|
5 May 2009
[Federal Register: May 5, 2009 (Volume 74, Number 85)]
[Proposed Rules]
[Page 20783-20801]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05my09-29]
[[Page 20783]]
-----------------------------------------------------------------------
Part II
Federal Reserve System
-----------------------------------------------------------------------
12 CFR Part 226
Truth in Lending; Proposed Rule
[[Page 20784]]
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1286]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for public comment.
-----------------------------------------------------------------------
SUMMARY: On December 18, 2008, the Board adopted a final rule amending
Regulation Z's provisions that apply to open-end (not home-secured)
credit plans. The Board believes that clarification is needed regarding
compliance with certain aspects of the final rule. Accordingly, in
order to facilitate compliance, the Board proposes to amend specific
portions of the regulations and official staff commentary.
DATES: Comments on the proposed amendments must be received on or
before June 4, 2009. Comments on the Paperwork Reduction Act analysis
set forth in Section V of this Federal Register notice must be received
on or before July 6, 2009.
ADDRESSES: You may submit comments, identified by Docket No. R-1286, by
any of the following methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: regs.comments@federalreserve.gov. Include the
docket number in the subject line of the message.
Facsimile: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper form in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Benjamin K. Olson, Attorney, Amy Burke
or Vivian Wong, Senior Attorneys, or Ky Tran-Trong or John Wood,
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:
I. Background
On December 18, 2008, the Federal Reserve Board (Board) adopted a
final rule amending Regulation Z's provisions that apply to open-end
(not home-secured) credit. This rule was published in the Federal
Register on January 29, 2009. See 74 FR 5244 (January 2009 Regulation Z
Rule). On the same date, the Board, the Office of Thrift Supervision
(OTS), and the National Credit Union Administration (NCUA)
(collectively, the Agencies) adopted a final rule under the Federal
Trade Commission Act (FTC Act) to protect consumers from unfair acts or
practices with respect to consumer credit card accounts. This rule also
was published in the Federal Register on January 29, 2009. See 74 FR
5498 (January 2009 FTC Act Rule). The effective date for both rules is
July 1, 2010. See 74 FR 5388-5390; 74 FR 5548.
Since publication of the two rules, the Board has become aware that
clarification is needed to resolve confusion regarding how institutions
will comply with particular aspects of those rules. Accordingly, in
order to provide guidance and facilitate compliance with the January
2009 Regulation Z Rule by the effective date, the Board proposes to
amend portions of the regulations and the accompanying staff
commentary. These proposed amendments are discussed in detail in
Section III of this supplementary information. Similarly, elsewhere in
today's Federal Register, the Agencies have proposed to amend certain
aspects of the January 2009 FTC Act Rule (FTC Act Proposed
Clarifications).
Although comment is requested on the proposed amendments, the Board
emphasizes that the purpose of this rulemaking is to clarify and
facilitate compliance with the consumer protections contained in the
final rules, not to reconsider the need for--or the extent of--those
protections. Thus, commenters are encouraged to limit their submissions
accordingly. Finally, in order to ensure that any amendments can be
adopted in final form with sufficient time for implementation prior to
the effective date, comments regarding those amendments must be
submitted within 30 days of publication in the Federal Register.\1\
---------------------------------------------------------------------------
\1\ As discussed elsewhere in the supplementary information to
this proposed rule, commenters have 60 days to submit comments
regarding the Paperwork Reduction Act analysis for the Board's
proposed amendments to the January 2009 Regulation Z Rule.
---------------------------------------------------------------------------
II. Statutory Authority
In the supplementary information for the January 2009 Regulation Z
Rule, the Board set forth the sources of its statutory authority under
the Truth in Lending Act. See 74 FR 5249. For purposes of these
proposed rules, the Board continues to rely on this legal authority.
III. Section-by-Section Analysis
Section 226.5a Credit and Charge Card Applications and Solicitations
5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
To complement the proposed disclosure requirements for deferred or
waived interest plans described in the supplementary information to
Sec. Sec. 226.7 and 226.16, the Board also proposes a new comment
5a(b)(1)-9 to clarify that an issuer offering a deferred or waived
interest plan may not disclose a rate as 0% due to the possibility that
the consumer may not be obligated for interest regarding the deferred
or waived interest transaction. Given the contingent nature of deferred
or waived interest programs, and the fact that interest is accruing at
a non-zero rate on the account, the Board believes that a disclosure of
a 0% rate could be misleading to consumers.
Section 226.6 Account-Opening Disclosures
6(b) Rules Affecting Open-End (Not Home-Secured) Plans
In addition to the specific proposed amendments to Sec. 226.6
described below, the Board also is considering whether additional
transition guidance is needed for creditors offering open-end credit
secured by real property that may not be subject to Sec. 226.5b
because the real property is not the consumer's dwelling. The January
2009 Regulation Z Rule preserved certain existing rules, for example
the rules under Sec. Sec. 226.6, 226.7, and 226.9, for home-equity
plans subject to Sec. 226.5b pending the completion of the Board's
separate review of the rules applicable to home-secured credit. Since
publication of the January 2009 Regulation Z Rule, the Board
understands that there is uncertainty regarding how creditors that
offer open-end credit secured by real property, that
[[Page 20785]]
may be unaware whether that property is, or remains, the consumer's
dwelling, should comply with the January 2009 Regulation Z Rule. In
particular, creditors offering such plans have asked whether they may
comply with the existing disclosure requirements that were preserved
for home-equity plans subject to Sec. 226.5b or whether they need to
comply with the new disclosure requirements set forth in the final rule
for plans that are not subject to Sec. 226.5b.
Pursuant to the January 2009 Regulation Z Rule, the new disclosure
requirements apply to open-end credit that is not subject to Sec.
226.5b. However, the Board believes that it may be appropriate to
permit creditors offering open-end credit secured by real property that
is not the consumer's dwelling to continue to comply with the existing
rules (consistent with treatment of plans covered under Sec. 226.5b)
until the Board's review of the rules applicable to home-secured open-
end credit is completed. At that time, the Board would determine the
appropriate treatment for these plans. The Board solicits comment on
the prevalence of such open-end credit plans and the burden that would
be associated with determining whether such plans must comply with the
new disclosure requirements contained in the January 2009 Regulation Z
Rule or the existing rules (as applicable to plans subject to Sec.
226.5b). The Board also solicits comment on whether it would be
appropriate to subject these plans to the same disclosure requirements
that apply to home-secured plans or whether they should be treated the
same as other open-end (not home-secured) credit.
6(b)(1) Form of Disclosures; Tabular Format for Open-End (Not Home-
Secured) Plans
The Board proposes to make two technical corrections to Sec.
226.6(b)(1) and (b)(1)(ii) to delete parentheses that were
inadvertently included in the rule due to a scrivener's error, without
intended substantive change.
6(b)(2) Required Disclosures for Account-Opening Table for 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 Sec. 226.6(b)(2)(i)(E). Pursuant to
that exception, creditors imposing APRs that vary by state and
providing the disclosures required by Sec. 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.
The Board is proposing 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 proposes to amend Sec.
226.6(b)(2)(i)(E) to state that creditors providing the disclosures
required by Sec. 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 understands 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
believes 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 an additional
set of disclosures which reflect the actual APR for the account when,
for example, a credit card is sent to the consumer. 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 receive disclosures with the specific APR applicable to
the consumer properly formatted in the account-opening table at a later
time, would strike an 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. The consumer would 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)(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 Sec. 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
[[Page 20786]]
before the disclosures are provided. Accordingly, the Board proposes 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.
Section 226.7 Periodic Statement
7(b) Rules Affecting Open-End (Not Home-Secured) Plans
Deferred or waived interest plans. Comment 7(b)-1, as adopted in
the January 2009 Regulation Z Rule, provides guidance on periodic
statement disclosures for deferred interest transactions for open-end
(not home-secured) plans, such as plans that permit a consumer to avoid
interest charges if a purchase balance is paid in full by a certain
date. The comment permits, but does not generally require, creditors to
disclose during the promotional period information about accruing
interest, balances subject to interest rates, and the date by which the
balance must be paid in full to avoid interest. Comment 7(b)-1 as
adopted indicated that guidance in the comment does not apply to card
issuers that are subject to 12 CFR 227.24 or similar law, because in
the January 2009 FTC Act Rule, the Agencies had concluded that deferred
interest programs, as currently designed and marketed, were
inconsistent with the general prohibition on the application of
increased rates to existing balances.
As discussed in the supplementary information to the FTC Act
Proposed Clarifications, the Board and other Agencies are proposing to
clarify that creditors may continue to offer deferred or waived
interest programs where the consumer will not be obligated to pay
interest that accrues on a balance if that balance is paid in full by a
specified date or within a specified period of time. Any such programs,
however, would be fully subject to the protections set forth in the
January 2009 FTC Act Rule as amended by the FTC Act Proposed
Clarifications, as well as to disclosure requirements under Regulation
Z discussed in this Federal Register. These protections would apply to
all deferred or waived interest plans and not solely those covered by
the January 2009 FTC Act Rule.
The Board believes that it is important that consumers receive
clear disclosures regarding deferred or waived interest balances and
interest accruing during the term of a deferred or waived interest
program, in order to ensure that consumers understand the terms of the
promotion and can tailor their account usage and payment patterns
accordingly. As a result, the Board is proposing several revisions to
comment 7(b)-1 to require creditors to provide consumers with pertinent
information throughout the life of a deferred or waived interest
promotion.
First, the Board believes that it is important for a consumer to be
informed of the amount of interest charges that are accruing and for
which the consumer will be obligated if the consumer does not repay a
deferred or waived interest balance in full by the relevant due date.
Comment 7(b)-1 would therefore be amended to require creditors offering
deferred or waived interest programs to disclose information about
accruing interest balances for such programs. The Board also proposes
that each periodic statement be required to disclose the amount of the
deferred or waived interest balance on which interest may be imposed,
so that consumers will be aware of the amount that they are required to
pay to avoid being obligated for the deferred or waived interest
amount.
The Board also is proposing to add a new Sec. 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 or
waived interest 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. The Board also proposes several
complementary changes to comment 7(b)-1 to provide additional guidance
on compliance with this disclosure requirement. The Board believes that
it is important for consumers to receive this notice in the last two
billing cycles prior to the deferred or waived interest due date. This
would ensure that consumers are reminded of the terms of the deferred
or waived interest promotion close to the date on which full payment is
due, in order to give consumers an opportunity to pay off any deferred
or waived interest balance and take advantage of the terms of the
promotion.
In particular, proposed Sec. 226.7(b)(14) would require creditors
offering deferred or waived interest programs to disclose on the front
of the periodic statement the date in a future cycle by which the
balance on the deferred or waived interest transaction must be paid in
full to avoid interest charges. This disclosure would be required to be
provided on each periodic statement for the last two billing cycles
immediately preceding such date. Creditors may, but would not be
required to, include this disclosure on prior statements. If the
deferred or waived interest period's duration is such that the reminder
cannot be given for the last two billing cycles immediately preceding
the deferred or waived interest due date, for example if the deferred
interest period is less than two months, proposed comment 7(b)-1.iv
clarifies that the disclosure must be included on every periodic
statement during the deferred or waived interest period. Proposed
comment 7(b)-1.iv sets forth examples of how this timing requirement
would operate.
Proposed Sample G-18(H) sets forth model language for making the
disclosure required by proposed Sec. 226.7(b)(14). The language used
to make the disclosure under Sec. 226.7(b)(14) would be required to be
substantially similar to Sample G-18(H).
Finally, in a technical amendment, the Board proposes to amend the
terminology of comment 7(b)-1 to refer to both deferred and waived
interest programs. The provisions in proposed Sec. 226.7(b)(14) and
comment 7(b)-1 would apply to all types of deferred or waived interest
programs, regardless of the particular nomenclature used to describe a
specific plan. In a conforming technical change, the Board proposes to
amend comment 5(b)(2)(ii)-1, which cross-references comment 7(b)-1, to
refer to deferred and waived interest transactions.
Interest and Fees for Acquired or Modified Accounts. To highlight
the overall cost of a credit account to consumers, the January 2009
Regulation Z Rule requires creditors to disclose the total amount of
interest charges and fees for the statement period and calendar year to
date. See Sec. 226.7(b)(6). New comments 7(b)(6)-6 and -7 would
clarify a creditor's obligations under Sec. 227.7(b)(6) when it
acquires a plan or account from another creditor or when the underlying
account relationship with the creditor is changed in some way, for
example, if a retail credit card account is upgraded to a cobranded
general purpose credit card account or if a credit card account is
replaced with another credit card product with different or additional
features. The proposed comments would generally provide that the
creditor must include the interest charges and fees incurred by the
consumer prior to the account acquisition or change in the aggregate
totals provided for the statement period and calendar year to date
after the change. At the creditor's option, it may add the prior
charges and fees to the disclosed totals following the change, or it
may provide separate totals for each
[[Page 20787]]
time period. The proposed comments would not apply when the consumer
opens a new plan or account with another creditor and transfers
balances from the old plan or account. Comment is requested regarding
the operational issues associated with carrying over cost totals in the
circumstances described in the proposed commentary.
Section 226.9 Subsequent Disclosure Requirements
226.9(c) Change in Terms
9(c)(2) Rules Affecting Open-end (Not Home-secured) Plans
Relationship between Sec. 226.9(b) and (c). Section 226.9(c)(2)
generally requires creditors to provide 45 days' advance notice prior
to a change in any term that must be disclosed in the account-opening
summary table. For changed terms that must be disclosed in the account-
opening summary table, creditors must similarly provide a summary of
that change in a tabular format. Notice is not required in certain
specified circumstances, including if the change involves a reduction
of any component of a finance or other charge or where future credit
privileges have been suspended or an account or plan has been
terminated. The Board proposes to amend Sec. 226.9(c)(2)(iv) to
provide that notice is also not required when the change in terms is
applicable only to a check or checks that access a credit card account
and the changed terms are disclosed on or with the checks in accordance
with Sec. 226.9(b)(3).
Under Sec. 226.9(b)(3), if a creditor mails or delivers a check
that accesses a credit card account, it must disclose certain key terms
applicable to the check, including any discounted promotional rate and
when that rate will expire; the type of rate that will apply to the
checks after expiration of the discounted promotional rate and the
applicable APR; the date by which the consumer must use the checks in
order to qualify for any discounted promotional rate; and any
transaction fees applicable to the checks. These key terms must be
disclosed in a tabular format on the front of the page containing the
checks.
The format and location requirements were informed through consumer
testing conducted on behalf of the Board, which indicated that
consumers were more likely to notice and understand the terms
applicable to the checks when these terms were presented in this
manner. In light of these requirements, requiring an additional tabular
disclosure for a change in terms about the access check terms could
create consumer confusion and would likely provide little consumer
benefit. The Board also believes that given the enhanced disclosure
requirements, a 45-day notice period before consumers may use a check
would be unnecessary.
The proposed exception in Sec. 226.9(c)(2)(iv) is limited to
circumstances where the consumer has been provided disclosures pursuant
to Sec. 226.9(b)(3) in connection with a check that accesses a credit
card account. Thus, the exception would not permit a creditor to make a
balance transfer offer by other means, such as by telephone or written
solicitation, on finance charge terms higher than those previously
disclosed for a balance transfer, unless the creditor also complies
with the notice and advance timing requirements of Sec. 226.9(c)
before the new fee or rate can be applied to the offer.
The exception also would extend only to a check accompanied by the
Sec. 226.9(b)(3) disclosures and not to terms applicable to other
features of the consumer's account. A creditor would not be permitted
to use a set of checks and Sec. 226.9(b)(3) disclosures, for example,
to change the rate applicable when a consumer uses his or her credit
card to take a cash advance at an ATM machine. For example, assume the
rate that typically applies to the checks is the issuer's cash advance
rate, currently 20%, and the issuer intends to prospectively increase
the cash advance rate to 25%. Under the proposal, the issuer could send
a set of checks disclosing the 25% rate in the table required by Sec.
226.9(b)(3), and would not be required to provide an additional 45
days' advance notice indicating that the 25% rate applies to those
checks. The issuer would, however, be required to send 45 days' advance
notice pursuant to Sec. 226.9(c)(2) prior to changing the cash advance
rate applicable to the consumer's account to 25% (for access other than
by a check accompanied with the Sec. 226.9(b)(3) disclosure).
Proposed comment 9(c)(2)-4 would clarify the relationship between
the change-in-terms requirements in Sec. 226.9(c) and the notice
provisions of Sec. 226.9(b) that apply when a creditor adds a credit
feature or delivers a credit access device for an existing open-end
plan. The proposed comment would provide that notwithstanding any
notice provided under Sec. 226.9(b) (except for a notice provided
under Sec. 226.9(b)(3) as discussed above), a creditor must also
satisfy the change-in-terms notice requirements under Sec. 226.9(c),
where applicable, including any advance notice requirement. For
example, if a creditor adds a balance transfer feature to an account
more than 30 days after account-opening disclosures are provided, it
must give the finance charge disclosures for the balance transfer
feature under Sec. 226.9(b) as well as provide a change in terms
notice under Sec. 226.9(c). This notice must be provided at least 45
days prior to the effective date of the change.\2\ Similarly, if a
creditor makes a balance transfer offer on finance charge terms that
are higher than those previously disclosed for balance transfers, it
would also generally be required to provide a change-in-terms notice 45
days in advance of the effective date of the change. The proposed
comment also provides that a creditor may provide a single notice under
Sec. 226.9(c) to satisfy the notice requirements of both Sec.
226.9(b) and (c).
---------------------------------------------------------------------------
\2\ If the creditor changes a term required to be disclosed in
the account-opening table, the creditor must also provide a summary
of the change in a tabular format under Sec. 226.9(c)(2)(iii)(B).
---------------------------------------------------------------------------
Change-in-terms requirements for temporary rate reductions. The
Board believes that clarification is needed as to the relationship
between the guidance in comment 9(c)(2)(iv)-2 regarding how to disclose
skip payment features and the general timing, format, and content
requirements of Sec. 226.9(c)(2), for temporary rate reductions
offered on an existing account. In general, under Sec.
226.9(c)(2)(iv), no advance notice need be given prior to the reduction
of any component of a finance charge. However, under Sec.
226.9(c)(2)(i), 45 days' advance written notice is required prior to a
rate increase. Comment 9(c)(2)(iv)-2 provides guidance as to how a
creditor that is offering a skip payment feature or interest waiver may
comply with the requirements of Sec. 226.9(c)(2)(iv). This guidance
was intended to address only the limited circumstances where a creditor
offers a feature that permits a consumer to skip a payment or payments
or where a creditor intends to waive interest charges due on the
account, without changing the contractual rate of interest applicable
to the consumer's balances. This comment was not intended to alter the
notice requirements of Sec. 226.9(c)(2) for promotional rate offers,
where the creditor lowers the rate applicable to the consumer's account
and subsequently increases the rate. However, as drafted the comment
may create confusion because it refers to any temporary reductions in
finance charges.
To clarify that advance notice in accordance with the requirements
of Sec. 226.9(c)(2) is required prior to increasing a consumer's rate
following a rate reduction, the Board proposes to amend comment
9(c)(2)(iv)-2 by including language indicating that
[[Page 20788]]
creditors offering a temporary reduction in an interest rate must
provide a notice in accordance with the timing requirements of Sec.
226.9(c)(2)(i) and the content and format requirements of Sec.
226.9(c)(2)(ii)(A) and (B) prior to resuming the original rate.
Specific consumer agreement exception. Section 226.9(c)(2)(i)
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 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. The comment further provides examples
of actions that do not constitute specific consumer agreement,
including the consumer's acceptance of an account agreement that
contains a general reservation of the right to change terms or the
consumer's use of the account. Thus, the comment recognizes that the
change in terms notice requirements generally cannot be waived or
forfeited by the consumer.
The Board is proposing 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. 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 example would state 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 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.
226.9(g) Increase in Rates Due to Delinquency or Default or as a
Penalty
Section 226.9(g)(4) sets forth exceptions to the general
requirement to provide 45 days' advance notice before increasing a rate
due to the consumer's delinquency or default or as a penalty. Section
226.9(g)(4)(i) as adopted in the January 2009 Regulation Z Rule
provides a specific exception to the notice requirement when the
consumer's rate is increased due to the consumer's failure to comply
with the terms of a workout arrangement, provided that the annual
percentage rate applicable to a category of transactions following any
such increase does not exceed the rate that applied to that category of
transactions prior to commencement of the workout arrangement. This
exception is intended to encourage institutions to continue offering
workout arrangements that reduce rates to consumers in serious default,
while also ensuring that a consumer who enters into such an arrangement
but is unable to comply with its terms is not charged a rate that
exceeds the rate that applied prior to the arrangement without first
receiving advance notice of that rate increase.
The Board understands that there is some confusion as to whether
this exception also applies to temporary hardship arrangements that
assist consumers in overcoming financial difficulties by lowering the
annual percentage rate for a period of time. For example, if an account
becomes seriously delinquent, the institution may reduce the rate that
applies to the outstanding balance from the penalty rate to a rate of
zero on the condition that the consumer make payments that will cure
the delinquency within a specified period of time. If the consumer
successfully cures the delinquency in accordance with the terms of the
temporary hardship arrangement, the institution may choose to raise the
annual percentage rate to the rate that applied prior to commencement
of the temporary hardship arrangement. Because such arrangements can
provide important benefits to consumers, the Board proposes to amend
Sec. 226.9(g)(4)(i) to clarify that the exception also applies to
temporary hardship arrangements.
The Board also proposes to revise Sec. 226.9(g)(4)(iii) for
consistency with the terminology used in 12 CFR 227.24 and similar
regulation, without intended substantive change, by deleting references
to ``outstanding balances.''
In a technical amendment, the Board proposes to designate as
comment 9(g)(4)(ii)-1 commentary that was placed with commentary to
Sec. 226.9(g)(4)(ii) but was not numbered due to a scrivener's error.
The Board also proposes several amendments to comment 9(g)-1 for
consistency and conformity with substantively similar amendments
published elsewhere in today's Federal Register as part of the FTC Act
Proposed Clarifications. For example, the Board proposes to correct a
typographical error in comment 9(g)-1.iii.C, and to clarify the fact
patterns presented in comments 9(g)-1.i and 9(g)-1.iii.
Section 226.12 Special Credit Card Provisions
Section 226.13 Billing 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 error claim. 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. These additions
reflected the Board's concerns that such requests could cause a
chilling effect on a consumer's ability to assert his or her error
resolution rights.
In the supplementary information discussing the amended comments,
the Board recognized that in some cases, a card issuer may need 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 Board stated that a card issuer could ``require'' the
cardholder to provide a signed statement supporting the asserted claim,
provided that the act of providing the signed statement would not
subject the cardholder to potential criminal penalty. See 74 FR at
5363. The final comments, however, did not reflect the ability of the
card issuer (or creditor) to require a consumer signed statement for
these types of circumstances. Instead, the text of the final comments
stated that a card issuer (or creditor) could ``request'' a signed
statement. Accordingly, comments 12(b)-3 and 13(f)-3 would be amended
to conform to the Board's intent as stated in the supplementary
information to the January 2009 Regulation Z Rule.
Section 226.16 Advertising
TILA Section 143, implemented by the Board in Sec. 226.16, governs
advertisements of open-end credit plans. 15 U.S.C. 1663. In May 2008,
the Board proposed requirements regarding the advertising of deferred
interest offers in order to improve consumer awareness of the terms of
such offers. However, the Board and other Agencies concluded in the
January 2009 FTC Act Rule that deferred interest programs, as currently
designed, are inconsistent with the general prohibition on the
application of increased rates to existing balances and prohibited
issuers subject to the January 2009 FTC Act Rule from
[[Page 20789]]
establishing such programs. Consequently, the Board withdrew the
proposed advertising requirements related to deferred interest offers
from the January 2009 Regulation Z Rule.
Although the January 2009 FTC Act Rule prohibited deferred interest
programs, the Agencies noted that institutions were not prohibited from
offering promotional programs that provide similar benefits to
consumers, such as programs where interest is assessed on purchases at
a disclosed rate for a period of time but the interest charged is
waived or refunded if the principal is paid in full by the end of that
period. Recognizing that the distinction between deferred interest and
waived or refunded interest programs has caused confusion, the Agencies
are proposing in the FTC Act Proposed Clarifications to clarify that
creditors may offer promotional programs where the consumer will not be
obligated to pay interest that accrues on a balance if that balance is
paid in full by a specified date or within a specified period of time.
However, such programs remain fully subject to the consumer protections
set forth in the January 2009 FTC Act Rule as amended by the FTC Act
Proposed Clarifications.
In light of the FTC Act Proposed Clarifications, the Board also is
proposing new advertising requirements in Sec. 226.16(h), similar to
those proposed in May 2008, for deferred, waived, or refunded interest
programs in order to better inform consumers of the terms of these
offers. The Board believes that these advertising requirements will
complement the new periodic statement disclosures for such programs
that are discussed in the supplementary information to Sec. 226.7(b).
16(h) Deferred or Waived Interest Offers
The Board is proposing to use its authority under TILA Section
143(3) to add a new Sec. 226.16(h) to require additional disclosures
in advertisements in order to improve information consumers receive
about the terms of deferred or waived interest offers. 15 U.S.C.
1663(3). The new disclosure requirements would apply to advertisements
that use terms such as ``no interest,'' ``no payments,'' ``deferred
interest,'' ``same as cash,'' or similar terms in describing these
offers.\3\ In summary, the proposed rules would require that the
deferred or waived interest period be disclosed in immediate proximity
to each deferred interest triggering term. For advertisements stating
``no interest'' or a similar term, the fact that the balance must be
paid in full by the end of the deferred or waived interest period also
would need to be disclosed in immediate proximity to that term. The
proposal also would require that certain additional information about
the terms of the deferred or waived interest offer be disclosed in
close proximity to the first statement of a deferred interest
triggering term. Each of these proposals is discussed in more detail
below.
---------------------------------------------------------------------------
\3\ For ease of reference, the supplementary information to
proposed Sec. 226.16(h) refers generically to these terms as
``deferred interest triggering terms.''
---------------------------------------------------------------------------
16(h)(1) Scope
The new requirements for deferred or waived interest offers under
proposed Sec. 226.16(h) would apply to any advertisement of such
offers for open-end (not home-secured) plans, and would not be limited
to credit card plans. In addition, the rules would apply 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 believes that the proposed
disclosures under this section would be beneficial to consumers whether
the offer is applicable to a consumer credit card account or any other
open-end (not home-secured) plan.
16(h)(2) Definitions
The Board proposes to define ``deferred or waived interest'' in new
Sec. 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 Sec. 226.16(h). Proposed
comment 16(h)-1 clarifies that deferred or waived interest offers also
do not include offers that allow a consumer to defer payments during a
specified time period, and under which the consumer is not obligated
under any circumstances for any interest or other finance charges that
could be attributable to that period. The comment also clarifies that
skip payment programs that allow a consumer to avoid making a minimum
payment for one or more billing cycles but where interest continues to
accrue and be imposed during that period are not deferred or waived
interest offers. Furthermore, proposed comment 16(h)-2 specifies that
deferred or waived interest offers do 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
Sec. 226.16(g)(2)(i).
Furthermore, the Board proposes to define the ``deferred or waived
interest period'' for purposes of proposed Sec. 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 or waived interest period, the Board is proposing to include a
new comment 16(h)-3 to state that the advertisement need not include
the end of an informal ``courtesy period'' in disclosing the deferred
or waived interest period. For example, an advertisement may state that
the deferred interest period is six months, even if the creditor in
practice extends that period by several days, for example, to coincide
with the payment due date for other transactions that are not subject
to a deferred interest plan.
16(h)(3) Stating the Deferred or Waived Interest Period
General rule. The Board is proposing a new Sec. 226.16(h)(3) to
require that advertisements of deferred or waived interest plans
disclose the deferred or waived interest period clearly and
conspicuously in immediate proximity to each statement of a deferred
interest triggering term. New Sec. 226.16(h)(3) also would require
such advertisements that use the phrase ``no interest'' or similar term
to describe the possible avoidance of interest obligations under the
deferred or waived interest program to state ``if paid in full'' in a
clear and conspicuous manner preceding the disclosure of the deferred
or waived interest period. For example, as described in proposed
comment 16(h)-7, an advertisement might state ``no interest if paid in
full within 6 months'' or ``no interest if paid in full by December 31,
2010.'' The Board is proposing 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
[[Page 20790]]
full by a certain date in order to avoid the obligation to pay
interest.
Immediate proximity. Proposed comment 16(h)-4 provides guidance on
the meaning of ``immediate proximity'' by establishing a safe harbor
for disclosures made in the same phrase. Therefore, if the deferred or
waived 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 or waived interest period would
be deemed to be in immediate proximity to the statement.
Clear and conspicuous standard. The Board proposes to amend comment
16-2.ii to provide that advertisements clearly and conspicuously
disclose the deferred or waived interest period only if the information
is equally prominent to each statement of a deferred interest
triggering term. Proposed comment 16-2.ii states that if the disclosure
of the deferred or waived interest period is the same type size as the
statement of the deferred interest triggering term, it will be deemed
to be equally prominent. The Board believes that requiring equal
prominence for the disclosure of the deferred or waived interest period
will call attention to the nature and significance of that information
by ensuring that the information is at least as significant as the
terms to which it relates. Furthermore, applying an equally prominent
standard would be consistent with the treatment of certain disclosures
related to promotional rates.
The Board also proposes 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. 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. Disclosure of the deferred or waived interest period
under Sec. 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.
16(h)(4) Stating the Terms of the Deferred or Waived Interest Offer
In order to ensure that consumers are informed of the terms
applicable to a deferred or waived interest offer, the proposal would
require disclosure of key terms of such an offer in a prominent
location closely proximate to the first listing of a statement of a
deferred interest triggering term. First, the Board proposes to require
a statement that if the balance or transaction is not paid within the
deferred or waived interest period, interest will be charged from the
date the consumer became obligated for the balance or transaction.
Second, the Board also proposes 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 or waived interest period.
To facilitate compliance with this provision, the Board proposes
model language in Sample G-22 in Appendix G. Proposed Sec.
226.16(h)(4) would require that advertisements of deferred or waived
interest offers use language similar to Sample G-22. The Board is
proposing that language be ``similar,'' rather than ``substantially
similar,'' in recognition of the fact that creditors may need to modify
or supplement the model language to accurately describe the terms of a
particular promotion. For issuers subject to the January 2009 FTC Act
Rule or similar law, the proposed language would reflect that interest
can be charged from the date the consumer became obligated for the
balance or transaction only if the consumer fails to pay the balance
subject to the deferred or waived interest program in full or makes a
payment that is more than 30 days late.\4\ For creditors that are not
subject to the January 2009 FTC Act Rule or similar law, such as a
creditor that offers a deferred or waived interest program in
connection with a line of credit, the Board proposes separate model
language.
---------------------------------------------------------------------------
\4\ This statement is intended to be consistent with substantive
restrictions in the January 2009 FTC Act Rule and FTC Act Proposed
Clarifications which would not permit an issuer to revoke a deferred
or waived interest program unless the consumer's payment is more
than 30 days late.
---------------------------------------------------------------------------
While most advertisements of deferred or waived interest offers
describe the conditions required to take advantage of the offer, the
conditions may be placed in a location that is not easily noticed or
stated in terms that are not easily understood. Thus, as discussed
below, the proposal would require this information to be in a prominent
location closely proximate to the first listing of a statement of ``no
interest,'' ``no payments,'' ``deferred interest'' or similar term
regarding interest and payments under the deferred interest period.
Prominent location closely proximate. The Board is proposing
guidance on the meaning of ``prominent location closely proximate to
the first listing'' in comments 16(h)-5 and 16(h)-6. This guidance is
similar to, and intended to be consistent with, the provisions in Sec.
226.16(g) that apply to advertisements of promotional rates. Proposed
comment 16(h)-5 would provide that if the additional disclosures
required under proposed Sec. 226.16(h)(4) are in the same paragraph as
the first listing of a deferred interest triggering term, they would be
deemed to be in a prominent location closely proximate to the
statement. Information appearing in a footnote would not be deemed to
be in a prominent location closely proximate to the statement. The
Board believes that the safe harbor under proposed comment 16(h)-5 is,
and should be, more flexible than the safe harbor for ``immediate
proximity'' under proposed comment 16(h)-4 above.
First listing. Proposed comment 16(h)-6 provides that the first
listing of a statement of a deferred interest triggering term is the
most prominent listing of one of these statements (on the front side of
the first page of the principal promotional document). Consistent with
the rules for promotional rates in Sec. 226.16(g), the proposed
comment borrows the concept of ``principal promotional document'' from
the FTC's definition of the term under its regulations promulgated
under the FCRA. 16 CFR Sec. 642.2(b). Under the proposal, if none of
these statements is 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 proposes that the
listing with the largest type size be a safe harbor for determining
which listing is the most prominent. The proposed comment notes that a
catalog or other multiple-page advertisement would be considered one
document for these purposes, consistent with comment 16(c)-1.
Because both the rules for advertising of promotional rates in
Sec. 226.16(g) and proposed Sec. 226.16(h)(4) require disclosures
closely proximate to the ``first listing'' of a rate or a statement,
respectively, the Board believes that the
[[Page 20791]]
guidance on what constitutes the ``first listing'' should be consistent
for both rules.
Segregation. The Board also proposes comment 16(h)-7 to clarify
that the information required under proposed Sec. 226.16(h)(4) need
not be segregated from other information the advertisement discloses
about the deferred or waived interest offer. This may include triggered
terms that the advertisement is required to disclose under Sec.
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 or waived interest offer.
Clear and conspicuous disclosure. The Board is proposing to amend
comment 16-2.ii to require equal prominence only for the disclosure of
the information required under Sec. 226.16(h)(3). Therefore,
disclosures under proposed Sec. 226.16(h)(4) would not be required to
be equally prominent to the first listing of the deferred interest
triggering statement. Because of the amount of information the Board is
proposing to require under Sec. 226.16(h)(4)(i) and (ii), the Board
believes that requiring equal prominence to the triggering statement
for this information would render the advertisement difficult to read
and confusing to consumers.
Non-written, non-electronic advertisements. The Board believes
providing flexibility in how advertisers may present information to
consumers in a non-written, non-electronic context is appropriate due
to the time and space constraints of such media. Therefore, consistent
with the approach adopted for advertisements of promotional rate offers
in the January 2009 Regulation Z Rule and the approach in proposed
Sec. 226.16(h)(3) discussed above, the Board is proposing that only
written or electronic advertisements be subject to the requirement to
provide the disclosures required by proposed Sec. 226.16(h)(4) in a
prominent location closely proximate to the first listing of a deferred
interest triggering term. For non-written, non-electronic
advertisements, the information required under Sec. 226.16(h)(4)(i),
and (ii) would be included in the advertisement, but would not be
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 proposes 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 proposed Sec.
226.16(h)(4). This proposed exception is consistent with the approach
adopted for promotional rate advertisements in the January 2009
Regulation Z Rule. 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 an offer instead of relying
solely on the information on an envelope, banner advertisement, or pop-
up advertisement. 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 Sec. 226.16(h)(4) on these types of communications would likely
exceed any benefit to consumers.
Appendix G--Open-End Model Forms and Clauses
The Board proposes to revise Model Form G-10(A) to insert a row
disclosing any grace period on purchases applicable to the account, in
accordance with the requirements set forth in Sec. 226.5a(b)(5). This
row was inadvertently omitted from Model Form G-10(A) as published in
the Federal Register on January 29, 2009.
The Board also proposes to revise the minimum payment warning set
forth on Sample Form G-18(G) for conformity with Sample Clause G-18(C),
without any intended substantive change to the requirements of the
final rule.
As discussed in the supplementary information to Sec. Sec.
226.7(b)(14) and 226.16(h), the Board proposes to adopt model language
for the disclosures required to be given in connection with deferred or
waived interest programs as Samples G-18(H) and G-22. The Board notes
that proposed Sample G-22 contains two model clauses, one for use by
credit card issuers subject to 12 CFR 227.24 or similar law and one for
other creditors. The model clause for issuers subject to 12 CFR 227.24
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 30 days late. The Board proposes to add a new comment App. G-12 to
clarify which creditors should use each of the model clauses in
proposed Sample G-22.
The Board also proposes a technical correction to comment App. G-
5.v.C. As adopted in the January 2009 Regulation Z Rule, comment App.
G-5.v.C refers to cross-references in the samples of the table provided
on or with applications and solicitations and the table provided at
account opening. However, cross-references were not included in those
samples because they are not a disclosure required by the January 2009
Regulation Z Rule. Accordingly, the Board proposes to delete the
examples mentioning cross-references from comment App. G-5.v.C.
IV. Regulatory Flexibility Analysis
Section VIII of the supplementary information to the January 2009
Regulation Z Rule sets forth the Board's analysis under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.). The Board notes that the
amendments in this proposed rulemaking would require small entities
that offer deferred or waived interest programs to comply with new
disclosure requirements for periodic statements and advertisements, as
discussed in the supplementary information to the amendments to
Sec. Sec. 226.7 and 226.16. Because the proposed amendments are a
continuation of the January 2009 Regulation Z Rule and would not, if
adopted, alter the analysis and determination accompanying the January
2009 Regulation Z Rule, the Board continues to rely on that analysis
and determination for purposes of this rulemaking.
V. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the
proposed rule under the authority delegated to the Board by the Office
of Management and Budget (OMB). The collection of information that is
required by this proposed rule is found in 12 CFR part 226. The Federal
Reserve may not conduct or sponsor, and an organization is not required
to respond to, this information collection unless the information
collection displays a currently valid OMB control number. The OMB
control number is 7100-0199.
This information collection is required to provide benefits for
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Federal
Reserve does not collect any information, no issue of confidentiality
arises. The respondents/recordkeepers are creditors and other entities
subject to Regulation Z, including for-profit financial institutions
and small businesses.
[[Page 20792]]
TILA and Regulation Z are intended to ensure effective disclosure
of the costs and terms of credit to consumers. For open-end credit,
creditors are required to, among other things, disclose information
about the initial costs and terms and to provide periodic statements of
account activity, notice of changes in terms, and statements of rights
concerning billing error procedures. Regulation Z requires specific
types of disclosures for credit and charge card accounts and home
equity plans. For closed-end loans, such as mortgage and installment
loans, cost disclosures are required to be provided prior to
consummation. Special disclosures are required in connection with
certain products, such as reverse mortgages, certain variable-rate
loans, and certain mortgages with rates and fees above specified
thresholds. TILA and Regulation Z also contain rules concerning credit
advertising. Creditors are required to retain evidence of compliance
for twenty-four months (Sec. 226.25), but Regulation Z does not
specify the types of records that must be retained.
Under the PRA, the Federal Reserve accounts for the paperwork
burden associated with Regulation Z for the state member banks and
other creditors supervised by the Federal Reserve that engage in
lending covered by Regulation Z and, therefore, are respondents under
the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: State member banks, branches and agencies of
foreign banks (other than federal branches, federal agencies, and
insured state branches of foreign banks), commercial lending companies
owned or controlled by foreign banks, and organizations operating under
section 25 or 25A of the Federal Reserve Act. Other federal agencies
account for the paperwork burden imposed on the entities for which they
have administrative enforcement authority. The current total annual
burden to comply with the provisions of Regulation Z is estimated to be
688,607 hours for the 1,138 Federal Reserve-regulated institutions that
are deemed to be respondents for the purposes of the PRA. To ease the
burden and cost of complying with Regulation Z (particularly for small
entities), the Federal Reserve provides model forms, which are appended
to the regulation.
The proposed rule would impose a one-time increase in the total
annual burden under Regulation Z for all respondents regulated by the
Federal Reserve by 27,312 hours, from 688,607 hours to 715,919 hours.
The total estimated burden increase, as well as the estimates of
the burden increase associated with each major section of the proposed
rule as set forth below, represents averages for all respondents
regulated by the Federal Reserve. The Federal Reserve expects that the
amount of time required to implement each of the proposed changes for a
given institution may vary based on the size and complexity of the
respondent. Furthermore, the burden estimate for this rulemaking does
not include the burden addressing provisions from the Mortgage
Disclosure Improvement Act of 2008 (Docket No. R-1340) or Higher
Education Opportunity Act (Docket No. R-1353) announced in separate
proposed rulemakings.
The Federal Reserve estimates that 1,138 respondents regulated by
the Federal Reserve would take, on average, 16 hours (two business
days) to update their systems for periodic statements to comply with
the proposed disclosure requirements in Sec. 226.7. In addition, the
Federal Reserve estimates that the 1,138 respondents would take, on
average, 8 hours (one business day) to update their systems for
advertising to comply with the proposed disclosure requirements in
Sec. 226.16. This one-time revision would increase the burden by
27,312 hours.
The other federal agencies are responsible for estimating and
reporting to OMB the total paperwork burden for the institutions for
which they have administrative enforcement authority. They may, but are
not required to, use the Federal Reserve's burden estimation
methodology. Using the Federal Reserve's method, the total current
estimated annual burden for institutions regulated by the federal
financial agencies, including Federal Reserve-supervised institutions,
would be approximately 13,568,725 hours. The proposed rule would impose
a one-time increase in the estimated annual burden by 412,800 hours to
13,981,525 hours. The above estimates represent an average across all
respondents regulated by federal financial agencies and reflect
variations between institutions based on their size, complexity, and
practices. All covered institutions, of which there are approximately
17,200, potentially are affected by this collection of information, and
thus are respondents for purposes of the PRA.
Comments are invited on: (1) Whether the proposed collection of
information is necessary for the proper performance of the Federal
Reserve's functions; including whether the information has practical
utility; (2) the accuracy of the Federal Reserve's estimate of the
burden of the proposed information collection, including the cost of
compliance; (3) ways to enhance the quality, utility, and clarity of
the information to be collected; and (4) ways to minimize the burden of
information collection on respondents, including through the use of
automated collection techniques or other forms of information
technology. Comments on the collection of information should be sent to
Michelle Shore, Federal Reserve Board Clearance Officer, Division of
Research and Statistics, Mail Stop 151-A, Board of Governors of the
Federal Reserve System, Washington, DC 20551, with copies of such
comments sent to the Office of Management and Budget, Paperwork
Reduction Project (7100-0199), Washington, DC 20503.
List of Subjects in 12 CFR Part 226
Advertising, Consumer protection, Federal Reserve System, Reporting
and recordkeeping requirements, Truth in Lending.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
revisions. New language is shown inside [rtrif]bold-type arrows[ltrif]
while language that would be deleted is set off with [lsqbb]bold-type
brackets[rsqbb].
For the reasons set forth in the preamble, the Board proposes to
further amend Regulation Z, 12 CFR part 226, as amended at 74 FR 5559,
January 29, 2009, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
1. The authority citation for part 226 continues to read as
follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), and
1639(l).
2. Section 226.6 is amended as follows:
A. Paragraph (b)(1) introductory text is revised.
B. Paragraph (b)(1)(ii) is revised.
C. Paragraph (b)(2)(i)(E) is revised.
D. Paragraph (b)(4)(ii)(G) is revised.
Sec. 226.6 Account-opening disclosures.
* * * * *
(b) Rules affecting open-end (not home-secured) plans. The
requirements of paragraph (b) of this section apply to plans other than
home-equity plans subject to the requirements of Sec. 226.5b.
(1) Form of disclosures; tabular format for open-end (not home-
secured) plans. Creditors must provide the account-opening disclosures
specified in paragraphs (b)(2)(i) through (b)(2)(v) (except for
(b)(2)(i)(D)(2)) and (b)(2)(vii) through (b)(2)(xiv) of this
section[lsqbb])[rsqbb] in the form of a table with the headings,
[[Page 20793]]
content, and format substantially similar to any of the applicable
tables in G-17 in Appendix G to this part.
* * * * *
(ii) Location. Only the information required or permitted by
paragraphs (b)(2)(i) through (b)(2)(v) (except for (b)(2)(i)(D)(2)) and
(b)(2)(vii) through (b)(2)(xiv) of this section[lsqbb])[rsqbb] shall be
in the table. Disclosures required by paragraphs (b)(2)(i)(D)(2),
(b)(2)(vi) and (b)(2)(xv) of this section shall be placed directly
below the table. Disclosures required by paragraphs (b)(3) through
(b)(5) of this section that are not otherwise required to be in the
table and other information may be presented with the account agreement
or account-opening disclosure statement, provided such information
appears outside the required table.
* * * * *
(2) * * *
(i) * * *
(E) Point of sale where APRs vary by state[rtrif] or based on
creditworthiness[ltrif]. Creditors imposing annual percentage rates
that vary by state[rtrif] or based on the consumer's
creditworthiness[ltrif] and providing the disclosures required by
paragraph (b) of this section in person at the time the 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
pursuant to paragraph (b)(2)(i) of this section in the account-opening
table[rtrif];
(1) The[ltrif] [lsqbb]the[rsqbb] specific annual percentage rate
applicable to the consumer's account, or
[rtrif](2) The[ltrif] [lsqbb]the[rsqbb] range of the annual
percentage rates, if the disclosure includes a statement that the
annual percentage rate varies by state [rtrif]or will be determined
based on the consumer's creditworthiness [ltrif]and refers the consumer
to the account agreement or other disclosure provided with the account-
opening table where the annual percentage rate applicable to the
consumer's account is disclosed. A creditor may not list annual
percentage rates for multiple states in the account-opening table.
* * * * *
(4) * * *
(ii) * * *
(G) A rate is accurate if it is a rate as of a specified date
[rtrif]and this rate was in effect[ltrif] within the last 30 days
before the disclosures are provided.
* * * * *
3. Section 226.7 is amended by adding paragraph (b)(14) to read as
follows:
Sec. 226.7 Periodic statement.
* * * * *
(b) * * *
[rtrif](14) Deferred or waived interest transactions. For accounts
with an outstanding balance subject to a deferred or waived interest
program, the date by which that outstanding balance must be paid in
full in order to avoid the obligation to pay finance charges on such
balance must be disclosed on the front of the periodic statement for
two billing cycles immediately preceding the billing cycle in which
such date occurs. The disclosure provided pursuant to this paragraph
must be substantially similar to Sample G-18(H) in Appendix G to this
part.[ltrif]
* * * * *
4. Section 226.9 is amended as follows:
A. Paragraph (c)(2)(iv) is revised.
B. Paragraph (g)(4)(i) introductory text is revised.
C. Paragraphs (g)(4)(i)(A) and (B) are revised
D. Paragraph (g)(4)(iii) is revised.
Sec. 226.9 Subsequent disclosure requirements.
* * * * *
(c) * * *
(2) * * *
(iv) Notice not required. For open-end plans (other than home
equity plans subject to the requirements of Sec. 226.5b), a creditor
is not required to provide notice under this section when the change
involves charges for documentary evidence; a reduction of any component
of a finance or other charge; suspension of future credit privileges
(except as provided in paragraph (c)(2)(v) of this section) or
termination of an account or plan; [or] when the change results from an
agreement involving a court proceeding[rtrif]; or if the change is
applicable only to a check or checks that access a credit card account
and the changed terms are disclosed on or with the checks in accordance
with Sec. 226.9(b)(3)[ltrif].
* * * * *
(g) * * *
(4) Exceptions. (i) Workout [rtrif]and temporary hardship[ltrif]
arrangements. A creditor is not required to provide a notice pursuant
to paragraph (g)(1) of this section if a rate applicable to a category
of transactions is increased [rtrif]due to the consumer's completion of
a workout or temporary hardship arrangement or[ltrif] as a result of
the consumer's default, delinquency or as a penalty, in each case for
failure to comply with the terms of a workout [rtrif]or temporary
hardship[ltrif] arrangement between the creditor and the consumer,
provided that:
(A) The rate following any such increase does not exceed the rate
that applied to the category of transactions prior to commencement of
the workout [rtrif]or temporary hardship[ltrif] arrangement; or
(B) If the rate that applied to a category of transactions prior to
the commencement of the workout [rtrif]or temporary hardship[ltrif]
arrangement was a variable rate, the rate following any such increase
is a variable rate determined by the same formula (index and margin)
that applied to the category of transactions prior to commencement of
the workout [rtrif]or temporary hardship[ltrif] arrangement.
* * * * *
(iii) Certain rate increases applicable to outstanding balances. A
creditor is not required to provide a notice pursuant to paragraph
(g)(1) of this section prior to increasing [lsqbb]the[rsqbb]
[rtrif]a[ltrif] rate [lsqbb]applicable to an outstanding balance as
defined in 12 CFR Sec. 227.24(a)(2), if:[rsqbb] [rtrif]pursuant to 12
CFR 227.24(b)(4) or similar law, if:[ltrif]
(A) The creditor previously provided a notice pursuant to paragraph
(g)(1) of this section containing the content specified in paragraph
(g)(3) of this section;
(B) After that notice is provided but prior to the effective date
of the rate increase or rate increases disclosed in the notice pursuant
to paragraph (g)(3)(i)(B) of this section, the consumer fails to make a
required minimum periodic payment within 30 days from the due date for
that payment; and
(C) The rate increase [lsqbb]applicable to outstanding
balances[rsqbb] [rtrif]pursuant to 12 CFR 227.24(b)(4) or similar
law[ltrif] takes effect on the effective date set forth in the notice.
5. Section 226.16 is amended by adding new paragraph (h) to read as
follows:
Sec. 226.16 Advertising.
* * * * *
[rtrif](h) Deferred or waived interest offers. (1) Scope. The
requirements of this paragraph apply to any advertisement of an open-
end credit plan not subject to Sec. 226.5b, including promotional
materials accompanying applications or solicitations subject to Sec.
226.5a(c) or accompanying applications or solicitations subject to
Sec. 226.5a(e).
(2) Definitions. ``Deferred interest'' or ``waived interest'' means
finance charges accrued on balances or transactions that a consumer is
not obligated to pay or that will be waived or refunded to a consumer
if those balances or transactions are paid in full by a specified date.
The maximum
[[Page 20794]]
period from the date the consumer becomes obligated for the balance or
transaction until the specified date by which the consumer must pay the
balance or transaction in full in order to avoid finance charges, or
receive a waiver or refund of finance charges, is the ``deferred
interest period'' or ``waived interest period.'' ``Deferred interest''
or ``waived interest'' does not include any finance charges the
consumer is not obligated to pay in connection with any recurring grace
period.
(3) Stating the deferred or waived interest period. If a deferred
or waived interest offer is advertised, the deferred or waived interest
period must be stated in a clear and conspicuous manner in the
advertisement. If the phrase ``no interest'' or similar term regarding
the possible avoidance of interest obligations under the deferred or
waived interest program is stated, the term ``if paid in full'' must
also be stated in a clear and conspicuous manner preceding the
disclosure of the deferred or waived interest period in the
advertisement. If the deferred or waived interest offer is advertised
in a written or electronic advertisement, the deferred or waived
interest period and, if applicable, the term ``if paid in full'' must
also be stated in immediate proximity to each statement of ``no
interest,'' ``no payments,'' ``deferred interest,'' ``same as cash,''
or similar term regarding interest or payments during the deferred or
waived interest period.
(4) Stating the terms of the deferred or waived interest offer. If
any deferred or waived interest offer is advertised, the information in
paragraphs (h)(4)(i) and (h)(4)(ii) of this section must be stated in
the advertisement, in language similar to Samples G-22 in appendix G to
this part. If the deferred or waived interest offer is advertised in a
written or electronic advertisement, the information in paragraphs
(h)(4)(i), and (h)(4)(ii) of this section must also be stated in a
prominent location closely proximate to the first statement of ``no
interest,'' ``no payments,'' ``deferred interest,'' ``same as cash,''
or similar term regarding interest or payments during the deferred or
waived interest period.
(i) A statement that interest will be charged from the date the
consumer becomes obligated for the balance or transaction subject to
the deferred or waived interest offer if the balance or transaction is
not paid in full within the deferred or waived interest period; and
(ii) A statement, if applicable, that interest will be charged from
the date the consumer incurs the balance or transaction subject to the
deferred or waived interest offer if the account is in default before
the end of the deferred or waived interest period.
(5) Envelope excluded. The requirements in paragraph (h)(4) of this
section do not apply to an envelope or other enclosure in which an
application or solicitation is mailed, or to a banner advertisement or
pop-up advertisement linked to an application or solicitation provided
electronically.[ltrif]
6. Appendix G to Part 226 is amended by:
A. Revising Forms G-10(A) and G-18(G).
B. Adding new Forms G-18(H) and G-22.
Appendix G to Part 226--Open-End Model Forms and Clauses
* * * * *
BILLING CODE 6210-01-P
[[Page 20795]]
[GRAPHIC] [TIFF OMITTED] TP05MY09.000
[[Page 20796]]
[GRAPHIC] [TIFF OMITTED] TP05MY09.001
[[Page 20797]]
[GRAPHIC] [TIFF OMITTED] TP05MY09.002
BILLING CODE 4310-01-C
[rtrif]G-18(H) Deferred or Waived Interest Periodic Statement Clause
[lsqbb]You must pay your promotional balance in full by
[lsqbb]date[rsqbb] to avoid paying accrued interest
charges.[rsqbb][ltrif]
[rtrif]G-22 Deferred or Waived Interest Offer Clauses
(a) For Issuers Subject to 12 CFR 227.24 or Similar Law.
[lsqbb]Interest will be charged to your account from the
purchase date if the purchase balance is not paid in full within
the/by [lsqbb]deferred interest period/date[rsqbb] or if you make a
late payment.[rsqbb]
(b) For Creditors Not Subject to 12 CFR 227.24 or Similar Law.
[lsqbb]Interest will be charged to your account from the
purchase date if the purchase balance is not paid in full within
the/by [lsqbb]deferred interest period/date[rsqbb] or if your
account is otherwise in default.[rsqbb] [ltrif]
7. In Supplement I to Part 226:
A. In Sec. 226.5, Paragraph 5(b)(2)(ii)., paragraph 2. is
revised.
B. In Sec. 226.5a, 5a(b)(1), paragraph 9. is added.
C. In Sec. 226.7:
(i) In 7(b), paragraph 1. is revised.
(ii) In 7(b)(6), paragraphs 6. and 7. are added.
D. In Sec. 226.9:
(i) In 9(c)(2), paragraph 4. is added.
(ii) In 9(c)(2)(i), paragraph 3. is revised.
(iii) In 9(c)(2)(iv), paragraph 2. is revised.
(iv) In 9(g), paragraphs 1.i., 1.iii. introductory text, and
1.iii.C. are revised.
(v) In 9(g)(4)(ii), the undesignated paragraph is designated as
paragraph 1.
E. In Sec. 226.12, in 12(b), paragraph 3.vi. is revised.
F. In Sec. 226.13, in 13(f), paragraph 3.i.F. is revised.
G. In Sec. 226.16:
(i) Paragraphs 1 and 2 are revised.
(ii) Paragraph 16(h) is added.
H. In Appendix G, paragraph 5.v.C. is revised and paragraph 12.
is added.
Supplement I to Part 226--Official Staff Interpretations
Subpart B--Open-End Credit
Sec. 226.5--General Disclosure Requirements
* * * * *
5(b) Time of disclosures.
* * * * *
5(b)(2) Periodic statements.
* * * * *
Paragraph 5(b)(2)(ii).
* * * * *
2. Deferred [rtrif]or waived[ltrif] interest transactions. See
comment 7(b)-1.iv.
* * * * *
Sec. 226.5a--Credit and Charge Card Applications and Solicitations
* * * * *
5a(b) Required disclosures.
* * * * *
5a(b)(1) Annual percentage rate.
* * * * *
[rtrif]9. Deferred or waived interest transactions. An issuer
offering a deferred or waived interest plan, such as a promotional
program that provides that a consumer will not be 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, may not
disclose a 0% rate as the rate applicable to deferred or waived
interest transactions if there are any circumstances under which the
consumer will be obligated for interest on such transactions for the
waived or deferred interest period.[ltrif]
* * * * *
Sec. 226.7--Periodic Statement
* * * * *
7(b) Rules affecting open-end (not home-secured) plans.
1. Deferred [rtrif]or waived[ltrif] interest transactions.
Creditors offer a variety of payment plans for purchases that permit
consumers to avoid interest charges if the purchase balance is paid
in full by a certain date. The following provides guidance for a
deferred [rtrif]or waived[ltrif] interest plan where, for example,
no interest charge is imposed on a $500 purchase made in January if
the $500 balance is paid by March 31. [lsqbb]The following guidance
does not apply to card issuers that are subject to 12 CFR Sec.
227.24 or similar law
[[Page 20798]]
which does not permit the assessment of deferred interest.[rsqbb]
i. Annual percentage rates. Under Sec. 226.7(b)(4), creditors
must disclose each annual percentage rate that may be used to
compute the interest charge. Under some plans with a deferred
[rtrif]or waived[ltrif] interest feature, if the deferred [rtrif]or
waived[ltrif] interest balance is not paid by a certain date, March
31 in this example, interest charges applicable to the billing
cycles between the date of purchase in January and March 31 may be
imposed. Annual percentage rates that may apply to the deferred
[rtrif]or waived[ltrif] interest balance ($500 in this example) if
the balance is not paid in full by March 31 must appear on periodic
statements for the billing cycles between the date of purchase and
March 31. However, if the consumer does not pay the deferred
[rtrif]or waived[ltrif] interest balance by March 31, the creditor
is not required to identify, on the periodic statement disclosing
the interest charge for the deferred [rtrif]or waived[ltrif]
interest balance, annual percentage rates that have been disclosed
in previous billing cycles between the date of purchase and March
31.