee” as a fee imposed on a consumer for making a single payment to the account. Consumer group commenters suggested that the definition of the term “separate fee” was too narrow and could create a loophole for periodic fees, such as a monthly fee, to allow consumers to make a payment. Consistent with the statutory provision in TILA Section 127(l), the Board believes a separate fee for any payment made to an account is prohibited, with the exception of a payment involving expedited service by a customer service representative. See 15 U.S.C. 1604(a). The Board revises proposed comment 10(e)-1 by removing the word “single” in order to clarify that the prohibition on a “separate fee” applies to any general payment method which does not involve expedited service by a customer service representative and to any payment to an account, regardless of whether the payment involves a single payment transaction or multiple payment transactions. Therefore, the term separate fee includes any fee which may be imposed periodically to allow consumers to make payments. The Board also notes that periodic fees may be prohibited because they do not involve expedited service or a customer service representative. The term separate fee also includes any fee imposed to allow a consumer to make multiple payments to an account, such as automatic monthly payments, if the payments do not involve expedited service by a customer service representative. Accordingly, comment 10(e)-1 is adopted with the clarifying revision.

Expedited. The Board proposed comment 10(e)-2 to clarify that the term “expedited” means crediting a payment to the account the same day or, if the payment is received after the creditor's cut-off time, the next business day. In response to the October 2009 Regulation Z Proposal, industry commenters asked the Board to revise guidance on the term “expedited” to include representative-assisted payments that are scheduled to occur on a specific date, i.e., a future date, and then credited or posted immediately on the requested specified date. The Board has not included this interpretation of expedited in the final rule because the Board believes it would be inconsistent with the intent of TILA Section 127(l). Comment 10(e)-2 is adopted as proposed.

Customer service representative. Proposed comment 10(e)-3 clarified that expedited service by a live customer service representative of the creditor would be required in order for a creditor to charge a separate fee to allow consumers to make a payment. One commenter requested that the Board clarify that a creditor's customer service representative includes the creditor's agents or service bureau. The Board notes that proposed comment 10(e)-3 already stated that payment service may be provided by an agent of the creditor. Consumer group commenters strongly supported the Board's guidance that a customer service representative does not include automated payment systems, such as a voice response unit or interactive voice response system. Another commenter, however, asked the Board to clarify guidance for payment transactions which involve both an automated system and the assistance of a live customer service representative. Specifically, the commenter noted that some payments systems require an initial consumer contact through an automated system but the payment is ultimately handled by a live customer service representative. The Board acknowledges that some payments transactions may require the use of an automated system for a portion of the transaction, even if a live customer service representative provides assistance. For example, a customer's telephone call may be answered by an automated system before the customer is directed to a live customer service representative, or a customer service representative may direct a customer to an automated system to complete the payment transaction, such as entering personal identification numbers (PINs). The Board notes that a payment made with the assistance of a live representative or agent of the credit, which also requires an automated system for a portion of the transaction, is considered service by a live customer service representative. The Board is amending comment 10(e)-3 in the final rule accordingly.

Section 226.10(f)Changes by Card Issuer

The Credit Card Act adopted new TILA Section 164(c), which provides that a card issuer may not impose any late fee or finance charge for a late payment on a credit card account if a card issuer makes “a material change in the mailing address, office, or procedures for handling cardholder payments, and such change causes a material delay in the crediting of a cardholder payment made during the 60-day period following the date on which the change took effect.” 15 U.S.C. 1666c(c). The Board is implementing new TILA Section 164(c) in § 226.10(f). Proposed § 226.10(f) prohibited a credit card issuer from imposing any late fee or finance charge for a late payment on a credit card account if a card issuer makes a material change in the address for receiving cardholder payments or procedures for handling cardholder payments, and such change causes a material delay in the crediting of a payment made during the 60-day period following the date on which the change took effect. As discussed in the October 2009 Regulation Z Proposal, the Board modified the language of new TILA Section 164(c) to clarify that the meaning of the term “office” applies only to changes in the address of a branch or office at which payments on a credit card account are accepted. To avoid potential confusion, the Board revises § 226.10(f) to clarify that the prohibition on imposing a late fee or finance charge applies only during the 60-day period following the date on which a material change took effect. The Board adopts § 226.10(f) as proposed with the clarifying revision.

Comment 10(f)-1 clarified that “address for receiving payment” means a mailing address for receiving payment, such as a post office box, or the address of a branch or office at which payments on credit card accounts are accepted. No comments were received on proposed comment 10(f)-1 in particular; however, as discussed below, industry commenters opposed including the closing of a bank branch as an example of a material change in address. See comment 10(f)-4.iv. The final rule adopts comment 10(f)-1 as proposed.

The Board also proposed comment 10(f)-2 to provide guidance to creditors in determining whether a change or delay is material. Proposed comment 10(f)-2 clarified that “material change” means any change in address for receiving payment or procedures for handling cardholder payments which causes a material delay in the crediting of a payment. Proposed comment 10(f)-2 further clarified that a “material delay” means any delay in crediting a payment to a consumer's account which would result in a late payment and the imposition of a late fee or finance charge. The final rule adopts comment 10(f)-2 as proposed.

In the October 2009 Regulation Z Proposal, the Board acknowledged that a card issuer may face operational challenges in order to ascertain, for any given change in the address for receiving payment or procedures for handling payments, whether that change did in fact cause a material delay in the crediting of a consumer's payment. Accordingly, proposed comment 10(f)-3 provided card issuers with a safe harbor for complying with the proposed rule. Specifically, a card issuer may elect not to impose a late fee or finance charge on a consumer's account for the 60-day period following a change in address for receiving payment or procedures for handling cardholder payments which could reasonably expected to cause a material delay in crediting of a payment to the consumer's account. The Board solicited comment on other reasonable methods that card issuers may use in complying with proposed § 226.10(f). The Board did not receive any significant comments on the proposed safe harbor or suggestions for alternative reasonable methods which would assist card issuers in compliance.

Despite the lack of comments, the Board believes that a safe harbor based on a “reasonably expected” standard is appropriate. The safe harbor recognizes the operational difficulty in determining in advance the number of customer accounts affected by a particular change in payment address or procedure and whether that change will cause a late payment. However, upon further consideration, the Board notes that in certain circumstances, a late fee or finance charge may have been improperly imposed because the late payment was subsequently determined to have been caused by a material change in the payment address or procedures. Accordingly, the final rule revises comment 10(f)-3, which is renumbered comment 10(f)-3.i, to clarify that for purposes of § 226.10(f), a late fee or finance charge is not imposed if the fee or charge is waived or removed, or an amount equal to the fee or charge is credited to the account. Furthermore, the Board amends proposed comment 10(f)-3 by adopting comment 10(f)-3.ii, which provides a safe harbor specifically for card issuers with a retail location which accepts payment.

The final rule permits a card issuer to impose a late fee or finance charge for a late payment during the 60-day period following a material change in a retail location which accepts payments, such as closing a retail location or no longer accepting payments at the retail location. However, if a card issuer is notified by a consumer, no later than 60 days after the card issuer transmitted the first periodic statement that reflects the late fee or finance charge for a late payment, that a late payment was caused by such change, the card issuer must waive or remove any late fee or finance charge, or credit an amount equal to any late fee or finance charge, imposed on the account during the 60-day period following the date on which the change took effect. In response to concerns raised by commenters, the Board believes a safe harbor for card issuers which accept payment at retail locations addresses the operational difficulty of determining which consumers are affected by a material change in a retail location or procedures for handling payment at a retail location. Accordingly, the final rule adopts comment 10(f)-3(ii) and provides an example as guidance in new comment 10(f)-4.vi, as discussed below.

Proposed comment 10(f)-4 provided illustrative examples consistent with proposed § 226.10(f), in order to provide additional guidance to creditors. Proposed comment 10(f)-4.i illustrated an example of a change in mailing address which is immaterial. No comments were received on this example, and the final rule adopts comment 10(f)-4.i as proposed. Proposed comment 10(f)-4.ii illustrated an example of a material change in mailing address which would not cause a material delay in crediting a payment. No comments were received on this example, and the final rule adopts comment 10(f)-4.ii as proposed. Proposed comment 10(f)-4.iii illustrated an example of a material change in mailing address which could cause a material delay in crediting a payment. No comments were received on this example, and the final rule adopts comment 10(f)-4.iii as proposed.

Proposed comment 10(f)-4.iv illustrated an example of a permanent closure of a local branch office of a card issuer as a material change in address for receiving payment. Several industry commenters raised concerns about proposed comment 10(f)-4.iv. In particular, industry commenters argued that a branch closing of a bank is not a material change in the address for receiving payment. One industry commenter suggested that a bank branch closing should not be considered as a factor in determining the cause of a late payment. Two commenters noted that national banks and insured depository institutions are required to give 90 days' advance notice related to the branch closing as well as post a notice at the branch location at least 30 days prior to closure. See 12 U.S.C. 1831r-1; 12 CFR 5.30(j). Commenters argued that these advance notice requirements provide adequate notice for customers to make alternative arrangements for payment.

Furthermore, industry commenters stated that interpreting a branch closing as a material change, as proposed in comment 10(f)-4.iv, would impose significant operational challenges and costs on banks in order to comply with this provision. Specifically, commenters stated that banks would have difficulty determining which customers “regularly make payments” at particular branches and which late payments were caused by the closing of a bank branch. In addition, commenters asserted that they would be unable to identify customers who are outside the “footprint” of a branch and unsuccessfully attempt to make a payment at the closed branch, such as if the customer is traveling in a different city. Furthermore, one commenter noted that banks can respond to a one-time complaint from a customer impacted by a branch closing.

The Board is adopting comment 10(f)-4.iv, but with clarification and additional guidance based on the comments and the Board's further consideration. In order to ease compliance burden, the final comment clarifies that a card issuer is not required to determine whether a customer “regularly makes payments” at a particular branch. As noted by commenters, certain banks and card issuers may have other regulatory obligations which require the identification of and notification to customers of a local bank branch. The final comment is revised to provide an example of a card issuer which chooses to rely on the safe harbor for the late payments on customer accounts which it reasonably believes may be affected by the branch closure.

Proposed comment 10(f)-4.v illustrated an example of a material change in the procedures for handling cardholder payments. The Board did not receive comments on this example, and the final rule adopts comment 10(f)-4.v as proposed.

The final rule includes new comment 10(f)-4.vi to address circumstances when a card issuer which accepts payment at a retail location makes a material change in procedures for handling cardholder payments the retail location, such as no longer accepting payments in person as a conforming payment. The new example also provides guidance for circumstances when a card issuer is notified by a consumer that a late fee or finance charge for a late payment was caused by a material change. Under these circumstances, a card issuer must waive or remove the late fee or finance charge or credit the customer's account in an amount equal to the fee or charge.

Proposed comment 10(f)-5 clarified that when an account is not eligible for a grace period, imposing a finance charge due to a periodic interest rate does not constitute imposition of a finance charge for a late payment for purposes of § 226.10(f). Notwithstanding the proposed rule, a card issuer may impose a finance charge due to a periodic interest rate in those circumstances. The Board received no significant comment addressing comment 10(f)-5, which is adopted as proposed.

Section 226.11Treatment of Credit Balances; Account Termination

11(c) Timely Settlement of Estate Debts

The Credit Card Act adds new TILA Section 140A and requires that the Board, in consultation with the Federal Trade Commission and each other agency referred to in TILA Section 108(a), to prescribe regulations requiring creditors, with respect to credit card accounts under an open-end consumer credit plan, to establish procedures to ensure that any administrator of an estate can resolve the outstanding credit balance of a deceased accountholder in a timely manner. 15 U.S.C. 1651. The Board proposed to implement TILA Section 140A in new § 226.11(c).

The final rule generally requires that a card issuer adopt reasonable written procedures designed to ensure that an administrator of an estate of a deceased accountholder can determine the amount of and pay any balance on the account. The final rule also has two specific requirements which effectuate the statute's purpose. First, the final rule requires a card issuer to disclose the amount of the balance on the account in a timely manner upon request by an administrator. The final rule provides a safe harbor of 30 days. Second, the final rule places certain limitations on card issuers regarding fees, annual percentage rates, and interest. Specifically, upon request by an administrator for the balance amount, a card issuer must not impose fees on the account or increase any annual percentage rate, except as provided by the rule. In addition, a card issuer must waive or rebate interest, including trailing or residual interest, for any payment in full received within 30 days of disclosing a timely statement of balance.

Proposed § 226.11(c)(1) set forth the general rule requiring card issuers to adopt reasonable procedures designed to ensure that any administrator of an estate of a deceased accountholder can determine the amount of and pay any balance on the decedent's credit card account in a timely manner. For clarity, the Board proposed to interpret the term “resolve” for purposes of § 226.11(c) to mean determine the amount of and pay any balance on a deceased consumer's account. In addition, in order to ensure that the rule applies consistently to any personal representative of an estate who has the duty to settle any estate debt, the Board proposed to include “executor” in proposed § 226.11(c). The Board stated that TILA Section 140A is intended to apply to any deceased accountholder's estate, regardless of whether an administrator or executor is responsible for the estate. In order to provide further guidance, the Board clarifies that for purposes of § 226.11(c), the term “administrator” of an estate means an administrator, executor, or any personal representative of an estate who is authorized to act on behalf of the estate. Accordingly, the final rule removes the reference to “executor” in § 226.11(c), renumbers proposed comment 11(c)-1 as comment 11(c)-2, and adopts the guidance on “administrator” in new comment 11(c)-1.

As the Board discussed in the October 2009 Regulation Z Proposal, the Board recognized that some card issuers may already have established procedures for the resolution of a deceased accountholder's balance. The Board believes a “reasonable procedures” standard would permit card issuers to retain, to the extent appropriate, procedures which may already be in place, in complying with proposed § 226.11(c), as well as applicable state and federal laws governing probate. Consumer group commenters suggested that the language of the general rule be modified to require that card issuers “have and follow reasonable written procedures” designed to ensure that an administrator of an estate of a deceased accountholder can determine the amount of and pay any balance on the account in a timely manner. The Board is amending proposed § 226.11(c)(1) to require that the reasonable policies and procedures be written. The Board believes that the suggested change to add the word “follow” is unnecessary because there are references throughout Regulation Z and the Board's other regulations that require reasonable policies and procedures without an explicit instruction that they be followed. In each of these instances, the Board has expected and continues to expect that these policies and procedures will be followed. The final rule adopts § 226.11(c)(1), which has been renumbered § 226.11(c)(1)(i), as amended.

The Board is renumbering proposed § 226.11(c)(2)(ii) as § 226.11(c)(1)(ii) in order to clarify that § 226.11(c) does not apply to the account of a deceased consumer if a joint accountholder remains on the account. Proposed § 226.11(c)(2)(ii) (renumbered as § 226.11(c)(1)(ii)) provided that a card issuer may impose fees and charges on a deceased consumer's account if a joint accountholder remains on the account. Proposed comment 11(c)-3 clarified that a card issuer may impose fees and charges on a deceased consumer's account if a joint accountholder remains on the account but may not impose fees and charges on a deceased consumer's account if only an authorized user remains on the account. Consumer groups argued that the Board should require card issuers to provide documentary proof that another party to the account is a joint accountholder, and not just an authorized user, before continuing to impose fees and charges on a deceased consumer's account. Specifically, consumer groups raised the concern that card issuers may attempt to hold authorized users liable for account balances. The Board notes, however, that authorized users are not liable for the debts of a deceased accountholder or the estate. The final rule adopts proposed § 226.11(c)(2)(ii), which has been renumbered § 226.11(c)(1)(ii), and proposed comment 11(c)-3, which has been renumbered as comment 11(c)-6 for organizational purposes.

Proposed comment 11(c)-1 provided examples of reasonable procedures consistent with proposed § 226.11(c). The final rule adopts proposed comments 11(c)-1.i-iv, which have been renumbered as comments 11(c)-2.i-iv, as proposed. Industry commenters asked the Board to permit card issuers to require evidence, such as written documentation, that an administrator, executor, or personal representative has the authority to act on behalf of the estate. Commenters raised privacy concerns of disclosing financial information to third parties. The Board believes a reasonable procedure for verifying an administrator's status or authority is consistent with § 226.11(c), without significantly increasing administrative burden on an administrator. The Board also believes the benefit of greater privacy protection outweighs the additional burden. Two commenters also requested that the Board permit card issuers to require verification of a customer's death. The Board believes, however, that this requirement is unnecessary. Therefore, in response to comments received, the Board adopts new comment 11(c)-2.v to clarify that card issuers are permitted to establish reasonable procedures requiring verification of an administrator's authority to act on behalf of an estate.

Commenters requested that the Board provide additional guidance regarding the use of designated communication channels, such as a specific toll-free number or mailing address. Industry commenters cited the reduced operational costs and burden associated with requiring administrators to use designated communication channels because specialized training and customer service representatives who handle estate matters could be consolidated. Other commenters recommended that the Board consider additional methods for providing an easily accessible point of contact for estate administrators or family members of deceased accountholders. For example, a card issuer could include contact information regarding deceased accountholders on a dedicated link on a creditor's Web site or on the periodic statement. One commenter suggested a standardized form or format which an administrator may use to register an accountholder as deceased at multiple card issuers. Another commenter argued that the examples for reasonable procedures should address practical procedures, and not “debt forgiveness.” Consumer groups believed the examples in proposed comment 11(c)-1 did not address the failure of creditors to respond to an administrator's inquiries or correspondence. Consumer groups recommended that the Board consider additional procedures, such as acknowledging receipt of an administrator's inquiry, providing details regarding payoff, and providing a payoff receipt. In response to comments received, the Board adopts new comment 11(c)-2.vi and 11(c)-2.vii to provide additional guidance. New comment 11(c)-2.vi clarifies that a card issuer may designate a department, business unit, or communication channel for administrators in order to expedite handling estate matters. New comment 11(c)-2.vii clarifies that a card issuer should be able to direct administrators who call a toll-free number or send mail to a general correspondence address to the appropriate customer service representative, department, business unit, or communication channel.

For organizational purposes, the Board has renumbered proposed § 226.11(c)(3) as § 226.11(c)(2) in the final rule. Proposed § 226.11(c)(3)(i) required a card issuer to disclose the amount of the balance on the account in a timely manner, upon request by the administrator of the estate. The Board believed a timely statement reflecting the deceased accountholder's balance is necessary to assist administrators with the settlement of estate debts. Consumer groups urged the Board not to require a formal request for a statement balance. Instead, card issuers should be required to act in good faith whenever informed of a consumer's death and the presence of an estate administrator. One commenter asked the Board to clarify that the rule does not supplant state probate laws and timelines for the resolution of estates. Specifically, the commenter argued that state probate law accomplishes the goals of the statutory provision and that compliance with state probate requirements should be explicitly stated as a reasonable procedure for the timely settlement of estates. The Board understands that state probate procedures are well-established, and this final rule does not relieve the card issuer of its obligations, such as filing a claim, nor affect a creditor's rights, such as contesting a claim rejection, under state probate laws. The final rule adopts § 226.11(c)(3)(i), which has been renumbered as § 226.11(c)(2)(i), as proposed with technical revisions.

Proposed § 226.11(c)(3)(ii) provided card issuers with a safe harbor for disclosing the balance amount in a timely manner, stating that it would be reasonable for a card issuer to provide the balance on the account within 30 days of receiving a request by the administrator of an estate. The Board believes that 30 days is reasonable to ensure that transactions and charges have been accounted for and calculated and to provide a written statement or confirmation. The Board solicited comment as to whether 30 days provides creditors with sufficient time to provide a statement of the balance on the deceased consumer's account. Industry commenters and consumer groups generally agreed that 30 days is sufficient time to provide a timely statement of balance on an account. One industry commenter, however, expressed concern that 30 days would be insufficient and requested 45-60 days instead to ensure all charges were processed. Based on the comments received, the Board believes 30 days is sufficient for a card issuer to provide a timely statement of the balance amount. The final rule adopts § 226.11(c)(3)(ii), which has been renumbered as § 226.11(c)(2)(ii), as proposed with technical revisions.

Proposed comment 11(c)-4 (renumbered as comment 11(c)-2) clarified that a card issuer may receive a request for the amount of the balance on the account in writing or by telephone call from the administrator of an estate. If a request is made in writing, such as by mail, the request is received when the card issuer receives the correspondence. No significant comments were received on proposed comment 11(c)-4, and it is adopted as proposed with technical revisions and renumbered as comment 11(c)-2 for organizational purposes.

Proposed comment 11(c)-5 (renumbered as comment 11(c)-3) provided guidance to card issuers in complying with the requirement to provide a timely statement of balance. Card issuers may provide the amount of the balance, if any, by a written statement or by telephone. Proposed comment 11(c)-5 also clarified that proposed § 226.11(c)(3) (renumbered as § 226.11(c)(2)) would not preclude a card issuer from providing the balance amount to appropriate persons, other than the administrator of an estate. For example, the Board noted that the proposed rule would not preclude a card issuer, subject to applicable federal and state laws, from providing a spouse or family members who indicate that they will pay the decedent's debts from obtaining a balance amount for that purpose. Proposed comment 11(c)-5 further clarified that proposed § 226.11(c)(3) (renumbered as § 226.11(c)(2)) does not relieve card issuers of the requirements to provide a periodic statement, under § 226.5(b)(2). A periodic statement, under § 226.5(b)(2), may satisfy the requirements of proposed § 226.11(c)(3) (renumbered as § 226.11(c)(2)), if provided within 30 days of notice of the consumer's death. A commenter stated that proposed comment 11(c)-5 should reference the 30-day period following the date of the balance request, and not the notice of the accountholder's death. The final rule revises proposed comment 11(c)-5 to reference the date of the balance request with regard to using a periodic statement to satisfy the requirements of new § 226.11(c)(2) and renumbers proposed comment 11(c)-5 as comment 11(c)-3 for organizational purposes.

Proposed § 226.11(c)(2)(i) (renumbered as § 226.11(c)(3)(i)) prohibited card issuers from imposing fees and charges on a deceased consumer's account upon receiving a request for the amount of any balance from an administrator of an estate. As stated in the October 2009 Regulation Z Proposal, the Board believed that this prohibition is necessary to provide certainty for all parties as to the balance amount and to ensure the timely settlement of estate debts. The Board solicited comment on whether a card issuer should be permitted to resume the imposition of fees and charges if the administrator of an estate has not paid the account balance within a specified period of time. Consumer group commenters opposed resuming fees and charges because settling estates can be time-consuming and an administrator may not have authority to pay the balance for some time. One industry commenter argued that there should be no prohibition against charging fees or interest because it was unreasonable to provide an interest-free loan for an indefinite period of time until an estate has settled. Most industry commenters, however, requested that card issuer be permitted to resume charging fees and interest if the balance on the account has not been paid within a specified time period after the balance request has been made. Most industry commenters stated 30 days was a reasonable time to pay before fees and interest would resume accruing, and two commenters stated 60 days may be reasonable. Two commenters also suggested that after the time to pay had elapsed, a creditor could be required to provide an updated statement upon subsequent request by an administrator. One government agency suggested that the Board simplify the final rule by determining the amount which can be collected from an estate as the balance on the periodic statement for the billing cycle during which the accountholder died.

The Board is revising proposed § 226.11(c)(2), which has been renumbered as § 226.11(c)(3), based on the comments received and the Board's further consideration. New § 226.11(c)(3)(i) prohibits card issuers from imposing any fee, such as a late fee or annual fee, on a deceased consumer's account upon receiving a request from an administrator of an estate. The Board believes that in order to best effectuate the statute's intent, it is appropriate to limit fees or penalties on a deceased consumer's account which is closed or frozen. For the purposes of § 226.11(c), new § 226.11(c)(3)(i) also prohibits card issuers from increasing the annual percentage rate on an account, and requires card issuers to maintain the applicable interest rate on the date of receiving the request, except as provided by § 226.55(b)(2).

New § 226.11(c)(3)(ii) requires card issuers to waive or rebate trailing or residual interest if the balance disclosed pursuant to § 226.11(c)(2) is paid in full within 30 days after disclosure. A card issuer may continue to accrue interest on the account balance from the date on which a timely statement of balance is provided, however, that interest must be waived or rebated if the card issuer receives payment in full within 30 days. A card issuer is not required to waive or rebate interest if payment in full is not received within 30 days. For example, on March 1, a card issuer receives a request from an administrator for the amount of the balance on a deceased consumer's account. On March 25, the card issuer provides an administrator with a timely statement of balance in response to the administrator's request. If the administrator makes payment in full on April 24, a card issuer must waive or rebate any additional interest that accrued on the balance between March 25 and April 24. However, if a card issuer receives only a partial payment on or before April 24 or receives payment in full after April 24, a card issuer is not required to waive or rebate interest that accrued between March 25 and April 24. The Board believes the requirement to waive or rebate trailing or residual interest, when payment is received within the 30-day period following disclosure of the balance, provides an administrator with certainty as to the amount required to pay the entire account balance and assists administrators in settling the estate. The Board believes a 30-day period is generally sufficient for an administrator to arrange for payment.. The Board notes that if an administrator is unable to pay the card issuer before the 30-day period following the timely statement of balance has elapsed, an administrator is permitted to make subsequent requests for an updated statement of balance. In order to provide additional guidance, the Board is adopting new comment 11(c)-5, which provides an illustrative example.

Proposed comment 11(c)-2 clarified that a card issuer may impose finance charges based on balances for days that precede the date on which the creditor receives a request pursuant to proposed § 226.11(c)(3). No comments were received on proposed comment 11(c)-2, and it is adopted as proposed with technical revision and renumbered as comment 11(c)-4 for organizational purposes.

Section 226.12Special Credit Card Provisions

Section 226.13Billing Error Resolution

Comment 12(b)-3 states that a card issuer must investigate claims in a reasonable manner before imposing liability for an unauthorized use, and sets forth guidance on conducting an investigation of a claim. Comment 13(f)-3 contains similar guidance for a creditor investigating a billing effort. The January 2009 Regulation Z Rule amended both comments to specifically provide that a card issuer (or creditor) may not require a consumer to submit an affidavit or to file a police report as a condition of investigating a claim. In the May 2009 Regulation Z Proposed Clarifications, the Board proposed to clarify that the card issuer (or creditor) could, however, require a consumer's signed statement supporting the alleged claim. Such a signed statement may be necessary to enable the card issuer to provide some form of certification indicating that the cardholder's claim is legitimate, for example, to obtain documentation from a merchant relevant to a claim or to pursue chargeback rights. Accordingly, the Proposed Clarifications would have amended comments 12(b)-3 and 13(f)-3 to reflect the ability of the card issuer (or creditor) to require a consumer signed statement for these types of circumstances.

The Board received one comment in support of the proposed clarification. This industry commenter stated that expressly permitting a signature requirement would facilitate expedited resolutions of error claims. The final rule adopts the clarifications in comments 12(b)-3 and 13(f)-3, as proposed.

Section 226.16Advertising

Although § 226.16 was republished in its entirety, the Board only solicited comment on proposed §§ 226.16(f) and (h), as the other sections of § 226.16 were previously finalized in the January 2009 Regulation Z Rule. Therefore, the Board is only addressing comments received on §§ 226.16(f) and (h).

16(f) Misleading Terms

As discussed in the section-by-section analysis for § 226.5(a)(2)(iii), the Board did not receive any comments regarding § 226.16(f), which is adopted as proposed.

16(h) Deferred Interest or Similar Offers

In the May 2009 Regulation Z Proposed Clarifications, the Board proposed to use its authority under TILA Section 143(3) to add a new § 226.16(h) to address the Board's concern that the disclosures currently required under Regulation Z may not adequately inform consumers of the terms of deferred interest offers. 15 U.S.C. 1663(3). The Board republished this proposal in the October 2009 Regulation Z Proposal. The proposed rules regarding deferred interest would have incorporated many of the same formatting concepts that were previously adopted for promotional rates under § 226.16(g). Specifically, the Board proposed to require that the deferred interest period be disclosed in immediate proximity to each statement regarding interest or payments during the deferred interest period. The Board also proposed that certain information about the terms of the deferred interest offer be disclosed in a prominent location closely proximate to the first statement regarding interest or payments during the deferred interest period. These proposals are discussed in more detail below.

The Board received broad support from both consumer group and industry commenters for its proposal to implement disclosure requirements for advertisements of deferred interest offers. Consumer group commenters, however, believed that the Board should go further and ban “no interest” advertising as deceptive when used in conjunction with an offer that could potentially result in the consumer being charged interest reaching back to the date of purchase. The Board believes that deferred interest plans can provide benefits to consumers who properly understand how the product is structured. Therefore, the Board believes the appropriate approach to addressing deferred interest offers is to ensure that important information about these offers is provided to consumers through the disclosure requirements proposed in § 226.16(h) instead of banning the term “no interest” in advertisements of deferred interest plans.

16(h)(1) Scope

Similar to the rules applicable to promotional rates under § 226.16(g), the Board proposed that the rules related to deferred interest offers under proposed § 226.16(h) be applicable to any advertisement of such offers for open-end (not home-secured) plans. In addition, the proposed rules applied to promotional materials accompanying applications or solicitations made available by direct mail or electronically, as well as applications or solicitations that are publicly available. The Board did not receive any significant comments to § 226.16(h)(1), which is adopted as proposed.

16(h)(2) Definitions

In the May 2009 Regulation Z Proposed Clarifications, the Board proposed to define “deferred interest” in new § 226.16(h)(2) as finance charges on balances or transactions that a consumer is not obligated to pay if those balances or transactions are paid in full by a specified date. The term would not, however, include finance charges the creditor allows a consumer to avoid in connection with a recurring grace period. Therefore, an advertisement including information on a recurring grace period that could potentially apply each billing period, would not be subject to the additional disclosure requirements under § 226.16(h).

The Board also proposed in comment 16(h)-1 to clarify that deferred interest offers would not include offers that allow a consumer to defer payments during a specified time period, but where the consumer is not obligated under any circumstances for any interest or other finance charges that could be attributable to that period. Furthermore, proposed comment 16(h)-1 specified that deferred interest offers would not include zero percent APR offers where a consumer is not obligated under any circumstances for interest attributable to the time period the zero percent APR was in effect, although such offers may be considered promotional rates under § 226.16(g)(2)(i).

Moreover, the Board proposed to define the “deferred interest period” for purposes of proposed § 226.16(h) as the maximum period from the date the consumer becomes obligated for the balance or transaction until the specified date that the consumer must pay the balance or transaction in full in order to avoid finance charges on such balance or transaction. To clarify the meaning of deferred interest period, the Board proposed comment 16(h)-2 to state that the advertisement need not include the end of an informal “courtesy period” in disclosing the deferred interest period. The Board did not receive any significant comments on the proposed definitions under § 226.16(h)(2) and associated commentary. Consequently, § 226.16(h)(2) and comment 16(h)-2 are adopted as proposed. Comment 16(h)-1 is adopted as proposed with one technical amendment.

16(h)(3) Stating the Deferred Interest Period

General rule. The Board proposed § 226.16(h)(3) to require that advertisements of deferred interest or similar plans disclose the deferred interest period clearly and conspicuously in immediate proximity to each statement of a deferred interest triggering term. Proposed § 226.16(h)(3) also required advertisements that use the phrase “no interest” or similar term to describe the possible avoidance of interest obligations under the deferred interest or similar program to state “if paid in full” in a clear and conspicuous manner preceding the disclosure of the deferred interest period. For example, as described in proposed comment 16(h)-7, an advertisement may state “no interest if paid in full within 6 months” or “no interest if paid in full by December 31, 2010.” The Board proposed to require these disclosures because of concerns that the statement “no interest,” in the absence of additional details about the applicable conditions of the offer may confuse consumers who might not understand that they need to pay their balances in full by a certain date in order to avoid the obligation to pay interest. Commenters supported the Board's proposal, and § 226.16(h)(3) and comment 16(h)-7 are adopted as proposed.

Immediate proximity. Proposed comment 16(h)-3 provided guidance on the meaning of “immediate proximity” by establishing a safe harbor for disclosures made in the same phrase. The guidance was identical to the safe harbor adopted previously for promotional rates. See comment 16(g)-2. Therefore, if the deferred interest period is disclosed in the same phrase as each statement of a deferred interest triggering term (for example, “no interest if paid in full within 12 months” or “no interest if paid in full by December 1, 2010” the deferred interest period would be deemed to be in immediate proximity to the statement.

Industry commenters were supportive of the Board's approach. Consumer group commenters suggested that the safe harbor require that the deferred interest period be adjacent to or immediately before or after the triggering term instead of in the same phrase. As the Board discussed in adopting a similar safe harbor for promotional rates, the Board believes that advertisers should be provided with some flexibility to make this disclosure. For example, if the deferred interest offer related to the purchase of a specific item, the advertisement might state, “no interest on this refrigerator if paid in full within 6 months.” Therefore, the Board is adopting comment 16(h)-3 as proposed.

Clear and conspicuous standard. The Board proposed to amend comment 16-2.ii to provide that advertisements clearly and conspicuously disclose the deferred interest period only if the information is equally prominent to each statement of a deferred interest triggering term. Under proposed comment 16-2.ii, if the disclosure of the deferred interest period is the same type size as the statement of the deferred interest triggering term, it would be deemed to be equally prominent.

The Board also proposed to clarify in comment 16-2.ii that the equally prominent standard applies only to written and electronic advertisements. This approach is consistent with the treatment of written and electronic advertisements of promotional rates. The Board also noted that disclosure of the deferred interest period under § 226.16(h)(3) for non-written, non-electronic advertisements, while not required to meet the specific clear and conspicuous standard in comment 16-2.ii would nonetheless be subject to the general clear and conspicuous standard set forth in comment 16-1.

Consumer group commenters recommended that the Board apply the equally prominent standard to all advertisements instead of only to written and electronic advertisements. As the Board discussed in its proposal, because equal prominence is a difficult standard to measure outside the context of written and electronic advertisements, the Board believes that the guidance on clear and conspicuous disclosures set forth in proposed comment 16-2.ii, should apply solely to written and electronic advertisements.

16(h)(4) Stating the Terms of the Deferred Interest Offer

In order to ensure that consumers notice and fully understand certain terms related to a deferred interest offer, the Board proposed that certain disclosures be required to be in a prominent location closely proximate to the first listing of a statement of “no interest,” “no payments,” or “deferred interest” or similar term regarding interest or payments during the deferred interest period. In particular, the Board proposed to require a statement that if the balance or transaction is not paid within the deferred interest period, interest will be charged from the date the consumer became obligated for the balance or transaction. The Board also proposed to require a statement, if applicable, that interest can also be charged from the date the consumer became obligated for the balance or transaction if the consumer's account is in default prior to the end of the deferred interest period. To facilitate compliance with this provision, the Board proposed model language in Sample G-24 in Appendix G.

Prominent location closely prominent. To be consistent with the requirement in § 226.16(g)(4) that terms be in a “prominent location closely proximate to the first listing,” the Board proposed guidance in comments 16(h)-4 and 16(h)-5 similar to comments 16(g)-3 and 16(g)-4. As a result, proposed comment 16(h)-4 provided that the information required under proposed § 226.16(h)(4) that is in the same paragraph as the first listing of a statement of “no interest,” “no payments, “deferred interest” or similar term regarding interest or payments during the deferred interest period would have been deemed to be in a prominent location closely proximate to the statement. Similar to comment 16(g)-3 for promotional rates, information appearing in a footnote would not be deemed to be in a prominent location closely proximate to the statement.

Some consumer group commenters expressed opposition to the safe harbor for “prominent location closely proximate,” and suggested that a disclosure be deemed closely proximate only if it is side-by-side with or immediately under or above the triggering phrase. The Board believes that the safe harbor under proposed comment 16(h)-4 strikes the appropriate balance of ensuring that certain information concerning deferred interest or similar programs is located near the triggering phrase but also providing sufficient flexibility for advertisers. For this reason, and for consistency with a similar safe harbor in comment 16(g)-3 for promotional rates, comment 16(h)-4 is adopted as proposed.

First listing. Proposed comment 16(h)-5 further provided that the first listing of a statement of “no interest,” “no payments,” or deferred interest or similar term regarding interest or payments during the deferred interest period is the most prominent listing of one of these statements on the front side of the first page of the principal promotional document. The proposed comment borrowed the concept of “principal promotional document” from the Federal Trade Commission's definition of the term under its regulations promulgated under the Fair Credit Reporting Act. 16 CFR 642.2(b). Under the proposal, if one of these statements is not listed on the principal promotional document or there is no principal promotional document, the first listing of one of these statements would be deemed to be the most prominent listing of the statement on the front side of the first page of each document containing one of these statements. The Board also proposed that the listing with the largest type size be a safe harbor for determining which listing is the most prominent. In the proposed comment, the Board also noted that consistent with comment 16(c)-1, a catalog or other multiple-page advertisement would have been considered one document for these purposes.

Consumer group commenters suggested that instead of requiring the disclosures required under § 226.16(h)(4) to be closely proximate to the first listing of the triggering term on the principal promotional document, the disclosures should be closely proximate to the first listing of the triggering term on every document in a mailing. The Board believes that the guidance on what constitutes the “first listing” should be the same as the approach taken for comment 16(g)-4 for promotional rates. Therefore, comment 16(h)-5 is adopted as proposed.

Segregation. The Board also proposed comment 16(h)-6 to clarify that the information the Board proposed to require under § 226.16(h)(4) would not need to be segregated from other information the advertisement discloses about the deferred interest offer. This may include triggered terms that the advertisement is required to disclose under § 226.16(b). The comment is consistent with the Board's approach on many other required disclosures under Regulation Z. See comment 5(a)-2. Moreover, the Board believes flexibility is warranted to allow advertisers to provide other information that may be essential for the consumer to evaluate the offer, such as a minimum purchase amount to qualify for the deferred interest offer. The Board received no comments on proposed comment 16(h)-6, and the comment is adopted as proposed.

Clear and conspicuous disclosure. The Board proposed to amend comment 16-2.ii to require equal prominence only for the disclosure of the information required under § 226.16(h)(3). Therefore, disclosures under proposed § 226.16(h)(4) are not required to be equally prominent to the first listing of the deferred interest triggering statement. Consumer group commenters, however, recommended that these disclosures also be required to be equally prominent to the triggering statement. As the Board discussed in the May 2009 Regulation Z Proposed Clarifications, the Board believes that requiring equal prominence to the triggering statement for this information would render an advertisement difficult to read and confusing to consumers due to the amount of information the Board is requiring under § 226.16(h)(4). Therefore, the Board declines to make these suggested amendments to comment 16-2.ii.

Non-written, non-electronic advertisements. As discussed above in the section-by-section analysis to § 226.16(h)(1), the requirements of § 226.16(h) apply to all advertisements, including non-written, non-electronic advertisements. To provide advertisers with flexibility, the Board proposed that only written or electronic advertisements be subject to the requirement to place the terms of the offer in a prominent location closely proximate to the first listing of a statement of “no interest,” “no payments,” or “deferred interest” or similar term regarding interest or payments during the deferred interest period.

As with their comments regarding clear and conspicuous disclosures under § 226.16(h)(3), consumer group commenters suggested that the specific formatting rules under § 226.16(h)(4) should apply to non-written, non-electronic advertisements. Given the difficulty of applying these standards to non-written, non-electronic advertisements and the time and space constraints of such media, the Board believes this exclusion is appropriate. Consequently, for non-written, non-electronic advertisements, the information required under § 226.16(h)(4) must be included in the advertisement, but is not subject to any proximity or formatting requirements other than the general requirement that information be clear and conspicuous, as contemplated under comment 16-1.

16(h)(5) Envelope Excluded

The Board proposed to exclude envelopes or other enclosures in which an application or solicitation is mailed, or banner advertisements or pop-up advertisements linked to an electronic application or solicitation from the requirements of § 226.16(h)(4). Consumer group commenters objected to the Board's proposal to exempt envelopes, banner advertisements, and pop-up advertisements from these requirements. One industry commenter recommended that the exception in § 226.16(h)(5) should be amended to include the requirements of § 226.16(h)(3).

Given the limited space that envelopes, banner advertisements, and pop-up advertisements have to convey information, the Board believes the burden of providing the information proposed under § 226.16(h)(4) on these types of communications exceeds any benefit. It is the Board's understanding that interested consumers generally look at the contents of an envelope or click on the link in a banner advertisement or pop-up advertisement in order to learn more about the specific terms of an offer instead of relying solely on the information on an envelope, banner advertisement, or pop-up advertisement to become informed about an offer. The Board, however, does not believe the disclosures required by § 226.16(h)(3) are as burdensome as those required by § 226.16(h)(4) and that the exception, should not, therefore, be extended to the disclosures required under § 226.16(h)(3). Thus, § 226.16(h)(5) is adopted as proposed.

Appendix G

As discussed in the supplementary information to §§ 226.7(b)(14) and 226.16(h), the Board proposed to adopt model language for the disclosures required to be given in connection with deferred interest or similar programs in Samples G-18(H) and G-24. Proposed Sample G-24 contained two model clauses, one for use in connection with credit card accounts under an open-end (not home-secured) consumer credit plan, and one for use in connection with other open-end (not home-secured) consumer credit plans. The model clause for credit card issuers reflects the fact that, under those rules, an issuer may only revoke a deferred or waived interest program if the consumer's payment is more than 60 days late. The Board also proposed to add a new comment App. G-12 to clarify which creditors should use each of the model clauses in proposed Sample G-24.

As discussed in the section-by-section analysis to § 226.7(b)(14), the Board is adopting Sample G-18(H) as proposed. Furthermore, the Board did not receive comment on the model language in Sample G-24. Therefore, comment App. G-12 and Sample G-24 are also adopted as proposed.

Section 226.51Ability To Pay

51(a) General Ability To Pay

In the October 2009 Regulation Z Proposal the Board proposed to implement new TILA Section 150, as added by Section 109 of the Credit Card Act, prohibiting a card issuer from opening a credit card account for a consumer, or increasing the credit limit applicable to a credit card account, unless the card issuer considers the consumer's ability to make the required payments under the terms of such account, in new § 226.51(a). 15 U.S.C. 1665e. Proposed § 226.51(a)(1) contained the substance of the rule in TILA Section 150. Proposed § 226.51(a)(2) required card issuers to use a reasonable method for estimating the required payments under § 226.51(a)(1) and provided a safe harbor for such estimation.

51(a)(1) Consideration of Ability To Pay

Proposed § 226.51(a)(1) generally followed the language provided in TILA Section 150 with two clarifying modifications. As detailed in the October 2009 Regulation Z Proposal, the Board proposed to interpret the term “required payments” to mean the required minimum periodic payment since the minimum periodic payment is the amount that a consumer is required to pay each billing cycle under the terms of the contract with the card issuer. In addition, proposed § 226.51(a)(1) provided that the card issuer's consideration of the ability of the consumer to make the required minimum periodic payments must be based on the consumer's income or assets and the consumer's current obligations. Proposed § 226.51(a)(1) also required card issuers to have reasonable policies and procedures in place to consider this information.

While consumer group commenters and some industry commenters agreed that a consideration of ability to pay should include a review of a consumer's income or assets and current obligations, many industry commenters asserted that the Credit Card Act did not compel this interpretation. These commenters stated that there are other factors that they believe are more predictive of a consumer's ability to pay than information on a consumer's income or assets, such as payment history and credit scores. The Board believes that there indeed may be other factors that are useful for card issuers in evaluating a consumer's ability to pay, and for this reason, the Board had proposed comment 51(a)-1 to clarify that card issuers may also consider other factors that are consistent with the Board's Regulation B (12 CFR Part 202). However, the Board still believes a proper evaluation of a consumer's ability to pay must include a review of a consumer's income or assets and obligations in order to give card issuers a more complete picture of a consumer's current financial state. As a result, the Board is adopting § 226.51(a)(1) as § 226.51(a)(1)(i), largely as proposed.

Industry group commenters also detailed challenges with respect to collecting income or asset information directly from consumers in certain contexts. Several commenters expressed concern regarding the lack of privacy for consumers in supplying income or asset information if a consumer applies for a credit card at point-of-sale. These commenters also suggested that requesting consumers to update income or asset information when increasing credit lines also presented several issues, especially at point-of-sale. Unlike a new account opening, there is generally no formal application for a credit line increase. Therefore, card issuers and retailers may need to develop new procedures to obtain this information. For point-of-sale credit line increases, card issuers and retailers believe this will negatively impact the consumer's experience because a consumer may need to take extra steps to complete a sale, which may lead consumers to abandon the purchase. Other commenters noted that requesting consumers to update income or asset information for credit line increases may foster an environment that encourages phishing scams as consumers may be required to distinguish between legitimate requests for updated information from fraudulent requests. Some industry commenters also suggested that the Board provide a de minimis exception for which a card issuer need not consider income or asset information.

Given these concerns, the Board is clarifying in comment 51(a)-4, which the Board is renumbering as comment 51(a)(1)-4 for organizational purposes, that card issuers may obtain income or asset information from several sources, similar to comment 51(a)-5 (renumbered as 51(a)(1)-5) regarding obligations. In addition to collecting this information from the consumer directly, in connection with either this credit card account or any other financial relationship the card issuer or its affiliates has with the consumer, card issuers may also rely on information from third parties, subject to any applicable restrictions on information sharing. Furthermore, the Board is aware of various models developed to estimate income or assets. The Board believes that empirically derived, demonstrably and statistically sound models that reasonably estimate a consumer's income or assets may provide information as valid as a consumer's statement of income or assets. Therefore, comment 51(a)(1)-4 states that card issuers may use empirically derived, demonstrably and statistically sound models that reasonably estimate a consumer's income or assets.

Moreover, the Board is not providing a de minimis exception for considering a consumer's income or assets. The Board is concerned that any de minimis amount chosen could still have a significant impact on a particular consumer, depending on the consumer's financial state. For example, subprime credit card accounts with relatively “small” credit lines may still be difficult for certain consumers to afford. Suggesting that these card issuers may simply avoid consideration of a consumer's income or assets may be especially harmful for consumers in this market segment.

Consumer group commenters suggested that the Board include more guidance on how card issuers must evaluate a consumer's income or assets and obligations. While consumer group commenters did not recommend a specific debt-to-income ratio or any other particular quantitative measures, they suggested that card issuers be required to consider a debt-to-income ratio and a consumer's disposable income. The Board's proposal required card issuers to have reasonable policies and procedures in place to consider this information. To provide further guidance for card issuers, the Board is adopting a new § 226.51(a)(1)(ii) to state that reasonable policies and procedures to consider a consumer's ability to make the required payments would include a consideration of at least one of the following: The ratio of debt obligations to income; the ratio of debt obligations to assets; or the income the consumer will have after paying debt obligations. Furthermore, § 226.51(a)(1)(ii) provides that it would be unreasonable for a card issuer to not review any information about a consumer's income, assets, or current obligations, or to issue a credit card to a consumer who does not have any income or assets.

Consumer group commenters further suggested that the language be modified to require that card issuers “have and follow reasonable written policies and procedures” to consider a consumer's ability to pay. The Board is moving the requirement that card issuers establish and maintain reasonable policies and procedures to new § 226.51(a)(1)(ii) and amending the provision to require that the reasonable policies and procedures be written. The Board believes that the suggested change to add the word “follow,” however, is unnecessary. There are references throughout Regulation Z and the Board's other regulations that require reasonable policies and procedures without an explicit instruction that they be followed. In each of these instances, the Board has expected and continues to expect that these policies and procedures will be followed. Similarly, the Board has the same expectation with § 226.51(a)(1)(ii).

As noted above, proposed comment 51(a)-1 clarified that card issuers may consider credit reports, credit scores, and any other factor consistent with Regulation B (12 CFR Part 202) in considering a consumer's ability to pay. One industry commenter suggested that the Board amend the comment to include a reference to consumer reports, which include credit reports. The Board is adopting proposed comment 51(a)-1 as comment 51(a)(1)-1 with this suggested change.

Proposed comment 51(a)-2 clarified that in considering a consumer's ability to pay, a card issuer must base the consideration on facts and circumstances known to the card issuer at the time the consumer applies to open the credit card account or when the card issuer considers increasing the credit line on an existing account. This guidance is similar to comment 34(a)(4)-5 addressing a creditor's requirement to consider a consumer's repayment ability for certain closed-end mortgage loans based on facts and circumstances known to the creditor at loan consummation. Several industry commenters asked whether this comment required card issuers to update any income or asset information the card issuer may have on a consumer prior to a credit line increase on an existing account. The Board believes that card issuers should be required to update a consumer's income or asset information, similar to how card issuers generally update information on a consumer's obligations, prior to considering whether to increase a consumer's credit line. This will prevent the card issuer from making an evaluation of a consumer's ability to make the required payments based on stale information. Consistent with the Board's changes to comment 51(a)-4 (adopted as 51(a)(1)-4), as discussed below, card issuers have several options to obtain updated income or asset information. Proposed comment 51(a)-2 is adopted as comment 51(a)(1)-2.

Furthermore, since credit line increases can occur at the request of a consumer or through a unilateral decision by the card issuer, proposed comment 51(a)-3 clarified that § 226.51(a) applies in both situations. Consumer group commenters suggested that credit line increases should only be granted upon the request of a consumer. The Board believes that if a card issuer conducts the proper evaluation prior to a credit line increase, such increases should not be prohibited simply because the consumer did not request the increase. The consumer is still in control as to how much of the credit line to ultimately use. Proposed comment 51(a)-3 is adopted as comment 51(a)(1)-3, with a minor non-substantive wording change.

Proposed comment 51(a)-4 provided examples of assets and income the card issuer may consider in evaluating a consumer's ability to pay. As discussed above, in response to comments on issues related to collecting income or asset information directly from consumers, the Board is amending comment 51(a)-4 (renumbered as 51(a)(1)-4) to provide a parallel comment to comment 51(a)-5 (renumbered as 51(a)(1)-5) regarding obligations. Specifically, the Board is clarifying that card issuers are not obligated to obtain income or asset information directly from a consumer. Card issuers may also obtain this information through third parties as well as empirically derived, demonstrably and statistically sound models that reasonably estimates a consumer's income or assets. The Board believes that, to the extent that card issuers are able to obtain information on a consumer's income or assets through means other than directly from the consumer, card issuers should be provided with flexibility.

The Board also proposed comment 51(a)-5 to clarify that in considering a consumer's current obligations, a card issuer may rely on information provided by the consumer or in a consumer's credit report. Commenters were supportive of this comment, and the comment is adopted as proposed, with one addition. Industry commenters requested that the Board clarify that in evaluating a consumer's current open- end obligations, card issuers should not be required to assume such obligations are fully utilized. The Board agrees. In contrast to the Board's safe harbor in estimating the minimum payments for the credit account for which the consumer is applying, the card issuer will have information on the consumer's historic utilization rates for other obligations. With respect to the credit account for which the consumer is applying, the card issuer has no information as to how the consumer plans to use the account, and assumption of full utilization is thus appropriate in that context. Moreover, while credit limit information is widely reported in consumer reports, there are still instances where such information is not reported. Furthermore, the Board is concerned that assuming full utilization of all open-end credit lines could result in an anticompetitive environment wherein card issuers raise credit limits on existing accounts in order to prevent a consumer from obtaining any new credit cards. For these reasons, proposed comment 51(a)-5 is amended to provide that in evaluating a consumer's current obligations to determine the consumer's ability to make the required payments, the card issuer need not assume that any credit line is fully utilized. In addition, the comment has been renumbered as comment 51(a)(1)-5.

Several industry commenters requested that the Board clarify that for joint accounts, a card issuer may consider the ability of both applicants or accountholders to make the required payments, instead of considering the ability of each consumer individually. In response, the Board is adopting new comment 51(a)(1)-6 to permit card issuers to consider joint applicants or joint accountholders collectively.

Moreover, as discussed in the October 2009 Regulation Z Proposal, the Board did not propose to require card issuers to verify information before an account is opened or credit line is increased for several reasons. The Board noted that TILA Section 150 does not require verification of a consumer's ability to make required payments and that verification can be burdensome for both consumers and card issuers, especially when accounts are opened at point of sale or by telephone. Furthermore, as discussed in the October 2009 Regulation Z Proposal, the Board stated its belief that because credit card accounts are generally unsecured, card issuers will be motivated to verify information when either the information supplied by the applicant is inconsistent with the data the card issuers already have or obtain on the consumer or when the risk in the amount of the credit line warrants such verification.

Many industry commenters expressed support for the Board's approach to provide card issuers with flexibility to determine instances when verification might be necessary and to refrain from strictly requiring verification or documentation in all instances. In contrast, consumer group commenters opposed this approach, stating that while there is no widespread evidence of income inflation in the credit card market, such problems do occur. One federal financial regulator commenter suggested that verification could be required in certain instances, such as when a consumer does not have a large credit file or when the credit line is large. The Board believes that given the inconvenience to consumers detailed in the October 2009 Regulation Z Proposal in providing documentation and the lack of evidence currently that consumers' incomes have been inflated in the credit card market on a widespread basis, a strict verification should not be required at this time.

51(a)(2) Minimum Periodic Payments

Under proposed § 226.51(a)(2)(i), card issuers would be required to use a reasonable method for estimating the required minimum periodic payments. Proposed § 226.51(a)(2)(ii) provided a safe harbor that card issuers could use to comply with this requirement. Specifically, the proposed safe harbor required the card issuer to assume utilization of the full credit line that the issuer is considering offering to the consumer from the first day of the billing cycle. The proposed safe harbor also required the issuer to use a minimum payment formula employed by the issuer for the product the issuer is considering offering to the consumer or, in the case of an existing account, the minimum payment formula that currently applies to that account. If the applicable minimum payment formula includes interest charges, the proposed safe harbor required the card issuer to estimate those charges using an interest rate that the issuer is considering offering to the consumer for purchases or, in the case of an existing account, the interest rate that currently applies to purchases. Finally, if the applicable minimum payment formula included fees, the proposed safe harbor permitted the card issuer to assume that no fees have been charged to the account.

Consumer group commenters and many industry commenters generally agreed with the Board's approach and proposed safe harbor. A federal financial regulator and an industry commenter stated that the Board's emphasis on the minimum periodic payments was misplaced. The federal financial regulator commenter suggested that instead of considering a consumer's ability to make the minimum periodic payments based on full utilization of the credit line, the commenter recommended that card issuers be required to consider a consumer's ability to pay the entire credit line over a reasonable period of time, such as a year. The Credit Card Act requires evaluation of a consumer's ability to make the “required payments.” Unless the terms of the contract provide otherwise, repayment of the balance on a credit card account over one year is not required. As discussed in the October 2009 Regulation Z Proposal, the minimum periodic payment is generally the amount that a consumer is required to pay each billing cycle under the terms of the contract. As a result, the Board believes that requiring card issuers to consider the consumer's ability to make the minimum periodic payment is the most appropriate interpretation of the requirements of the Credit Card Act.

With respect to the Board's proposed safe harbor approach, some industry commenters suggested that the Board permit card issuers to estimate minimum periodic payments based on an average utilization rate for the product offered to the consumer. In the October 2009 Regulation Z Proposal, the Board acknowledged that requiring card issuers to estimate minimum periodic payments based on full utilization of the credit line could have the effect of overstating the consumer's likely required payments. The Board believes, however, that since card issuers may not know how a particular consumer may use the account, and the issuer is qualifying the consumer for a certain credit line, of which the consumer will have full use, an assumption that the entire credit line will be used is a proper way to estimate the consumer's payments under the safe harbor. Furthermore, the Board notes that the regulation requires that a card issuer use a reasonable method to estimate payments, and that § 226.51(a)(2)(ii) merely provides a safe harbor for card issuers to comply with this standard, but that it may not be the only permissible way to comply with § 226.51(a)(2)(i). Section 226.51(a)(2)(ii) is therefore adopted as proposed with one minor clarifying change.

As noted above, the proposed safe harbor under § 226.51(a)(2)(ii) required an issuer to use a minimum payment formula employed by the issuer for the product the issuer is considering offering to the consumer or, in the case of an existing account, the minimum payment formula that currently applies to that account. The Board is adding new comment 51(a)(2)-1 to clarify that if an account has or may have a promotional program, such as a deferred payment or similar program, where there is no applicable minimum payment formula during the promotional period, the issuer must estimate the required minimum periodic payment based on the minimum payment formula that will apply when the promotion ends.

Proposed § 226.51(a)(2)(ii) also provided that if the applicable minimum payment formula includes interest charges, the proposed safe harbor required the card issuer to estimate those charges using an interest rate that the issuer is considering offering to the consumer for purchases or, in the case of an existing account, the interest rate that currently applies to purchases. The Board is adopting a new comment to clarify this provision. New comment 51(a)(2)-2 provides that if the interest rate for purchases is or may be a promotional rate, the safe harbor requires the issuer to use the post-promotional rate to estimate interest charges.

As discussed in the October 2009 Regulation Z Proposal, the Board's proposed safe harbor further provided that if the minimum payment formula includes fees, the card issuer could assume that no fees have been charged because the Board believed that estimating the amount of fees that a typical consumer might incur could be speculative. Consumer group commenters suggested that the Board amend the safe harbor to require the addition of mandatory fees as such fees are not speculative. The Board agrees. As a result, § 226.51(a)(2)(ii) requires that if a minimum payment formula includes the addition of any mandatory fees, the safe harbor requires the card issuer to assume that such fees are charged. In addition, the Board is adopting a new comment 51(a)(2)-3 to provide guidance as to what types of fees are considered mandatory fees. Specifically, the comment provides that mandatory fees for which a card issuer is required to assume are charged include those fees that a consumer will be required to pay if the account is opened, such as an annual fee.

51(b) Rules Affecting Young Consumers

The Board proposed in the October 2009 Regulation Z Proposal to implement new TILA Sections 127(c)(8) and 127(p), as added by Sections 301 and 303 of the Credit Card Act, respectively, in § 226.51(b). Specifically, proposed § 226.51(b)(1) provided that a card issuer may not open a credit card account under an open-end (not home-secured) consumer credit plan for a consumer less than 21 years old, unless the consumer submits a written application and provides either a signed agreement of a cosigner, guarantor, or joint applicant pursuant to § 226.51(b)(1)(i) or financial information consistent with § 226.51(b)(1)(ii). The Board proposed § 226.51(b)(2) to state that no increase may be made in the amount of credit authorized to be extended under a credit card account for which an individual has assumed joint liability pursuant to proposed § 226.51(b)(1)(i) for debts incurred by the consumer in connection with the account before the consumer attains the age of 21, unless that individual approves in writing, and assumes joint liability for, such increase.

As discussed in the October 2009 Regulation Z Proposal, proposed § 226.51(b) generally followed the statutory language with modifications to resolve ambiguities in the statute and to improve readability and consistency with § 226.51(a). While many of these proposed changes did not generate much comment, certain of the Board's proposed modifications did prompt suggestions from commenters. First, consumer group commenters maintained that the Board's proposed language to limit the scope of § 226.51(b)(1) to credit card accounts only was not consistent with the language in TILA Section 127(c)(8)(A). For all the reasons set forth in the October 2009 Regulation Z Proposal, however, the Board believes that the intent of TILA Section 127(c)(8), read as a whole, was to apply these requirements only to credit card accounts. Furthermore, as discussed in the October 2009 Regulation Z Proposal, limiting the scope of § 226.51(b)(1) to credit card accounts only is consistent with the treatment of the related provision in TILA Section 127(p) regarding credit line increases, which applies solely to credit card accounts. Therefore, § 226.51(b)(1) will apply only to credit card accounts as proposed.

The Board also received comment regarding its proposal to make § 226.51(b) consistent with § 226.51(a) by requiring card issuers to determine whether a consumer under the age of 21, or any cosigner, guarantor, or joint applicant of a consumer under the age of 21, has the means to repay debts incurred by the consumer by evaluating a consumer's ability to make the required payments under § 226.51(a). Therefore, proposed § 226.51(b)(1)(i) and (ii) both referenced § 226.51(a) in discussing the ability of a cosigner, guarantor, or joint applicant to make the minimum payments on the consumer's debts and the consumer's independent ability to make the minimum payments on any obligations arising under the account.

Industry commenters were supportive of the Board's approach. Consumer group commenters, however, recommended that the Board require a more stringent evaluation of a consumer's ability to make the required payments for consumers under the age of 21 than the one required in § 226.51(a). In particular, consumer group commenters suggested, for example, that card issuers be required to only consider income earned from wages or require a higher residual income or lower debt-to-income ratio for consumers less than 21 years old. A state regulatory agency commenter suggested that the Board require card issuers to verify income or asset information stated on an application submitted by a consumer under the age of 21. The Board declines to make the suggested changes. The Board believes that the heightened procedures already set forth in TILA Sections 127(c)(8) and 127(p), as adopted by the Board in § 226.51(b), will provide sufficient protection for consumers less than 21 years old without unnecessarily impinging on their ability to obtain credit and build a credit history. Furthermore, the Board is concerned that the suggested changes could be inconsistent with the Board's Regulation B (12 CFR Part 202). For example, excluding certain income from consideration, such as alimony or child support, could conflict with 12 CFR § 202.6(b)(5).

The Board, however, is amending § 226.51(b)(1) to clarify that, consistent with comments 51(a)(1)-4 and 51(a)(1)-5, card issuers need not obtain financial information directly from the consumer to evaluate the ability of the consumer, cosigner, guarantor, or joint applicant to make the required payments. The Board is also making organizational and other non-substantive changes to § 226.51(b)(1) to improve readability and consistency. Section 226.51(b)(2) is adopted as proposed. The Board notes that for any credit line increase on an account of a consumer under the age of 21, the requirements of § 226.51(b)(2) are in addition to those in § 226.51(a).

In the October 2009 Regulation Z Proposal, the Board also proposed several comments to provide guidance to card issuers in complying with § 226.51(b). Proposed comment 51(b)-1 clarified that § 226.51(b)(1) and (b)(2) apply only to a consumer who has not attained the age of 21 as of the date of submission of the application under § 226.51(b)(1) or the date the credit line increase is requested by the consumer under § 226.51(b)(2). If no request has been made (for example, for unilateral credit line increases by the card issuer), the provision would apply only to a consumer who has not attained the age of 21 as of the date the credit line increase is considered by the card issuer. Some industry commenters suggested that the Board's final rule provide that the age of the consumer be determined at account opening as opposed to the consumer's age as of the date of submission of the application. The Board notes that TILA Section 127(c)(8)(B) applies to consumers who are under the age of 21 as of the date of submission of the application. Therefore, in compliance with the statutory provision, the Board is adopting comment 51(b)-1 as proposed.

Proposed comment 51(b)-2 addressed the ability of a card issuer to require a cosigner, guarantor, or joint accountholder to assume liability for debts incurred after the consumer has attained the age of 21. Consumer group commenters recommended that the Board require that card issuers obtain separate consent of a cosigner, guarantor, or joint accountholder to assume liability for debts incurred after the consumer has attained the age of 21. The Board believes that requiring separate consent is unnecessary and duplicative as card issuers requiring cosigners, guarantors, or joint accountholders to assume such liability will likely obtain a single consent at the time the account is opened for the cosigner, guarantor, or joint accountholder to assume liability on debt that is incurred before and after the consumer has turned 21. Proposed comment 51(b)-2 is adopted in final.

The Board proposed comment 51(b)-3 to clarify that § 226.51(b)(1) and (b)(2) do not apply to a consumer under the age of 21 who is being added to another person's account as an authorized user and has no liability for debts incurred on the account. The Board did not receive any comment on this provision, and the comment is adopted as proposed.

Proposed comment 51(b)-4 explained how the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.) would govern the submission of electronic applications. TILA Section 127(c)(8) requires a consumer who has not attained the age of 21 to submit a written application, and TILA Section 127(p) requires a cosigner, guarantor, or joint accountholder to consent to a credit line increase in writing. As noted in the October 2009 Regulation Z Proposal, the Board believes that, consistent with the purposes of the E-Sign Act, applications submitted under TILA Section 127(c)(8) and consents under TILA Section 127(p), which must be provided in writing, may also be submitted electronically. See 15 U.S.C. 7001(a). Furthermore, since the submission of an application by a consumer or consent to a credit line increase by a cosigner, guarantor, or joint accountholder is not a disclosure to a consumer, the Board believes the consumer consent and other requirements necessary to provide consumer disclosures electronically pursuant to the E-Sign Act would not apply. The Board notes, however, that under the E-Sign Act, an electronic record of a contract or other record required to be in writing may be denied legal effect, validity or enforceability if such record is not in a form that is capable of being retained and accurately reproduced for later reference by all parties or persons who are entitled to retain the contract or other record. 15 U.S.C. 7001(e). Consumer group commenters recommended that the Board include this reference in the comment. The Board believes this is unnecessary, and comment 51(b)-4 is adopted as proposed with minor wording changes.

Under proposed comment 51(b)(1)-1, creditors must comply with applicable rules in Regulation B (12 CFR Part 202) in evaluating an application to open a credit card account or credit line increase for a consumer under the age of 21. In the October 2009 Regulation Z Proposal, the Board noted that because age is generally a prohibited basis for any creditor to take into account in any system evaluating the creditworthiness of applicants under Regulation B, the Board believes that Regulation B prohibits card issuers from refusing to consider the application of a consumer solely because the applicant has not attained the age of 21 (assuming the consumer has the legal ability to enter into a contract).

TILA Section 127(c)(8) permits card issuers to open a credit card account for a consumer who has not attained the age of 21 if either of the conditions under TILA Section 127(c)(8)(B) are met. Therefore, the Board believes that a card issuer may choose to evaluate an application of a consumer who is less than 21 years old solely on the basis of the information provided under § 226.51(b)(1)(i). Consequently, the Board believes, a card issuer is not required to accept an application from a consumer less than 21 years old with the signature of a cosigner, guarantor, or joint applicant pursuant to § 226.51(b)(1)(ii), unless refusing such applications would violate Regulation B. For example, if the card issuer permits other applicants of non-business credit card accounts who have attained the age of 21 to provide the signature of a cosigner, guarantor, or joint applicant, the card issuer must provide this option to applicants of non-business credit card accounts who have not attained the age of 21 (assuming the consumer has the legal ability to enter into a contract).

Several industry commenters requested the Board further clarify the interaction between Regulation B and § 226.51(b). Some commenters suggested the Board state that certain provisions of § 226.51(b) override provisions of Regulation B. The Board notes that issuers would not violate Regulation B by virtue of complying with § 226.51(b). Therefore, the Board does not believe it is necessary to state that § 226.51(b) overrides provisions of Regulation B.

Furthermore, many industry commenters asked the Board to permit card issuers, in determining whether consumers under the age of 21 have the “independent” means to repay debts incurred, to consider a consumer's spouse's income. The Board believes that neither Regulation B nor § 226.51(b) compels this interpretation. Pursuant to TILA Section 127(c)(8)(B), card issuers evaluating a consumer under the age of 21 under § 226.51(b)(1)(ii), who is applying as an individual, must consider the consumer's independent ability. The Board notes, however, that in evaluating joint accounts, the card issuer may consider the collective ability of the joint applicants or joint accountholders to make the required payments under new comment 51(a)(1)-6, as discussed above. Comment 51(b)(1)-1 is adopted as proposed.

Proposed comment 51(b)(2)-1 provided that the requirement under § 226.51(b)(2) that a cosigner, guarantor, or joint accountholder for a credit card account opened pursuant to § 226.51(b)(1)(ii) must agree in writing to assume liability for a credit line increase does not apply if the cosigner, guarantor or joint accountholder who is at least 21 years old requests the increase. Because the party that must approve the increase is the one that is requesting the increase in this situation, the Board believed that § 226.51(b)(2) would be redundant. An industry commenter requested the Board clarify situations in which this applies. For example, the commenter requested whether comment 51(b)(2)-1 would apply if a consumer under the age of 21 requests the credit line increase over the telephone, but subsequently passes the telephone to the cosigner, guarantor, or joint accountholder who is at least 21 years old to make the request after being told that they are not sufficiently old enough to do so. The Board believes this approach will be tantamount to an oral approval and would circumvent the protections of § 226.51(b)(2). Consequently, the Board is modifying the proposed comment to clarify that it must be the cosigner, guarantor, or joint accountholder who is at least 21 years old who initiates the request to increase the credit line.

Section 226.52Limitations on Fees

52(a) Limitations During First Year After Account Opening

New TILA Section 127(n)(1) applies “[i]f the terms of a credit card account under an open end consumer credit plan require the payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) by the consumer in the first year during which the account is opened in an aggregate amount in excess of 25 percent of the total amount of credit authorized under the account when the account is opened.” 15 U.S.C. 1637(n)(1). If the 25 percent threshold is met, then “no payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) may be made from the credit made available under the terms of the account.” However, new TILA Section 127(n)(2) provides that Section 127(n) may not be construed as authorizing any imposition or payment of advance fees prohibited by any other provision of law. The Board proposed to implement new TILA Section 127(n) in § 226.52(a). [31]

Subprime credit cards often charge substantial fees at account opening and during the first year after the account is opened. For example, these cards may impose multiple one-time fees when the consumer opens the account (such as an application fee, a program fee, and an annual fee) as well as a monthly maintenance fee, fees for using the account for certain types of transactions, and fees for increasing the credit limit. The account-opening fees are often billed to the consumer on the first periodic statement, substantially reducing from the outset the amount of credit that the consumer has available to make purchases or other transactions on the account. For example, some subprime credit card issuers assess $250 in fees at account opening on accounts with credit limits of $300, leaving the consumer with only $50 of available credit with which to make purchases or other transactions. In addition, the consumer may pay interest on the fees until they are paid in full.

Because of concerns that some consumers were not aware of how fees would affect their ability to use the card for its intended purpose of engaging in transactions, the Board's January 2009 Regulation Z Rule enhanced the disclosure requirements for these types of fees and clarified the circumstances under which a consumer who has been notified of the fees in the account-opening disclosures (but has not yet used the account or paid a fee) may reject the plan and not be obligated to pay the fees. See§ 226.5(b)(1)(iv), 74 FR 5402; § 226.5a(b)(14), 74 FR 5404; § 226.6(b)(1)(xiii), 74 FR 5408. In addition, because the Board and the other Agencies were concerned that disclosure alone was insufficient to protect consumers from unfair practices regarding high-fee subprime credit cards, the January 2009 FTC Act Rule prohibited institutions from charging certain types of fees during the first year after account opening that, in the aggregate, constituted the majority of the credit limit. In addition, these fees were limited to 25 percent of the initial credit limit in the first billing cycle with any additional amount (up to 50 percent) spread equally over the next five billing cycles. Finally, institutions were prohibited from circumventing these restrictions by providing the consumer with a separate credit account for the payment of additional fees. See 12 CFR 227.26, 74 FR 5561, 5566; see also 74 FR 5538-5543.

In the October 2009 Regulation Z Proposal, the Board discussed two issues of statutory interpretation related to the implementation of new TILA Section 127(n). First, as noted above, new TILA Section 127(n)(1) applies when “the terms of a credit card account * * *require the payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) by the consumer in the first year during which the account is opened in an aggregate amount in excess of 25 percent of the total amount of credit authorized under the account when the account is opened.” (Emphasis added.) In the proposal, the Board acknowledged that Congress's use of “require” could be construed to mean that Section 127(n)(1) applies only to fees that are unconditional requirements of the account—in other words, fees that all consumers are required to pay regardless of how the account is used (such as account-opening fees, annual fees, and monthly maintenance fees). However, the Board stated that such a narrow reading would be inconsistent with the words “any fees,” which indicate that Congress intended the provision to apply to a broader range of fees. Furthermore, the Board expressed concern that categorically excluding fees that are conditional (in other words, fees that consumers are only required to pay in certain circumstances) would enable card issuers to circumvent the 25 percent limit by, for example, requiring consumers to pay fees in order to receive a particular credit limit or to use the account for purchases or other transactions. Finally, the Board noted that new TILA Section 127(n)(1) specifically excludes three fees that are conditional (late payment fees, over-the-limit fees, and fees for a payment returned for insufficient funds), which suggests that Congress otherwise intended Section 127(n)(1) to apply to fees that a consumer is required to pay only in certain circumstances (such as fees for other violations of the account terms or fees for using the account for transactions). In other words, if Congress had intended Section 127(n)(1) to apply only to fees that are unconditional requirements of the account, there would have been no need to specifically exclude conditional fees such as late payment fees. For these reasons, the Board concluded that the best interpretation of new TILA Section 127(n)(1) was to apply the 25 percent limitation to any fee that a consumer is required to pay with respect to the account (unless expressly excluded), even if the requirement only applies in certain circumstances.

Consumer group commenters strongly supported this interpretation of new TILA Section 127(n)(1), while industry commenters strongly disagreed. In particular, institutions that do not issue subprime cards argued that Congress intended Section 127(n) to apply only to fees imposed on subprime cards with low credit limits and that it would be unduly burdensome to require issuers of credit card products with higher limits to comply. However, while new TILA Section 127(n) is titled “Standards Applicable to Initial Issuance of Subprime or `Fee Harvester' Cards,” nothing in the statutory text limits its application to a particular type of credit card. Instead, for the reasons discussed above, it appears that Congress intended Section 127(n) to apply to a broad range of fees regardless of the type of credit card account. Although the practice of charging fees that represent a high percentage of the credit limit is generally limited to subprime cards at present, it appears that Congress intended Section 127(n) to prevent this practice from spreading to other types of credit card products. Accordingly, although the Board understands that complying with Section 127(n) may impose a significant burden on card issuers, the Board does not believe that this burden warrants a different interpretation of Section 127(n).

Second, in the proposal, the Board interpreted new TILA Section 127(n)(1), which provides that, if the 25 percent threshold is met, “no payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) may be made from the credit made available under the terms of the account.” The Board stated that, although this language could be read to require card issuers to determine at account opening the total amount of fees that will be charged during the first year, this did not appear to be Congress's intent because the total amount of fees charged during the first year will depend on how the account is used. For example, most card issuers currently require consumers who use a credit card account for cash advances, balance transfers, or foreign transactions to pay a fee that is equal to a percentage of the transaction. Thus, the total amount of fees charged during the first year will depend on, among other things, the number and amount of cash advances, balance transfers, or foreign transactions. Accordingly, the Board interpreted Section 127(n)(1) to limit the fees charged to a credit card account during the first year to 25 percent of the initial credit limit and to prevent card issuers from collecting additional fees by other means (such as directly from the consumer or by providing a separate credit account). The Board did not receive significant comment on this interpretation, which is adopted in the final rule.

Accordingly, in order to effectuate this purpose and to facilitate compliance, the Board uses its authority under TILA Section 105(a) to implement new TILA Section 127(n) as set forth below.

52(a)(1) General Rule

Proposed § 226.52(a)(1)(i) provided that, if a card issuer charges any fees to a credit card account under an open-end (not home-secured) consumer credit plan during the first year after account opening, those fees must not in total constitute more than 25 percent of the credit limit in effect when the account is opened. Furthermore, in order to prevent card issuers from circumventing proposed § 226.52(a)(1)(i), proposed § 226.52(a)(1)(ii) provided that a card issuer that charges fees to the account during the first year after account opening must not require the consumer to pay any fees in excess of the 25 percent limit with respect to the account during the first year.

Commenters generally supported the proposed rule. However, a federal banking agency requested that the Board clarify the proposed rule, expressing concern that, as proposed, § 226.52(a)(1) could be construed to authorize card issuers to require consumers to pay an unlimited amount of fees so long as the total amount of fees charged to the account did not equal the 25 percent limit. This was not the Board's intent, nor does the Board believe that the proposed rule supports such an interpretation. Nevertheless, in order to avoid any potential uncertainty, the Board has revised § 226.52(a)(1) to provide that, if a card issuer charges any fees to a credit card account under an open-end (not home-secured) consumer credit plan during the first year after the account is opened, the total amount of fees the consumer is required to pay with respect to the account during that year must not exceed 25 percent of the credit limit in effect when the account is opened.

The Board has also reorganized and revised the proposed commentary for consistency with the revisions to § 226.52(a)(1). Comment 52(a)(1)-1 clarifies that § 226.52(a)(1) applies if a card issuer charges any fees to a credit card account during the first year after the account is opened (unless the fees are specifically exempted by § 226.52(a)(2)). Thus, if a card issuer charges a non-exempt fee to the account during the first year after account opening, § 226.52(a)(1) provides that the total amount of non-exempt fees the consumer is required to pay with respect to the account during the first year cannot exceed 25 percent of the credit limit in effect when the account is opened. The comment further clarifies that this 25 percent limit applies to fees that the card issuer charges to the account as well as to fees that the card issuer requires the consumer to pay with respect to the account through other means (such as through a payment from the consumer to the card issuer or from another credit account provided by the card issuer). The comment also provides illustrative examples of the application of § 226.52(a), including the examples previously provided in proposed comments 52(a)(1)(i)-1 and 52(a)(1)(ii)-1.

Proposed comment 52(a)(1)(i)-2 clarified that a card issuer that charges a fee to a credit card account that exceeds the 25 percent limit could comply with § 226.52(a)(1) by waiving or removing the fee and any associated interest charges or crediting the account for an amount equal to the fee and any associated interest charges at the end of the billing cycle during which the fee was charged. Thus, if a card issuer's systems automatically assess a fee based on certain account activity (such as automatically assessing a cash advance fee when the account is used for a cash advance) and, as a result, the total amount of fees subject to § 226.52(a) that have been charged to the account during the first year exceeds the 25 percent limit, the card issuer could comply with § 226.52(a)(1) by removing the fee and any interest charged on that fee at the end of the billing cycle.

Some industry commenters expressed concern that, because fees are totaled at the end of the billing cycle, there would be circumstances in which their systems would not be able to identify a fee that exceeds the 25 percent limit in time to correct the account before the billing cycle ends (such as when the fee was charged late in the cycle). The Board is concerned that providing additional time will result in fees that exceed the 25 percent limit appearing on consumer's periodic statements. However, in order to facilitate compliance, the Board has revised the proposed comment to require card issuers to waive or remove the excess fee and any associated interest charges within a reasonable amount of time but no later than the end of the billing cycle following the billing cycle during which the fee was charged. For organizational purposes, the Board has also redesignated this comment as 52(a)(1)-2.

Proposed comment 52(a)(1)(i)-3 clarified that, because the limitation in § 226.52(a)(1) is based on the credit limit in effect when the account is opened, a subsequent increase in the credit limit during the first year does not permit the card issuer to charge to the account additional fees that would otherwise be prohibited (such as a fee for increasing the credit limit). An illustrative example was provided. For organizational purposes, this comment has been redesignated as 52(a)(1)-3.

In addition, in response to comments from consumer groups, the Board has also provided guidance regarding decreases in credit limits during the first year after account opening. Consumer groups expressed concern that card issuers could evade the 25 percent limitation by, for example, providing a $500 credit limit and charging $125 in fees for the issuance or availability of credit at account opening and then quickly reducing the limit to $200, leaving the consumer with only $75 of available credit. Although there are legitimate reasons for reducing a credit limit during the first year after account opening (such as concerns about fraud), the Board believes that, in these circumstances, it would be inconsistent with the intent of new TILA Section 127(n) to require the consumer to pay (or to allow the issuer to retain) any fees that exceed 25 percent of the reduced limit. Accordingly, proposed comment 52(a)(1)-3 clarifies that, if a card issuer decreases the credit limit during the first year after the account is opened, § 226.52(a)(1) requires the card issuer to waive or remove any fees charged to the account that exceed 25 percent of the reduced credit limit or to credit the account for an amount equal to any fees the consumer was required to pay with respect to the account that exceed 25 percent of the reduced credit limit within a reasonable amount of time but no later than the end of the billing cycle following the billing cycle during which the fee was charged. An example is provided.

52(a)(2) Fees Not Subject to Limitations

Section 226.52(a)(2)(i) implements the exception in new TILA Section 127(n)(1) for late payment fees, over-the-limit fees, and fees for payments returned for insufficient funds. However, pursuant to the Board's authority under TILA Section 105(a), § 226.52(a)(2)(i) applies to all fees for returned payments because a payment may be returned for reasons other than insufficient funds (such as because the account on which the payment is drawn has been closed or because the consumer has instructed the institution holding that account not to honor the payment). The Board did not receive significant comment on § 226.52(a)(2)(i), which is adopted as proposed.

As discussed above, new TILA Section 127(n)(1) applies to fees that a consumer is required to pay with respect to a credit card account. Accordingly, proposed § 226.52(a)(2)(ii) would have created an exception to § 226.52(a) for fees that a consumer is not required to pay with respect to the account. The proposed commentary to § 226.52(a) illustrated the distinction between fees the consumer is required to pay and those the consumer is not required to pay. Proposed comment 52(a)(2)-1 clarified that, except as provided in § 226.52(a)(2), the limitations in § 226.52(a)(1) apply to any fees that a card issuer will or may require the consumer to pay with respect to a credit card account during the first year after account opening. The proposed comment listed several types of fees as examples of fees covered by § 226.52(a). First, fees that the consumer is required to pay for the issuance or availability of credit described in § 226.5a(b)(2), including any fee based on account activity or inactivity and any fee that a consumer is required to pay in order to receive a particular credit limit. Second, fees for insurance described in § 226.4(b)(7) or debt cancellation or debt suspension coverage described in § 226.4(b)(10) written in connection with a credit transaction, if the insurance or debt cancellation or debt suspension coverage is required by the terms of the account. Third, fees that the consumer is required to pay in order to engage in transactions using the account (such as cash advance fees, balance transfer fees, foreign transaction fees, and other fees for using the account for purchases). And fourth, fees that the consumer is required to pay for violating the terms of the account (except to the extent specifically excluded by § 226.52(a)(2)(i)).

Proposed comment 52(a)(2)-2 provided as examples of fees that generally fall within the exception in § 226.52(a)(2)(ii) fees for making an expedited payment (to the extent permitted by § 226.10(e)), fees for optional services (such as travel insurance), fees for reissuing a lost or stolen card, and statement reproduction fees.

Commenters generally supported proposed § 226.52(a)(2)(ii) and proposed comments 52(a)(2)-1 and -2. Although one industry commenter suggested that the Board take a broader approach to identifying the fees that fall within the exception in § 226.52(a)(2)(ii), the Board believes that such an approach would be inconsistent with the purposes of TILA Section 127(n). Accordingly, the Board adopts these aspects of the proposal.

Finally, proposed comment 52(a)(2)-3 clarified that a security deposit that is charged to a credit card account is a fee for purposes of § 226.52(a). However, the comment also clarified that § 226.52(a) would not prohibit a card issuer from providing a secured credit card that requires a consumer to provide a cash collateral deposit that is equal to the credit line for the account. Consumer group commenters strongly supported this commentary. However, a federal banking agency requested that the Board clarify that a security deposit is an amount of funds transferred by a consumer to a card issuer at account opening that is pledged as security on the account. The Board has revised the proposed comment to include similar language. Otherwise, comment 52(a)(2)-3 is adopted as proposed.

52(a)(3) Rule of Construction

New TILA Section 127(n)(2) states that “[n]o provision of this subsection may be construed as authorizing any imposition or payment of advance fees otherwise prohibited by any provision of law.” 15 U.S.C. 1637(n)(2). The Board proposed to implement this provision in § 226.52(a)(3). As an example of a provision of law limiting the payment of advance fees, proposed comment 52(a)(3)-1 cited 16 CFR 310.4(a)(4), which prohibits any telemarketer or seller from “[r]equesting or receiving payment of any fee or consideration in advance of obtaining a loan or other extension of credit when the seller or telemarketer has guaranteed or represented a high likelihood of success in obtaining or arranging a loan or other extension of credit for a person.” The Board did not receive significant comment on either the proposed regulation or the proposed commentary, both of which have been adopted as proposed.

Section 226.53Allocation of Payments

As amended by the Credit Card Act, TILA Section 164(b)(1) provides that, “[u]pon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.” 15 U.S.C. 1666c(b)(1). However, amended Section 164(b)(2) provides the following exception to this general rule: “A creditor shall allocate the entire amount paid by the consumer in excess of the minimum payment amount to a balance on which interest is deferred during the last 2 billing cycles immediately preceding expiration of the period during which interest is deferred.” As discussed in detail below, the Board has implemented amended TILA Section 164(b) in new § 226.53.

As an initial matter, however, the Board interprets amended TILA Section 164(b) to apply to credit card accounts under an open-end (not home-secured) consumer credit plan rather than to all open-end consumer credit plans. Although the requirements in amended TILA Section 164(a) regarding the prompt crediting of payments apply to “[p]ayments received from [a consumer] under an open end consumer credit plan,” the general payment allocation rule in amended TILA Section 164(b)(1) applies “[u]pon receipt of a payment from a cardholder.” Furthermore, the exception for deferred interest plans in amended Section 164(b)(1) requires “the card issuer[to] apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest. * * *” Based on this language, it appears that Congress intended to apply the payment allocation requirements in amended Section 164(b) only to credit card accounts. This is consistent with the approach taken by the Board and the other Agencies in the January 2009 FTC Act Rule. See 74 FR 5560. Furthermore, the Board is not aware of concerns regarding payment allocation with respect to other open-end credit products, likely because such products generally do not apply different annual percentage rates to different balances. Commenters generally supported this aspect of the proposal.

53(a) General Rule

The Board proposed to implement amended TILA Section 164(b)(1) in § 226.53(a), which stated that, except as provided in § 226.53(b), when a consumer makes a payment in excess of the required minimum periodic payment for a credit card account under an open-end (not home-secured) consumer credit plan, the card issuer must allocate the excess amount first to the balance with the highest annual percentage rate and any remaining portion to the other balances in descending order based on the applicable annual percentage rate. The Board and the other Agencies adopted a similar provision in the January 2009 FTC Act Rule in response to concerns that card issuers were applying consumers' payments in a manner that inappropriately maximized interest charges on credit card accounts with balances at different annual percentage rates. See 12 CFR 227.23, 74 FR 5512-5520, 5560. Specifically, most card issuers currently allocate consumers' payments first to the balance with the lowest annual percentage rate, resulting in the accrual of interest at higher rates on other balances (unless all balances are paid in full). Because many card issuers offer different rates for purchases, cash advances, and balance transfers, this practice can result in consumers who do not pay the balance in full each month incurring higher finance charges than they would under any other allocation method. [32] Commenters generally supported § 226.53(a), which is adopted as proposed.

The Board also proposed comment 53-1, which clarified that § 226.53 does not limit or otherwise address the card issuer's ability to determine, consistent with applicable law and regulatory guidance, the amount of the required minimum periodic payment or how that payment is allocated. It further clarified that a card issuer may, but is not required to, allocate the required minimum periodic payment consistent with the requirements in proposed § 226.53 to the extent consistent with other applicable law or regulatory guidance. The Board did not receive any significant comment on this guidance, which is adopted as proposed.

Comment 53-2 clarified that § 226.53 permits a card issuer to allocate an excess payment based on the annual percentage rates and balances on the date the preceding billing cycle ends, on the date the payment is credited to the account, or on any day in between those two dates. Because the rates and balances on an account affect how excess payments will be applied, this comment was intended to provide flexibility regarding the point in time at which payment allocation determinations required by proposed § 226.53 can be made. For example, it is possible that, in certain circumstances, the annual percentage rates may have changed between the close of a billing cycle and the date on which payment for that billing cycle is received.

Industry commenters generally supported this guidance. However, consumer groups opposed it on the grounds that card issuers could misuse the flexibility to systematically vary the dates on which payments are allocated at the account level in order to generate higher interest charges. The Board agrees that such a practice would be inconsistent with the intent of comment 53-2. Accordingly, the Board has revised this comment to clarify that the day used by the card issuer to determine the applicable annual percentage rates and balances for purposes of § 226.53 generally must be consistent from billing cycle to billing cycle, although the card issuer may adjust this day from time to time.

Proposed comment 53-3 addressed the relationship between the dispute rights in § 226.12(c) and the payment allocation requirements in proposed § 226.53. This comment clarified that, when a consumer has asserted a claim or defense against the card issuer pursuant to § 226.12(c), the card issuer must apply the consumer's payment in a manner that avoids or minimizes any reduction in the amount of that claim or defense. See comment 12(c)-4. Based on comments from industry, the Board has revised the proposed comment to clarify that the same requirements apply with respect to amounts subject to billing error disputes under § 226.13. The Board has also added illustrative examples.

Proposed comment 53-4 addressed circumstances in which the same annual percentage rate applies to more than one balance on a credit card account but a different rate applies to at least one other balance on that account. For example, an account could have a $500 cash advance balance at 20%, a $1,000 purchase balance at 15%, and a $2,000 balance also at 15% that was previously at a 5% promotional rate. The comment clarified that, in these circumstances, § 226.53 generally does not require that any particular method be used when allocating among the balances with the same rate and that the card issuer may treat the balances with the same rate as a single balance or separate balances. [33] The Board did not receive any significant comment on this aspect of the guidance, which is adopted as proposed.

However, proposed comment 53-4 also clarified that, when a balance on a credit card account is subject to a deferred interest or similar program that provides that a consumer will not be obligated to pay interest that accrues on the balance if the balance is paid in full prior to the expiration of a specified period of time, that balance must be treated as a balance with an annual percentage rate of zero for purposes of § 226.53 during that period of time rather than a balance with the rate at which interest accrues (the accrual rate). [34] In the proposal, the Board noted that treating the rate as zero is consistent with the nature of deferred interest and similar programs insofar as the consumer will not be obligated to pay any accrued interest if the balance is paid in full prior to expiration. The Board further noted that this approach ensures that excess payments will generally be applied first to balances on which interest is being charged, which will generally result in lower interest charges if the consumer pays the balance in full prior to expiration.

However, the Board also acknowledged that treating the rate on this type of balance as zero could be disadvantageous for consumers in certain circumstances. Specifically, the Board noted that, if the rate for a deferred interest balance is treated as zero during the deferred interest period, consumers who wish to pay off that balance in installments over the course of the program would be prevented from doing so.

In response to the proposal, the Board received a number of comments from industry and consumer groups raising concerns about prohibiting consumers from paying off a deferred interest or similar balance in monthly installments. Accordingly, as discussed below, the Board has revised § 226.53(b) to address those concerns.

Finally, proposed comment 53(a)-1 provided examples of allocating excess payments consistent with proposed § 226.53. The Board has redesignated this comment as 53-5 for organizational purposes and revised the examples for consistency with the revisions to § 226.53(b). [35]

53(b) Special Rule for Accounts With Balances Subject to Deferred Interest or Similar Programs

The Board proposed to implement amended TILA Section 164(b)(2) in § 226.53(b), which provided that, when a balance on a credit card account under an open-end (not home-secured) consumer credit plan is subject to a deferred interest or similar program, the card issuer must allocate any amount paid by the consumer in excess of the required minimum periodic payment first to that balance during the two billing cycles immediately preceding expiration of the deferred interest period and any remaining portion to any other balances consistent with proposed § 226.53(a). See 15 U.S.C. 1666c(b)(2).

The Board and the other Agencies proposed a similar exception to the January 2009 FTC Act Rule's payment allocation provision in the May 2009 proposed clarifications and amendments. See proposed 12 CFR 227.23(b), 74 FR 20814. This exception was based on the Agencies' concern that, if the deferred interest balance was not the only balance on the account, the general payment allocation rule could prevent consumers from paying off the deferred interest balance prior to expiration of the deferred interest period unless they also paid off all other balances on the account. [36] If the consumer is unaware of the need to pay off the entire balance, the consumer would be charged interest on the deferred interest balance and thus would not obtain the benefits of the deferred interest program. See 74 FR 20807-20808.

As noted above, comments from industry and consumer groups raised concerns that the proposed rule would prohibit consumers who may lack the resources to pay off a deferred interest balance in one of the last two billing cycles of the deferred interest period from paying that balance off in monthly installments over the course of the period. These commenters generally urged the Board to permit card issuers to allocate payments consistent with a consumer's request when an account has a deferred interest or similar balance.

Because the consumer testing conducted by the Board for the January 2009 Regulation Z Rule indicated that disclosures do not enable consumers to understand sufficiently the effects of payment allocation on interest charges, the Board is concerned that permitting card issuers to allocate payments based on a consumer's request could create a loophole that would undermine the purposes of revised TILA Section 164(b). For example, consumers who do not understand the effects of payment allocation could be misled into selecting an allocation method that will generally result in higher interest charges than applying payments first to the balance with the highest rate (such as a method under which payments are applied first to the oldest unpaid transactions on the account). For this reason, the Board does not believe that a general exception to § 226.53(a) based on a consumer's request is warranted.

However, in the narrow context of accounts with balances subject to deferred interest or similar programs, the Board is persuaded that the benefits of providing flexibility for consumers who are able to avoid deferred interest charges by paying off a deferred interest balance in installments over the course of the deferred interest period outweigh the risk that some consumers could make choices that result in higher interest charges than would occur under the proposed rule.

Accordingly, pursuant to its authority under TILA § 105(a) to make adjustments and exceptions in order to effectuate the purposes of TILA, the Board has revised proposed § 226.53(b) to permit card issuers to allocate payments in excess of the minimum consistent with a consumer's request when the account has a balance subject to a deferred interest or similar program. [37] Specifically, § 226.52(b)(1) provides that, when a balance on a credit card account under an open-end (not home-secured) consumer credit plan is subject to a deferred interest or similar program, the card issuer must allocate any amount paid by the consumer in excess of the required minimum periodic payment consistent with § 226.53(a) except that, during the two billing cycles immediately preceding expiration of the specified period, the excess amount must be allocated first to the balance subject to the deferred interest or similar program and any remaining portion allocated to any other balances consistent with § 226.53(a). In the alternative, § 226.53(b)(2) provides that the card issuer may at its option allocate any amount paid by the consumer in excess of the required minimum periodic payment among the balances on the account in the manner requested by the consumer.

The Board has revised the proposed commentary to § 226.53(b) for consistency with the amendments to § 226.53(b) and for organizational purposes. As an initial matter, the Board has redesignated proposed comment 53(b)-2 as comment 53(b)-1. Proposed comment 53(b)-2 clarified that § 226.53(b) applies to deferred interest or similar programs under which the consumer is not obligated to pay interest that accrues on a balance if that balance is paid in full prior to the expiration of a specified period of time. The proposed comment further clarified that a grace period during which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate is not a deferred interest or similar program for purposes of § 226.53(b). [38] In response to requests for guidance from commenters, the Board has revised this comment to clarify that § 226.53(b) applies regardless of whether the consumer is required to make payments with respect to the balance subject to the deferred interest or similar program during the specified period. In addition, the Board has revised the comment to clarify that a temporary annual percentage rate of zero percent that applies for a specified period of time consistent with § 226.55(b)(1) is not a deferred interest or similar program for purposes of § 226.53(b) unless the consumer may be obligated to pay interest that accrues during the period if a balance is not paid in full prior to expiration of the period. Finally, in order to ensure consistent treatment of deferred interest programs in Regulation Z, the Board has clarified that, for purposes of § 226.53, “deferred interest” has the same meaning as in § 226.16(h)(2) and associated commentary.

For organizational purposes, the Board has redesignated proposed comment 53(b)-1 as comment 53(b)-2. Proposed comment 53(b)-1 clarified the application of § 226.53(b) in circumstances where the deferred interest or similar program expires during a billing cycle (rather than at the end of a billing cycle). The comment clarified that, for purposes of § 226.53(b), a billing cycle does not constitute one of the two billing cycles immediately preceding expiration of a deferred interest or similar program if the expiration date for the program precedes the payment due date in that billing cycle. An example is provided. The Board believes that this interpretation is consistent with the purpose of amended TILA Section 164(b)(2) insofar as it ensures that, at a minimum, the consumer will receive two complete billing cycles to avoid accrued interest charges by paying off a balance subject to a deferred interest or similar program. The Board did not receive any significant comment on this guidance, which has been revised for consistency with the revisions to § 226.53(b).

The Board has also adopted a new comment 53(b)-3 in order to clarify that § 226.53(b) does not require a card issuer to allocate amounts paid by the consumer in excess of the required minimum periodic payment in the manner requested by the consumer, provided that the card issuer instead allocates such amounts consistent with § 226.53(b)(1). For example, a card issuer may decline consumer requests regarding payment allocation as a general matter or may decline such requests when a consumer does not comply with requirements set by the card issuer (such as submitting the request in writing or submitting the request prior to or contemporaneously with submission of the payment), provided that amounts paid by the consumer in excess of the required minimum periodic payment are allocated consistent with § 226.53(b)(1). Similarly, a card issuer that accepts requests pursuant to § 226.53(b)(2) generally must allocate amounts paid by a consumer in excess of the required minimum periodic payment consistent with § 226.53(b)(1) if the consumer does not submit a request or submits a request with which the card issuer cannot comply (such as a request that contains a mathematical error).

Comment 53(b)-3 also provides illustrative examples of what does and does not constitute a consumer request for purposes of § 226.53(b)(2). In particular, the comment clarifies that a consumer has made a request for purposes of § 226.53(b)(2) if the consumer contacts the card issuer and specifically requests that a payment or payments be allocated in a particular manner during the period of time that the deferred interest or similar program applies to a balance on the account. Similarly, a consumer has made a request for purposes of § 226.53(b)(2) if the consumer completes a form or payment coupon provided by the card issuer for the purpose of requesting that a payment or payments be allocated in a particular manner and submits that form to the card issuer. Finally, a consumer has made a request for purposes of § 226.53(b)(2) if the consumer contacts a card issuer and specifically requests that a payment that the card issuer has previously allocated consistent with § 226.53(b)(1) instead be allocated in a different manner.

In contrast, the comment clarifies that a consumer has not made a request for purposes of § 226.53(b)(2) if the terms and conditions of the account agreement contain preprinted language stating that by applying to open an account or by using that account for transactions subject to a deferred interest or similar program the consumer requests that payments be allocated in a particular manner. Similarly, a consumer has not made a request for purposes of § 226.53(b)(2) if the card issuer's on-line application contains a preselected check box indicating that the consumer requests that payments be allocated in a particular manner and the consumer does not deselect the box. [39]

In addition, a consumer has not made a request for purposes of § 226.53(b)(2) if the payment coupon provided by the card issuer contains preprinted language or a preselected check box stating that by submitting a payment the consumer requests that the payment be allocated in a particular manner. Furthermore, a consumer has not made a request for purposes of § 226.53(b)(2) if the card issuer requires a consumer to accept a particular payment allocation method as a condition of using a deferred interest or similar program, making a payment, or receiving account services or features.

Section 226.54Limitations on the Imposition of Finance Charges

The Credit Card Act creates a new TILA Section 127(j), which applies when a consumer loses any time period provided by the creditor with respect to a credit card account within which the consumer may repay any portion of the credit extended without incurring a finance charge (i.e., a grace period). 15 U.S.C. 1637(j). In these circumstances, new TILA Section 127(j)(1)(A) prohibits the creditor from imposing a finance charge with respect to any balances for days in billing cycles that precede the most recent billing cycle (a practice that is sometimes referred to as “two-cycle” or “double-cycle” billing). Furthermore, in these circumstances, Section 127(j)(1)(B) prohibits the creditor from imposing a finance charge with respect to any balances or portions thereof in the current billing cycle that were repaid within the grace period. However, Section 127(j)(2) provides that these prohibitions do not apply to any adjustment to a finance charge as a result of the resolution of a dispute or the return of a payment for insufficient funds. As discussed below, the Board is implementing new TILA Section 127(j) in § 226.54.

54(a) Limitations on Imposing Finance Charges as a Result of the Loss of a Grace Period

54(a)(1) General Rule

Prohibition on Two-Cycle Billing

As noted above, new TILA Section 127(j)(1)(A) prohibits the balance computation method sometimes referred to as “two-cycle billing” or “double-cycle billing.” The January 2009 FTC Act Rule contained a similar prohibition. See 12 CFR 227.25, 74 FR 5560-5561; see also 74 FR 5535-5538. The two-cycle balance computation method has several permutations but, generally speaking, a card issuer using the two-cycle method assesses interest not only on the balance for the current billing cycle but also on balances on days in the preceding billing cycle. This method generally does not result in additional finance charges for a consumer who consistently carries a balance from month to month (and therefore does not receive a grace period) because interest is always accruing on the balance. Nor does the two-cycle method affect consumers who pay their balance in full within the grace period every month because interest is not imposed on their balances. The two-cycle method does, however, result in greater interest charges for consumers who pay their balance in full one month (and therefore generally qualify for a grace period) but not the next month (and therefore generally lose the grace period).

The following example illustrates how the two-cycle method results in higher costs for these consumers than other balance computation methods: Assume that the billing cycle on a credit card account starts on the first day of the month and ends on the last day of the month. The payment due date for the account is the twenty-fifth day of the month. Under the terms of the account, the consumer will not be charged interest on purchases if the balance at the end of a billing cycle is paid in full by the following payment due date (in other words, the consumer receives a grace period). The consumer uses the credit card to make a $500 purchase on March 15. The consumer pays the balance for the February billing cycle in full on March 25. At the end of the March billing cycle (March 31), the consumer's balance consists only of the $500 purchase and the consumer will not be charged interest on that balance if it is paid in full by the following due date (April 25). The consumer pays $400 on April 25, leaving a $100 balance. Because the consumer did not pay the balance for the March billing cycle in full on April 25, the consumer would lose the grace period and most card issuers would charge interest on the $500 purchase from the start of the April billing cycle (April 1) through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle (April 30). Card issuers using the two-cycle method, however, would also charge interest on the $500 purchase from the date of purchase (March 15) to the end of the March billing cycle (March 31).

In the October 2009 Regulation Z Proposal, the Board proposed to implement new TILA Section 127(j)(1)(A)'s prohibition on two-cycle billing in § 226.54(a)(1)(i), which states that, except as provided in proposed § 226.54(b), a card issuer must not impose finance charges as a result of the loss of a grace period on a credit card account if those finance charges are based on balances for days in billing cycles that precede the most recent billing cycle. The Board also proposed to adopt § 226.54(a)(2), which would define “grace period” for purposes of § 226.54(a)(1) as having the same meaning as in § 226.5(b)(2)(ii). [40] Finally, proposed comment 54(a)(1)-4 explained that § 226.54(a)(1)(i) prohibits use of the two-cycle average daily balance computation method.

The Board did not receive significant comment on this proposed regulation and commentary. Accordingly, they are adopted as proposed.

Partial Grace Period Requirement

As discussed above, many credit card issuers that provide a grace period currently require the consumer to pay off the entire balance on the account or the entire balance subject to the grace period before the period expires. However, new TILA Section 127(j)(1)(B) limits this practice. Specifically, Section 127(j)(1)(B) provides that a creditor may not impose any finance charge on a credit card account as a result of the loss of any time period provided by the creditor within which the consumer may repay any portion of the credit extended without incurring a finance charge with respect to any balances or portions thereof in the current billing cycle that were repaid within such time period. The Board proposed to implement this prohibition in § 226.54(a)(1)(ii), which states that, except as provided in § 226.54(b), a card issuer must not impose finance charges as a result of the loss of a grace period on a credit card account if those finance charges are based on any portion of a balance subject to a grace period that was repaid prior to the expiration of the grace period. The Board did not receive significant comment on § 226.54(a)(1)(ii), which is adopted as proposed.

The Board also proposed comment 54(a)(1)-5, which clarified that card issuers are not required to use a particular method to comply with § 226.54(a)(1)(ii) but provided an example of a method that is consistent with the requirements of § 226.54(a)(1)(ii). Specifically, it stated that a card issuer can comply with the requirements of § 226.54(a)(1)(ii) by applying the consumer's payment to the balance subject to the grace period at the end of the prior billing cycle (in a manner consistent with the payment allocation requirements in § 226.53) and then calculating interest charges based on the amount of that balance that remains unpaid. An example of the application of this method is provided in comment 54(a)(1)-6 along with other examples of the application of § 226.54(a)(1)(i) and (ii). For the reasons discussed below, the Board has revised comments 54(a)(1)-5 and -6 to clarify the circumstances in which § 226.54 applies. Otherwise, these comments are adopted as proposed.

In addition to the commentary clarifying the specific prohibitions in § 226.54(a)(1)(i) and (ii), the Board also proposed to adopt three comments clarifying the general scope and applicability of § 226.54. First, proposed comment 54(a)(1)-1 clarified that § 226.54 does not require the card issuer to provide a grace period or prohibit a card issuer from placing limitations and conditions on a grace period to the extent consistent with § 226.54. Currently, neither TILA nor Regulation Z requires a card issuer to provide a grace period. Nevertheless, for competitive and other reasons, many credit card issuers choose to do so, subject to certain limitations and conditions. For example, credit card grace periods generally apply to purchases but not to other types of transactions (such as cash advances). In addition, as noted above, card issuers that provide a grace period generally require the consumer to pay off all balances on the account or the entire balance subject to the grace period before the period expires.

Although new TILA Section 127(j) prohibits the imposition of finance charges as a result of the loss of a grace period in certain circumstances, the Board does not interpret this provision to mandate that card issuers provide such a period or to limit card issuers' ability to place limitations and conditions on a grace period to the extent consistent with the statute. Instead, Section 127(j)(1) refers to “any time provided by the creditor within which the [consumer] may repay any portion of the credit extended without incurring a finance charge.” This language indicates that card issuers retain the ability to determine when and under what conditions to provide a grace period on a credit card account so long as card issuers that choose to provide a grace period do so consistent with the requirements of new TILA Section 127(j). Commenters generally supported this interpretation, which the Board has adopted in this final rule.

The Board also proposed to adopt comment 54(a)(1)-2, which clarified that § 226.54 does not prohibit the card issuer from charging accrued interest at the expiration of a deferred interest or similar promotional program. Specifically, the comment stated that, when a card issuer offers a deferred interest or similar promotional program, § 226.54 does not prohibit the card issuer from charging accrued interest to the account if the balance is not paid in full prior to expiration of the period (consistent with § 226.55 and other applicable law and regulatory guidance). A contrary interpretation of proposed § 226.54 (and new TILA Section 127(j)) would effectively eliminate deferred interest and similar programs as they are currently constituted by prohibiting the card issuer from charging any interest based on any portion of the deferred interest balance that is paid during the deferred interest period. However, as discussed above with respect to proposed § 226.53, the Credit Card Act's revisions to TILA Section 164 specifically create an exception to the general rule governing payment allocation for deferred interest programs, which indicates that Congress did not intend to ban such programs. See Credit Card Act § 104(1) (revised TILA Section 164(b)(2)).

Comments from credit card issuers, retailers, and industry groups strongly supported this interpretation. However, consumer group commenters argued that new TILA Section 127(j) should be interpreted to prohibit the interest charges on amounts paid within a deferred interest and similar period. For the reasons discussed above, the Board believes that such a prohibition would be inconsistent with Congress' intent. Accordingly, the Board adopts the interpretation in proposed comment 54(a)(1)-2.

In response to requests for clarification from industry commenters, the Board has also made a number of revisions to comments 54(a)(1)-1 and -2 in order to clarify the circumstances in which § 226.54 applies. As discussed below, these clarifications are intended to preserve current industry practices with respect to grace periods and the waiver of trailing or residual interest that are generally beneficial to consumers. First, the Board has generally revised the commentary to clarify that a card issuer is permitted to condition eligibility for the grace period on the payment of certain transactions or balances within the specified period, rather than requiring consumers to pay in full all transactions or balances on the account within that period. The Board understands that, for example, some card issuers permit a consumer to retain a grace period on purchases by paying the purchase balance in full, even if other balances (such as balances subject to promotional rates or deferred interest programs) are not paid in full. Insofar as this practice enables consumers to avoid interest charges on purchases without paying the entire account balance in full, it appears to be advantageous for consumers.

Second, the Board has revised comment 54(a)(1)-1 to clarify that § 226.54 does not limit the imposition of finance charges with respect to a transaction when the consumer is not eligible for a grace period on that transaction at the end of the billing cycle in which the transaction occurred. This clarification is intended to preserve a grace period eligibility requirement used by some card issuers that is more favorable to consumers than the requirement used by other issuers. Specifically, the Board understands that, while most credit card issuers only require consumers to pay the relevant balance in full in one billing cycle in order to be eligible for the grace period, some issuers require consumers to pay in full for two consecutive cycles. While either requirement is permissible under § 226.54, [41] the less restrictive requirement appears to be more beneficial to consumers.

However, many industry commenters expressed concern that, under the less restrictive requirement, a consumer could be considered eligible for a grace period in every billing cycle—and therefore § 226.54 would apply—regardless of whether the consumer had ever paid the relevant balance in full in a previous cycle. Because new TILA Section 127(j) does not mandate provision of a grace period, the Board believes that interpreting § 226.54 as applying in every billing cycle regardless of whether the consumer paid the previous cycle's balance in full would be inconsistent with Congress' intent. Furthermore, although this interpretation could be advantageous for consumers if card issuers retained the less restrictive eligibility requirement, the Board is concerned that card issuers would instead convert to the more restrictive approach, which would ultimately harm consumers. Accordingly, the Board has revised the commentary to clarify that a card issuer that employs the less restrictive eligibility requirement is not subject to § 226.54 unless the relevant balance for the prior billing cycle has been paid in full before the beginning of the current cycle. The Board has also added illustrative examples to comment 54(a)(1)-1.

Third, the Board has revised comment 54(a)(1)-2 to clarify that the practice of waiving or rebating finance charges on an individualized basis (such as in response to a consumer's request) and the practice of waiving or rebating trailing or residual interest do not constitute provision of a grace period for purposes of § 226.54. The Board believes that these practices are generally beneficial to consumers. In particular, the Board understands that, when a consumer is not eligible for a grace period at the start of a billing cycle, many card issuers waive interest that accrues during that billing cycle if the consumer pays the relevant balance in full by the payment due date. For reasons similar to those discussed above, industry commenters expressed concern that waiving interest in these circumstances could be construed as providing a grace period regardless of whether the relevant balance for the prior cycle was paid in full. Accordingly, the revisions to comment 54(a)(1)-2 are intended to encourage issuers to continue waiving or rebating interest charges in these circumstances. Illustrative examples are provided.

However, consumer group commenters also raised concerns about an emerging practice of establishing interest waiver or rebate programs that are similar in many respects to grace periods. Under these programs, all interest accrued on purchases will be waived or rebated if the purchase balance at the end of the billing cycle during which the purchases occurred is paid in full by the following payment due date. The Board is concerned that these programs may be structured to avoid the requirements of new TILA Section 127(j) and § 226.54 (particularly the prohibition on imposing finance charges on amounts paid during a grace period). Accordingly, pursuant to its authority under TILA Section 105(a) to prevent evasion, the Board clarifies in comment 54(a)(1)-2 that this type of program is subject to the requirements of § 226.54. An illustrative example is provided.

Finally, proposed comment 54(a)(1)-3 clarified that card issuers must comply with the payment allocation requirements in § 226.53 even if doing so will result in the loss of a grace period. For example, as illustrated in comment 54(a)(1)-6.ii, a card issuer must generally allocate a payment in excess of the required minimum periodic payment to a cash advance balance with a 25% rate before a purchase balance with a 15% rate even if this will result in the loss of a grace period on the purchase balance. Although there could be a narrow set of circumstances in which—depending on the size of the balances and the amount of the difference between the rates—this allocation would result in higher interest charges than if the excess payment were applied in a way that preserved the grace period, Congress did not create an exception for these circumstances in the provisions of the Credit Card Act specifically addressing payment allocation.

Consumer group commenters argued that credit card issuers should be required to allocate payments in a manner that preserves the grace period. However, the Board is not persuaded that, as a general matter, this approach would necessarily be more advantageous for consumers than paying down the balance with the highest annual percentage rate. Furthermore, the payment allocation requirements in revised TILA Section 164(b) are mandatory in all circumstances, whereas the limitations on the imposition of finance charges in new TILA Section 127(j) apply only when the card issuer chooses to provide a grace period. Therefore, in circumstances where, for example, a card issuer must choose between allocating a payment to the balance with the highest rate (which the Credit Card Act requires) or preserving a grace period (which the Credit Card Act does not require), the Board believes it is appropriate that the payment allocation requirements control. Accordingly, comment 54(a)(1)-3 is adopted as proposed.

54(b) Exceptions

New TILA Section 127(j)(2) provides that the prohibitions in Section 127(j)(1) do not apply to any adjustment to a finance charge as a result of resolution of a dispute or as a result of the return of a payment for insufficient funds. The Board proposed to implement these exceptions in § 226.54(b).

The Board interpreted the exception for the “resolution of a dispute” in new TILA Section 127(j)(2)(A) to apply when the dispute is resolved pursuant to TILA's dispute resolution procedures. Accordingly, proposed § 226.54(b)(1) permitted adjustments to finance charges when a dispute is resolved under § 226.12 (which governs the right of a cardholder to assert claims or defenses against the card issuer) or § 226.13 (which governs resolution of billing errors).

In addition, because a payment may be returned for reasons other than insufficient funds (such as because the account on which the payment is drawn has been closed or because the consumer has instructed the institution holding that account not to honor the payment), the Board proposed to use its authority under TILA Section 105(a) to apply the exception in new TILA Section 127(j)(2)(B) to all circumstances in which adjustments to finance charges are made as a result of the return of a payment.

The Board did not receive significant comment on this aspect of the proposal. Accordingly, § 226.54(b) is adopted as proposed.

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

As revised by the Credit Card Act, TILA Section 171(a) generally prohibits creditors from increasing any annual percentage rate, fee, or finance charge applicable to any outstanding balance on a credit card account under an open-end consumer credit plan. See 15 U.S.C. 1666i-1. Revised TILA Section 171(b), however, provides exceptions to this rule for temporary rates that expire after a specified period of time and rates that vary with an index. Revised TILA Section 171(b) also provides exceptions in circumstances where the creditor has not received the required minimum periodic payment within 60 days after the due date and where the consumer completes or fails to comply with the terms of a workout or temporary hardship arrangement. Revised TILA Section 171(c) limits a creditor's ability to change the terms governing repayment of an outstanding balance. The Credit Card Act also creates a new TILA Section 172, which provides that a creditor generally cannot increase a rate, fee, or finance charge during the first year after account opening and that a promotional rate (as defined by the Board) generally cannot expire earlier than six months after it takes effect. As discussed in detail below, the Board is implementing both revised TILA Section 171 and new TILA Section 172 in § 226.55.

55(a) General Rule

As noted above, revised TILA Section 171(a) generally prohibits increases in annual percentage rates, fees, and finance charges on outstanding balances. Revised TILA Section 171(d) defines “outstanding balance” as the amount owed as of the end of the fourteenth day after the date on which the creditor provides notice of an increase in the annual percentage rate, fee, or finance charge in accordance with TILA Section 127(i). [42] TILA Section 127(i)(1) and (2), which went into effect on August 20, 2009, generally require creditors to notify consumers 45 days before an increase in an annual percentage rate or any other significant change in the terms of a credit card account (as determined by rule of the Board).

In the July 2009 Regulation Z Interim Final Rule, the Board implemented new TILA Section 127(i)(1) and (2) in § 226.9(c) and (g). In addition to increases in annual percentage rates, § 226.9(c)(2)(ii) lists the fees and other charges for which an increase constitutes a significant change to the account terms necessitating 45 days' advance notice, including annual or other periodic fees, fixed finance charges, minimum interest charges, transaction charges, cash advance fees, late payment fees, over-the-limit fees, balance transfer fees, returned-payment fees, and fees for required insurance, debt cancellation, or debt suspension coverage. As discussed above, however, the Board has amended § 226.9(c)(2)(ii) to identify these significant account terms by a cross-reference to the account-opening disclosure requirements in § 226.6(b). Because the definition of outstanding balance in revised TILA Section 171(d) is expressly conditioned on the provision of the 45-day advance notice, the Board believes that it is consistent with the purposes of the Credit Card Act to limit the general prohibition in revised TILA Section 171(a) on increasing fees and finance charges to increases in fees and charges for which a 45-day notice is required under § 226.9.

Furthermore, because revised TILA Section 171(a) prohibits the application of increased fees and charges to outstanding balances rather than to new transactions or to the account as a whole, the Board believes that it is appropriate to apply that prohibition only to fees and charges that could be applied to an outstanding balance. For example, increased cash advance or balance transfer fees would apply only to new cash advances or balance transfers, not to existing balances. Similarly, increased penalty fees such as late payment fees, over-the-limit fees, and returned payment fees would apply to the account as a whole rather than any specific balance. [43]

Accordingly, the Board proposed to use its authority under TILA Section 105(a) to limit the general prohibition in revised TILA Section 171(a) to increases in annual percentage rates and in fees and charges required to be disclosed under § 226.6(b)(2)(ii) (fees for the issuance or availability of credit), § 226.6(b)(2)(iii) (fixed finance charges and minimum interest charges), or § 226.6(b)(2)(xii) (fees for required insurance, debt cancellation, or debt suspension coverage). [44] Although consumer groups expressed concern that card issuers might develop new fees in order to evade the prohibition on applying increased fees to existing balances, the Board believes that these categories of fees are sufficiently broad to address any attempts at circumvention.

In addition, for clarity and organizational purposes, proposed § 226.55(a) generally prohibited increases in annual percentage rates and fees and charges required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) with respect to all transactions, rather than just increases on existing balances. As explained in the proposal, the Board does not intend to alter the substantive requirements in revised TILA Section 171. Instead, the Board believes that revised TILA Section 171 can be more clearly and effectively implemented if increases in rates, fees, and charges that apply to transactions that occur more than fourteen days after provision of a § 226.9(c) or (g) notice are addressed in an exception to the general prohibition rather than placed outside that prohibition. The Board and the other Agencies adopted a similar approach in the January 2009 FTC Act Rule. See 12 CFR 227.24, 74 FR 5560. The Board did not receive significant comment on this aspect of the proposal. Accordingly, § 226.55(a) states that, except as provided in § 226.55(b), a card issuer must not increase an annual percentage rate or a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii).

Proposed comment 55(a)-1 provided examples of the general application of § 226.55(a) and the exceptions in § 226.55(b). The Board has clarified these examples but no substantive change is intended. Additional examples illustrating specific aspects of the exceptions in § 226.55(b) are provided in the commentary to those exceptions.

Proposed comment 55(a)-2 clarified that nothing in § 226.55 prohibits a card issuer from assessing interest due to the loss of a grace period to the extent consistent with § 226.54. In addition, the comment states that a card issuer has not reduced an annual percentage rate on a credit account for purposes of § 226.55 if the card issuer does not charge interest on a balance or a portion thereof based on a payment received prior to the expiration of a grace period. For example, if the annual percentage rate for purchases on an account is 15% but the card issuer does not charge any interest on a $500 purchase balance because that balance was paid in full prior to the expiration of the grace period, the card issuer has not reduced the 15% purchase rate to 0% for purposes of § 226.55. The Board has revised this comment to clarify that any loss of a grace period must also be consistent with the requirements for mailing or delivering periodic statements in § 226.5(b)(2)(ii)(B). Otherwise, it is adopted as proposed.

55(b) Exceptions

Revised TILA Section 171(b) lists the exceptions to the general prohibition in revised Section 171(a). Similarly, § 226.55(b) lists the exceptions to the general prohibition in § 226.55(a). In addition, § 226.55(b) clarifies that the listed exceptions are not mutually exclusive. In other words, a card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to an exception set forth in § 226.55(b) even if that increase would not be permitted under a different exception. Comment 55(b)-1 clarifies that, for example, although a card issuer cannot increase an annual percentage rate pursuant to § 226.55(b)(1) unless that rate is provided for a specified period of at least six months, the card issuer may increase an annual percentage rate during a specified period due to an increase in an index consistent with § 226.55(b)(2). Similarly, although § 226.55(b)(3) does not permit a card issuer to increase an annual percentage rate during the first year after account opening, the card issuer may increase the rate during the first year after account opening pursuant to § 226.55(b)(4) if the required minimum periodic payment is not received within 60 days after the due date. The Board did not receive significant comment on the prefatory language in § 226.55(b) or on comment 55(b)-1, which are adopted as proposed. Similarly, except as noted below, comments 55(b)-2 through -6 are adopted as proposed.

Proposed comment 55(b)-2 addressed circumstances where the date on which a rate, fee, or charge may be increased pursuant to an exception in § 226.55(b) does not fall on the first day of a billing cycle. Because it may be operationally difficult for some card issuers to apply an increased rate, fee, or charge in the middle of a billing cycle, the comment clarifies that, in these circumstances, the card issuer may delay application of the increased rate, fee, or charge until the first day of the following billing cycle without relinquishing the ability to apply that rate, fee, or charge.

Commenters generally supported this guidance, but requested additional clarification regarding mid-cycle increases. Because these increases can occur as a result of the interaction between the exceptions in § 226.55(b) and the 45-day notice requirements in § 226.9(c) and (g), the Board has incorporated into comment 55(b)-2 the guidance provided in proposed comment 55(b)-6 regarding that interaction. [45] Specifically, proposed comment 55(b)-6 stated that nothing in § 226.55 alters the requirements in § 226.9(c) and (g) that creditors provide written notice at least 45 days prior to the effective date of certain increases in annual percentage rates, fees, and charges. For example, although § 226.55(b)(3)(ii) permits a card issuer that discloses an increased rate pursuant to § 226.9(c) or (g) to apply that rate to transactions that occurred more than fourteen days after provision of the notice, the card issuer cannot begin to accrue interest at the increased rate until that increase goes into effect, consistent with § 226.9(c) or (g). The final rule adopts this guidance—with illustrative examples—in comment 55(b)-2.

In addition, proposed comment 55(b)-6 clarified that, on or after the effective date, the card issuer cannot calculate interest charges for days before the effective date based on the increased rate. In response to requests from commenters for further clarification, the Board has added this guidance to comment 55(b)-2 and adopted additional guidance addressing the application of different balance computation methods when an increased rate goes into effect in the middle of a billing cycle.

Comment 55(b)-3 clarifies that, although nothing in § 226.55 prohibits a card issuer from lowering an annual percentage rate or a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii), a card issuer that does so cannot subsequently increase the rate, fee, or charge unless permitted by one of the exceptions in § 226.55(b). The Board believes that this interpretation is consistent with the intent of revised TILA Section 171 insofar as it ensures that consumers are informed of the key terms and conditions associated with a lowered rate, fee, or charge before relying on that rate, fee, or charge. For example, revised Section 171(b)(1)(A) requires creditors to disclose how long a temporary rate will apply and the rate that will apply after the temporary rate expires before the consumer engages in transactions in reliance on the temporary rate. Similarly, revised Section 171(b)(3)(B) requires the creditor to disclose the terms of a workout or temporary hardship arrangement before the consumer agrees to the arrangement. The comment provides examples illustrating the application of § 226.55 when an annual percentage rate is lowered. Comment 55(b)-3 is adopted as proposed, although the Board has made non-substantive clarifications and added additional examples in response to comments regarding the application of § 226.55 when an existing temporary rate is extended and when a default occurs before a temporary rate expires.

As discussed below, several of the exceptions in proposed § 226.55 require the creditor to determine when a transaction occurred. For example, consistent with revised TILA Section 171(d)'s definition of “outstanding balance,” § 226.55(b)(3)(ii) provides that a card issuer that discloses an increased rate pursuant to § 226.9(c) or (g) may not apply that increased rate to transactions that occurred prior to or within fourteen days after provision of the notice. Accordingly, comment 55(b)-4 clarifies that when a transaction occurred for purposes of § 226.55 is generally determined by the date of the transaction. [46] The Board understands that, in certain circumstances, a short delay can occur between the date of the transaction and the date on which the merchant charges that transaction to the account. As a general matter, the Board believes that these delays should not affect the application of § 226.55. However, to address the operational difficulty for card issuers in the rare circumstance where a transaction that occurred within fourteen days after provision of a § 226.9(c) or (g) notice is not charged to the account prior to the effective date of the increase or change, this comment clarifies that the card issuer may treat the transaction as occurring more than fourteen days after provision of the notice for purposes of § 226.55. In addition, the comment clarifies that, when a merchant places a “hold” on the available credit on an account for an estimated transaction amount because the actual transaction amount will not be known until a later date, the date of the transaction for purposes of § 226.55 is the date on which the card issuer receives the actual transaction amount from the merchant. Illustrative examples are provided in comment 55(b)(3)-4.iii.

Comment 55(b)-5 clarifies the meaning of the term “category of transactions,” which is used in some of the exceptions in § 226.55(b). This comment states that, for purposes of § 226.55, a “category of transactions” is a type or group of transactions to which an annual percentage rate applies that is different than the annual percentage rate that applies to other transactions. [47] For example, purchase transactions, cash advance transactions, and balance transfer transactions are separate categories of transactions for purposes of § 226.55 if a card issuer applies different annual percentage rates to each. Furthermore, if, for example, the card issuer applies different annual percentage rates to different types of purchase transactions (such as one rate for purchases of gasoline or purchases over $100 and a different rate for all other purchases), each type constitutes a separate category of transactions for purposes of § 226.55.

55(b)(1) Temporary Rate Exception

Revised TILA Section 171(b)(1) provides that a creditor may increase an annual percentage rate upon the expiration of a specified period of time, subject to three conditions. First, prior to commencement of the period, the creditor must have disclosed to the consumer, in a clear and conspicuous manner, the length of the period and the increased annual percentage rate that will apply after expiration of the period. Second, at the end of the period, the creditor must not apply a rate that exceeds the increased rate that was disclosed prior to commencement of the period. Third, at the end of the period, the creditor must not apply the previously-disclosed increased rate to transactions that occurred prior to commencement of the period. Thus, under this exception, a creditor that, for example, discloses at account opening that a 5% rate will apply to purchases for six months and that a 15% rate will apply thereafter is permitted to increase the rate on the purchase balance to 15% after six months.

The Board proposed to implement the exception in revised TILA Section 171(b)(1) regarding temporary rates as well as the requirements in new TILA Section 172(b) regarding promotional rates in § 226.55(b)(1). As a general matter, commenters supported or did not address proposed § 226.55(b)(1) and its commentary. Accordingly, except as discussed below, they are adopted as proposed. [48]

New TILA Section 172(b) provides that “[n]o increase in any * * * promotional rate (as that term is defined by the Board) shall be effective before the end of the 6-month period beginning on the date on which the promotional rate takes effect, subject to such reasonable exceptions as the Board may establish by rule.” Pursuant to this authority, the Board believes that promotional rates should be subject to the same requirements and exceptions as other temporary rates that expire after a specified period of time. In particular, the Board believes that consumers who rely on promotional rates should receive the disclosures and protections set forth in revised TILA Section 171(b)(1) and § 226.55(b)(1). This will ensure that a consumer will receive disclosure of the terms of the promotional rate before engaging in transactions in reliance on that rate and that, at the expiration of the promotion, the rate will only be increased consistent with those terms. Accordingly, the Board has incorporated the requirement that promotional rates last at least six months into § 226.55(b)(1), which would permit a card issuer to increase a temporary annual percentage rate upon the expiration of a specified period that is six months or longer.

Furthermore, pursuant to its authority under new TILA Section 172(b) to establish reasonable exceptions to the six-month requirement for promotional rates, the Board believes that it is appropriate to apply the other exceptions in revised TILA Section 171(b) and § 226.55(b) to promotional rate offers. For example, the Board believes that a card issuer should be permitted to offer a consumer a promotional rate that varies with an index consistent with revised TILA Section 171(b)(2) and § 226.55(b)(2) (such as a rate that is one percentage point over a prime rate that is not under the card issuer's control). Similarly, the Board believes that a card issuer should be permitted to increase a promotional rate if the account becomes more than 60 days delinquent during the promotional period consistent with revised TILA Section 171(b)(4) and § 226.55(b)(4). Thus, the Board has applied to promotional rates the general proposition in proposed § 226.55(b) that a rate may be increased pursuant to an exception in § 226.55(b) even if that increase would not be permitted under a different exception.

Section 226.55(b)(1)(i) implements the requirement in revised TILA Section 171(b)(1)(A) that creditors disclose the length of the period and the annual percentage rate that will apply after the expiration of that period. This language tracks § 226.9(c)(2)(v)(B)(1), which the Board adopted in the July 2009 Regulation Z Interim Final Rule as part of an exception to the general requirement that creditors provide 45 days' notice before an increase in annual percentage rate. Because the disclosure requirements in § 226.9(c)(2)(v)(B)(1) and § 226.55(b)(1)(i) implement the same statutory provision (revised TILA Section 171(b)(1)(A)), the Board believes a single set of disclosures should satisfy both requirements. Accordingly, comment 55(b)(1)-1 clarifies that a card issuer that has complied with the disclosure requirements in § 226.9(c)(2)(v)(B) has also complied with the disclosure requirements in § 226.55(b)(2)(i).

Section 226.55(b)(1)(ii) implements the limitations in revised TILA Section 171(b)(1)(B) and (C) on the application of increased rates following expiration of the specified period. First, § 226.55(b)(1)(ii)(A) states that, upon expiration of the specified period, a card issuer must not apply an annual percentage rate to transactions that occurred prior to the period that exceeds the rate that applied to those transactions prior to the period. In other words, the expiration of a temporary rate cannot be used as a reason to apply an increased rate to a balance that preceded application of the temporary rate. For example, assume that a credit card account has a $5,000 purchase balance at a 15% rate and that the card issuer reduces the rate that applies to all purchases (including the $5,000 balance) to 10% for six months with a 22% rate applying thereafter. Under § 226.55(b)(1)(ii)(A), the card issuer cannot apply the 22% rate to the $5,000 balance upon expiration of the six-month period (although the card issuer could apply the original 15% rate to that balance).

Second, § 226.55(b)(1)(ii)(B) states that, if the disclosures required by § 226.55(b)(1)(i) are provided pursuant to § 226.9(c), the card issuer must not—upon expiration of the specified period—apply an annual percentage rate to transactions that occurred within fourteen days after provision of the notice that exceeds the rate that applied to that category of transactions prior to provision of the notice. The Board believes that this clarification is necessary to ensure that card issuers do not apply an increased rate to an outstanding balance (as defined in revised TILA Section 171(d)) upon expiration of the specified period. Accordingly, consistent with the purpose of revised TILA Section 171(d), § 226.55(b)(1)(ii)(B) ensures that a consumer will have fourteen days to receive the § 226.9(c) notice and review the terms of the temporary rate (including the increased rate that will apply upon expiration of the specified period) before engaging in transactions to which that increased rate may eventually apply.

Third, § 226.55(b)(1)(ii)(C) states that, upon expiration of the specified period, the card issuer must not apply an annual percentage rate to transactions that occurred during the specified period that exceeds the increased rate disclosed pursuant to § 226.55(b)(1)(i). In other words, the card issuer can only increase the rate consistent with the previously-disclosed terms. Examples illustrating the application of § 226.55(b)(1)(ii)(A), (B), and (C) are provided in comments 55(a)-1 and 55(b)-3.

Comment 55(b)(1)-2 clarifies when the specified period begins for purposes of the six-month requirement in § 226.55(b)(1). As a general matter, comment 55(b)(1)-2 states that the specified period must expire no less than six months after the date on which the creditor discloses to the consumer the length of the period and rate that will apply thereafter (as required by § 226.55(b)(1)(i)). However, if the card issuer provides these disclosures before the consumer can use the account for transactions to which the temporary rate will apply, the temporary rate must expire no less than six months from the date on which it becomes available.

For example, assume that on January 1 a card issuer offers a 5% annual percentage rate for six months on purchases (with a 15% rate applying thereafter). If a consumer may begin making purchases at the 5% rate on January 1, § 226.55(b)(1) permits the issuer to begin accruing interest at the 15% rate on July 1. However, if a consumer may not begin making purchases at the 5% rate until February 1, § 226.55(b)(1) does not permit the issuer to begin accruing interest at the 15% rate until August 1.

The Board understands that card issuers often limit the application of a promotional rate to particular categories of transactions (such as balance transfers or purchases over $100). The Board does not believe that the six-month requirement in new TILA Section 172(b) was intended to prohibit this practice so long as the consumer receives the benefit of the promotional rate for at least six months. Accordingly, proposed comment 55(b)(1)-2 clarifies that § 226.55(b)(1) does not prohibit these types of limitations. However, the comment also clarifies that, in circumstances where the card issuer limits application of the temporary rate to a particular transaction, the temporary rate must expire no less than six months after the date on which that transaction occurred. For example, if on January 1 a card issuer offers a 0% temporary rate on the purchase of an appliance and the consumer uses the account to purchase a $1,000 appliance on March 1, the card issuer cannot increase the rate on that $1,000 purchase until September 1.

The Board believes that this application of the six-month requirement is consistent with the intent of new TILA Section 172(b). Although the six-month requirement could be interpreted as requiring a separate six-month period for every transaction to which the temporary rate applies, the Board believes this interpretation would create a level of complexity that would be not only confusing for consumers but also operationally burdensome for card issuers, potentially leading to a reduction in promotional rate offers that provide significant consumer benefit.

As a general matter, commenters supported the guidance in comment 55(b)(1)-2. Some industry commenters argued that the six-month requirement should not apply when the temporary rate is limited to a particular transaction, but the Board finds no support for such an exclusion in new TILA Section 172(b). Other industry commenters argued that, even if a temporary rate is limited to a particular transaction, the six-month period required by § 226.55(b)(1) should always begin once the terms have been disclosed and the rate is available to consumers. However, because temporary rates that are limited to particular transactions are frequently offered in retail settings, the Board is concerned that many consumers would not receive the benefit of the six-month period mandated by Section 172(b) if that period began when the rate was available.

For example, assume that a temporary rate of 0% is available on the purchase of a television from a particular retailer beginning on January 1. If the six-month period begins on January 1, a consumer who purchases a television on January 1 will receive the benefit of 0% rate for six months. However, a consumer who purchases a television on June 1 will only receive the benefit of the 0% rate for one month. As discussed above, the Board believes that, as a general matter, the benefits of temporary rates that can be used for multiple transactions sufficiently outweigh the fact that a consumer will not receive the temporary rate for the full six months on every transaction and therefore justify interpreting the six-month period in new TILA Section 172(b) as beginning when the rate becomes available. However, when the temporary rate applies only to a single transaction, the Board believes that Section 172(b) requires the card issuer to apply the temporary rate to that transaction for at least six months.

Although some industry commenters cited the operational difficulty of tracking transaction-specific expiration dates for temporary rates, the Board notes that several card issuers do so today. Furthermore, as discussed in comment 55(b)-2, a card issuer is not required to increase the rate precisely six months after the date of the transaction. Instead, assuming monthly billing cycles, a card issuer could, for example, use a single expiration date of July 31 for all temporary rate transactions that occur during the month of January (although this would require the card issuer to extend the temporary rate for up to a month). Accordingly, in this respect, comment 55(b)(1)-2 is adopted as proposed. [49]

Comment 55(b)(1)-3 clarifies that the general prohibition in § 226.55(a) applies to the imposition of accrued interest upon the expiration of a deferred interest or similar promotional program under which the consumer is not obligated to pay interest that accrues on a balance if that balance is paid in full prior to the expiration of a specified period of time. As discussed in the January 2009 FTC Act Rule, the assessment of deferred interest is effectively an increase in rate on an existing balance. See 74 FR 5527-5528. However, if properly disclosed, deferred interest programs can provide substantial benefits to consumers. See 74 FR 20812-20813. Furthermore, as discussed above with respect to § 226.54, the Board does not believe that the Credit Card Act was intended to ban properly-disclosed deferred interest programs. Accordingly, comment 55(b)(1)-3 further clarifies that card issuers may continue to offer such programs consistent with the requirements of § 226.55(b)(1). In particular, § 226.55(b)(1) requires that the deferred interest or similar period be at least six months. Furthermore, prior to the commencement of the period, § 226.55(b)(1)(i) requires the card issuer to disclose the length of the period and the rate that will apply to the balance subject to the deferred interest program if that balance is not paid in full prior to expiration of the period. The comment provides examples illustrating the application of § 226.55 to deferred interest and similar programs.

Some industry commenters requested that the Board exclude deferred interest and similar programs from the six-month requirement in § 226.55(b)(1). However, because the Board has concluded that these programs should be treated as promotional programs for purposes of revised TILA Section 171, the Board does believe there is a basis for excluding these programs from the six-month requirement in new TILA Section 172(b). However, in order to ensure consistent treatment of deferred interest programs across Regulation Z, the Board has revised comment 55(b)(1)-3 to clarify that “deferred interest” has the same meaning as in § 226.16(h)(2) and associated commentary. In addition, the Board has added an example clarifying the application of the exception in § 226.55(b)(4) for accounts that are more than 60 days delinquent to deferred interest and similar programs.

Comment 55(b)(1)-4 clarifies that § 226.55(b)(1) does not permit a card issuer to apply an increased rate that is contingent on a particular event or occurrence or that may be applied at the card issuer's discretion. The comment provides examples of rate increases that are not permitted by § 226.55. Some industry commenters requested that, when a reduced rate is provided to employees of a business, the Board permit application of an increased rate to existing balances when employment ends. However, the Board believes that such an exception would be inconsistent with revised TILA Section 171(b)(1) because it is based on a contingent event rather than a specified period of time.

55(b)(2) Variable Rate Exception

Revised TILA Section 171(b)(2) provides that a card issuer may increase “a variable annual percentage rate in accordance with a credit card agreement that provides for changes in the rate according to operation of an index that is not under the card issuer's control and is available to the general public.” The Board proposed to implement this exception in § 226.55(b)(2), which states that a creditor may increase an annual percentage rate that varies according to an index that is not under the creditor's control and is available to the general public when the increase in rate is due to an increase in the index. Section 226.55(b)(2) is adopted as proposed.

The proposed commentary to § 226.55(b)(2) was modeled on commentary adopted by the Board and the other Agencies in the January 2009 FTC Act Rule as well as § 226.5b(f) and its commentary. See 12 CFR 227.24 comments 24(b)(2)-1 through 6, 74 FR 5531, 5564; § 226.5b(f)(1), (3)(ii); comment 5b(f)(1)-1 and -2; comment 5b(f)(3)(ii)-1. Proposed comment 55(b)(2)-1 clarified that § 226.55(b)(2) does not permit a card issuer to increase a variable annual percentage rate by changing the method used to determine that rate (such as by increasing the margin), even if that change will not result in an immediate increase. However, consistent with existing comment 5b(f)(3)(v)-2, the comment also clarifies that a card issuer may change the day of the month on which index values are measured to determine changes to the rate. This comment is generally adopted as proposed, although the Board has clarified that that changes to the day on which index values are measured are permitted from time to time. As discussed below, systematic changes in the date to capture the highest possible index value would be inconsistent with § 226.55(b)(2).

Proposed comment 55(b)(1)-2 further clarified that a card issuer may not increase a variable rate based on its own prime rate or cost of funds. A card issuer is permitted, however, to use a published prime rate, such as that in the Wall Street Journal, even if the card issuer's own prime rate is one of several rates used to establish the published rate. In addition, proposed comment 55(b)(2)-3 clarified that a publicly-available index need not be published in a newspaper, but it must be one the consumer can independently obtain (by telephone, for example) and use to verify the annual percentage rate applied to the credit card account. These comments are adopted as proposed, except that, as discussed below, the Board has provided additional clarification in comment 55(b)(2)-2 regarding what constitutes exercising control over the operation of an index for purposes of § 226.55(b)(2).

Consumer groups and a member of Congress raised concerns about two industry practices that, in their view, exercise control over the variable rate in a manner that is inconsistent with revised TILA Section 171(b)(2). First, they noted that many card issuers set minimum rates or “floors” below which a variable rate cannot fall even if a decrease would be consistent with a change in the applicable index. For example, assume that a card issuer offers a variable rate of 17%, which is calculated by adding a margin of 12 percentage points to an index with a current value of 5%. However, the terms of the account provide that the variable rate will not decrease below 17%. As a result, the variable rate can only increase, and the consumer will not benefit if the value of the index falls below 5%. The Board agrees that this practice is inconsistent with § 226.55(b)(2). Accordingly, the Board has revised comment 55(b)(2)-2 to clarify that a card issuer exercises control over the operation of the index if the variable rate based on that index is subject to a fixed minimum rate or similar requirement that does not permit the variable rate to decrease consistent with reductions in the index. [50]

The second practice raised by consumer groups and a member of Congress relates to adjusting or resetting variable rates to account for changes in the index. Typically, card issuers do not reset variable rates on a daily basis. Instead, card issuers may reset variable rates monthly, every two months, or quarterly. When the rate is reset, some card issuers calculate the new rate by adding the margin to the value of the index on a particular day (such as the last day of a month or billing cycle). However, some issuers calculate the variable rate based on the highest index value during a period of time (such as the 90 days preceding the last day of a month or billing cycle). Consumer groups and a member of Congress argued that the latter practice is inconsistent with § 226.55(b)(2) insofar as the consumer can be prevented from receiving the benefit of decreases in the index.

The Board agrees that a card issuer exercises control over the operation of the index if the variable rate can be calculated based on any index value during a period of time. Accordingly, the Board has revised comment 55(b)(2)-2 to clarify that, if the terms of the account contain such a provision, the card issuer cannot apply increases in the variable rate to existing balances pursuant to § 226.55(b)(2). However, the comment also clarifies that a card issuer can adjust the variable rate based on the value of the index on a particular day or, in the alternative, the average index value during a specified period.

Because the conversion of a non-variable rate to a variable rate could lead to future increases in the rate that applies to an existing balance, comment 55(b)(2)-4 clarifies that a non-variable rate may be converted to a variable rate only when specifically permitted by one of the exceptions in § 226.55(b). For example, under § 226.55(b)(1), a card issuer may convert a non-variable rate to a variable rate at the expiration of a specified period if this change was disclosed prior to commencement of the period. This comment is adopted as proposed.

Because § 226.55 applies only to increases in annual percentage rates, proposed comment 55(b)(2)-5 clarifies that nothing in § 226.55 prohibits a card issuer from changing a variable rate to an equal or lower non-variable rate. Whether the non-variable rate is equal to or lower than the variable rate is determined at the time the card issuer provides the notice required by § 226.9(c). An illustrative example is provided. Consumer group commenters argued that the Board should prohibit issuers from converting a variable rate to a non-variable rate when the index used to calculate the variable rate has reached its peak value. However, it would be difficult or impossible to develop workable standards for determining when a variable rate has reached its peak value or for distinguishing between conversions that are done for legitimate reasons and those that are not. Furthermore, as the consumer group commenters acknowledged, non-variable rates can be beneficial to consumers insofar as they provide increased predictability regarding the cost of credit. Accordingly, this comment is adopted as proposed.

Proposed comment 55(b)(2)-6 clarified that a card issuer may change the index and margin used to determine a variable rate if the original index becomes unavailable, so long as historical fluctuations in the original and replacement indices were substantially similar and the replacement index and margin will produce a rate similar to the rate that was in effect at the time the original index became unavailable. This comment further clarified that, if the replacement index is newly established and therefore does not have any rate history, it may be used if it produces a rate substantially similar to the rate in effect when the original index became unavailable.

Consumer group commenters raised concerns that card issuers could substitute indices in a manner that circumvents the requirements of § 226.55(b)(2). Because comment 55(b)(2)-6 addresses the narrow circumstance in which an index becomes unavailable, the Board does not believe there is a significant risk of abuse. Indeed, this comment is substantively similar to long-standing guidance provided by the Board with respect to HELOCs (comment 5b(f)(3)(ii)-1), and the Board is not aware of any abuse in that context. Accordingly, the Board does not believe that revisions to comment 55(b)(2)-6 are warranted at this time.

55(b)(3) Advance Notice Exception

Section 226.55(a) prohibits increases in annual percentage rates and fees and charges required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) with respect to both existing balances and new transactions. However, as discussed above, the prohibition on increases in rates, fees, and finance charges in revised TILA Section 171 applies only to “outstanding balances” as defined in Section 171(d). Accordingly, § 226.55(b)(3) provides that a card issuer may generally increase an annual percentage rate or a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) with respect to new transactions after complying with the notice requirements in § 226.9(b), (c), or (g).

Because § 226.9 applies different notice requirements in different circumstances, § 226.55(b)(3) clarifies that the transactions to which an increased rate, fee, or charge may be applied depend on the type of notice required. As a general matter, when an annual percentage rate, fee, or charge is increased pursuant to § 226.9(c) or (g), § 226.55(b)(3)(ii) provides that the card issuer must not apply the increased rate, fee, or charge to transactions that occurred within fourteen days after provision of the notice. This is consistent with revised TILA Section 171(d), which defines the outstanding balance to which an increased rate, fee, or finance charge may not be applied as the amount due at the end of the fourteenth day after notice of the increase is provided.

However, pursuant to its authority under TILA Section 105(a), the Board has adopted a different approach for increased rates, fees, and charges disclosed pursuant to § 226.9(b). As discussed in the July 2009 Regulation Z Interim Final Rule, the Board believes that the fourteen-day period is intended, in part, to ensure that an increased rate, fee, or charge will not apply to transactions that occur before the consumer has received the notice of the increase and had a reasonable amount of time to review it and decide whether to engage in transactions to which the increased rate, fee, or charge will apply. See 74 FR 36090. The Board does not believe that a fourteen-day period is necessary for increases disclosed pursuant to § 226.9(b), which requires card issuers to disclose any new finance charge terms applicable to supplemental access devices (such as convenience checks) and additional features added to the account after account opening before the consumer uses the device or feature for the first time. For example, § 226.9(b)(3)(i)(A) requires that card issuers providing checks that access a credit card account to which a temporary promotional rate applies disclose key terms on the front of the page containing the checks, including the promotional rate, the period during which the promotional rate will be in effect, and the rate that will apply after the promotional rate expires. Thus, unlike increased rates, fees, and charges disclosed pursuant to a § 226.9(c) and (g) notice, the fourteen-day period is not necessary for increases disclosed pursuant to § 226.9(b) because the device or feature will not be used before the consumer has received notice of the applicable terms. Accordingly, § 226.55(b)(3)(i) provides that, if a card issuer discloses an increased annual percentage rate, fee, or charge pursuant to § 226.9(b), the card issuer must not apply that rate, fee, or charge to transactions that occurred prior to provision of the notice.

Finally, § 226.55(b)(3)(iii) provides that the exception in § 226.55(b)(3) does not permit a card issuer to increase an annual percentage rate or a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year after the credit card account is opened. This provision implements new TILA Section 172(a), which generally prohibits increases in annual percentage rates, fees, and finance charges during the one-year period beginning on the date the account is opened.

The Board did not receive significant comment regarding § 226.55(b)(3). Thus, the final rules adopt § 226.55(b)(3) as proposed. Similarly, except as discussed below, the Board has generally adopted the commentary to § 226.55(b)(3) as proposed, although the Board has made some non-substantive clarifications.

Comment 55(b)(3)-1 clarifies that a card issuer may not increase a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to § 226.55(b)(3) if the consumer has rejected the increased fee or charge pursuant to § 226.9(h). In addition, comment 55(b)(3)-2 clarifies that, if an increased annual percentage rate, fee, or charge is disclosed pursuant to both § 226.9(b) and (c), the requirements in § 226.55(b)(3)(ii) control and the rate, fee, or charge may only be applied to transactions that occur more than fourteen days after provision of the § 226.9(c) notice.

Comment 55(b)(3)-3 clarifies whether certain changes to a credit card account constitute an “account opening” for purposes of the prohibition in § 226.55(b)(3)(iii) on increasing annual percentage rates and fees and charges required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year after account opening. In particular, the comment distinguishes between circumstances in which a card issuer opens multiple accounts for the same consumer and circumstances in which a card issuer substitutes, replaces, or consolidates one account with another. As an initial matter, this comment clarifies that, when a consumer has a credit card account with a card issuer and the consumer opens a new credit card account with the same card issuer (or its affiliate or subsidiary), the opening of the new account constitutes the opening of a credit card account for purposes of § 226.55(b)(3)(iii) if, more than 30 days after the new account is opened, the consumer has the option to obtain additional extensions of credit on each account. Thus, for example, if a consumer opens a credit card account with a card issuer on January 1 of year one and opens a second credit card account with that card issuer on July 1 of year one, the opening of the second account constitutes an account opening for purposes of § 226.55(b)(3)(iii) so long as, on August 1, the consumer has the option to engage in transactions using either account. This is the case even if the consumer transfers a balance from the first account to the second. Thus, because the card issuer has two separate account relationships with the consumer, the prohibition in § 226.55(b)(3)(iii) on increasing annual percentage rates and fees and charges required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year after account opening applies to the opening of the second account. [51]

In contrast, the comment clarifies that an account has not been opened for purposes of § 226.55(b)(3)(iii) when a card issuer substitutes or replaces one credit card account with another credit card account (such as when a retail credit card is replaced with a cobranded general purpose card that can be used at a wider number of merchants) or when a card issuer consolidates or combines a credit card account with one or more other credit card accounts into a single credit card account. As discussed below with respect to proposed § 226.55(d)(2), the Board believes that these transfers should be treated as a continuation of the existing account relationship rather than the creation of a new account relationship. Similarly, the comment also clarifies that the substitution or replacement of an acquired credit card account does not constitute an “account opening” for purposes of § 226.55(b)(3)(iii). Thus, in these circumstances, the prohibition in § 226.55(b)(3)(iii) does not apply. However, when a substitution, replacement or consolidation occurs during the first year after account opening, comment 55(b)(3)-3.ii.B clarifies that the card issuer may not increase an annual percentage rate, fee, or charge in a manner otherwise prohibited by § 226.55. [52]

Comment 55(b)(3)-4 provides illustrative examples of the application of the exception in proposed § 226.55(b)(3). Comment 55(b)(3)-5 contains a cross-reference to comment 55(c)(1)-3, which clarifies the circumstances in which increased fees and charges required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) may be imposed consistent with § 226.55.

55(b)(4) Delinquency Exception

Revised TILA Section 171(b)(4) permits a creditor to increase an annual percentage rate, fee, or finance charge “due solely to the fact that a minimum payment by the [consumer] has not been received by the creditor within 60 days after the due date for such payment.” However, this exception is subject to two conditions. First, revised Section 171(b)(4)(A) provides that the notice of the increase must include “a clear and conspicuous written statement of the reason for the increase and that the increase will terminate not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time from the [consumer] during that period.” Second, revised Section 171(b)(4)(B) provides that the creditor must “terminate [the] increase not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time during that period.”

The Board has implemented this exception in § 226.55(b)(4). The additional notice requirements in revised TILA Section 171(b)(4)(A) are set forth in § 226.55(b)(4)(i). The requirement in revised Section 171(b)(4)(B) that the increase be terminated if the card issuer receives timely payments during the six months following the increase is implemented in § 226.55(b)(4)(ii), although the Board proposed to make four adjustments to the statutory requirement pursuant to its authority under TILA Section 105(a) to make adjustments to effectuate the purposes of TILA and to facilitate compliance therewith.

First, proposed § 226.55(b)(4)(ii) interpreted the requirement that the creditor “terminate” the increase as a requirement that the card issuer reduce the annual percentage rate, fee, or charge to the rate, fee, or charge that applied prior to the increase. The Board believes that this interpretation is consistent with the intent of revised TILA Section 171(b)(4)(B) insofar as the increased rate, fee, or charge will cease to apply once the consumer has met the statutory requirements. The Board does not interpret revised TILA Section 171(b)(4)(B) to require the card issuer to refund or credit the account for amounts charged as a result of the increase prior to the termination or cessation. The Board did not receive significant comment on this aspect of the proposal, which is adopted in the final rule.

Second, proposed § 226.55(b)(4)(ii) provided that the card issuer must reduce the annual percentage rate, fee, or charge after receiving six consecutive required minimum periodic payments on or before the payment due date. The Board believes that shifting the focus from the number of months to the number of on-time payments provides more specificity and clarity for both consumers and card issuers as to what is required to obtain the reduction. Because credit card accounts typically require payment on a monthly basis, [53] a consumer who makes six consecutive on-time payments will also generally have paid on time for six months. However, card issuers are permitted to adjust their due dates and billing cycles from time to time, [54] which could create uncertainty regarding whether a consumer has complied with the statutory requirement to make on-time payments during the six-month period. The Board did not receive significant comment on this proposed adjustment. Accordingly, because the Board believes that this adjustment to TILA Section 171(b)(4) will facilitate compliance with that provision, it is adopted in the final rule.

Third, proposed § 226.55(b)(4)(ii) applied to the six consecutive required minimum periodic payments received on or before the payment due date beginning with the first payment due following the effective date of the increase. The Board believes that limiting this requirement to the period immediately following the increase is consistent with revised TILA Section 171(b)(4)(B), which requires a creditor to terminate an increase “6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time during that period.” Thus, as clarified in comment 55(b)(4)-3 (which is discussed below), § 226.55(b)(4)(ii) does not require a card issuer to terminate an increase if, at some later point in time, the card issuer receives six consecutive required minimum periodic payments on or before the payment due date. The Board did not receive significant comment on this interpretation, which is adopted in the final rule.

Fourth, proposed § 226.55(b)(4)(ii) provided that the card issuer must also reduce the annual percentage rate, fee, or charge with respect to transactions that occurred within fourteen days after provision of the § 226.9(c) or (g) notice. This requirement is consistent with the definition of “outstanding balance” in revised TILA Section 171(d), as applied in § 226.55(b)(1)(ii)(B) and § 226.55(b)(3)(ii). As above, the Board did not receive significant comment on this aspect of the proposal, which is adopted in the final rule.

Accordingly, for the reasons discussed above, § 226.55(b)(4) is adopted as proposed. Similarly, except as discussed below, the Board has adopted the commentary to § 226.55(b)(4) as proposed (with certain non-substantive clarifications).

Comment 55(b)(4)-1 clarifies that, in order to satisfy the condition in § 226.55(b)(4) that the card issuer has not received the consumer's required minimum periodic payment within 60 days after the payment due date, a card issuer that requires monthly minimum payments generally must not have received two consecutive minimum payments. The comment further clarifies that whether a required minimum periodic payment has been received for purposes of § 226.55(b)(4) depends on whether the amount received is equal to or more than the first outstanding required minimum periodic payment. The comment provides the following example: Assume that the required minimum periodic payments for a credit card account are due on the fifteenth day of the month. On May 13, the card issuer has not received the $50 required minimum periodic payment due on March 15 or the $150 required minimum periodic payment due on April 15. If the card issuer receives a $50 payment on May 14, § 226.55(b)(4) does not apply because the payment is equal to the required minimum periodic payment due on March 15 and therefore the account is not more than 60 days delinquent. However, if the card issuer instead received a $40 payment on May 14, § 226.55(b)(4) does apply because the payment is less than the required minimum periodic payment due on March 15. Furthermore, if the card issuer received the $50 payment on May 15, § 226.55(b)(4) applies because the card issuer did not receive the required minimum periodic payment due on March 15 within 60 days after the due date for that payment.

As discussed above, § 226.9(g)(3)(i)(B) requires that the written notice provided to consumers 45 days before an increase in rate due to delinquency or default or as a penalty include the information required by revised Section 171(b)(4)(A). Accordingly, comment 55(b)(4)-2 clarifies that a card issuer that has complied with the disclosure requirements in § 226.9(g)(3)(i)(B) has also complied with the disclosure requirements in § 226.55(b)(4)(i).

Comment 55(b)(4)-3 clarifies the requirements in § 226.55(b)(4)(ii) regarding the reduction of annual percentage rates, fees, or charges that have been increased pursuant to § 226.55(b)(4). First, as discussed above, the comment clarifies that § 226.55(b)(4)(ii) does not apply if the card issuer does not receive six consecutive required minimum periodic payments on or before the payment due date beginning with the payment due immediately following the effective date of the increase, even if, at some later point in time, the card issuer receives six consecutive required minimum periodic payments on or before the payment due date.

Second, the comment states that, although § 226.55(b)(4)(ii) requires the card issuer to reduce an annual percentage rate, fee, or charge increased pursuant to § 226.55(b)(4) to the annual percentage rate, fee, or charge that applied prior to the increase, this provision does not prohibit the card issuer from applying an increased annual percentage rate, fee, or charge consistent with any of the other exceptions in § 226.55(b). For example, if a temporary rate applied prior to the § 226.55(b)(4) increase and the temporary rate expired before a reduction in rate pursuant to § 226.55(b)(4), the card issuer may apply an increased rate to the extent consistent with § 226.55(b)(1). Similarly, if a variable rate applied prior to the § 226.55(b)(4) increase, the card issuer may apply any increase in that variable rate to the extent consistent with § 226.55(b)(2). This is consistent with § 226.55(b), which provides that a card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to one of the exceptions in § 226.55(b) even if that increase would not be permitted under a different exception.

Third, the comment states that, if § 226.55(b)(4)(ii) requires a card issuer to reduce an annual percentage rate, fee, or charge on a date that is not the first day of a billing cycle, the card issuer may delay application of the reduced rate, fee, or charge until the first day of the following billing cycle. As discussed above with respect to comment 55(b)-2, the Board understands that it may be operationally difficult for some card issuers to reduce a rate, fee, or charge in the middle of a billing cycle. Accordingly, this comment is consistent with comment 55(b)-2, which clarifies that a card issuer may delay application of an increase in a rate, fee, or charge until the start of the next billing cycle without relinquishing its ability to apply that rate, fee, or charge. Finally, the comment provides examples illustrating the application of § 226.55(b)(4)(ii). [55]

55(b)(5) Workout and Temporary Hardship Arrangement Exception

Revised TILA Section 171(b)(3) permits a creditor to increase an annual percentage rate, fee, or finance charge “due to the completion of a workout or temporary hardship arrangement by the [consumer] or the failure of a [consumer] to comply with the terms of a workout or temporary hardship arrangement.” However, like the exception for delinquencies of more than 60 days in revised TILA Section 171(b)(4), this exception is subject to two conditions. First, revised Section 171(b)(3)(A) provides that “the annual percentage rate, fee, or finance charge applicable to a category of transactions following any such increase does not exceed the rate, fee, or finance charge that applied to that category of transactions prior to commencement of the arrangement.” Second, revised Section 171(b)(3)(B) provides that the creditor must have “provided the [consumer], prior to the commencement of such arrangement, with clear and conspicuous disclosure of the terms of the arrangement (including any increases due to such completion or failure).”

The Board proposed to implement this exception in § 226.55(b)(5). The notice requirements in revised Section 171(b)(3)(B) were set forth in proposed § 226.55(b)(5)(i). The limitation on increases following completion or failure of a workout or temporary hardship arrangement was set forth in proposed § 226.55(b)(5)(ii). Section 226.55(b)(5) is generally adopted as proposed, although—as discussed below—the Board has revised § 226.55(b)(5)(i) and comment 55(b)(5)-2 for consistency with the revisions to the notice requirements for workout and temporary hardship arrangements in § 226.9(c)(2)(v)(D). Otherwise, the commentary to § 226.55(b)(5) is adopted as proposed.

Comment 55(b)(5)-1 clarifies that nothing in § 226.55(b)(5) permits a card issuer to alter the requirements of § 226.55 pursuant to a workout or temporary hardship arrangement. For example, a card issuer cannot increase an annual percentage rate or a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to a workout or temporary hardship arrangement unless otherwise permitted by § 226.55. In addition, a card issuer cannot require the consumer to make payments with respect to a protected balance that exceed the payments permitted under § 226.55(c). [56]

Comment 55(b)(5)-2 clarifies that a card issuer that has complied with the disclosure requirements in § 226.9(c)(2)(v)(D) has also complied with the disclosure requirements in § 226.55(b)(5)(i). The comment also contains a cross-reference to proposed comment 9(c)(2)(v)-10 (formerly comment 9(c)(2)(v)-8), which the Board adopted in the July 2009 Regulation Z Interim Final Rule to clarify the terms a creditor is required to disclose prior to commencement of a workout or temporary hardship arrangement for purposes of § 226.9(c)(2)(v)(D), which is an exception to the general requirement that a creditor provide 45 days advance notice of an increase in annual percentage rate. See 74 FR 36099. Because the disclosure requirements in § 226.9(c)(2)(v)(D) and § 226.55(b)(5)(i) implement the same statutory provision (revised TILA Section 171(b)(3)(B)), the Board believes a single set of disclosures should satisfy the requirements of all three provisions. The Board has revised the disclosure requirement in § 226.55(b)(5)(i) and the guidance in comment 55(b)(5)-2 for consistency with the revisions to § 226.9(c)(2)(v)(D), which permit creditors to disclose the terms of the workout or temporary hardship arrangement orally by telephone, provided that the creditor mails or delivers a written disclosure of the terms as soon as reasonably practicable after the oral disclosure is provided.

Similar to the commentary to § 226.55(b)(4), comment 55(b)(5)-3 states that, although the card issuer may not apply an annual percentage rate, fee, or charge to transactions that occurred prior to commencement of the arrangement that exceeds the rate, fee, or charge that applied to those transactions prior to commencement of the arrangement, § 226.55(b)(5)(ii) does not prohibit the card issuer from applying an increased rate, fee, or charge upon completion or failure of the arrangement to the extent consistent with any of the other exceptions in § 226.55(b) (such as an increase in a variable rate consistent with § 226.55(b)(2)). Finally, comment 55(b)(5)-4 provides illustrative examples of the application of this exception. [57]

55(b)(6) Servicemembers Civil Relief Act Exception

In the October 2009 Regulation Z Proposal, the Board proposed to use its authority under TILA Section 105(a) to clarify the relationship between the general prohibition on increasing annual percentage rates in revised TILA Section 171 and certain provisions of the Servicemembers Civil Relief Act (SCRA), 50 U.S.C. app. 501 et seq. Specifically, 50 U.S.C. app. 527(a)(1) provides that “[a]n obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember's spouse jointly, before the servicemember enters military service shall not bear interest at a rate in excess of 6 percent. * * *” With respect to credit card accounts, this restriction applies during the period of military service. See 50 U.S.C. app. 527(a)(1)(B). [58]

Under revised TILA Section 171, a creditor that complies with the SCRA by lowering the annual percentage rate that applies to an existing balance on a credit card account when the consumer enters military service arguably would not be permitted to increase the rate for that balance once the period of military service ends and the protections of the SCRA no longer apply. In May 2009, the Board and the other Agencies proposed to create an exception to the general prohibition in the January 2009 FTC Act Rule on applying increased rates to existing balances for these circumstances, provided that the increased rate does not exceed the rate that applied prior to the period of military service. See 12 CFR 227.24(b)(6), 74 FR 20814; see also 74 FR 20812. Revised TILA Section 171 does not contain a similar exception.

Nevertheless, the Board does not believe that Congress intended to prohibit creditors from returning an annual percentage rate that has been reduced by operation of the SCRA to its pre-military service level once the SCRA no longer applies. Accordingly, the Board proposed to create § 226.55(b)(6), which states that, if an annual percentage rate has been decreased pursuant to the SCRA, a card issuer may increase that annual percentage rate once the SCRA no longer applies. However, the proposed rule would not have permitted the card issuer to apply an annual percentage rate to any transactions that occurred prior to the decrease that exceeds the rate that applied to those transactions prior to the decrease. Furthermore, because the Board believes that a consumer leaving military service should receive 45 days advance notice of this increase in rate, the Board did not propose a corresponding exception to § 226.9.

Commenters were generally supportive of proposed § 226.55(b)(6). Accordingly, it is adopted as proposed. However, although industry commenters argued that a similar exception should be adopted in § 226.9(c), the Board continues to believe—as discussed above with respect to § 226.9(c)—that consumers who leave military service should receive 45 days advance notice of an increase in rate.

The Board has also adopted the commentary to § 226.55(b)(6) as proposed. Comment 55(b)(6)-1 clarifies that, although § 226.55(b)(6) requires the card issuer to apply to any transactions that occurred prior to a decrease in annual percentage rate pursuant to 50 U.S.C. app. 527 a rate that does not exceed the rate that applied to those transactions prior to the decrease, the card issuer may apply an increased rate once 50 U.S.C. app 527 no longer applies, to the extent consistent with any of the other exceptions in § 226.55(b). For example, if the rate that applied prior to the decrease was a variable rate, the card issuer may apply any increase in that variable rate to the extent consistent with § 226.55(b)(2). This comment mirrors similar commentary to § 226.55(b)(4) and (b)(5). An illustrative example is provided in comment 26(b)(6)-2.

55(c) Treatment of Protected Balances

Revised TILA Section 171(c)(1) states that “[t]he creditor shall not change the terms governing the repayment of any outstanding balance, except that the creditor may provide the [consumer] with one of the methods described in [revised Section 171(c)(2)] * * * or a method that is no less beneficial to the [consumer] than one of those methods.” Revised TILA Section 171(c)(2) lists two methods of repaying an outstanding balance: first, an amortization period of not less than five years, beginning on the effective date of the increase set forth in the Section 127(i) notice; and, second, a required minimum periodic payment that includes a percentage of the outstanding balance that is equal to not more than twice the percentage required before the effective date of the increase set forth in the Section 127(i) notice.

For clarity, § 226.55(c)(1) defines the balances subject to the protections in revised TILA Section 171(c) as “protected balances.” Under this definition, a “protected balance” is the amount owed for a category of transactions to which an increased annual percentage rate or an increased fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) cannot be applied after the annual percentage rate, fee, or charge for that category of transactions has been increased pursuant to § 226.55(b)(3). For example, when a card issuer notifies a consumer of an increase in the annual percentage rate that applies to new purchases pursuant to § 226.9(c), the protected balance is the purchase balance at the end of the fourteenth day after provision of the notice. See§ 226.55(b)(3)(ii). The Board and the other Agencies adopted a similar definition in the January 2009 FTC Act Rule. See 12 CFR 227.24(c), 74 FR 5560; see also 74 FR 5532. The Board did not receive significant comment on § 226.55(c)(1), which is adopted as proposed.

Comment 55(c)(1)-1 provides an illustrative example of a protected balance. Comment 55(c)(1)-2 clarifies that, because § 226.55(b)(3)(iii) does not permit a card issuer to increase an annual percentage rate or a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year after account opening, § 226.55(c) does not apply to balances during the first year after account opening. These comments are adopted as proposed.

Comment 55(c)(1)-3 clarifies that, although § 226.55(b)(3) does not permit a card issuer to apply an increased fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) to a protected balance, a card issuer is not prohibited from increasing a fee or charge that applies to the account as a whole or to balances other than the protected balance. For example, a card issuer may add a new annual or a monthly maintenance fee to an account or increase such a fee so long as the fee is not based solely on the protected balance. However, if the consumer rejects an increase in a fee or charge pursuant to § 226.9(h), the card issuer is prohibited from applying the increased fee or charge to the account and from imposing any other fee or charge solely as a result of the rejection. See§ 226.9(h)(2)(i) and (ii); comment 9(h)(2)(ii)-2.

Proposed § 226.55(c)(2) would have implemented the restrictions on accelerating the repayment of protected balances in revised TILA Section 171(c). As discussed above with respect to § 226.9(h), the Board previously implemented these restrictions in the July 2009 Regulation Z Interim Final Rule as § 226.9(h)(2)(iii). However, for clarity and consistency, the Board proposed to move these restrictions to § 226.55(c)(2). The Board did not propose to substantively alter the repayment methods in § 226.9(h)(2)(iii), except that the repayment methods in § 226.55(c)(2) focused on the effective date of the increase (rather than the date on which the card issuer is notified of the rejection pursuant to § 226.9(h)). The Board did not receive significant comment on § 226.55(c)(2), which is adopted as proposed.

Similarly, for the reasons discussed above with respect to § 226.9(h), the Board proposed to move the commentary clarifying the application of the repayment methods from § 226.9(h)(2)(iii) to § 226.55(c) and to adjust that commentary for consistency with § 226.55(c). In addition, proposed comment 55(c)(2)(iii)-1 clarified that, although § 226.55(c)(2)(iii) limits the extent to which the portion of the required minimum periodic payment based on the protected balance may be increased, it does not limit or otherwise address the creditor's ability to determine the amount of the required minimum periodic payment based on other balances on the account or to apply that portion of the minimum payment to the balances on the account. Proposed comment 55(c)(2)(iii)-2 provided an illustrative example. These comments are adopted as proposed.

55(d) Continuing Application of § 226.55

Pursuant to its authority under TILA Section 105(a), the Board proposed to adopt § 226.55(d), which provided that the limitations in § 226.55 continue to apply to a balance on a credit card account after the account is closed or acquired by another card issuer or the balance is transferred from a credit card account issued by a card issuer to another credit account issued by the same card issuer or its affiliate or subsidiary (unless the account to which the balance is transferred is subject to § 226.5b). This provision is based on commentary to the January 2009 FTC Act Rule proposed by the Board and the other Agencies in May 2009, primarily in response to concerns that permitting card issuers to apply an increased rate to an existing balance in these circumstances could lead to circumvention of the general prohibition on such increases. See 12 CFR 227.21 comments 21(c)-1 through -3, 74 FR 20814-20815; see also 74 FR 20805-20807. As discussed below, § 226.55(d) and its commentary are adopted as proposed.

Because the protections in revised TILA Section 171 and new TILA Section 172 cannot be waived or forfeited, § 226.55(d) does not distinguish between closures or transfers initiated by the card issuer and closures or transfers initiated by the consumer. Although there may be circumstances in which individual consumers could make informed choices about the benefits and costs of waiving the protections in revised Section 171 and new Section 172, an exception for those circumstances would create a significant loophole that could be used to deny the protections to other consumers. For example, if a card issuer offered to transfer its cardholder's existing balance to a credit product that would reduce the rate on the balance for a period of time in exchange for the cardholder accepting a higher rate after that period, the cardholder would have to determine whether the savings created by the temporary reduction would offset the cost of the subsequent increase, which would depend on the amount of the balance, the amount and length of the reduction, the amount of the increase, and the length of time it would take the consumer to pay off the balance at the increased rate. Based on extensive consumer testing conducted during the preparation of the January 2009 Regulation Z Rule and the January 2009 FTC Act Rule, the Board believes that it would be very difficult to ensure that card issuers disclosed this information in a manner that will enable most consumers to make informed decisions about whether to accept the increase in rate. Although some approaches to disclosure may be effective, others may not and it would be impossible to distinguish among such approaches in a way that would provide clear guidance for card issuers. Furthermore, consumers might be presented with choices that are not meaningful (such as a choice between accepting a higher rate on an existing balance or losing credit privileges on the account).

Section 226.55(d)(1) provides that § 226.55 continues to apply to a balance on a credit card account after the account is closed or acquired by another card issuer. In some cases, the acquiring institution may elect to close the acquired account and replace it with its own credit card account. See comment 12(a)(2)-3. The acquisition of an account does not involve any choice on the part of the consumer, and the Board believes that consumers whose accounts are acquired should receive the same level of protection against increases in annual percentage rates after acquisition as they did beforehand. [59] Comment 55(d)-1 clarifies that § 226.55 continues to apply regardless of whether the account is closed by the consumer or the card issuer and provides illustrative examples of the application of § 226.55(d)(1). Comment 55(d)-2 clarifies the application of § 226.55(d)(1) to circumstances in which a card issuer acquires a credit card account with a balance by, for example, merging with or acquiring another institution or by purchasing another institution's credit card portfolio.

Section 226.55(d)(2) provides that § 226.55 continues to apply to a balance on a credit card account after the balance is transferred from a credit card account issued by a card issuer to another credit account issued by the same card issuer or its affiliate or subsidiary (unless the account to which the balance is transferred is subject to § 226.5b). Comment 55(d)-3.i provides examples of circumstances in which balances may be transferred from one credit card account issued by a card issuer to another credit card account issued by the same card issuer (or its affiliate or subsidiary), such as when the consumer's account is converted from a retail credit card that may only be used at a single retailer or an affiliated group of retailers to a co-branded general purpose credit card which may be used at a wider number of merchants. Because of the concerns discussed above regarding circumvention and informed consumer choice and for consistency with the issuance rules regarding card renewals or substitutions for accepted credit cards under § 226.12(a)(2), the Board believes—and § 226.55(d)(2) provides—that these transfers should be treated as a continuation of the existing account relationship rather than the creation of a new account relationship. See comment 12(a)(2)-2.

Section 226.55(d)(2) does not apply to balances transferred from a credit card account issued by a card issuer to a credit account issued by the same card issuer (or its affiliate or subsidiary) that is subject to § 226.5b (which applies to open-end credit plans secured by the consumer's dwelling). The Board believes that excluding transfers to such accounts is appropriate because § 226.5b provides protections that are similar to—and, in some cases, more stringent than—the protections in § 226.55. For example, a card issuer may not change the annual percentage rate on a home-equity plan unless the change is based on an index that is not under the card issuer's control and is available to the general public. See 12 CFR 226.5b(f)(1).

Comment 55(d)-3.ii clarifies that, when a consumer chooses to transfer a balance to a credit card account issued by a different card issuer, § 226.55 does not prohibit the card issuer to which the balance is transferred from applying its account terms to that balance, provided those terms comply with 12 CFR part 226. For example, if a credit card account issued by card issuer A has a $1,000 purchase balance at an annual percentage rate of 15% and the consumer transfers that balance to a credit card account with a purchase rate of 17% issued by card issuer B, card issuer B may apply the 17% rate to the $1,000 balance. However, card issuer B may not subsequently increase the rate that applies to that balance unless permitted by one of the exceptions in § 226.55(b).

Although balance transfers from one card issuer to another raise some of the same concerns as balance transfers involving the same card issuer, the Board believes that transfers between card issuers are not contrary to the intent of revised TILA Section 171 and § 226.55 because the card issuer to which the balance is transferred is not increasing the cost of credit it previously extended to the consumer. For example, assume that card issuer A has extended a consumer $1,000 of credit at a rate of 15%. Because § 226.55 generally prohibits card issuer A from increasing the rate that applies to that balance, it would be inconsistent with § 226.55 to allow card issuer A to reprice that balance simply by transferring it to another of its accounts. In contrast, in order for the $1,000 balance to be transferred to card issuer B, card issuer B must provide the consumer with a new $1,000 extension of credit in an arms-length transaction and should be permitted to price that new extension consistent with its evaluation of prevailing market rates, the risk presented by the consumer, and other factors. Thus, the transfer from card issuer A to card issuer B does not appear to raise concerns about circumvention of proposed § 226.55 because card issuer B is not increasing the cost of credit it previously extended.

Consumer groups and some industry commenters supported proposed § 226.55(d). However, the Board understands from industry comments received regarding both the May 2009 and October 2009 proposals that drawing a distinction between balance transfers involving the same card issuer and balance transfers involving different card issuers may limit a card issuer's ability to offer its existing cardholders the same terms that it would offer another issuer's cardholders. As noted in those proposals, however, the Board understands that currently card issuers generally do not make promotional balance transfer offers available to their existing cardholders for balances held by the issuer because it is not cost-effective to do so. Furthermore, although many card issuers do offer existing cardholders the opportunity to upgrade to accounts offering different terms or features (such as upgrading to an account that offers a particular type of rewards), the Board understands that these offers generally are not conditioned on a balance transfer, which indicates that it may be cost-effective for card issuers to make these offers without repricing an existing balance. The comments opposing § 226.55(d) do not lead the Board to a different understanding. Accordingly, the Board continues to believe that § 226.55(d) will benefit consumers overall.

Section 226.56Requirements for Over-the-Limit Transactions

When a consumer seeks to engage in a credit card transaction that may cause his or her credit limit to be exceeded, the creditor may, at its discretion, authorize the over-the-limit transaction. If the creditor pays an over-the-limit transaction, the consumer is typically assessed a fee or charge for the service. [60] In addition, the over-the-limit transaction may also be considered a default under the terms of the credit card agreement and trigger a rate increase, in some cases up to the default, or penalty, rate on the account.

The Credit Card Act adds new TILA Section 127(k) and requires a creditor to obtain a consumer's express election, or opt-in, before the creditor may impose any fees on a consumer's credit card account for making an extension of credit that exceeds the consumer's credit limit. 15 U.S.C. 1637(k). TILA Section 127(k)(2) further provides that no election shall take effect unless the consumer, before making such election, has received a notice from the creditor of any fees that may be assessed for an over-the-limit transaction. If the consumer opts in to the service, the creditor is also required to provide notice of the consumer's right to revoke that election on any periodic statement that reflects the imposition of an over-the-limit fee during the relevant billing cycle. The Board is implementing the over-the-limit consumer consent requirements in § 226.56.

The Credit Card Act directs the Board to issue rules governing the disclosures required by TILA Section 127(k), including rules regarding (i) the form, manner and timing of the initial opt-in notice and (ii) the form of the subsequent notice describing how an opt-in may be revoked. See TILA Section 127(k)(2). In addition, the Board must prescribe rules to prevent unfair or deceptive acts or practices in connection with the manipulation of credit limits designed to increase over-the-limit fees or other penalty fees. See TILA Section 127(k)(5)(B).

56(a) Definition

Proposed § 226.56(a) defined “over-the-limit transaction” to mean any extension of credit by a creditor to complete a transaction that causes a consumer's credit card account balance to exceed the consumer's credit limit. No comments were received on the proposed definition and it is adopted as proposed. The term is limited to extensions of credit required to complete a transaction that has been requested by a consumer (for example, to make a purchase at a point-of-sale or on-line, or to transfer a balance from another account). The term is not intended to cover the assessment of fees or interest charges by the card issuer that may cause the consumer to exceed the credit limit. [61] See, however,§ 226.56(j)(4), discussed below.

56(b) Opt-In Requirement

General rule. Proposed § 226.56(b)(1) set forth the general rule prohibiting a creditor from assessing a fee or charge on a consumer's account for paying an over-the-limit transaction unless the consumer is given notice and a reasonable opportunity to affirmatively consent, or opt in, to the creditor's payment of over-the-limit transactions and the consumer has opted in. If the consumer affirmatively consents, or “opts in,” to the service, the creditor must provide the consumer notice of the right to revoke that consent after assessing an over-the-limit fee or charge on the consumer's account.

The Board adopts the opt-in requirement as proposed. Under the final rule, § 226.56, including the requirement to provide notice and an opt-in right, applies only to a credit card account under an open-end (not home-secured) consumer credit plan, and therefore does not apply to credit cards that access a home equity line of credit or to debit cards linked to an overdraft line of credit. See§ 226.2(a)(15)(ii). Section 226.56 and the accompanying commentary are also revised throughout to refer to a “card issuer,” rather than “creditor,” to reflect that the rule applies only to credit card accounts.

The opt-in notice may be provided by the card issuer orally, electronically, or in writing. See§ 226.56(b)(1)(i). Compliance with the consumer consent provisions or other requirements necessary to provide consumer disclosures electronically pursuant to the E-Sign Act is not required if the card issuer elects to provide the opt-in notice electronically. See also§ 226.5(a)(1)(ii)(A). However, as discussed below under § 226.56(d)(1)(ii), before the consumer may consent orally or electronically, the card issuer must also have provided the opt-in notice immediately prior to obtaining that consent. In addition, while the opt-in notice may be provided orally, electronically, or in writing, the revocation notice must be provided to the consumer in writing, consistent with the statutory requirement that such notice appear on the periodic statement reflecting the assessment of an over-the-limit fee or charge on the consumer's account. See TILA Section 127(k)(2), and § 226.56(d)(3), discussed below.

Proposed comment 56(b)-1 clarified that a creditor that has a policy and practice of declining to authorize or pay any transactions that the creditor reasonably believes would cause the consumer to exceed the credit limit is not subject to the requirements of this section and would therefore not be required to provide the consumer notice or an opt-in right. This “reasonable belief” standard recognizes that creditors generally do not have real-time information regarding a consumer's prior transactions or credits that may have posted to the consumer's credit card account.

Industry commenters asked the Board to clarify the aspects of the proposed rule that would not be applicable to a creditor that declined transactions if it reasonably believed that a transaction would cause the consumer to exceed the credit limit. In particular, industry commenters stated it was unclear whether a creditor would be permitted to charge an over-the-limit fee where a transaction was authorized on the creditor's reasonable belief that the consumer had sufficient available credit for a transaction, but the transaction nonetheless exceeded the consumer's credit limit when it later posts to the account (for example, because of an intervening charge). Industry commenters also requested additional guidance regarding the “reasonable belief” standard.

Comment 56(b)-1 as revised in the final rule clarifies that § 226.56(b)(1)(i)-(v), including the requirements to provide notice and obtain a consumer's affirmative consent to a card issuer's payment of over-the-limit transactions, do not apply to any card issuer that has a policy and practice of declining to pay any over-the-limit transaction when the card issuer has a reasonable belief that completing the transaction will cause the consumer to exceed his or her credit limit. While the notice and opt-in requirements of the rule do not apply to such card issuers, the prohibition against assessing an over-the-limit fee or charge without the consumer's affirmative consent continues to apply. See also§ 226.56(b)(2). This clarification regarding application of the fee prohibition has been moved into the comment in response to consumer group suggestions. Thus, if an over-the-limit transaction is paid, for example, because of a must-pay transaction that was authorized by the card issuer on the belief that the consumer had sufficient available credit and which later causes the consumer's credit limit to be exceeded when it posts, the card issuer may not charge a fee for paying the transaction, absent the consumer's consent to the service. The revised comment also clarifies that a card issuer has a policy and practice of declining transactions on a “reasonable belief” that a consumer does not have sufficient available credit if it only authorizes those transactions that the card issuer reasonably believes, at the time of authorization, would not cause the consumer to exceed a credit limit.

Although a card issuer must obtain consumer consent before any over-the-limit fees or charges are assessed on a consumer's account, the final rule does not require that the card issuer obtain the consumer's separate consent for each extension of credit that causes the consumer to exceed his or her credit limit. Such an approach is not compelled by the Credit Card Act. Comment 56(b)-2, which is substantively unchanged from the proposal, also explains, however, that even if a consumer has affirmatively consented or opted in to a card issuer's over-the-limit service, the card issuer is not required to authorize or pay any over-the-limit transactions.

Proposed comment 56(b)-3 would have provided that the opt-in requirement applies whether a creditor assesses over-the-limit fees or charges on a per transaction basis or as a periodic account or maintenance fee that is imposed each cycle for the creditor's payment of over-the-limit transactions regardless of whether the consumer has exceeded the credit limit during a particular cycle (for example, a monthly “over-the-limit protection” fee). As further discussed below under § 226.56(j)(1), however, TILA Section 127(k)(7) prohibits the imposition of periodic or maintenance fees related to the payment of over-the-limit transactions, even with consumer consent, if the consumer has not engaged in an over-the-limit transaction during the particular cycle. Accordingly, the final rule does not adopt proposed comment 56(b)-3.

Some industry commenters asserted that the new provisions, including the requirements to provide notice and obtain consumer consent to the payment of over-the-limit transactions, should not apply to existing accounts out of concern that transactions would otherwise be disrupted for consumers who may rely on the creditor's over-the-limit service, but fail to provide affirmative consent by February 22, 2010. By contrast, consumer groups strongly supported applying the new requirements to all credit card accounts, including existing accounts. Consumer groups urged the Board to explicitly state this fact in the rule or staff commentary. As the Board stated previously, nothing in the statute or the legislative history suggests that Congress intended that existing account-holders should not have the same rights regarding consumer choice for over-the-limit transactions as those afforded to new customers. Thus, § 226.56 applies to all credit card accounts, including those opened prior to February 22, 2010.

Reasonable opportunity to opt in. Proposed § 226.56(b)(1)(ii) required a creditor to provide a reasonable opportunity for the consumer to affirmatively consent to the creditor's payment of over-the-limit transactions. TILA Section 127(k)(3) provides that the consumer's affirmative consent (and revocation) may be made orally, electronically, or in writing, pursuant to regulations prescribed by the Board. See also§ 226.56(e), discussed below. Proposed comment 56(b)-4 contained examples to illustrate methods of providing a consumer a reasonable opportunity to affirmatively consent using the specified methods. The rule and comment (which has been renumbered as comment 56(b)-3) are adopted, substantially as proposed with certain revisions for clarity.

Final comment 56(b)-3 explains that a card issuer provides a consumer with a reasonable opportunity to provide affirmative consent when, among other things, it provides reasonable methods by which the consumer may affirmatively consent. The comment provides four examples of such reasonable methods.

The first example provides that a card issuer may include the notice on an application form that a consumer may fill out to request the service as part of the application process. See comment 56(b)-3.i. Alternatively, after the consumer has been approved for the card, the card issuer could provide a form with the account-opening disclosures or the periodic statement that can be filled out separately and mailed to affirmatively request the service. See comment 56(b)-3.ii and Model Form G-25(A) in Appendix G, discussed below.

Comment 56(b)-3.iii illustrates that a card issuer may obtain consumer consent through a readily available telephone line. The final rule does not require that the telephone number be toll-free, however, as card issuers have sufficient incentives to facilitate a consumer's opt-in choice. Of course, if a card issuer elects to establish a toll-free number to obtain a consumer's opt-in, it must similarly make that number available for consumers to later revoke their opt-ins if the consumer so decides. See§ 226.56(c).

Comment 56(b)-3.iv illustrates that a card issuer may provide an electronic means for the consumer to affirmatively consent. For example, a card issuer could provide a form on its Web site that enables the consumer to check a box to indicate his or her agreement to the over-the-limit service and confirm that choice by clicking on a button that affirms the consumer's consent. See also§ 226.56(d)(1)(ii) (requiring the opt-in notice to be provided immediately prior to the consumer's consent). The final comment does not require that a card issuer direct consumers to a specific Web site address because issuers have an incentive to facilitate consumer opt-ins.

Segregation of notice and consent. The Board solicited comment in the proposal regarding whether creditors should be required to segregate the opt-in notice from other account disclosures. Some industry commenters argued that it was unnecessary to require that the opt-in notice be segregated from other disclosures because the proposed rule would also require that the consumer's consent be provided separately from other consents or acknowledgments obtained by the creditor. In addition, one industry commenter stated that the over-the-limit opt-in notice was not more significant than other disclosures given to consumers and therefore the notice did not warrant a separate segregation requirement. Consumer groups and one state government agency, as well as one industry commenter, however, supported a segregation requirement to ensure that the information is highlighted and to help consumers understand the choice that is presented to them. One industry commenter asked whether it would be permissible to include a simplified notice on the credit application that provided certain key information about the opt-in right, but that referred the applicant to separate terms and conditions that included the remaining disclosures.

The final rule requires that the opt-in notice be segregated from all other information given to the consumer. See§ 226.56(b)(1)(i). The Board believes such a requirement is necessary to ensure that the information is not obscured within other account documents and overlooked by the consumer, for example, in preprinted language in the account-opening disclosures, leading the consumer to inadvertently consent to having over-the-limit transactions paid or authorized by the card issuer. The rule would not prohibit card issuers from providing a simplified notice on an application regarding the opt-in right that referred the consumer to the full notice elsewhere in the application disclosures, provided that the full notice contains all of the required content segregated from all other information.

As discussed above, § 226.56(b)(1)(iii) of the final rule requires the card issuer to obtain the consumer's affirmative consent, or opt-in, to the card issuer's payment of over-the-limit transactions. Proposed comment 56(b)-5 provided examples of ways in which a consumer's affirmative consent is or is not obtained. Specifically, the proposed comment clarified that the consumer's consent must be obtained separately from other consents or acknowledgments provided by the consumer. The proposal further provided that the consumer must initial, sign or otherwise make a separate request for the over-the-limit service. Thus, for example, a consumer's signature alone on an application for a credit card would not sufficiently evidence the consumer's consent to the creditor's payment of over-the-limit transactions. The final rule adopts the proposed comment, renumbered as comment 56(b)-4, substantially as proposed.

One industry commenter agreed that it was appropriate to segregate consumer consent for over-the-limit transactions from other consents provided by the consumer. A state government agency believed, however, that the check box approach described in the proposal would not sufficiently ensure that consumers will understand that the over-the-limit decision is not a required part of the credit card application. Accordingly, the agency urged the Board to explicitly require that both disclosures and written consents are presented separately from other account disclosures, with stand-alone plain language documents that clearly present the over-the-limit service as discretionary.

Final comment 56(b)-4 clarifies that regardless of the means in which the notice of the opt-in right is provided, the consumer's consent must be obtained separately from other consents or acknowledgments provided by the consumer. Consent to the payment of over-the-limit transactions may not, for example, be obtained solely because the consumer signed a credit application to request a credit card. The final comment further provides that a card issuer could obtain a consumer's affirmative consent by providing a blank signature line or a check box on the application that the consumer can sign or select to request the over-the-limit coverage, provided that the signature line or check box is used solely for the purpose of evidencing the consumer's choice and not for any other purpose, such as to obtain consumer consents for other account services or features or to receive disclosures electronically. The Board believes that the need to obtain a consumer's consent separate from any other consents or acknowledgments, including from the request for the credit card account itself, sufficiently ensures that a consumer would understand that consenting to the payment of over-the-limit transactions is not a required part of the credit card application. [62] See, however, § 226.56(j)(3) (prohibiting card issuers from conditioning the amount of credit provided on the consumer also opting in to over-the-limit coverage).

Written confirmation. The September 2009 Regulation Z Proposal also solicited comment on whether creditors should be required to provide the consumer with written confirmation once the consumer has opted in under proposed § 226.56(b)(1)(iii) to verify that the consumer intended to make the election. Industry commenters opposed such a requirement, stating that it would impose considerable burden and costs on creditors, while resulting in little added protection for the consumer. In particular, industry commenters observed that the statute and proposed rule already require consumers to receive notices of their right to revoke a prior consent on each periodic statement reflecting an over-the-limit fee or charge. Thus, industry commenters argued that the revocation notice would provide sufficient confirmation of the consumer's opt-in choice. Industry commenters further noted that written confirmation is not required by the statute. In the event that written confirmation was required, industry commenters asked the Board to permit creditors to provide such notice on or with the next periodic statement provided to the consumer after the opt-in election.

Consumer groups and one state government agency strongly supported a written confirmation requirement as a safeguard to ensure consumers that have opted in understand that they have consented to the payment of over-the-limit transactions. These commenters believed that written confirmation of the consumer's choice was critical where a consumer has opted in by a non-written method, such as by telephone or in person. In this regard, one consumer group asserted that oral opt-ins should be permitted only if written confirmation was also required to allow consumers time to examine the terms of the opt-in and make a considered determination whether the option is right for them.

The final rule in § 226.56(b)(1)(iv) requires that the card issuer provide the consumer with confirmation of the consumer's consent in writing, or if the consumer agrees, electronically. The Board believes that written confirmation will help ensure that a consumer intended to opt into the over-the-limit service by providing the consumer with a written record of his or her choice. The Board also anticipates that card issuers are most likely to attempt to obtain a consumer's opt-in by telephone, and thus in those circumstances in particular, written confirmation is appropriate to evidence the consumer's intent to opt in to the service.

Under new comment 56(d)-5, a card issuer could comply with the written confirmation requirement, for example, by sending a letter to the consumer acknowledging that the consumer has elected to opt in to the card issuer's service, or, in the case of a mailed request, the card issuer could provide a copy of the consumer's completed opt-in form. The new comment also provides that a card issuer could satisfy the written confirmation requirement by providing notice on the first periodic statement sent after the consumer has opted in. See§ 225.56(d)(2), discussed below. Comment 56(d)-5 further provides that a notice consistent with the revocation notice described in § 226.56(e)(2) would satisfy the requirement. Notwithstanding a consumer's consent, however, a card issuer would be prohibited from assessing over-the-limit fees or charges to the consumer's credit card account until the card issuer has sent the written confirmation. Thus, if a card issuer elects to provide written confirmation on the first periodic statement after the consumer has opted in, it would not be permitted to assess any over-the-limit fees or charges until the next statement cycle.

Payment of over-the-limit transactions where consumer has not opted in. Proposed § 226.56(b)(2) provided that a creditor may pay an over-the-limit transaction even if the consumer has not provided affirmative consent, so long as the creditor does not impose a fee or charge for paying the transaction. Proposed comment 56(b)(2)-1 contained further guidance stating that the prohibition on imposing fees for paying an over-the-limit transaction where the consumer has not opted in applies even in circumstances where the creditor is unable to avoid paying a transaction that exceeds the consumer's credit limit. The proposed comment also set forth two illustrative examples of this provision.

The first proposed example addressed circumstances where a merchant does not submit a credit card transaction to the creditor for authorization. Such an event may occur, for instance, because the transaction is below the floor limits established by the card network rules requiring authorization or because the small dollar amount of the transaction does not pose significant payment risk to the merchant. Under the proposed example, if the transaction exceeds the consumer's credit limit, the creditor would not be permitted to assess an over-the-limit fee if the consumer has not consented to the creditor's payment of over-the-limit transactions.

Under the second proposed example, a creditor could not assess a fee for an over-the-limit transaction that occurs because the final transaction amount exceeds the amount submitted for authorization. For example, a consumer may use his or her credit card at a pay-at-the-pump fuel dispenser to purchase $50 of fuel. At the time of authorization, the gas station may request an authorization hold of $1 to verify the validity of the card. Even if the subsequent $50 transaction amount exceeds the consumer's credit limit, proposed § 226.56(b)(2) would prohibit the creditor from assessing an over-the-limit fee if the consumer has not opted in to the creditor's over-the-limit service.

Industry commenters urged the Board to create exceptions for the circumstances described in the examples to allow creditors to impose over-the-limit fees or charges even if the consumer has not consented to the payment of over-the-limit transactions. These commenters argued that exceptions were warranted in these circumstances because creditors may not be able to block such transactions at the time of purchase. One industry commenter recommended that the Board create a broad exception to the fee prohibition for any transactions that are approved based on a reasonable belief that the transaction would not exceed the consumer's credit limit. Consumer group commenters strongly supported the proposed comment and the included examples.

Comment 56(b)(2)-1 is adopted substantially as proposed and clarifies that the prohibition against assessing over-the-limit fees or charges without consumer consent to the payment of such transactions applies even in circumstances where the card issuer is unable to avoid paying a transaction that exceeds the consumer's credit limit. As the Board stated in the supplementary information to the proposal, nothing in the statute suggests that Congress intended to permit an exception to allow any over-the-limit fees to be charged in these circumstances absent consumer consent. See 74 FR at 54179.

The final comment includes a third example of circumstances where a card issuer would not be permitted to assess any fees or charges on a consumer's account in connection with an over-the-limit transaction if the consumer has not opted in to the over-the-limit service. Specifically, the new example addresses circumstances where an intervening transaction (for example, a recurring charge) that is charged to the account before a previously authorized transaction is submitted for payment causes the consumer to exceed his or her credit limit with respect to the authorized transaction. Under these circumstances, the card issuer would not be permitted to assess an over-the-limit fee or charge for the previously authorized transaction absent consumer consent to the payment of over-the-limit transactions. See comment 56(b)(2)-1.iii.

Proposed comment 56(b)(2)-2 clarified that a creditor is not precluded from assessing other fees and charges unrelated to the payment of the over-the-limit transaction itself even where the consumer has not provided consent to the creditor's over-the-limit service, to the extent permitted under applicable law. For example, if a consumer has not opted in, a creditor could permissibly assess a balance transfer fee for a balance transfer, provided that such a fee is assessed whether or not the transfer exceeds the credit limit. The proposed comment also clarified that a creditor could continue to assess interest charges for the over-the-limit transaction.

Consumer groups opposed the proposed comment, expressing concern that the comment could enable creditors to potentially circumvent the statutory protections by charging consumers that have not opted in a fee substantively similar to an over-the-limit fee or charge, and using a different term to describe the fee. Consumer groups urged the Board to instead broadly prohibit any fee directly or indirectly caused by or resulting from the payment of an over-the-limit transaction unless the consumer has opted in. Specifically, consumer groups argued that creditors should be prohibited from paying an over-the-limit transaction if it might result in any type of fee, including any late fees that might arise if the consumer cannot make the increased minimum payment caused by the over-the-limit transaction.

By its terms, TILA Section 127(k)(1) applies only to the assessment of any over-the-limit fees by the creditor as a result of an extension of credit that exceeds a consumer's credit limit where the consumer has not consented to the completion of such transactions. The protections in TILA Section 127(k)(1) apply to any such fees for paying an over-the-limit transaction regardless of the term used to describe the fee. This provision does not, however, apply to other fees or charges that may be imposed as a result of the over-the-limit transaction, such as balance transfer fees or late payment fees. Nor does the statute require that a card issuer cease paying over-the-limit transactions altogether if the consumer has not opted in. Accordingly, the final rule adopts comment 56(b)(2)-2 substantively as proposed. [63] The final comment has also been revised to clarify that a card issuer may debit the consumer's account for the amount of the transaction, provided that the card issuer is permitted to do so under applicable law. See comment 56(b)(2)-2.

56(c) Method of Election

TILA Section 127(k)(2) provides that a consumer may consent or revoke consent to over-the-limit transactions orally, electronically, or in writing, and directs the Board to prescribe rules to ensure that the same options are available for both making and revoking such election. The Board proposed to implement this requirement in § 226.56(c). In addition, proposed comment 56(c)-1 clarified that the creditor may determine the means by which consumers may provide affirmative consent. The creditor could decide, for example, whether to obtain consumer consent in writing, electronically, by telephone, or to offer some or all of these options.

In addition, proposed § 226.56(c) would have required that whatever method a creditor provides for obtaining consent, such method must be equally available to the consumer to revoke the prior consent. See TILA Section 127(k)(3). In that regard, the Board requested comment on whether the rule should require creditors to allow consumers to opt in and to revoke that consent using any of the three methods (that is, orally, electronically, and in writing).

Industry commenters stated that the final rule should not require creditors to provide all three methods of consent and revocation, citing the compliance burden and costs of setting up separate systems for obtaining consumer consents and processing consumer revocations, particularly for small community banks and credit unions. Consumer groups agreed with the clarification in comment 56(c)-1 that a creditor should be required to accept revocations of consent made by the same methods made available to the consumer for providing consent. However, consumer groups believed that the proposed rule fell short of that goal because it did not similarly provide a form that consumers could fill out and mail in to revoke consent similar to the form for providing consent. Instead, consumer groups noted that the proposed model revocation notice directed the consumer to write a separate letter and mail it in to the creditor.

Section 226.56(c) is adopted substantively as proposed and allows a card issuer to obtain a consumer's consent to the card issuer's payment of over-the-limit transactions in writing, orally, or electronically, at the card issuer's option. The rule recognizes that card issuers have a strong interest in facilitating a consumer's ability to opt in, and thus permits them to determine the most effective means in obtaining such consent. Regardless of which methods are provided to the consumer for obtaining consent, the final rule requires that the same methods must be made available to the consumer for revoking consent. As discussed below, Model Form G-25(B) has been revised to include a check box form that a card issuer may use to provide consumers for revoking a prior consent.

Comment 56(c)-2 is adopted as proposed and provides that consumer consent or revocation requests are not consumer disclosures for purposes of the E-Sign Act. Accordingly, card issuers would not be required to comply with the consumer consent or other requirements for providing disclosures electronically pursuant to the E-Sign Act for consumer requests submitted electronically.

56(d) Timing

Proposed § 226.56(d)(1)(i) established a general requirement that a creditor provide an opt-in notice before the creditor assesses any fee or charge on the consumer's account for paying an over-the-limit transaction. No comments were received regarding proposed § 226.56(d)(1)(i), and it is adopted as proposed. A card issuer may comply with the rule, for example, by including the notice as part of the credit card application. See comment 56(b)-3.i. Alternatively, the creditor could include the notice with other account-opening documents, either within the account-opening disclosures under § 226.6 or in a stand-alone document. See comment 56(b)-3.ii.

Proposed § 226.56(d)(1)(ii) would have required a creditor to provide the opt-in notice immediately before and contemporaneously with a consumer's election where the consumer consents by oral or electronic means. For example, if a consumer calls the creditor to consent to the creditor's payment of over-the-limit transactions, the proposed rule would have required the creditor to provide the opt-in notice immediately prior to obtaining the consumer's consent. This proposed requirement recognized that creditors may wish to contact consumers by telephone or electronically as a more expeditious means of obtaining consumer consent to the payment of over-the-limit transactions. Thus, proposed § 226.56(d)(1)(ii) was intended to ensure that a consumer would have full information regarding the opt-in right at the most meaningful time, that is, when the opt-in decision is made. Consumer groups strongly supported the proposed requirement for oral and electronic consents to ensure that consumers are able to make an informed decision regarding over-the-limit transactions. Industry commenters did not oppose this requirement. The final rule adopts § 226.56(d)(1)(ii), generally as proposed.

New comment 56(d)-1 clarifies that the requirement to provide an opt-in notice immediately prior to obtaining consumer consent orally or electronically means that the card issuer must provide an opt-in notice prior to and as part of the process of obtaining the consumer's consent. That is, the issuer must provide an opt-in notice containing the content in § 226.56(e)(1) as part of the same transaction in which the issuer obtains the consumer's oral or electronic consent.

As discussed above, a card issuer must provide a consumer with written confirmation of the consumer's decision to opt in to the card issuer's payment of over-the-limit transactions. See§ 226.56(b)(1)(iv). New § 226.56(d)(2) requires that this written confirmation must be provided no later than the first periodic statement sent after the consumer has opted in. As discussed above, a card issuer could provide a notice consistent with the revocation notice described in § 226.56(e)(2). See comment 56(b)-5. Consistent with § 226.56(b)(1), however, a card issuer may not assess any over-the-limit fees or charges unless and until it has sent written confirmation of the consumer's opt-in decision.

Proposed § 226.56(d)(2) would have provided that notice of the consumer's right to revoke a prior election for the creditor's over-the-limit service must appear on each periodic statement that reflects the assessment of an over-the-limit fee or charge on a consumer's account. See TILA Section 127(k)(2). A revocation notice would be required regardless of whether the fee was imposed due to an over-the-limit transaction initiated by the consumer in the prior cycle or because the consumer failed to reduce the account balance below the credit limit in the next cycle. To ensure that the revocation notice is clear and conspicuous, the proposed rule required that the notice appear on the front of any page of the periodic statement. Proposed comment 56(d)-1 would have provided creditors flexibility in how often a revocation notice should be provided. Specifically, creditors, at their option, could, but were not required to, include the revocation notice on every periodic statement sent to the consumer, even if the consumer has not incurred an over-the-limit fee or charge during a particular billing cycle.

One industry commenter stated that the periodic statement requirement would be overly burdensome and costly for financial institutions. This commenter believed that providing a consumer notice of his or her right to revoke consent at the time of the opt-in would sufficiently inform the consumer of that possibility without requiring creditors to bear the cost of providing a revocation notice on each statement reflecting an over-the-limit fee or charge. Consumer groups believed that the final rule should require that a standalone revocation notice be sent to a consumer after the incurrence of an over-the-limit fee to make it more likely that a consumer would see the notice, rather than placing the notice on the periodic statement with other disclosures. In the alternative, consumer groups stated that the revocation notice should be placed on the first page of the periodic statement or on the page reflecting the fee to enhance likelihood that the consumer would notice it. Consumer groups also argued that revocation notices should only be provided by a creditor when an over-the-limit fee is assessed to a consumer's credit card account to avoid the possibility that consumers would ignore the notice as boilerplate language on the statement.

In the final rule, the timing and placement requirements for the notice of the right of revocation has been adopted in § 226.56(d)(3), as proposed. The requirement to provide notice informing a consumer of the right to revoke a prior election regarding the payment of over-the-limit transactions following the imposition of an over-the-limit fee is statutory. TILA Section 127(k)(2) also provides that such notice must be on the periodic statement reflecting the fee. The final rule does not, however, mandate that the notice be placed on the front of the first page of the periodic statement or on the front of the page that indicates the over-the-limit fee or charge. The Board is concerned about the potential for information overload in light of other requirements elsewhere in the regulation regarding notices that must be on the front of the first page of the periodic statement or in proximity to disclosures regarding fees that have been assessed by the creditor during that cycle. See, e.g.,§ 226.7(b)(6)(i); § 226.7(b)(13).

Proposed comment 56(d)-1, which would have permitted creditors to include a revocation notice on each periodic statement whether or not a consumer has incurred an over-the-limit fee or charge, is not adopted in the final rule. The final rule does not expressly prohibit card issuers from providing a revocation notice on every statement regardless of whether a consumer has been assessed an over-the-limit fee or charge. Nonetheless, the Board believes that for some consumers, a notice appearing on each statement informing the consumer of the right to revoke a prior consent would not be as effective as a more targeted notice that is provided at a point in time when the consumer may be motivated to act, that is, after he or she has incurred an over-the-limit fee or charge.

56(e) Content and Format

TILA Section 127(k)(2) provides that a consumer's election to permit a creditor to extend credit that would exceed the credit limit may not take effect unless the consumer receives notice from the creditor of any over-the-limit fee “in the form and manner, and at the time, determined by the Board.” TILA Section 127(k)(2) also requires that the creditor provide notice to the consumer of the right to revoke the election, “in the form prescribed by the Board,” in any periodic statement reflecting the imposition of an over-the-limit fee. Proposed § 226.56(e) set forth the content requirements for both notices. The proposal also included model forms that creditors could use to facilitate compliance with the new requirements. See proposed Model Forms G-25(A) and G-25(B) in Appendix G.

Initial notice content. Proposed § 226.56(e)(1) set forth content requirements for the opt-in notice provided to consumers before a creditor may assess any fees or charges for paying an over-the-limit transaction. In addition to the amount of the over-the-limit fee, the proposed rule prescribed certain other information regarding the opt-in right to be included in the opt-in notice pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a). The Board requested comment regarding whether the rule should permit or require any other information to be included in the opt-in notice.

Consumer groups and one state government agency generally supported the proposed content and model opt-in form, but suggested the Board revise the form to include additional information about the opt-in right, including that a consumer is not required to sign up for over-the-limit coverage and the minimum over-the-limit amount that could trigger a fee. Consumer groups and this agency also asserted that no other information should be permitted in the notice unless expressly specified or permitted under the rule. For example, these commenters believed that creditors should be precluded from including any marketing of the benefits that may be associated with over-the-limit coverage out of concern that the additional information could dilute consumer understanding of the opt-in disclosure. Industry commenters suggested various additions to the model form to enable creditors to provide more information that they deemed appropriate to enhance a consumer's understanding or the risks and benefits associated with the opt-in right. Industry commenters also stated that creditors should be able to include contractual terms or safeguards regarding the right.

The Board is adopting § 226.56(e)(1) largely as proposed, but with modified content based on the comments received and upon further consideration. The final rule does not permit card issuers to include any information in the opt-in notice that is not specified or otherwise permitted by § 226.56(e)(1). The Board believes that the addition of other information would potentially overwhelm the required content in the notice and impede consumer understanding of the opt-in right. For the same reason, the final rule does not require card issuers to include any additional information regarding the opt-in right as suggested by consumer groups and others.

Under § 226.56(e)(1)(i), the opt-in notice must include information about the dollar amount of any fees or charges assessed on a consumer's credit card account for an over-the-limit transaction. The requirement to state the fee amount on the opt-in notice itself is separate from other required disclosures regarding the amount of the over-the-limit fee or charge. See, e.g.,§ 226.5a(b)(10). Because a card issuer could comply with the opt-in notice requirement in several forms, such as providing the notice in the application or solicitation, in the account-opening disclosures, or as a stand-alone document, the Board believes that including the fee disclosure in the opt-in notice itself is necessary to ensure that consumers can easily determine the amounts they could be charged for an over-the-limit transaction.

Some card issuers may vary the fee amount that may be imposed based upon the number of times the consumer has gone over the limit, the amount the consumer has exceeded the credit limit, or due to other factors. Under these circumstances, proposed comment 56(e)-1 would have permitted a creditor to disclose the maximum fee that may be imposed or a range of fees. The final comment does not include the reference to the range of fees. Card issuers that tier the amount of the fee could otherwise include a range from $0 to their maximum fee, which could lead consumers to underestimate the costs of exceeding their credit limit. To address tiered over-the-limit fees, comment 56(e)-1 provides that the card issuer may indicate that the consumer may be assessed a fee “up to” the maximum fee.

In addition to disclosing the amount of the fee or charge that may be imposed for an over-the-limit transaction, § 226.56(e)(1)(ii) requires card issuers to disclose any increased rate that may apply if consumers exceed their credit limit. The Board believes the additional requirement is necessary to ensure consumers fully understand the potential consequences of exceeding their credit limit, particularly as a rate increase can be more costly than the imposition of a fee. This requirement is consistent with the content required to be disclosed regarding the consequences of a late payment. See TILA Section 127(b)(12); § 226.7(b)(11) of the January 2009 Regulation Z Rule. Accordingly, if, under the terms of the account agreement, an over-the-limit transaction could result in the loss of a promotional rate, the imposition of a penalty rate, or both, this fact must be included in the opt-in notice.

Section 226.56(e)(1)(iii) requires card issuers to explain the consumer's right to affirmatively consent to the card issuer's payment of over-the-limit transactions, including the method(s) that the card issuer may use to exercise the right to opt in. Comment 56(e)-2 provides guidance regarding how a card issuer may describe this right. For example, the card issuer could explain that any transactions that exceed the consumer's credit limit will be declined if the consumer does not consent to the service. In addition, a card issuer should explain that even if a consumer consents, the payment of over-the-limit transactions is at the card issuer's discretion. In this regard, the card issuer may indicate that it may decline a transaction for any reason, such as if the consumer is past due or significantly over the limit. The card issuer may also disclose the consumer's right to revoke consent.

Under the comment as proposed, a creditor would have been permitted to also describe the benefits of the payment of over-the-limit transactions. Upon further analysis, the Board believes that including discussion of any such benefits could dilute the core purpose of the form, which is to explain the opt-in right in a clear and readily understandable manner. Of course, a card issuer may provide additional discussion about the over-the-limit service, including the potential benefits of the service, in a separate document.

Notice of right of revocation. Section 226.56(e)(2) implements the requirement in TILA Section 127(k)(2) that a creditor must provide notice of the right to revoke consent that was previously granted for paying over-the-limit transactions. Under the final rule, the notice must describe the consumer's right to revoke any consent previously granted, including the method(s) by which the consumer may revoke the service. The Board did not receive any comment on proposed § 226.56(e)(2), and it is adopted without any substantive changes.

Model forms. Model Forms G-25(A) and (B) include sample language that card issuers may use to comply with the notice content requirement. Use of the model forms, or substantially similar notices, provides card issuers a safe harbor for compliance under § 226.56(e)(3). The Model Forms have been revised from the proposal for clarity, and in response to comments received. To facilitate consumer understanding, a card issuer may, but is not required, to provide a signature line or check box on the opt-in form where the consumer can indicate that they decline to opt in. See Model Form G-25(A). Nonetheless, if the consumer does not check any box or provide a signature, the card issuer must assume that the consumer does not opt in.

Model Form G-25(B) contains language that card issuers may use to satisfy both the revocation notice and written confirmation requirements in § 226.56(b)(1)(iv) and (v). The model form has been revised to include a form that consumers may fill out and send back to the card issuer to cancel or revoke a prior consent.

56(f)-(i) Additional Provisions Addressing Consumer Opt-In Right

Joint accounts. Proposed § 226.56(f) would have required a creditor to treat affirmative consent provided by any joint consumer of a credit card account as affirmative consent for the account from all of the joint consumers. The proposed provision also provided that a creditor must treat a revocation of affirmative consent by any of the joint consumers as revocation of consent for that account. Consumer groups urged the Board to require creditors to obtain consent from all account-holders on a joint account before any over-the-limit fees or charges could be assessed on the account so that each account-holder would have an equal opportunity to avoid the imposition of such fees or charges.

The Board is adopting § 226.56(f) substantively as proposed. This provision recognizes that it may not be operationally feasible for a card issuer to determine which account-holder was responsible for a particular transaction and then decide whether to authorize or pay an over-the-limit transaction based on that account-holder's opt-in choice. Moreover, because the same credit limit presumably applies to a joint account, one joint account-holder's decision to opt in to the payment of over-the-limit transactions would also necessarily impact the other account-holder. Accordingly, if one joint consumer opts in to the creditor's payment of over-the-limit transactions, the card issuer must treat the consent as applying to all over-the-limit transactions for that account. The final rule would similarly provide that if one joint consumer elects to cancel the over-the-limit coverage for the account, the card issuer must treat the revocation as applying to all over-the-limit transactions for that account.

Section 226.56(f) applies only to consumer consent and revocation requests from consumers that are jointly liable on a credit card account. Accordingly, card issuers are not required or permitted to honor a request by an authorized user on an account to opt in or revoke a prior consent with respect to the card issuer's over-the-limit transaction. Comment 56(f)-1 provides this guidance.

Continuing right to opt in or revoke opt-in. Proposed § 226.56(g) provided that a consumer may affirmatively consent to a creditor's payment of over-the-limit transactions at any time in the manner described in the opt-in notice. This provision would allow consumers to decide later in the account relationship whether they want to opt in to the creditor's payment of over-the-limit transactions. Similarly, a consumer may revoke a prior consent at any time in the manner described in the revocation notice. See TILA Section 127(k)(4). No comments were received on § 226.56(g), and it is adopted substantively as proposed.

Comment 56(g)-1 has been revised to clarify that a consumer's decision to revoke a prior consent would not require the card issuer to waive or reverse any over-the-limit fee or charges assessed to the consumer's account for transactions that occurred prior to the card issuer's implementation of the consumer's revocation request. Thus, the comment permits a card issuer to impose over-the-limit fees or charges for transactions that the card issuer authorized prior to implementing the revocation request, even if the transaction is not charged to the account until after implementation. In addition, the final rule does not prevent the card issuer from assessing over-the-limit fees in a subsequent cycle if the consumer's account balance continues to exceed the credit limit after the payment due date as a result of an over-the-limit transaction that occurred prior to the consumer's revocation of consent. See§ 226.56(j)(1).

Duration of opt-in. Section 226.56(h) provides that a consumer's affirmative consent is generally effective until revoked by the consumer. Comment 56(h)-1 clarifies, however, that a card issuer may cease paying over-the-limit transactions at any time and for any reason even if the consumer has consented to the service. For example, a card issuer may wish to stop providing the service in response to changes in the credit risk presented by the consumer. Section 226.56(h) and comment 56(h)-1 are adopted substantively as proposed.

Time to implement consumer revocation. Proposed § 226.56(i) would have required a creditor to implement a consumer's revocation request as soon as reasonably practicable after the creditor receives the request. The proposed requirement recognized that while creditors will presumably want to implement a consumer's consent request as soon as possible, the same incentives may not apply if the consumer subsequently decides to revoke that request.

The proposal also solicited comment whether a safe harbor for implementing revocation requests would be useful to facilitate compliance with the proposed rule, such as five business days from the date of the request. In addition, comment was requested on an alternative approach which would require creditors to implement revocation requests within the same time period that a creditor generally takes to implement opt-in requests. For example, under the alternative approach, if the creditor typically takes three business days to implement a consumer's written opt-in request, it should take no more than three business days to implement the consumer's later written request to revoke that consent.

Consumer groups supported the alternative approach of requiring creditors to implement a consumer's revocation request within the same period taken to implement the consumer's opt-in request, but believed that a firm number of days would provide greater certainty for consumers regarding when their revocation requests will be implemented. Specifically, consumer groups urged the Board to establish a safe harbor of three days from when the creditor receives the revocation request.

Industry commenters varied in their recommendations of an appropriate safe harbor for implementing a revocation request, ranging from five to 20 days or the creditor's normal billing cycle. In general, industry commenters generally believed that the Board should provide flexibility for creditors in processing revocation requests because the appropriate amount of time will vary due to a number of factors, including the volume of requests and the channel in which the creditor receives the request. One industry commenter supported the alternative approach stating that there was little reason opt-in and revocation requests could not be processed in the same period of time. Another industry commenter stated, however, that the rule should provide creditors a reasonable period of time to implement a revocation request to prevent a consumer from engaging in transactions that may exceed the consumer's credit limit before a creditor can update its systems to decline the transactions.

The final rule requires a card issuer to implement a consumer's revocation request as soon as reasonably practicable after the creditor receives it, as proposed. Accordingly, § 226.56(i) does not prescribe a specific period of time within which a card issuer must honor a consumer's revocation request because the appropriate time period may depend on a number of variables, including the method used by the consumer to communicate the revocation request (for example, in writing or orally) and the channel in which the request is received (for example, if a consumer sends a written request to the card issuer's general address for receiving correspondence or to an address specifically designated to receive consumer opt-in and revocation requests). The Board also notes that the approach taken in the final rule mirrors the same rule adopted in the Board's recently issued final rule on overdraft services for processing revocation requests relating to consumer opt-ins to ATM and one-time debit card overdraft services. See 74 FR 59033 (Nov. 17, 2009). The Board believes that in light of the similar opt-in and revocation regimes adopted in both rules, consistency across the regulations would facilitate compliance for institutions that offer both debit and credit card products.

56(j) Prohibited Practices

Section 226.56(j) prohibits certain card issuer practices in connection with the assessment of over-the-limit fees or charges. These prohibitions implement separate requirements set forth in TILA Sections 127(k)(5) and 127(k)(7), and apply even if the consumer has affirmatively consented to the card issuer's payment of over-the-limit transactions.

56(j)(1) Fees Imposed Per Billing Cycle

New TILA Section 127(k)(7) provides that a creditor may not impose more than one over-the-limit fee during a billing cycle. In addition, Section 127(k)(7) generally provides that an over-the-limit fee may be imposed “only once in each of the 2 subsequent billing cycles” for the same over-the-limit transaction. The Board proposed to implement these restrictions in § 226.56(j)(1).

Proposed § 226.56(j)(1)(i) would have prohibited a creditor from imposing more than one over-the-limit fee or charge on a consumer's credit card account in any billing cycle. The proposed rule also prohibited a creditor from imposing an over-the-limit fee or charge on the account for the same over-the-limit transaction or transactions in more than three billing cycles. Proposed § 226.56(j)(1)(ii) would have provided, however, that the limitation on imposing over-the-limit fees for more than three billing cycles does not apply if a consumer engages in an additional over-the-limit transaction in either of the two billing cycles following the cycle in which the consumer is first assessed a fee for exceeding the credit limit. No comments were received on the proposed restrictions in § 226.56(j)(1) and the final rule adopts § 226.56(j)(1) substantively as proposed.

Section 226.56(j)(1)(i) in the final rule further prohibits a card issuer from imposing any over-the-limit fees or charges for the same transaction in the second or third cycle unless the consumer has failed to reduce the account balance below the credit limit by the payment due date of either cycle. The Board believes that this interpretation of TILA Section 127(k)(7) is consistent with Congress's general intent to limit a creditor's ability to impose multiple over-the-limit fees for the same transaction as well as the requirement in TILA Section 106(b) that consumers be given a sufficient amount of time to make payments. [64]

One possible interpretation of new TILA Section 127(k)(7) would provide consumers until the end of the billing cycle, rather than the payment due date, to make a payment that reduces the account balance below the credit limit. The Board understands, however, that under current billing practices, the end of the billing cycle serves as the statement cut-off date and occurs a certain number of days after the due date for payment on the prior cycle's activity. The time period between the payment due date and the end of the billing cycle allows the card issuer sufficient time to reflect timely payments on the subsequent periodic statement and to determine the fees and interest charges for the statement period. Thus, if the rule were to give consumers until the end of the billing cycle to reduce the account balance below the credit limit, card issuers would have difficulty determining whether or not they could impose another over-the-limit fee for the statement cycle, which could delay the generation and mailing of the periodic statement and impede their ability to comply with the 21-day requirement for mailing statements in advance of the payment due date. See TILA Section 163(a); § 226.5(b)(2)(ii).

Moreover, because a consumer is likely to make payment by the due date to avoid other adverse financial consequences (such as a late payment fee or increased APRs for new transactions), the additional time to make payment to avoid successive over-the-limit fees would appear to be unnecessary from a consumer protection perspective. Such a date also could confuse consumers by providing two distinct dates, each with different consequences (that is, penalties for late payment or the assessment of over-the-limit fees). For these reasons, the Board is exercising its TILA Section 105(a) authority to provide that a card issuer may not impose an over-the-limit fee or charge on the account for a consumer's failure to reduce the account balance below the credit limit during the second or third billing cycle unless the consumer has not done so by the payment due date.

New comment 56(j)-1 clarifies that an over-the-limit fee or charge may be assessed on a consumer's account only if the consumer has exceeded the credit limit during the billing cycle. Thus, a card issuer may not impose any recurring or periodic fees for paying over-the-limit transactions (for example, a monthly “over-the-limit protection” service fee), even if the consumer has affirmatively consented to or opted in to the service, unless the consumer has in fact exceeded the credit limit during that cycle. The new comment is adopted in response to a consumer group comment that TILA Section 127(k)(7) only permits an over-the-limit fee to be charged during a billing cycle “if the credit limit on the account is exceeded.”

Section 226.56(j)(1)(ii) of the final rule provides that the limitation on imposing over-the-limit fees for more than three billing cycles in § 226.56(j)(1)(i) does not apply if a consumer engages in an additional over-the-limit transaction in either of the two billing cycles following the cycle in which the consumer is first assessed a fee for exceeding the credit limit. The assessment of fees or interest charges by the card issuer would not constitute an additional over-the-limit transaction for purposes of this exception, consistent with the definition of “over-the-limit transaction” under § 226.56(a). In addition, the exception would not permit a card issuer to impose fees for both the initial over-the-limit transaction as well as the additional over-the-limit transaction(s), as the general restriction on assessing more than one over-the-limit fee in the same billing cycle would continue to apply. Comment 56(j)-2 contains examples illustrating the general rule and the exception.

Proposed Prohibitions on Unfair or Deceptive Over-the-Limit Acts or Practices

Section 226.56(j) includes additional substantive limitations and restrictions on certain creditor acts or practices regarding the imposition of over-the-limit fees. These limitations and restrictions are based on the Board's authority under TILA Section 127(k)(5)(B) which directs the Board to prescribe regulations that prevent unfair or deceptive acts or practices in connection with the manipulation of credit limits designed to increase over-the-limit fees or other penalty fees.

Legal Authority

The Credit Card Act does not set forth a standard for what is an “unfair or deceptive act or practice” and the legislative history for the Credit Card Act is similarly silent. Congress has elsewhere codified standards developed by the Federal Trade Commission for determining whether acts or practices are unfair under Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. 45(a). [65] Specifically, the FTC Act provides that an act or practice is unfair when it causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. In addition, in determining whether an act or practice is unfair, the FTC may consider established public policy, but public policy considerations may not serve as the primary basis for its determination that an act or practice is unfair. 15 U.S.C. 45(a).

According to the FTC, an unfair act or practice will almost always represent a market failure or market imperfection that prevents the forces of supply and demand from maximizing benefits and minimizing costs. [66] Not all market failures or imperfections constitute unfair acts or practices, however. Instead, the central focus of the FTC's unfairness analysis is whether the act or practice causes substantial consumer injury. [67]

The FTC has also adopted standards for determining whether an act or practice is deceptive, although these standards, unlike unfairness standards, have not been incorporated into the FTC Act. [68] Under the FTC's standards, an act or practice is deceptive where: (1) There is a representation or omission of information that is likely to mislead consumers acting reasonably under the circumstances; and (2) that information is material to consumers. [69]

Many states also have adopted statutes prohibiting unfair or deceptive acts or practices, and these statutes may employ standards that are different from the standards currently applied to the FTC Act. [70] In adopting rules under TILA Section 127(k)(5), the Board has considered the standards currently applied to the FTC Act's prohibition against unfair or deceptive acts or practices, as well as the standards applied to similar state statutes.

56(j)(2) Failure To Promptly Replenish

Section 226.10 of Regulation Z generally requires creditors to credit consumer payments as of the date of receipt, except when a delay in crediting does not result in a finance or other charge. This provision does not address, however, when a creditor must replenish the consumer's credit limit after receiving payment. Thus, a consumer may submit payment sufficient to reduce his or her account balance below the credit limit and make additional purchases during the next cycle on the assumption that the credit line will be replenished once the payment is credited. If the creditor does not promptly replenish the credit line, the additional transactions may cause the consumer to exceed the credit limit and incur fees.

In the September 2009 Regulation Z Proposal, the Board proposed to prohibit creditors from assessing an over-the-limit fee or charge that is caused by the creditor's failure to promptly replenish the consumer's available credit. Section 226.56(j)(2) of the final rule adopts the prohibition substantively as proposed.

Public Comments

Consumer groups supported the proposed prohibition against assessing over-the-limit fees or charges caused by a creditor's failure to promptly replenish the consumer's available credit. Industry commenters generally did not oppose the proposed prohibition, but asked the Board to provide additional guidance regarding what it considered to be “prompt” replenishment of the consumer's available credit. One industry commenter asked the Board to specifically permit a creditor to wait a reasonable amount of time after receiving payment before replenishing the consumer's available credit. This commenter noted that while creditors will typically credit payments as of the date of receipt, the rule should not expose creditors to possible fraud or nonpayment by requiring them to make credit available in connection with a payment that has not cleared.

In response to the Board's request for comment regarding whether the rule should provide a safe harbor specifying the number of days following the crediting of a consumer's payment by which a creditor must replenish a consumer's available credit, industry commenters offered suggestions ranging from three to ten days in order to provide creditors sufficient time to mitigate any losses due to fraud or returned payments. One industry commenter cautioned that establishing any parameters regarding replenishment could contribute to a higher cost of credit if the established time period did not permit sufficient time for payments to clear.

Legal Analysis

The Board finds that the imposition of fees or charges for an over-the-limit transaction caused solely by a card issuer's failure to promptly replenish the consumer's available credit after the card issuer has credited the consumer's payment is an unfair practice.

Potential injury that is not reasonably avoidable. A 2006 Government Accountability Office (GAO) report on credit cards indicates that the average cost to consumers resulting from over-the-limit transactions exceeded $30 in 2005. [71] The GAO also reported that in the majority of credit card agreements that it surveyed, default rates could apply if a consumer exceeded the credit limit on the card. [72]

In most cases, card issuers replenish the available credit on a credit card account shortly after the payment has been credited to the account to enable the cardholder to make new transactions on the account. As a result, a consumer that has used all or most of the available credit during one billing cycle would again be able to make transactions using the credit card account once the consumer has made payments on the account balance and the available credit is restored to the account. If, however, the card issuer delays replenishment on the account after crediting the payment to the consumer's account, the consumer could inadvertently exceed the credit limit if the consumer uses the credit card account for new transactions and such transactions are authorized by the card issuer. In such event, the consumer could incur substantial monetary injury due to the fees assessed and potential interest rate increases in connection with the card issuer's payment of over-the-limit transactions.

Because the consumer will generally be unaware when the card issuer has delayed replenishing the available credit on the account after crediting the payment to the account, the Board concludes that consumers cannot reasonably avoid the injury caused by over-the-limit fees and rate increases triggered by transactions that exceed the limit as a result of the delay in replenishment.

Potential costs and benefits. The Board also finds that the prohibited practice does not create benefits for consumers and competition that outweigh the injury. While a card issuer may reasonably decide to delay replenishing a consumer's available credit, for example, to ensure the payment clears or in cases of suspected fraud on the account, there is minimal if any benefit to the consumer from permitting the card issuer to assess over-the-limit fees that may be incurred as a result of the delay in replenishment.

Final Rule

Section 226.56(j)(2) is adopted substantively as proposed and prohibits a card issuer from imposing any over-the-limit fee or charge solely because of the card issuer's failure to promptly replenish the consumer's available credit after the card issuer has credited the consumer's payment under § 226.10.

Comment 56(j)-3 clarifies that the final rule does not require card issuer to immediately replenish the consumer's available credit upon crediting the consumer's payment under § 226.10. Rather, the creditor is only prohibited from assessing any over-the-limit fees or charges caused by the creditor's decision not to replenish the available credit after posting the consumer's payment to the account. Thus, a card issuer may continue to delay replenishment as necessary to allow the consumer's payment to clear or to prevent potential fraud, provided that it does not assess any over-the-limit fees or charges because of its delay in restoring the consumer's available credit. Comment 56(j)-3 also clarifies that the rule does not require a card issuer to decline all transactions for consumers who have opted in to the card issuer's payment of over-the-limit transactions until the available credit has been restored.

As discussed above, § 226.56(j)(2) solely prohibits the assessment of an over-the-limit fee or charge due to a card issuer's failure to promptly replenish a consumer's available credit following the crediting of the consumer's payment under § 226.10. Thus, the final rule does not establish a number of days within which a consumer's available credit must be replenished by a card issuer after a payment has been credited. Because the time in which a payment may take to clear may vary greatly depending on the type of payment, the Board believes that the determination of when the available credit should be replenished should rest with the individual card issuer, so long as the consumer does not incur over-the-limit fees or charges as a result of the card issuer's delay in replenishment.

56(j)(3) Conditioning

The Board proposed to prohibit a creditor from conditioning the amount of available credit provided on the consumer's affirmative consent to the creditor's payment of over-the-limit transactions. Proposed § 226.56(j)(3) was intended to address concerns that a creditor may seek to tie the amount of credit provided to the consumer affirmatively consenting to the creditor's payment of over-the-limit transactions. The final rule adopts the prohibition as proposed.

Public Comments

Consumer groups and one federal banking agency supported the proposed prohibition to help ensure that consumers can freely choose whether or not to opt in. However, these commenters believed that greater protections were needed to prevent other creditor actions that could compel a consumer to opt in or that otherwise discriminated against a consumer that elected not to opt in. Specifically, these commenters urged the Board to prohibit any differences in credit card accounts based upon whether the consumer elects to opt in to the payment of over-the-limit transactions. These commenters were concerned that issuers might otherwise offer other less favorable terms to consumers who do not opt in, such as a higher interest rate or a higher annual fee. Or, creditors might induce consumers to opt in by waiving a fee or lowering applicable APRs. Consumer groups further observed that the Board has recently taken a similar approach in the Board's recent final rules under Regulation E addressing overdraft services to prohibit financial institutions from varying the account terms, conditions, or features for consumers that do not opt in to overdraft services for ATM and one-time debit card transactions. See 74 FR 59033 (Nov. 17, 2009). Consumer groups also urged the Board to prohibit issuers from imposing fees, such as denied transaction fees, that could be designed to coerce consumers to opt in to over-the-limit coverage.

Both consumer groups and the federal banking agency agreed with the Board's observation in the supplementary information to the proposal that conditioning the amount of credit provided based on whether the consumer opts in to the creditor's payment of over-the-limit transactions raised significant concerns under the Equal Credit Opportunity Act (ECOA). See 15 U.S.C. 1691(a)(3). The federal banking agency expressed concern, however, that the Board's failure to similarly state that providing other adverse credit terms, such as higher fees or rates, based on the consumer's decision not to opt in could suggest that such variances were in fact permissible under ECOA and Regulation B (12 CFR 205).

Legal Analysis

The Board finds that conditioning or linking the amount of credit available to the consumer based on the consumer consenting to the card issuer's payment of over-the-limit transactions is an unfair practice.

Potential injury that is not reasonably avoidable. As the Board has previously stated elsewhere, consumers receive considerable benefits from receiving credit cards that provide a meaningful amount of available credit. For example, credit cards enable consumers to engage in certain types of transactions, such as making purchases by telephone or on-line, or renting a car or hotel room. Given these benefits, some consumers might be compelled to opt in to a card issuer's payment of over-the-limit transactions if not doing so may result in the consumer otherwise obtaining a minimal amount of credit or failing to qualify for credit altogether. Thus, it appears that such consumers would be prevented from exercising a meaningful choice regarding the card issuer's payment of over-the-limit transactions.

Potential costs and benefits. The Board concludes that there are few if any benefits to consumers or competition from conditioning or linking the amount of credit available to the consumer based on the consumer consenting to the card issuer's payment of over-the-limit transactions. While some card issuers may seek to replace the revenue from over-the-limit fees by charging consumers higher annual percentage rates or fees, the Board believes that consumers will benefit overall from having a meaningful choice regarding whether to have over-the-limit transactions approved by the card issuer.

Final Rule

Section 226.56(j)(3) prohibits a card issuer from conditioning or otherwise linking the amount of credit granted on the consumer opting in to the card issuer's payment of over-the-limit transactions. Thus, the final rule is intended to prevent card issuers from effectively circumventing the consumer choice requirement by tying the amount of a consumer's credit limit to the consumer's opt-in decision.

Under the final rule, a card issuer may not, for example, require a consumer to opt in to the card issuer's fee-based over-the-limit service in order to receive a higher credit limit for the account. Similarly, a card issuer would be prohibited from denying a consumer's credit card application solely because the consumer did not opt in to the card issuer's over-the-limit service. The final rule is illustrated by way of example in comment 56(j)-4.

The final rule does not address other card issuer actions that may also lead a consumer to opt in to the card issuer's payment of over-the-limit transactions contrary to the consumer's preferences. As discussed above, TILA Section 127(k)(5)(B) directs the Board to prescribe regulations preventing unfair or deceptive acts or practices “in connection with the manipulation of credit limits designed to increase over-the-limit fees or other penalty fees.” Nonetheless, the Board notes this rule is not intended to identify all unfair or deceptive acts or practices that may arise in connection with the opt-in requirement. To the extent that specific practices raise concerns regarding unfairness or deception under the FTC Act with respect to this requirement, this rule would not limit the ability of the Board or any other agency to make any such determination on a case-by-case basis. This rule also does not preclude any action by the Board or any other agency to address creditor practices with respect to a consumer's exercise of the opt-in right that may raise significant concerns under ECOA and Regulation B.

56(j)(4) Over-the-Limit Fees Attributed to Fees or Interest

The Board proposed to prohibit the imposition of any over-the-limit fees or charges if the credit limit is exceeded solely because of the creditor's assessment of accrued interest charges or fees on the consumer's credit card account. Section 226.56(j)(4) adopts this prohibition substantively as proposed.

Public Comments

Consumer groups supported the proposed prohibition. In contrast, one industry trade association representing community banks believed that the proposed prohibition would require extensive programming of data systems and urged the Board not to adopt the prohibition in light of the significant operational burden and costs that would be incurred. Another industry commenter questioned whether the proposed prohibition was sufficiently tied to a creditor's manipulation of credit limits as contemplated by TILA Section 127(k)(5).

Legal Analysis

The Board finds the imposition of any over-the-limit fees or charges if a consumer's credit limit is exceeded solely because of the card issuer's assessment of accrued interest charges or fees on the consumer's credit card account is an unfair practice.

Potential injury that is not reasonably avoidable. As discussed above, consumers may incur substantial monetary injury due to the fees assessed in connection with the payment of over-the-limit transactions. In addition to per transaction fees, consumers may also trigger rate increases if the over-the-limit transaction is deemed to be a violation of the credit card contract.

The Board concludes that the injury from over-the-limit fees and potential rate increases is not reasonably avoidable in these circumstances because consumers are, as a general matter, unlikely to be aware of the amount of interest charges or fees that may be added to their account balance when deciding whether or not to engage in a credit card transaction. With respect to accrued interest charges, these additional amounts are typically added to a consumer's account balance at the end of the billing cycle after the consumer has completed his or her transactions for the cycle and thus are unlikely to have been taken into account when the consumer engages in the transactions.

Potential costs and benefits. Although prohibition of the assessment of over-the-limit fees caused by accrued finance charges and fees may reduce card issuer revenues and lead card issuers to replace lost revenue by charging consumers higher rates or fees, the Board believes the final rule will result in a net benefit to consumers because some consumers are likely to benefit substantially while the adverse effects on others are likely to be small. Because permitting fees and interest charges to trigger over-the-limit fees may have the effect of retroactively reducing a consumer's available credit for prior transactions, prohibiting such a practice would protect consumers against unexpected over-the-limit fees and rate increases which could substantially add to their cost of credit. Moreover, consumers will be able to more accurately manage their credit lines without having to factor additional costs that cannot be easily determined. While some consumers may pay higher fees and initial rates, consumers are likely to benefit overall through more transparent pricing.

Final Rule

Section 226.56(j)(4) in the final rule prohibits card issuers from imposing an over-the-limit fee or charge if a consumer exceeds a credit limit solely because of fees or interest charged by the card issuer to the consumer's account during the billing cycle, as proposed. For purposes of this prohibition, the fees or interest charges that may not trigger the imposition of an over-the-limit fee or charge are considered charges imposed as part of the plan under § 226.6(b)(3)(i). Thus, the final rule also prohibits the assessment of an over-the-limit fee or charge even if the credit limit was exceeded due to fees for services requested by the consumer if such fees constitute charges imposed as part of the plan (for example, fees for voluntary debt cancellation or suspension coverage). The prohibition in the final rule does not, however, restrict card issuers from assessing over-the-limit fees due to accrued finance charges or fees from prior cycles that have subsequently been added to the account balance. New comment 56(j)-5 includes this additional guidance and illustrative examples.

Section 226.57Reporting and Marketing Rules for College Student Open-End Credit

New TILA Section 140(f), as added by Section 304 of the Credit Card Act, requires the public disclosure of contracts or other agreements between card issuers and institutions of higher education for the purpose of marketing a credit card and imposes new restrictions related to marketing open-end credit to college students. 15 U.S.C. 1650(f). The Board proposed to implement these provisions in new § 226.57.

The Board also proposed to implement provisions related to new TILA Section 127(r) in § 226.57. TILA Section 127(r), which was added by Section 305 of the Credit Card Act, requires card issuers to submit an annual report to the Board containing the terms and conditions of business, marketing, promotional agreements, and college affinity card agreements with an institution of higher education, or other related entities, with respect to any college student credit card issued to a college student at such institution. 15 U.S.C. 1637(r).

57(a) Definitions

New TILA Section 127(r) provides definitions for terms that are also used in new TILA Section 140(f). See 15 U.S.C. 1650(f). To ensure the use of these terms is consistent throughout these sections, the Board proposed to incorporate the definitions set forth in TILA Section 127(r) in § 226.57(a) and apply them to regulations implementing both TILA Sections 127(r) and 140(f).

Proposed § 226.57(a)(1) defined “college student credit card” as a credit card issued under a credit card account under an open-end (not home-secured) consumer credit plan to any college student. This definition is similar to TILA Section 127(r)(1)(B), which defines “college student credit card account” as a credit card account under an open-end consumer credit plan established or maintained for or on behalf of any college student. The Board received no comments on this definition, and the definition is adopted as proposed with one non-substantive wording change. As proposed, § 226.57(a)(1) defines “college student credit card” rather than “college student credit card account” because the statute and regulation use the former term but not the latter. Consistent with the approach the Board is implementing for other sections of the Credit Card Act, the definition uses the proposed term “credit card account under an open-end (not home-secured) consumer credit plan,” as defined in § 226.2(a)(15). The term “college student credit card” therefore excludes home-equity lines of credit accessed by credit cards and overdraft lines of credit accessed by debit cards, which the Board believes are not typical types of college student credit cards.

TILA Section 127(r)(1)(A) defines “college affinity card” as a credit card issued under an open end consumer credit plan in conjunction with an agreement between the issuer and an institution of higher education or an alumni organization or a foundation affiliated with or related to an institution of higher education under which cards are issued to college students having an affinity with the institution, organization or foundation where at least one of three criteria also is met. These three criteria are: (1) The creditor has agreed to donate a portion of the proceeds of the credit card to the institution, organization, or foundation (including a lump-sum or one-time payment of money for access); (2) the creditor has agreed to offer discounted terms to the consumer; or (3) the credit card bears the name, emblem, mascot, or logo of such institution, organization, or foundation, or other words, pictures or symbols readily identified with such institution or affiliated organization. In connection with the proposed rule, the Board solicited comment on whether § 226.57 should include a regulatory definition of “college affinity card.” One card issuer commenter requested that the Board include such a definition in the final rule. The Board continues to believe, however, that the definition of “college student credit card,” discussed above, is broad enough to encompass any “college affinity card” as defined in TILA Section 127(r)(1)(A), and that a definition of “college affinity card” therefore is unnecessary. As proposed, the Board is not adopting a regulatory definition comparable to this definition in the statute.

Comment 57(a)(1)-1 is adopted as proposed. Comment 57(a)(1)-1 clarifies that a college student credit card includes a college affinity card, as discussed above, and that, in addition, a card may fall within the scope of the definition regardless of the fact that it is not intentionally targeted at or marketed to college students.

Proposed § 226.57(a)(2) defined “college student” as an individual who is a full-time or a part-time student attending an institution of higher education. This definition is consistent with the definition of “college student” in TILA Section 127(r)(1)(C). An industry commenter suggested that the Board limit the definition to students who are under the age of 21. As the Board discussed in the October 2009 Regulation Z Proposal, the definition is intended to be broad and would apply to students of any age attending an institution of higher education and applies to all students, including those enrolled in graduate programs or joint degree programs. The Board believes that it was Congress's intent to apply this term broadly, and is adopting § 226.57(a)(2) as proposed with one non-substantive wording change.

As discussed in the October 2009 Regulation Z Proposal, the Board proposed to adopt a definition of “institution of higher education” in § 226.57(a)(3) that would be consistent with the definition of the term in TILA Section 127(r)(1)(D) and in § 226.46(b)(2) for private education loans. The proposed definition provided that the term has the same meaning as in sections 101 and 102 of the Higher Education Act of 1965. 20 U.S.C. 1001 and 1002. In proposing the definition, the Board proposed to use its authority under TILA Section 105(a) to apply the definition in TILA Section 127(r)(1)(D) to TILA Section 140(f) in order to have a consistent definition of the term for all sections added by the Credit Card Act and to facilitate compliance. 15 U.S.C. 1604(a). The Board received no comment on the proposed definition, and § 226.57(a)(3) is adopted as proposed.

Proposed § 226.57(a)(4) defined “affiliated organization” as an alumni organization or foundation affiliated with or related to an institution of higher education, to provide a conveniently shorter term to be used to refer to such organizations and foundations in various provisions of the proposed regulations. The Board received no comment regarding this definition, and § 226.57(a)(4) is adopted as proposed with one non-substantive wording change.

Proposed § 226.57(a)(5) delineated the types of agreements for which creditors must provide annual reports to the Board, under the defined term “college credit card agreement.” The term was defined to include any business, marketing or promotional agreement between a card issuer and an institution of higher education or an affiliated organization in connection with which college student credit cards are issued to college students currently enrolled at that institution. In connection with the proposed rule, the Board noted that the proposed definition did not incorporate the concept of a college affinity card agreement used in TILA Section 127(r)(1)(A) and solicited comment on whether language referring to college affinity card agreements also should be included in the regulations. The Board received no comments on this issue. The Board continues to believe that the definition of “college credit card agreement” is broad enough to include agreements concerning college affinity cards. Section 226.57(a)(5) therefore is adopted as proposed with one non-substantive wording change.

Comment 57(a)(5)-1 is adopted as proposed. Comment 57(a)(5)-1 clarifies that business, marketing and promotional agreements may include a broad range of arrangements between a creditor and an institution of higher education or affiliated organization, including arrangements that do not fall within the concept of a college affinity card agreement as discussed in TILA Section 127(r)(1)(A). For example, TILA Section 127(r)(1)(A) specifies that under a college affinity card agreement, the card issuer has agreed to make a donation to the institution or affiliated organization, the card issuer has agreed to offer discounted terms to the consumer, or the credit card will display pictures, symbols, or words identified with the institution or affiliated organization; even if these conditions are not met, an agreement may qualify as a college credit card agreement, if the agreement is a business, marketing or promotional agreement that contemplates the issuance of college student credit cards to college students currently enrolled at the institution. An agreement may qualify as a college credit card agreement even if marketing of cards under the agreement is targeted at alumni, faculty, staff, and other non-student consumers, as long as cards may also be issued to students in connection with the agreement.

57(b) Public Disclosure of Agreements

In the October 2009 Regulation Z Proposal the Board proposed to implement new TILA Section 140(f)(1) in § 226.57(b). Consistent with the statute, proposed § 226.57(b) requires an institution of higher education to publicly disclose any credit card marketing contract or other agreement made with a card issuer or creditor. The Board also proposed comment 57(b)-1 to specify that an institution of higher education may fulfill its duty to publicly disclose any contract or other agreement made with a card issuer or creditor for the purposes of marketing a credit card by posting such contract or agreement on its Web site. Comment 57(b)-1 also provided that the institution of higher education may alternatively make such contract or agreement available upon request, provided the procedures for requesting the documents are reasonable and free of cost to the requestor, and the contract or agreement is provided within a reasonable time frame. As discussed in the October 2009 Regulation Z Proposal the list in proposed comment 57(b)-1 was not meant to be exhaustive, and the Board noted that an institution of higher education may publicly disclose these contracts or agreements in other ways.

Consumer group commenters suggested that the Board clarify that the term “any contracts or agreements” includes a memorandum of understanding or other amendment, interpretation or understanding between the parties that directly or indirectly relates to a college credit agreement. The Board does not believe such amendments are necessary. If, as a matter of contract law, any amendment or memorandum of understanding constitutes a part of a contract, the Board believes that the language in the regulation would require its disclosure. As a result, the Board is adopting comment 57(b)-1 as proposed.

The Board also proposed comment 57(b)-2 in the October 2009 Regulation Z Proposal to bar institutions of higher education from redacting any contracts or agreements they are required to publicly disclose under proposed § 226.57(b). As a result, any clauses in existing contract or agreements addressing the confidentiality of such contracts or agreements would be invalid to the extent they prevent institutions of higher education from publicly disclosing such contracts or agreements in accordance with proposed § 226.57(b). The Board did not receive any significant comments on comment 57(b)-2. Furthermore, the Board continues to believe that it is important that all provisions of these contracts or agreements be available to college students and other interested parties, and comment 57(b)-2 is adopted as proposed.

57(c) Prohibited Inducements

TILA Section 140(f)(2) prohibits card issuers and creditors from offering to a student at an institution of higher education any tangible item to induce such student to apply for or participate in an open-end consumer credit plan offered by such card issuer or creditor, if such offer is made on the campus of an institution of higher education, near the campus of an institution of higher education, or at an event sponsored by or related to an institution of higher education. Proposed § 226.57(c) generally followed the statutory language. As the Board noted in the October 2009 Regulation Z Proposal, TILA Section 140(f)(2) applies not only to credit card accounts, but also other open-end consumer credit plans, such as lines of credit. The Board received comment from some industry commenters requesting that the Board limit this provision to credit card accounts only. The statute specifically includes other open-end consumer credit plans other than credit card accounts, and the Board believes Congress intended to cover all open-end consumer credit plans. Therefore, the Board is adopting § 226.57(c) as proposed.

One industry commenter requested an exception to the restrictions on offering a tangible item in exchange for introducing a wide range of financial services to a college student. The Board notes that the restriction in § 226.57(c) applies to inducements to apply for or participate in an open-end consumer credit plan only. Consequently, if a financial institution were to offer a tangible item to induce a college student to open a deposit account, for example, such item would not be prohibited because a deposit account is not an open-end credit plan. However, if a financial institution were to offer a tangible item to induce a college student to apply for or participate in a package of financial services that includes any open-end consumer credit plans, such items would be prohibited under § 226.57(c).

Proposed comment 57(c)-1 in the October 2009 Regulation Z Proposal clarified that a tangible item under § 226.57(c) includes any physical item, such as a gift card, a t-shirt, or a magazine subscription, that a card issuer or creditor offers to induce a college student to apply for or open an open-end consumer credit plan offered by such card issuer or creditor. The proposed comment also provided some examples of non-physical inducements that would not be considered tangible items, such as discounts, rewards points, or promotional credit terms.

Consumer group commenters suggested that while the Board's interpretation of “tangible” item was valid, there is an alternate definition of “tangible” item as an item that is real, as opposed to visionary or imagined. The Board believes interpreting the term “tangible” as these commenters' suggest would be inappropriate. Since it would be impossible for a creditor to offer an imagined item, defining “tangible” as something real would render the term superfluous. The Board believes that Congress meant to limit this prohibition to a certain class of items; otherwise, the statute would have prohibited the offering any kind of inducement, rather than a “tangible” one. Proposed comment 57(c)-1 is therefore adopted as proposed.

Under TILA Section 140(f)(2), offering tangible items to college students is prohibited only if the items are offered to induce the student to apply for or open an open-end consumer credit plan. As a result, the Board proposed comment 57(c)-2 to clarify that if a tangible item is offered to a college student whether or not that student applies for or opens an open-end consumer credit plan, the item is not an inducement. Consumer group commenters opposed the Board's interpretation and stated that any tangible item offered to a college student, even if it is not conditioned on the college student applying for or opening an open-end consumer credit plan, is an inducement. The Board disagrees with this interpretation. In addition, the Board believes the approach suggested by consumer group commenters could produce unintended consequences and practical complications. For example, under the interpretation suggested by commenters, even a simple candy dish in the lobby of a bank branch or at a retailer that has a retail credit card program could be prohibited because of the possibility a college student may walk into the branch or the store and take a piece of candy. Therefore, the Board is adopting comment 57(c)-2 as proposed.

TILA Section 140(f)(2)(B) requires the Board to determine what is considered near the campus of an institution of higher education. As discussed in the October 2009 Regulation Z Proposal, the Board proposed comment 57(c)-3 to provide that a location that is within 1,000 feet of the border of the campus of an institution of higher education, as defined by the institution of higher education, be considered near the campus of an institution of higher education. The Board based its proposal on the distances used in state and federal laws for other restricted activities near a school, [73] and solicited comment on other appropriate ways to determine a location that is considered near the campus of an institution of higher education.

The Board received support for its proposal from various types of commenters, but many industry commenters thought the Board's definition for what is considered near campus to be too broad. Several of these commenters suggested that the Board provide exceptions from the prohibition in § 226.57(c) for either retailer-creditors or bank branches on or near campus. Another industry commenter requested that the Board provide guidance on defining the campus of an institution of higher education. One industry commenter also suggested that the Board exempt on-line universities to avoid interpretations that a student's home might constitute a part of the “campus.”

The Board is adopting comment 57(c)-3 as proposed. The statute provides that creditors are subject to the restrictions on offering tangible items to college students in particular locations and makes no exceptions for creditors that may already be established in such locations. Furthermore, the Board believes that institutions of higher education would be the proper entities to determine the borders of their respective campuses. In addition, it is the Board's understanding that on-line universities do not define their campuses as inclusive of a student's home. Therefore, the Board believes it would be unnecessary to provide an exemption for such institutions.

Proposed comment 57(c)-4 clarified that offers of tangible items mailed to a college student at an address on or near the campus of an institution of higher education would be subject to the restrictions in § 226.57(c). Proposed comment 57(c)-4 clarified that offers of tangible items made on or near the campus of an institution of higher education for purposes of § 226.57(c) include offers of tangible items that are sent to those locations through the mail. Some industry commenters opposed the Board's proposed comment to include offers of tangible items that are mailed to a college student at an address on or near campus. Another industry commenter requested the Board clarify whether e-mailed offers constituted offers mailed to an address on or near campus.

Comment 57(c)-4 is adopted as proposed. As the Board discussed in the October 2009 Regulation Z Proposal, the statute does not distinguish between different methods of making offers of tangible items, but clearly delineates the locations where such offers may not be made. The Board notes that the prohibition in § 226.57(c) focuses on offering a tangible item. Therefore, creditors are not prohibited by the rule from mailing applications and solicitations to college students at an address that is on or near campus. Such mailings may even advertise the possibility of a tangible item for any applicant who is not a college student, so long as the credit has reasonable procedures for determining whether an applicant is a college student, consistent with comment 57(c)-6. Moreover, the Board does not believe that comment 57(c)-4 as adopted would include mailings to an e-mail address as it encompasses only mailings to an address that is on or near campus. An e-mail address does not physically exist anywhere, and therefore, cannot be considered an address on or near campus.

Furthermore, under § 226.57(c), an offer of a tangible item to induce a college student to apply for or open an open-end consumer credit plan may not be made at an event sponsored by or related to an institution of higher education. The Board proposed comment 57(c)-5 to provide that an event is related to an institution of higher education if the marketing of such event uses the name, emblem, mascot, or logo of an institution of higher education, or other words, pictures, or symbols identified with an institution of higher education in a way that implies that the institution of higher education endorses or otherwise sponsors the event. The proposed comment was adapted from guidance the Board recently adopted in § 226.48 regarding co-branding restrictions for certain private education loans.

A credit union commenter suggested that the Board's proposal was too broad, particularly for credit unions that may share a similar name to an institution of higher education. While the Board understands the difficulty in complying with § 226.57(c) for such creditors, the Board believes that the potential for confusion that a particular event or function is endorsed by the institution of higher education is too great. The Board, however, notes that comment 57(c)-6, as discussed below, provides guidance for procedures such creditors can put in place to mitigate the impact of the rule.

Proposed comment 57(c)-6 requires creditors to have reasonable procedures for determining whether an applicant is a college student. Since the prohibition in § 226.57(c) applies solely to offering a tangible item to a college student at specified locations, a card issuer or creditor would be permitted to offer any person who is not a college student a tangible item to induce such person to apply for or open an open-end consumer credit plan offered by such card issuer or creditor at such locations. Proposed comment 57(c)-6 illustrated one way in which a card issuer or creditor might meet this standard and provided that the card issuer or creditor may rely on the representations made by the applicant.

The Board did not receive significant comment on this provision, and the proposed comment is adopted in final. As the Board discussed in the October 2009 Regulation Z Proposal, § 226.57(c) would not prohibit card issuers and creditors from instituting marketing programs on or near the campus of an institution of higher education, or at an event sponsored by or related to an institution of higher education, where a tangible item will be offered to induce people to apply for or open an open-end consumer credit plan. However, those card issuers or creditors that do so must have reasonable procedures for determining whether an applicant or participant is a college student before giving the applicant or participant the tangible item.

57(d) Annual Report to the Board

The Board proposed to implement new TILA Section 127(r)(2) in § 226.57(d). Consistent with the statute, proposed § 226.57(d) required card issuers that are a party to one or more college credit card agreements to submit annual reports to the Board regarding those agreements. Section 226.57(d) is adopted with modifications as discussed below.

Proposed § 226.57(d) required creditors that were a party to one or more college credit card agreements to register with the Board before submitting their first annual report. The Board is eliminating the registration requirement from the final rule because of technical changes to the Board's submission process. Proposed § 226.57(d)(1) therefore is not included in the final rule. The Board will capture the identifying information that would have been captured from each issuer during the registration process (e.g., the issuer's name, address, and identifying number (such as an RSSD ID number or tax identification number), and the name, phone number and email address of a contact person at the issuer) at the time the issuer submits its annual report to the Board. Under the final rule, there is no requirement to register with the Board prior to submitting an annual report regarding college credit card agreements. As proposed, issuers must submit their initial annual report on college credit card agreements, providing information for the 2009 calendar year, to the Board by February 22, 2010. For each subsequent calendar year, issuers must submit annual reports by the first business day on or after March 31 of the following calendar year.

Proposed § 226.57(d) required that annual reports include a copy of each college credit card agreement to which the card issuer was a party that was in effect during the period covered by the report, as well as certain related information specified in new TILA Section 127(r)(2), including the total dollar amount of payments pursuant to the agreement from the card issuer to the institution (or affiliated organization) during the period covered by the report, and how such amount is determined; the total number of credit card accounts opened pursuant to the agreement during the period; and the total number of such credit card accounts that were open at the end of the period. The final rule specifies that annual reports must include “the method or formula used to determine” the amount of payments from an issuer to an institution of higher education or affiliated organization during the reporting period, rather than “how such amount is determined” as proposed. The Board believes this more precisely describes the information intended to be captured under new TILA Section 127(r)(2).

In connection with the proposal, the Board solicited comment on whether issuers should be required to submit additional information on the terms and conditions of college credit card agreements in the annual report, such as identifying specific terms that differentiate between student and non-student accounts (for example, that provide for difference in payments based on whether an account is a student or non-student account), identifying specific terms that relate to advertising or marketing (such as provisions on mailing lists, on-line advertising, or on-campus marketing), and the terms and conditions of credit card accounts (for example, rates and fees) that may be opened in connection with the college credit card agreement. One card issuer commenter argued that such additional information should not be required, citing the additional burden on issuers. Some consumer group commenters urged the Board to collect additional information including the items identified by the Board in the proposal as well as other information such as the differences in comparative rates of default and average outstanding balances between student and non-student accounts. The Board believes that requiring issuers to track, assemble, and submit this information would impose significant costs and administrative burdens on issuers, and the Board does not believe that requiring issuers to submit additional information is necessary to achieve the purposes of new TILA Section 127(r)(2). Thus, no additional information requirements are adopted in the final rule.

As proposed, § 226.57(d) requires that each annual report include a copy of any memorandum of understanding that “directly or indirectly relates to the college credit card agreement or that controls or directs any obligations or distribution of benefits between any such entities.” Proposed comment 57(d)(3)-1 clarified what types of documents would be considered memoranda of understanding for purposes of this requirement, by providing that a memorandum of understanding includes any document that amends the college credit card agreement, or that constitutes a further agreement between the parties as to the interpretation or administration of the agreement, and by providing of examples of documents that would or would not be included. The Board received no comments regarding what types of documents should be considered memoranda of understanding, and comment 57(d)(3)-1, redesignated as comment 57(d)(2)-1, is adopted as proposed.

Additional details regarding the submission process are provided in the Consumer and College Credit Card Agreement Submission Technical Specifications Document, which is published as Attachment I to this Federal Register notice and which will be available on the Board's public Web site.

Section 226.58Internet Posting of Credit Card Agreements

Section 204 of the Credit Card Act adds new TILA Section 122(d) to require creditors to post agreements for open-end consumer credit card plans on the creditors' Web sites and to submit those agreements to the Board for posting on a publicly-available Web site established and maintained by the Board. 15 U.S.C. 1632(d). The Board proposed to implement these provisions in proposed § 226.58 with additional guidance included in proposed Appendix N. As discussed below, proposed § 226.58 is adopted with modifications. Proposed Appendix N has been eliminated from the final rule, but the provisions of proposed Appendix N, with certain modifications, have been incorporated into § 226.58.

The final rule requires that card issuers post on their Web sites, so as to be available to the public generally, the credit card agreements they offer to the public. Issuers must also submit these agreements to the Board quarterly for posting on the Board's public Web site. However, under the final rule, as proposed, issuers are not required to post on their publicly available Web sites, or to submit to the Board, credit card agreements that are no longer offered to the public, even if the issuer still has credit card accounts open under such agreements.

In addition, the final rule requires that issuers post on their Web sites, or otherwise make available upon request by the cardholder, all of their agreements for open credit card accounts, whether or not such agreements are currently offered to the public. Thus, any cardholder will be able to access a copy of his or her own credit card agreement. Agreements posted (or otherwise made available) under this provision in the final rule may contain personally identifiable information relating to the cardholder, provided that the issuer takes appropriate measures to make the agreement accessible only to the cardholder or other authorized persons. In contrast, the agreements that are currently offered to the public and that must be posted on the issuer's Web site (and submitted to the Board) may not contain personally identifiable information.

The final rule also contains, as proposed, a de minimis exception from the requirement to post on issuers' publicly available Web sites, and submit to the Board for posting on the Board's public Web site, agreements currently offered to the public. The de minimis exception applies to issuers with fewer than 10,000 open credit card accounts. The final rule also contains exceptions for private label plans offered on behalf of a single merchant or a group of affiliated merchants and for plans that are offered in order to test a new credit card product, provided that in each case the plan involves no more than 10,000 credit card accounts. However, none of these exceptions applies to the requirement that issuers make available by some means upon request all of their credit card agreements for their open credit card accounts, whether or not currently offered to the public.

58(a) Applicability

The Board proposed to make § 226.58 applicable to any card issuer that issues credit cards under a credit card account under an open-end (not home-secured) consumer credit plan, as defined in proposed § 226.2(a)(15). The Board received no comments on proposed § 226.58(a) and therefore is adopting this section as proposed. Thus, consistent with the approach the Board is implementing with respect to other sections of the Credit Card Act, home-equity lines of credit accessible by credit cards and overdraft lines of credit accessed by debit cards are not covered by § 226.58.

58(b) Definitions

58(b)(1) Agreement

Proposed § 226.58(b)(1) defined “agreement” or “credit card agreement” as a written document or documents evidencing the terms of the legal obligation or the prospective legal obligation between a card issuer and a consumer for a credit card account under an open-end (not home-secured) consumer credit plan. Proposed § 226.58(b)(1) further provided that an agreement includes the information listed under the defined term “pricing information.”

Commenters generally were supportive of the Board's proposed definition of agreement, and the Board is adopting § 226.58(b)(1) as proposed. One card issuer commenter stated that creditors should not be required to provide pricing information as part of agreements submitted to the Board. The Board disagrees. The Board continues to believe that, to enable consumers to shop for credit cards and compare information about various credit card plans in an effective manner, it is necessary that the credit card agreements posted on the Board's Web site include rates, fees, and other pricing information.

The Board proposed two comments clarifying the definition of agreement under § 226.58(b)(1). Proposed comment 58(b)(1)-1 clarified that an agreement is deemed to include the information listed under the defined term “pricing information,” even if the issuer does not otherwise include this information in the document evidencing the terms of the obligation. Comment 58(b)(1)-1 is adopted as proposed.

Proposed comment 58(b)(1)-2 clarified that an agreement would not include documents sent to the consumer along with the credit card or credit card agreement such as a cover letter, a validation sticker on the card, other information about card security, offers for credit insurance or other optional products, advertisements, and disclosures required under federal or state law. The Board received no comments on proposed comment 58(b)(1)-2. For organizational reasons, proposed comment 58(b)(1)-2 has been eliminated and the guidance contained in proposed comment 58(b)(1)-2 has been moved to § 228.58(c)(8), discussed below.

The final rule adds new comment 58(b)(1)-2, which clarifies that an agreement may consist of multiple documents that, taken together, define the legal obligation between the issuer and the consumer. As an example, comment 58(b)(1)-2 notes that provisions that mandate arbitration or allow an issuer to unilaterally alter the terms of the issuer's or consumer's obligation are part of the agreement even if they are provided to the consumer in a document separate from the basic credit contract. The definition of agreement under § 226.58(b)(1) indicates that an agreement may consist of a “document or documents” (emphasis added). However, several commenters indicated that it would be helpful for the Board to emphasize this point, and the Board agrees that further clarity may assist issuers in complying with § 226.58.

58(b)(2) Amends

In connection with the proposed rule, the Board solicited comment on whether issuers should be required to resubmit agreements to the Board following minor, technical changes. Commenters overwhelmingly indicated that the Board should only require resubmission of agreements following substantive changes. Commenters including both large and small card issuers noted that issuers frequently make non-substantive changes without simultaneously making substantive changes and that requiring resubmission following technical changes would impose a significant burden on issuers while providing little or no benefit to consumers. The Board agrees that requiring resubmission of agreements following minor, technical changes would impose a significant administrative burden with no corresponding benefit of increased transparency.

The final rule therefore includes a new definition of “amends” as § 226.58(b)(2). The definition specifies that an issuer amends an agreement if it makes a substantive change to the agreement. A change is substantive if it alters the rights or obligations of the card issuer or the consumer under the agreement. Any change in the pricing information, as defined in § 226.58(b)(6), is deemed to be a substantive change, and therefore an amendment. Under § 226.58(c), discussed below, an issuer is only required to resubmit an agreement to the Board following a change to the agreement if that change constitutes an amendment as defined in § 226.58(b)(2).

To provide additional clarity regarding what types of changes would be considered amendments, the final rule includes two new comments, comment 58(b)(2)-1 and 58(b)(2)-2. Comment 58(b)(2)-1 gives examples of changes that generally would be considered substantive, such as: (i) Addition or deletion of a provision giving the issuer or consumer a right under the agreement, such as a clause that allows an issuer to unilaterally change the terms of an agreement; (ii) addition or deletion of a provision giving the issuer or consumer an obligation under the agreement, such as a clause requiring the consumer to pay an additional fee; (iii) changes that may affect the cost of credit to the consumer, such as changes in a clause describing how the minimum payment will be calculated; (iv) changes that may affect how the terms of the agreement are construed or applied, such as changes in a choice-of-law provision; and (v) changes that may affect the parties to whom the agreement may apply, such as changes in a provision regarding authorized users or assignment of the agreement.

Comment 58(b)(2)-2 gives examples of changes that generally would not be considered substantive, such as: (i) Correction of typographical errors that do not affect the meaning of any terms of the agreement; (ii) changes to the issuer's corporate name, logo, or tagline; (iii) changes to the format of the agreement, such as conversion to a booklet from a full-sheet format, changes in font, or changes in margins; (iv) changes to the name of the credit card to which the program applies; (v) reordering sections of the agreement without affecting the meaning of any terms of the agreement; (vi) adding, removing, or modifying a table of contents or index; and (vii) changes to titles, headings, section numbers, or captions.

58(b)(3) Business Day

As proposed, § 226.58(b)(3) of the final rule, corresponding to proposed § 226.58(b)(2), defines “business day” as a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions. This is consistent with the definition of business day used in most other sections of Regulation Z. The Board received no comments regarding proposed § 226.58(b)(2).

58(b)(4) Offers

The proposed rule provided that an issuer “offers” or “offers to the public” an agreement if the issuer is soliciting or accepting applications for new accounts that would be subject to that agreement. The Board received no comments regarding the definition of offers, and the § 226.58(b)(4) definition, corresponding to proposed § 226.58(b)(3), is adopted as proposed.

Several credit union commenters argued that credit cards issued by credit unions are not offered to the public under this definition because such cards are available only to credit union members. These commenters concluded that credit unions therefore should not be required to submit agreements to the Board for posting on the Board's Web site. The Board disagrees. The Board understands that, of the one hundred largest Visa and MasterCard credit card issuers in the United States, several dozen are credit unions, including some with hundreds of thousands of open credit card accounts and at least one with over one million open credit card accounts. In addition, credit union membership criteria have relaxed in recent years, in some cases significantly. Credit cards issued by credit unions are a significant source of open-end consumer credit, and exempting credit unions from submitting agreements to the Board would significantly lessen the usefulness of the Board's Web site as a comparison shopping tool for consumers. The final rule therefore includes new language in comment 58(b)(4)-1, corresponding to proposed comment 58(b)(3)-1, clarifying that agreements for credit cards issued by credit unions are considered to be offered to the public even though they are available only to credit union members.

The two proposed comments to the definition of offers are otherwise adopted as proposed. Comment 58(b)(4)-1, corresponding to proposed comment 58(b)(3)-1, clarifies that a card issuer is deemed to offer a credit card agreement to the public even if the issuer solicits, or accepts applications from, only a limited group of persons. For example, an issuer may market affinity cards to students and alumni of a particular educational institution or solicit only high-net-worth individuals for a particular card, but the corresponding agreements would be considered to be offered to the public. Comment 58(b)(4)-2, corresponding to proposed comment 58(b)(3)-2, clarifies that a card issuer is deemed to offer a credit card agreement to the public even if the terms of the agreement are changed immediately upon opening of an account to terms not offered to the public.

58(b)(5) Open Account

The proposed rule provided guidance in proposed comment 58(e)-2 regarding the definition of open accounts for purposes of the de minimis exception. Proposed comment 58(e)-2 stated that, for purposes of the de minimis exception, a credit card account is considered to be open even if the account is inactive, as long as the account has not been closed by the cardholder or the card issuer and the cardholder can obtain extensions of credit on the account. In addition, if an account has only temporarily been suspended (for example, due to a report of unauthorized use), the account is considered open. However, if an account has been closed for new activity (for example, due to default by the cardholder), but the cardholder is still making payments to pay off the outstanding balance, the account need not be considered open.

The final rule eliminates this comment and adds a new definition of “open account” as § 226.58(b)(5). Under § 226.58(b)(5), an account is an “open account” or “open credit card account” if it is a credit card account under an open-end (not home-secured) consumer credit plan and either: (i) The cardholder can obtain extensions of credit on the account; or (ii) there is an outstanding balance on the account that has not been charged off. An account that has been suspended only temporarily (for example, due to a report by the cardholder of unauthorized use of the card) is considered an open account or open credit card account. The term open account is used in the de minimis, private label, and product testing exceptions under § 226.58(c) and in § 226.58(e), regarding availability of agreements to existing cardholders. These sections are discussed below.

The final rule also includes new comment 58(b)(5)-1. This comment clarifies that, under the § 226.58(b)(5) definition of open account, an account is considered open if either of the two conditions set forth in the definition are met even if the account is inactive. Similarly, the comment clarifies that an account is considered open if an account has been closed for new activity (for example, due to default by the cardholder) but the cardholder is still making payments to pay off the outstanding balance.

The definition of open account included in the final rule differs from the guidance provided in proposed comment 58(e)-2. In particular, accounts closed to new activity are considered open accounts under § 226.58(b)(5), but were not considered open accounts under the proposed comment. The Board is aware that, under the new definition of open accounts, some issuers that may have qualified for the de minimis exception under the proposed rule will not qualify for the exception under the final rule. The Board believes that the approach to accounts closed for new activity under the final rule more accurately reflects the size of an issuer's portfolio. This approach also is more consistent with the treatment of such accounts under other sections of Regulation Z.

In addition, the proposed comment applied only to the de minimis exception and did not provide guidance on the meaning of open accounts for other purposes, including for purposes of determining availability of agreements to existing cardholders. Because the definition of open account applies to all subsections of § 226.58, the addition of the defined term clarifies that issuers must provide a cardholder with a copy of his or her particular credit card agreement under § 226.58(e) even if his or her account has been closed to new activity.

58(b)(6) Pricing Information

Proposed § 226.58(b)(4) defined the term “pricing information” to include: (1) the information under § 226.6(b)(2)(i) through (b)(2)(xii), (b)(3) and (b)(4) that is required to be disclosed in writing pursuant to § 226.5(a)(1)(ii); (2) the credit limit; and (3) the method used to calculate required minimum payments. The Board received a number of comments on the proposed definition of pricing information, and the definition is adopted with modifications, as discussed below, as § 226.58(b)(6).

Section 226.58(b)(6) defines the pricing information as the information listed in § 226.6(b)(2)(i) through (b)(2)(xii) and (b)(4). The definition specifies that the pricing information does not include temporary or promotional rates and terms or rates and terms that apply only to protected balances.

Under § 226.58(b)(6), the pricing information continues to include the information listed in § 226.6(b)(2)(i) through (b)(2)(xii), as proposed. The information listed in § 226.6(b)(3) has been omitted from the final rule, as information listed under § 226.6(b)(3) required to be disclosed in writing pursuant to § 226.5(a)(1)(ii) is, by definition, included in § 226.6(b)(2). The information listed in § 226.6(b)(4) is included as proposed.

The credit limit is not included in the definition of pricing information under the final rule. Many card issuer commenters stated that the Board should not include the credit limit as an element of the pricing information. These commenters argued that the range of credit limits offered in connection with a particular agreement is likely to be so broad that it would not assist consumers in shopping for a credit card and noted that existing cardholders are notified of their individual credit limit on their periodic statements. These commenters also noted that credit limits are individually tailored and change frequently. They argued that including the credit limit as part of the pricing information therefore would require issuers to update and resubmit agreements frequently, imposing a significant burden on card issuers. The Board agrees with these commenters.

The method used to calculate minimum payments also is not included in the definition of pricing information under the final rule. Methods used to calculate minimum payments are often complex and may be difficult to explain in a form that is readily understandable but still accurate. Upon further consideration, the Board believes that including this information in the pricing information likely would cause confusion among consumers and is unlikely to assist consumers in shopping for a credit card.

The § 226.58(b)(6) definition of pricing information also excludes temporary or promotional rates and terms or rates and terms that apply only to protected balances. Several card issuer commenters noted that promotional terms change frequently and therefore become outdated quickly. They also noted that these terms may be offered only to targeted groups of consumers. Including such terms as part of the pricing information likely would lead to confusion, as consumers often would be misled into believing they could apply for a particular set of terms when in fact they could not. The Board agrees that including these terms likely would lead to substantial consumer confusion about the terms available from a particular issuer. Similarly, including rates and terms that apply only to protected balances likely would mislead consumers about the terms that would apply to an account generally.

Consumer groups commented that the Board should require issuers to disclose as part of the pricing information how the credit limit is set and under what circumstances it may be reduced and how issuers allocate the minimum payment. The Board does not believe that this information would assist consumers in shopping for a credit card. The Board has conducted extensive consumer testing to develop account opening disclosures that are meaningful and understandable to consumers. The Board believes that these disclosures are an appropriate basis for the pricing information to be submitted to the Board and provided to cardholders under § 226.58. This additional information therefore is not included in the definition of pricing information under the final rule.

Other commenters suggested that the Board should use the disclosure requirements for credit and charge card applications and solicitations under § 226.5a, rather than the account-opening disclosures under § 226.6, as the basis for the pricing information definition. The Board continues to believe that the account-opening disclosures under § 226.6 are a more appropriate basis for the pricing information to be submitted to the Board and provided to cardholders under § 226.58. For example, the Board believes that the more robust disclosure regarding rates required by § 226.6(b)(4) would be of substantial assistance to consumers in comparing credit cards among different issuers. As proposed, the final rule continues to use § 226.6 as the basis for the definition of pricing information.

As proposed, the definition of pricing information makes reference to the provisions of § 226.6 as revised by the January 2009 Regulation Z Rule. As discussed elsewhere in this supplementary information, the Board has decided to retain the July 1, 2010, mandatory compliance date for revised § 226.6, while the effective date of § 226.58 is February 22, 2010. The definition of pricing information for purposes of § 226.58 conforms to the requirements of revised § 226.6(b)(2)(i) through (b)(2)(xii) and (b)(4) beginning on February 22, 2010, even though compliance with portions of revised § 226.6(b) is not mandatory until July 1, 2010.

58(b)(7) Private Label Credit Card Account and Private Label Credit Card Plan

In connection with the proposed rule, the Board solicited comment on whether the Board should create an exception applicable to small credit card plans offered by an issuer of any size. The Board is adopting in § 226.58(c)(6) an exception for small private label credit card plans, discussed below. The final rule includes as § 226.58(b)(7) definitions for two new defined terms, “private label credit card account” and “private label credit card plan,” used in connection with that exception.

Section 226.58(b)(7) defines a private label credit card account as a credit card account under an open-end (not home-secured) consumer credit plan with a credit card that can be used to make purchases only at a single merchant or an affiliated group of merchants and defines a private label credit card plan as all of the private label credit card accounts issued by a particular issuer with credit cards usable at the same single merchant or affiliated group of merchants.

The final rule includes additional guidance regarding these definitions in four comments. Comment 58(b)(7)-1 clarifies that the term private label credit card account applies to any credit card account that meets the terms of the definition, regardless of whether the account is issued by the merchant or its affiliate or by an unaffiliated third party.

Comment 58(b)(7)-2 clarifies that accounts with so-called co-branded credit cards are not considered private label credit card accounts. Credit cards that display the name, mark, or logo of a merchant or affiliated group of merchants as well as the mark, logo, or brand of payment network are generally referred to as co-branded cards. While these credit cards may display the brand of the merchant or affiliated group of merchants as the dominant brand on the card, such credit cards are usable at any merchant that participates in the payment network. Because these credit cards can be used at multiple unaffiliated merchants, they are not considered private label credit cards under § 226.58(b)(7).

Comment 58(b)(7)-3 clarifies that an “affiliated group of merchants” means two or more affiliated merchants or other persons that are related by common ownership or common corporate control. For example, the term would include franchisees that are subject to a common set of corporate policies or practices under the terms of their franchise licenses. The term also applies to two or more merchants or other persons that agree among each other, by contract or otherwise, to accept a credit card bearing the same name, mark, or logo (other than the mark, logo, or brand of a payment network such as Visa or MasterCard), for the purchase of goods or services solely at such merchants or persons. For example, several local clothing retailers jointly agree to issue credit cards called the “Main Street Fashion Card” that can be used to make purchases only at those retailers. For purposes of this section, these retailers would be considered an affiliated group of merchants.

Comment 58(b)(7)-4 provides examples of which credit card accounts constitute a private label credit card plan under § 226.58(b)(7). As comment 58(b)(7)-4 indicates, which credit card accounts issued by a particular issuer constitute a private label credit card plan is determined by where the credit cards can be used. All of the private label credit card accounts issued by a particular issuer with credit cards that are usable at the same merchant or affiliated group of merchants constitute a single private label credit card plan, regardless of whether the rates, fees, or other terms applicable to the individual credit card accounts differ. Comment 58(b)(7)-4 provides the following example: an issuer has 3,000 open private label credit card accounts with credit cards usable only at Merchant A and 5,000 open private label credit card accounts with credit cards usable only at Merchant B and its affiliates. The issuer has two separate private label credit card plans, as defined by § 226.58(b)(7)—one plan consisting of 3,000 open accounts with credit cards usable only at Merchant A and another plan consisting of 5,000 open accounts with credit cards usable only at Merchant B and its affiliates.

Comment 58(b)(7)-4 notes that the example above remains the same regardless of whether (or the extent to which) the terms applicable to the individual open accounts differ. For example, assume that, with respect to the issuer's 3,000 open accounts with credit cards usable only at Merchant A in the example above, 1,000 of the open accounts have a purchase APR of 12 percent, 1,000 of the open accounts have a purchase APR of 15 percent, and 1,000 of the open accounts have a purchase APR of 18 percent. All of the 5,000 open accounts with credit cards usable only at Merchant B and Merchant B's affiliates have the same 15 percent purchase APR. The issuer still has only two separate private label credit card plans, as defined by § 226.58(b)(7). The open accounts with credit cards usable only at Merchant A do not constitute three separate private label credit card plans under § 226.58(b)(7), even though the accounts are subject to different terms.

Proposed 58(c) Registration With Board

Proposed § 226.58(c) required any card issuer that offered one or more credit card agreements as of December 31, 2009 to register with the Board, in the form and manner prescribed by the Board, no later than February 1, 2010. The proposed rule required issuers that had not previously registered with the Board (such as new issuers formed after December 31, 2009) to register before the deadline for their first quarterly submission.

Proposed § 226.58(c) is not included in the final rule. The Board is eliminating the registration requirement from the final rule because of technical changes to the Board's submission process. The Board instead plans to capture the identifying information about each issuer that would have been captured during the registration process (e.g., the issuer's name, address, and identifying number (such as an RSSD ID number or tax identification number), and the name, phone number and e-mail address of a contact person at the issuer) at the time of each issuer's first submission of agreements to the Board. Under the final rule, there is no requirement to register with the Board prior to submitting credit card agreements.

58(c) Submission of Agreements to Board

Proposed § 226.58(d) required that each card issuer electronically submit to the Board on a quarterly basis the credit card agreements that the issuer offers to the public. Commenters did not oppose the general requirements of proposed § 226.58(d), and the Board is adopting the proposed provision, redesignated as § 226.58(c), with certain modifications, as discussed below. Consistent with new TILA Section 122(d)(3), the Board will post the credit card agreements it receives on its Web site.

The Board proposed to use its exemptive authority under Sections 105(a) and 122(d)(5) of TILA to require issuers to submit to the Board only agreements currently offered to the public. Commenters generally were supportive of this proposed use of the Board's exemptive authority, and the Board received no comments indicating that issuers should be required to submit agreements not offered to the public. The Board continues to believe that, with respect to credit card agreements that are not currently offered to the public, the administrative burden on issuers of preparing and submitting agreements for posting on the Board's Web site would outweigh the benefit of increased transparency for consumers. The Board also continues to believe that providing an exception for agreements not currently offered to the public is appropriate both to effectuate the purposes of TILA and to facilitate compliance with TILA.

As stated in the proposal, the Board is aware that the number of credit card agreements currently in effect but no longer offered to the public is extremely large, and the Board believes that requiring issuers to prepare and submit these agreements would impose a significant burden on issuers. The Board also believes that the primary benefit of making credit card agreements available on the Board's Web site is to assist consumers in comparing credit card agreements offered by various issuers when shopping for a new credit card. Including agreements that are no longer offered to the public would not facilitate comparison shopping by consumers because consumers could not apply for cards subject to these agreements. In addition, including agreements no longer offered to the public would significantly increase the number of agreements included on the Board's Web site, possibly to include hundreds of thousands of agreements (or more). This volume of data would render the amount of data provided through the Web site too large to be helpful to most consumers. Thus, as proposed, § 226.58(c) requires issuers to submit to the Board only those agreements the issuer currently offers to the public.

58(c)(1) Quarterly Submissions

Proposed § 226.58(d)(1) required issuers to send quarterly submissions to the Board no later than the first business day on or after January 31, April 30, July 31, and October 31 of each year. The proposed rule required issuers to submit: (i) The credit card agreements that the issuer offered to the public as of the last business day of the preceding calendar quarter that the issuer has not previously submitted to the Board; (ii) any credit card agreement previously submitted to the Board that was modified or amended during the preceding calendar quarter; and (iii) notification regarding any credit card agreement previously submitted to the Board that the issuer is withdrawing. Proposed comment § 226.58(d)-1 provided an example of the submission requirements as applied to a hypothetical issuer. Proposed comment 58(d)-2 clarified that an issuer is not required to make any submission to the Board if, during the previous calendar quarter, the issuer did not take any of the following actions: (1) Offering a new credit card agreement that was not submitted to the Board previously; (2) revising or amending an agreement previously submitted to the Board; and (3) ceasing to offer an agreement previously submitted to the Board.

Commenters did not oppose the Board's approach to submission of agreements as described in proposed § 226.58(d)(1). The Board therefore is adopting proposed § 226.58(d)(1) and proposed comments 58(d)-1 and 58(d)-2, redesignated in the final rule as § 226.58(c)(1) and comments 58(c)(1)-1 and 58(c)(1)-2, with certain modifications.

As discussed above, the Board is eliminating from the final rule the requirement that issuers register with the Board before submitting agreements to the Board. Section 226.58(c)(1) therefore includes a new requirement that issuers submit along with their quarterly submissions identifying information relating to the card issuer and the agreements submitted, including the issuer's name, address, and identifying number (such as an RSSD ID number or tax identification number).

In addition, Sections 226.58(c)(1) and comments 58(c)(1)-1 and (c)(1)-2 reflect, through use of the defined term “amend,” that issuers are required to resubmit agreements only following substantive changes. As discussed above, commenters overwhelmingly indicated that the Board should only require resubmission of agreements following substantive changes. The Board agrees that requiring resubmission of agreements following minor, technical changes would impose a significant administrative burden with no corresponding benefit of transparency. This is reflected in the final rule by requiring that issuers resubmit agreements under § 226.58(c)(1) only when an agreement has been amended as defined in § 226.58(b)(2).

Several commenters asked that issuers be permitted to submit a complete, updated set of credit card agreements on a quarterly basis, rather than tracking which agreements are being modified, withdrawn, or added. These commenters argued that requiring issuers to track which agreements are being modified, withdrawn, or amended could impose a substantial burden on some issuers with no corresponding benefit to consumers. The Board agrees. The final rule therefore includes new comment 58(c)(1)-3, which clarifies that § 226.58(c)(1) permits an issuer to submit to the Board on a quarterly basis a complete, updated set of the credit card agreements the issuer offers to the public. The comment gives the following example: An issuer offers agreements A, B and C to the public as of March 31. The issuer submits each of these agreements to the Board by April 30 as required by § 226.58(c)(1). On May 15, the issuer amends agreement A, but does not make any changes to agreements B or C. As of June 30, the issuer continues to offer amended agreement A and agreements B and C to the public. At the next quarterly submission deadline, July 31, the issuer must submit the entire amended agreement A and is not required to make any submission with respect to agreements B and C. The issuer may either: (i) Submit the entire amended agreement A and make no submission with respect to agreements B and C; or (ii) submit the entire amended agreement A and also resubmit agreements B and C. The comment also states that an issuer may choose to resubmit to the Board all of the agreements it offered to the public as of a particular quarterly submission deadline even if the issuer has not introduced any new agreements or amended any agreements since its last submission and continues to offer all previously submitted agreements.

Additional details regarding the submission process are provided in the Consumer and College Credit Card Agreement Submission Technical Specifications Document, which is published as Attachment I to this Federal Register notice and which will be available on the Board's public Web site.

58(c)(2) Timing of First Two Submissions

Proposed § 226.58(d)(2), redesignated as § 226.58(c)(2), is adopted as proposed. Section 3 of the Credit Card Act provides that new TILA Section 122(d) becomes effective on February 22, 2010, nine months after the date of enactment of the Credit Card Act. Thus, consistent with Section 3 of the Credit Card Act and as proposed, the final rule requires issuers to send their initial submissions, containing credit card agreements offered to the public as of December 31, 2009, to the Board no later than February 22, 2010. The next submission must be sent to the Board no later than August 2, 2010 (the first business day on or after July 31, 2010), and must contain: (1) Any credit card agreement that the card issuer offered to the public as of June 30, 2010, that the card issuer has not previously submitted to the Board; (2) any credit card agreement previously submitted to the Board that was modified or amended after December 31, 2009, and on or before June 30, 2010, as described in § 226.58(c)(3); and (3) notification regarding any credit card agreement previously submitted to the Board that the issuer is withdrawing as of June 30, 2010, as described in § 226.58(c)(4) and (5).

For example, as of December 31, 2009, a card issuer offers three agreements. The issuer is required to submit these agreements to the Board no later than February 22, 2010. On March 10, 2010, the issuer begins offering a new agreement. In general, an issuer that begins offering a new agreement on March 10 of a given year would be required to submit that agreement to the Board no later than April 30 of that year. However, under § 226.58(c)(2), no submission to the Board is due on April 30, 2010, and the issuer instead must submit the new agreement no later than August 2, 2010.

Several card issuer commenters suggested that issuers' initial submission should be due on a date later than February 22, 2010. The Board is aware that many issuers are likely to make changes to their agreements related to other provisions of the Credit Card Act before the February 22, 2010, effective date and that agreements as of December 31, 2009, therefore will be somewhat outdated by the time they are sent to the Board on February 22, 2010. The Board believes, however, that it is important to provide consumers with access to issuer's credit card agreements promptly following the statutory effective date.

58(c)(3) Amended Agreements

Proposed § 226.58(d)(3) required that, if an issuer makes changes to an agreement previously submitted to the Board, the issuer must submit the entire revised agreement to the Board by the first quarterly submission deadline after the last day of the calendar quarter in which the change became effective. The proposed rule also specified that, if a credit card agreement has been submitted to the Board, no changes have been made to the agreement, and the card issuer continues to offer the agreement to the public, no additional submission with respect to that agreement is required. Two proposed comments, proposed comments 58(d)-3 and 58(d)-4, provided examples of situations in which resubmission would not and would be required, respectively. Proposed comment 58(d)-5 clarified that an issuer could not fulfill the requirement to submit the entire revised agreement to the Board by submitting a change-in-terms or similar notice covering only the changed terms and that revisions could not be submitted as separate riders.

The proposed rule required credit card issuers to resubmit agreements following any change, regardless of whether that change affects the substance of the agreement. As discussed above, the Board solicited comment on whether issuers should be required to resubmit agreements to the Board following minor, technical changes. Commenters overwhelmingly indicated that the Board should only require resubmission of agreements following substantive changes.

The Board agrees with these commenters that requiring resubmission of agreements following minor, technical changes would impose a significant administrative burden with no corresponding benefit of increased transparency to consumers. The final rule therefore includes a new definition of “amends” in § 226.58(b)(2), as discussed above. Under the final rule, an issuer is only required to resubmit an agreement to the Board following a change to the agreement if that change constitutes an amendment as defined in § 226.58(b)(2). The definition in § 226.58(b)(2) specifies that an issuer amends an agreement if it makes a substantive change to the agreement. A change is substantive if it alters the rights or obligations of the card issuer or the consumer under the agreement. The definition specifies that any change in the pricing information is deemed to be a substantive change and therefore an amendment. Section 226.58(c)(3) and comments 58(c)(3)-1, 58(c)(3)-2, and 58(c)(3)-3 (corresponding to proposed § 226.58(d)(3) and proposed comments 58(d)-3, 58(d)-4, and 58(d)-5) have been revised to incorporate the defined term “amend” but otherwise are adopted as proposed with several technical changes.

Under § 226.58(c)(3), corresponding to proposed § 226.58(d)(3), if a credit card agreement has been submitted to the Board, the agreement has not been amended as defined in § 226.58(b)(2) and the card issuer continues to offer the agreement to the public, no additional submission regarding that agreement is required. For example, as described in comment 58(c)(3)-1, corresponding to proposed comment 58(d)-3, a credit card issuer begins offering an agreement in October and submits the agreement to the Board the following January 31, as required by § 226.58(c)(1). As of March 31, the issuer has not amended the agreement and is still offering the agreement to the public. The issuer is not required to submit anything to the Board regarding that agreement by April 30.

If a credit card agreement that previously has been submitted to the Board is amended, as defined in § 226.58(b)(2), the final rule provides that the card issuer must submit the entire amended agreement to the Board by the first quarterly submission deadline after the last day of the calendar quarter in which the change became effective. Comment 58(c)(3)-2, corresponding to proposed comment 58(d)-4, gives the following example: an issuer submits an agreement to the Board on October 31. On November 15, the issuer changes the balance computation method used under the agreement. Because an element of the pricing information has changed, the agreement has been amended and the issuer must submit the entire amended agreement to the Board no later than January 31.

Comment 58(c)(3)-3, corresponding to proposed comment 58(d)-5, explains that an issuer may not fulfill the requirement to submit the entire amended agreement to the Board by submitting a change-in-terms or similar notice covering only the terms that have changed. In addition, the comment emphasizes that, as required by § 226.58(c)(8)(iv), amendments must be integrated into the text of the agreement (or the addenda described in § 226.58(c)(8)), not provided as separate riders. For example, an issuer changes the purchase APR associated with an agreement the issuer has previously submitted to the Board. The purchase APR for that agreement was included in the addendum of pricing information, as required by § 226.58(c)(8). The issuer may not submit a change-in-terms or similar notice reflecting the change in APR, either alone or accompanied by the original text of the agreement and original pricing information addendum. Instead, the issuer must revise the pricing information addendum to reflect the change in APR and submit to the Board the entire text of the agreement and the entire revised addendum, even though no changes have been made to the provisions of the agreement and only one item on the pricing information addendum has changed.

58(c)(4) Withdrawal of Agreements

Proposed § 226.58(d)(4), redesignated as § 226.58(c)(4), and proposed comment 58(d)-6, redesignated as comment 58(c)(4)-1, are adopted as proposed with one technical change. The Board received no comments regarding this section and the accompanying commentary. As proposed, § 226.58(c)(4) requires an issuer to notify the Board if the issuer ceases to offer any agreement previously submitted to the Board by the first quarterly submission deadline after the last day of the calendar quarter in which the issuer ceased to offer the agreement. For example, as described in comment 58(c)(4)-1, on January 5 an issuer stops offering to the public an agreement it previously submitted to the Board. The issuer must notify the Board that the agreement is being withdrawn by April 30, the first quarterly submission deadline after March 31, the last day of the calendar quarter in which the issuer stopped offering the agreement.

58(c)(5) De Minimis Exception

Proposed § 226.58(e) provided an exception to the requirement that credit card agreements be submitted to the Board for issuers with fewer than 10,000 open credit card accounts under open-end (not home-secured) consumer credit plans. Commenters generally were supportive of this provision, and proposed § 226.58(e) is incorporated into the final rule as § 226.58(c)(5) with certain modifications as discussed below.

The proposal noted that TILA Section 122(d)(5) provides that the Board may establish exceptions to the requirements that credit card agreements be posted on creditors' Web sites and submitted to the Board for posting on the Board's Web site in any case where the administrative burden outweighs the benefit of increased transparency, such as where a credit card plan has a de minimis number of consumer account holders. The Board expressed its belief that a de minimis exception should be created, but noted that it might not be feasible to base such an exception on the number of accounts under a credit card plan. In particular, the Board stated that it was unaware of a way to define “credit card plan” that would not divide issuers' portfolios into such small units that large numbers of credit card agreements could fall under the de minimis exception. The Board therefore proposed a de minimis exception for issuers with fewer than 10,000 open credit card accounts. Under the proposed exception, such issuers were not required to submit any credit card agreements to the Board.

As described below, the Board is adopting as part of the final rule two exceptions based on the number of accounts under a credit card plan—the private label credit card exception and the product testing exception. The Board continues to believe, however, that the administrative burden on small issuers of preparing and submitting agreements would outweigh the benefit of increased transparency from including those agreements on the Board's Web site. The final rule therefore includes the proposed § 226.58(e) de minimis exception for issuers with fewer than 10,000 open accounts substantially as proposed, redesignated as § 226.58(c)(5).

In connection with the proposed rule, the Board solicited comment on the 10,000 open account threshold for the de minimis exception. Several commenters supported the 10,000 account threshold. Several other commenters stated that the threshold should be raised to 25,000 open accounts. The Board continues to believe that 10,000 open accounts is an appropriate threshold for the de minimis exception, and that threshold is retained in the final rule. One commenter stated that accounts with terms and conditions that are no longer offered to the public should not be counted toward the 10,000 account threshold. The Board believes that this exception is unworkable and could bring large numbers of issuers within the de minimis exception. The final rule therefore does not incorporate this approach.

Proposed § 226.58(e)(1) has been modified to incorporate the defined term “open account,” discussed above, and redesignated as § 226.58(c)(5)(i), but otherwise is adopted as proposed. Under § 226.58(c)(5)(i), a card issuer is not required to submit any credit card agreements to the Board if the card issuer has fewer than 10,000 open credit card accounts as of the last business day of the calendar quarter.

The final rule includes new comment 58(c)(5)-1, which clarifies the relationship between the de minimis exception and the private label credit card and product testing exceptions. As comment 58(c)(5)-1 explains, the de minimis exception is distinct from the private label credit card exception under § 226.58(c)(6) and the product testing exception under § 226.58(c)(7). The de minimis exception provides that an issuer with fewer than 10,000 open credit card accounts is not required to submit any agreements to the Board, regardless of whether those agreements qualify for the private label credit card exception or the product testing exception. In contrast, the private label credit card exception and the product testing exception provide that an issuer is not required to submit to the Board agreements offered solely in connection with certain types of credit card plans with fewer than 10,000 open accounts, regardless of the issuer's total number of open accounts.

Proposed comments 58(e)-1 and 58(e)-3, redesignated as comments 58(c)(5)-2 and 58(c)(5)-3, have been modified to incorporate the defined term “open account,” but otherwise are adopted as proposed. Comment 58(c)(5)-2 gives the following example of an issuer that qualifies for the de minimis exception: an issuer offers five credit card agreements to the public as of September 30. However, the issuer has only 2,000 open credit card accounts as of September 30. The issuer is not required to submit any agreements to the Board by October 31 because the issuer qualifies for the de minimis exception. Comment 58(c)(5)-3 clarifies that whether an issuer qualifies for the de minimis exception is determined as of the last business day of the calendar quarter and gives the following example: as of December 31, an issuer offers three agreements to the public and has 9,500 open credit card accounts. As of January 30, the issuer still offers three agreements, but has 10,100 open accounts. As of March 31, the issuer still offers three agreements, but has only 9,700 open accounts. Even though the issuer had 10,100 open accounts at one time during the calendar quarter, the issuer qualifies for the de minimis exception because the number of open accounts was less than 10,000 as of March 31. The issuer therefore is not required to submit any agreements to the Board under § 226.58(c)(1) by April 30.

Proposed comment 58(e)-2 provided guidance regarding the definition of open accounts for purposes of the de minimis exception. As discussed above, the Board has eliminated proposed comment 58(e)-2 from the final rule and added a definition of “open account” as § 226.58(b)(5).

Proposed § 226.58(e)(2), redesignated as § 226.58(c)(5)(ii), is adopted as proposed. Section 226.58(c)(5)(ii) specifies that if an issuer that previously qualified for the de minimis exception ceases to qualify, the card issuer must begin making quarterly submissions to the Board no later than the first quarterly submission deadline after the date as of which the issuer ceased to qualify. Proposed comment 58(e)-4, redesignated as comment 58(c)(5)-4, has been modified to incorporate the defined term “open account,” but otherwise is adopted as proposed. Comment 58(c)(5)-4 clarifies that whether an issuer has ceased to qualify for the de minimis exception is determined as of the last business day of the calendar quarter and provides the following example: As of June 30, an issuer offers three agreements to the public and has 9,500 open credit card accounts. The issuer is not required to submit any agreements to the Board under § 226.58(c)(1) because the issuer qualifies for the de minimis exception. As of July 15, the issuer still offers the same three agreements, but now has 10,000 open accounts. The issuer is not required to take any action at this time, because whether an issuer qualifies for the de minimis exception under § 226.58(c)(5) is determined as of the last business day of the calendar quarter. As of September 30, the issuer still offers the same three agreements and still has 10,000 open accounts. Because the issuer had 10,000 open accounts as of September 30, the issuer ceased to qualify for the de minimis exception and must submit the three agreements it offers to the Board by October 31, the next quarterly submission deadline.

Proposed § 226.58(e)(3), redesignated as § 226.58(c)(5)(iii), has been modified to reflect the elimination of the requirement to register with the Board, as discussed above, but otherwise is adopted substantively as proposed. Section 226.58(c)(5)(iii) provides that if an issuer that did not previously qualify for the de minimis exception qualifies for the de minimis exception, the card issuer must continue to make quarterly submissions to the Board until the issuer notifies the Board that the issuer is withdrawing all agreements it previously submitted to the Board.

Proposed comment 58(e)-5, redesignated as comment 58(c)(5)-5, is similarly modified to reflect the elimination of the registration requirement, but otherwise is adopted substantively as proposed. Comment 58(c)(5)-5 gives the following example of the option to withdraw agreements under § 226.58(c)(5)(iii): An issuer has 10,001 open accounts and offers three agreements to the public as of December 31. The issuer has submitted each of the three agreements to the Board as required under § 226.58(c)(1). As of March 31, the issuer has only 9,999 open accounts. The issuer has two options. First, the issuer may notify the Board that the issuer is withdrawing each of the three agreements it previously submitted. Once the issuer has notified the Board, the issuer is no longer required to make quarterly submissions to the Board under § 226.58(c)(1). Alternatively, the issuer may choose not to notify the Board that it is withdrawing its agreements. In this case, the issuer must continue making quarterly submissions to the Board as required by § 226.58(c)(1). The issuer might choose not to withdraw its agreements if, for example, the issuer believes that it likely will cease to qualify for the de minimis exception again in the near future.

58(c)(6) Private Label Credit Card Exception

The final rule includes new section § 226.58(c)(6), which provides an exception to the requirement that credit card agreements be submitted to the Board for private label credit card plans with fewer than 10,000 open accounts. TILA Section 122(d)(5) provides that the Board may establish exceptions to the requirements that credit card agreements be posted on creditors' Web sites and submitted to the Board for posting on the Board's Web site in any case where the administrative burden outweighs the benefit of increased transparency, such as where a credit card plan has a de minimis number of consumer account holders. As discussed above, the final rule includes a de minimis exception for issuers with fewer than 10,000 total open credit card accounts as § 226.58(c)(5). As also disclosed above, the Board solicited comment in connection with the proposed rule regarding whether the Board should create a de minimis exception applicable to small credit card plans offered by an issuer of any size and, if so, how the Board should define a credit card plan. Commenters generally supported creating such an exception. One card issuer commenter suggested that the Board create an exception for credit cards that can only be used for purchases at a single merchant or affiliated group of merchants, commonly referred to as private label credit cards, regardless of issuer size.

The Board is adopting such an exception. The Board believes that the administrative burden on issuers of preparing and submitting to the Board agreements for private label credit card plans with a de minimis number of consumer account holders outweighs the benefit of increased transparency of including these agreements on the Board's Web site. The small size of these credit card plans suggests that it is unlikely that most consumers would regard these products as comparable alternatives to other credit card products. In addition, the Board is aware that the number of small private label credit card programs is very large. Including agreements associated with these plans on the Board's Web site would significantly increase the number of agreements, potentially making the Web site less useful to consumers as a comparison shopping tool. Also, the Board believes that, with respect to private label credit cards, a credit card plan can be defined sufficiently narrowly to avoid dividing issuers' portfolios into units so small that large numbers of credit card agreements would fall under the exception.

Under § 226.58(c)(6)(i), a card issuer is not required to submit to the Board a credit card agreement if, as of the last business day of the calendar quarter, the agreement: (A) Is offered for accounts under one or more private label credit card plans each of which has fewer than 10,000 open accounts; and (B) is not offered to the public other than for accounts under such a plan.

As discussed above, a private label credit card plan is defined in § 226.58(b)(7) as all of the private label credit card accounts issued by a particular issuer with credit cards usable at the same single merchant or affiliated group of merchants. For example, all of the private label credit card accounts issued by Issuer A with credit cards usable only at Merchant B and Merchant B's affiliates constitute a single private label credit card plan under § 226.58(b)(7).

The exception is limited to agreements that are “not offered to the public other than for accounts under [one or more private label credit card plans each of which has fewer than 10,000 open accounts]” in order to ensure that issuers are required to submit to the Board agreements that are offered in connection with general purpose credit card accounts or credit card accounts under large (i.e., 10,000 or more open accounts) private label plans, regardless of whether those agreements also are used in connection with a small (i.e., fewer than 10,000 open accounts) private label credit card plan. The Board is concerned that, without this limitation, large numbers of credit card agreements could fall under the private label credit card exception.

Section 226.58(c)(6)(ii) provides that if an agreement that previously qualified for the private label credit card exception ceases to qualify, the card issuer must submit the agreement to the Board no later than the first quarterly submission deadline after the date as of which the agreement ceased to qualify. Section 226.58(c)(6)(iii) provides that if an agreement that did not previously qualify for the private label credit card exception qualifies for the exception, the card issuer must continue to make quarterly submissions to the Board with respect to that agreement until the issuer notifies the Board that the agreement is being withdrawn.

The final rule includes six related comments. Comment 58(c)(6)-1 gives the following two examples of how the exception applies. In the first example, an issuer offers to the public a credit card agreement offered solely for private label credit card accounts with credit cards that can be used only at Merchant A. The issuer has 8,000 open accounts with such credit cards usable only at Merchant A. The issuer is not required to submit this agreement to the Board under § 226.58(c)(1) because the agreement is offered for accounts under a private label credit card plan (i.e., the 8,000 private label credit card accounts with credit cards usable only at Merchant A), that private label credit card plan has fewer than 10,000 open accounts, and the credit card agreement is not offered to the public other than for accounts under that private label credit card plan.

In the second example, in contrast, the same issuer also offers to the public a different credit card agreement that is offered solely for private label credit card accounts with credit cards usable only at Merchant B. The issuer has 12,000 open accounts with such credit cards usable only at Merchant B. The private label credit card exception does not apply. Although this agreement is offered for a private label credit card plan (i.e., the 12,000 private label credit card accounts with credit cards usable only at Merchant B), and the agreement is not offered to the public other than for accounts under that private label credit card plan, the private label credit card plan has more than 10,000 open accounts. (The issuer still is not required to submit to the Board the agreement offered in connection with credit cards usable only at Merchant A, as each agreement is evaluated separately under the private label credit card exception.)

Comment 58(c)(6)-2 clarifies that whether the private label credit card exception applies is determined on an agreement-by-agreement basis. Therefore, some agreements offered by an issuer may qualify for the private label credit card exception even though the issuer also offers other agreements that do not qualify, such as agreements offered for accounts with cards usable at multiple unaffiliated merchants or agreements offered for accounts under private label credit card plans with 10,000 or more open accounts.

Comment 58(c)(6)-3 clarifies the relationship between the private label credit card exception and the § 226.58(c)(5) de minimis exception. The comment notes that the two exceptions are distinct. The private label credit card exception exempts an issuer from submitting certain agreements under a private label plan to the Board, regardless of the issuer's overall size as measured by the issuer's total number of open accounts. In contrast, the de minimis exception exempts an issuer from submitting any credit card agreements to the Board if the issuer has fewer than 10,000 total open accounts. For example, an issuer offers to the public two credit card agreements. Agreement A is offered solely for private label credit card accounts with credit cards usable only at Merchant A. The issuer has 5,000 open credit card accounts with such credit cards usable only at Merchant A. Agreement B is offered solely for credit card accounts with cards usable at multiple unaffiliated merchants that participate in a major payment network. The issuer has 40,000 open credit card accounts with such payment network cards. The issuer is not required to submit agreement A to the Board under § 226.58(c)(1) because agreement A qualifies for the private label credit card exception under § 226.58(c)(6). Agreement A is offered for accounts under a private label credit card plan with fewer than 10,000 open accounts (i.e., the 5,000 private label credit card accounts with credit cards usable only at Merchant A) and is not otherwise offered to the public. The issuer is required to submit agreement B to the Board under § 226.58(c)(1). The issuer does not qualify for the de minimis exception under § 226.58(c)(5) because it has more than 10,000 open accounts, and agreement B does not qualify for the private label credit card exception under § 226.58(c)(6) because it is not offered solely for accounts under a private label credit card plan with fewer than 10,000 open accounts.

Comment 58(c)(6)-4 gives the following example of when an agreement would not qualify for the private label credit card exception because it is offered to the public other than for accounts under a private label credit card plan with fewer than 10,000 open accounts. An issuer offers an agreement for private label credit card accounts with credit cards usable only at Merchant A. This private label plan has 9,000 such open accounts. The same agreement also is offered for credit card accounts with credit cards usable at multiple unaffiliated merchants that participate in a major payment network. The agreement does not qualify for the private label credit card exception. The agreement is offered for accounts under a private label credit card plan with fewer than 10,000 open accounts. However, the agreement also is offered to the public for accounts that are not part of a private label credit card plan, and therefore does not qualify for the private label credit card exception.

Comment 58(c)(6)-4 notes that, similarly, an agreement does not qualify for the private label credit card exception if it is offered in connection with one private label credit card plan with fewer than 10,000 open accounts and one private label credit card plan with 10,000 or more open accounts. For example, an issuer offers a single credit card agreement to the public. The agreement is offered for two types of accounts. The first type of account is a private label credit card account with a credit card usable only at Merchant A. The second type of account is a private label credit card account with a credit card usable only at Merchant B. The issuer has 10,000 such open accounts with credit cards usable only at Merchant A and 5,000 such open accounts with credit cards usable only at Merchant B. The agreement does not qualify for the private label credit card exception. While the agreement is offered for accounts under a private label credit card plan with fewer than 10,000 open accounts (i.e., the 5,000 open accounts with credit cards usable only at Merchant B), the agreement is also offered for accounts not under such a plan (i.e., the 10,000 open accounts with credit cards usable only at Merchant A).

Comment 58(c)(6)-5 clarifies that the private label exception applies even if the same agreement is used for more than one private label credit card plan with fewer than 10,000 open accounts. For example, a card issuer has 15,000 total open private label credit card accounts. Of these, 7,000 accounts have credit cards usable only at Merchant A, 5,000 accounts have credit cards usable only at Merchant B, and 3,000 accounts have credit cards usable only at Merchant C. The card issuer offers to the public a single credit card agreement that is offered for all three types of accounts and is not offered for any other type of account. The issuer is not required to submit the agreement to the Board under § 226.58(c)(1). The agreement is used for three different private label credit card plans (i.e., the accounts with credit cards usable at Merchant A, the accounts with credit cards usable at Merchant B, and the accounts with credit cards usable at Merchant C), each of which has fewer than 10,000 open accounts, and the issuer does not offer the agreement for any other type of account. The agreement therefore qualifies for the private label credit card exception under § 226.58(c)(6).

Comment 58(c)(6)-6 clarifies that the private label credit card exception applies even if an issuer offers more than one agreement in connection with a particular private label credit card plan. For example, an issuer has 5,000 open private label credit card accounts with credit cards usable only at Merchant A. The issuer offers to the public three different agreements each of which may be used in connection with private label credit card accounts with credit cards usable only at Merchant A. The agreements are not offered for any other type of credit card account. The issuer is not required to submit any of the three agreements to the Board under § 226.58(c)(1) because each of the agreements is used for a private label credit card plan which has fewer than 10,000 open accounts and none of the three is offered to the public other than for accounts under such a plan.

58(c)(7) Product Testing Exception

The final rule includes new section § 226.58(c)(7), which provides an exception to the requirement that credit card agreements be submitted to the Board for certain agreements offered to the public solely as part of product test by an issuer. As described above, TILA Section 122(d)(5) provides that the Board may establish exc