12 CFR Part 226 — Truth in Lending (Regulation Z)

PART 226—TRUTH IN LENDING (REGULATION Z) Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), 1639(l), and 1639h; Pub. L. 111-24, section 2, 123 Stat. 1734; Pub. L. 111-203, 124 Stat. 1376. Source: Reg. Z, 46 FR 20892, Apr. 7, 1981, unless otherwise noted. Subpart A—General § 226.1 Authority, purpose, coverage, organization, enforcement, and liability. (a) Authority. et seq. et seq. (b) Purpose. (c) Coverage. (i) The credit is offered or extended to consumers; (ii) The offering or extension of credit is done regularly; 1 1 (iii) The credit is subject to a finance charge or is payable by a written agreement in more than four installments; and (iv) The credit is primarily for personal, family, or household purposes. (2) If a credit card is involved, however, certain provisions apply even if the credit is not subject to a finance charge, or is not payable by a written agreement in more than four installments, or if the credit card is to be used for business purposes. (3) In addition, certain requirements of § 226.5b apply to persons who are not creditors but who provide applications for home-equity plans to consumers. (4) Furthermore, certain requirements of § 226.57 apply to institutions of higher education. (d) Organization. (1) Subpart A contains general information. It sets forth: (i) The authority, purpose, coverage, and organization of the regulation; (ii) The definitions of basic terms; (iii) The transactions that are exempt from coverage; and (iv) The method of determining the finance charge. (2) Subpart B contains the rules for open-end credit. It requires that account-opening disclosures and periodic statements be provided, as well as additional disclosures for credit and charge card applications and solicitations and for home-equity plans subject to the requirements of § 226.5a and § 226.5b, respectively. It also describes special rules that apply to credit card transactions, treatment of payments and credit balances, procedures for resolving credit billing errors, annual percentage rate calculations, rescission requirements, and advertising. (3) Subpart C relates to closed-end credit. It contains rules on disclosures, treatment of credit balances, annual percentages rate calculations, rescission requirements, and advertising. (4) Subpart D contains rules on oral disclosures, disclosures in languages other than English, record retention, effect on state laws, state exemptions, and rate limitations. (5) Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for closed-end loans that have rates or fees above specified amounts. Section 226.33 requires special disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 226.34 prohibits specific acts and practices in connection with closed-end mortgage transactions that are subject to § 226.32. Section 226.35 prohibits specific acts and practices in connection with closed-end higher-priced mortgage loans, as defined in § 226.35(a). Section 226.36 prohibits specific acts and practices in connection with an extension of credit secured by a dwelling. (6) Subpart F relates to private education loans. It contains rules on disclosures, limitations on changes in terms after approval, the right to cancel the loan, and limitations on co-branding in the marketing of private education loans. (7) Subpart G relates to credit card accounts under an open-end (not home-secured) consumer credit plan (except for § 226.57(c), which applies to all open-end credit plans). Section 226.51 contains rules on evaluation of a consumer's ability to make the required payments under the terms of an account. Section 226.52 limits the fees that a consumer can be required to pay with respect to an open-end (not home-secured) consumer credit plan during the first year after account opening. Section 226.53 contains rules on allocation of payments in excess of the minimum payment. Section 226.54 sets forth certain limitations on the imposition of finance charges as the result of a loss of a grace period. Section 226.55 contains limitations on increases in annual percentage rates, fees, and charges for credit card accounts. Section 226.56 prohibits the assessment of fees or charges for over-the-limit transactions unless the consumer affirmatively consents to the creditor's payment of over-the-limit transactions. Section 226.57 sets forth rules for reporting and marketing of college student open-end credit. Section 226.58 sets forth requirements for the Internet posting of credit card accounts under an open-end (not home-secured) consumer credit plan. (8) Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, and the rules for computing annual percentage rates in closed-end credit transactions and total-annual-loan-cost rates for reverse mortgage transactions. (e) Enforcement and liability. [75 FR 7792, Feb. 22, 2010, as amended at 75 FR 58533, Sept. 24, 2010] § 226.2 Definitions and rules of construction. (a) Definitions. (1) Act et seq. (2) Advertisement (3) [Reserved] 2 2 (4) Billing cycle cycle (5) Board (6) Business day (7) Card issuer (8) Cardholder (9) Cash price (10) Closed-end credit (11) Consumer (12) Consumer credit (13) Consummation (14) Credit (15)(i) Credit card (ii) Credit card account under an open-end (not home-secured) consumer credit plan (A) A home-equity plan subject to the requirements of § 226.5b that is accessed by a credit card; or (B) An overdraft line of credit that is accessed by a debit card or an account number. (iii) Charge card (16) Credit sale (i) Agrees to pay as compensation for use a sum substantially equivalent to, or in excess of, the total value of the property and service involved; and (ii) Will become (or has the option to become), for no additional consideration or for nominal consideration, the owner of the property upon compliance with the agreement. (17) Creditor (i) A person who regularly extends consumer credit 3 3 (ii) For purposes of §§ 226.4(c)(8) (Discounts), 226.9(d) (Finance charge imposed at time of transaction), and 226.12(e) (Prompt notification of returns and crediting of refunds), a person that honors a credit card. (iii) For purposes of subpart B, any card issuer that extends either open-end credit or credit that is not subject to a finance charge and is not payable by written agreement in more than four installments. (iv) For purposes of subpart B (except for the credit and charge card disclosures contained in §§ 226.5a and 226.9(e) and (f), the finance charge disclosures contained in § 226.6(a)(1) and (b)(3)(i) and § 226.7(a)(4) through (7) and (b)(4) through (6) and the right of rescission set forth in § 226.15) and subpart C, any card issuer that extends closed-end credit that is subject to a finance charge or is payable by written agreement in more than four installments. (v) A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of § 226.32) more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of § 226.32 or one or more such credit extensions through a mortgage broker. (18) Downpayment (19) Dwelling (20) Open-end credit (i) The creditor reasonably contemplates repeated transactions; (ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid. (21) Periodic rate (22) Person (23) Prepaid finance charge (24) Residential mortgage transaction (25) Security interest (26) State (b) Rules of construction. (1) Where appropriate, the singular form of a word includes the plural form and plural includes singular. (2) Where the words obligation transaction credit consumer credit (3) Unless defined in this regulation, the words used have the meanings given to them by state law or contract. (4) Footnotes have the same legal effect as the text of the regulation. (5) Where the word amount [75 FR 7793, Feb. 22, 2010, as amended at 76 FR 22998, Apr. 25, 2011] § 226.3 Exempt transactions. This regulation does not apply to the following: 4 4 (a) Business, commercial, agricultural, or organizational credit. (2) An extension of credit to other than a natural person, including credit to government agencies or instrumentalities. (b) Credit over applicable threshold amount Exemption Requirements. (A) Secured by any real property, or by personal property used or expected to be used as the principal dwelling of the consumer; or (B) A private education loan as defined in § 226.46(b)(5). (ii) Annual adjustments. (2) Transition rule for open-end accounts exempt prior to July 21, 2011. (i) The creditor takes a security interest in any real property, or in personal property used or expected to be used as the principal dwelling of the consumer; or (ii) The creditor reduces the express written commitment to extend credit to $25,000 or less. (c) Public utility credit. (d) Securities or commodities accounts. (e) Home fuel budget plans. (f) Student loan programs. et seq. (g) Employer-sponsored retirement plans. et seq. [75 FR 7794, Feb. 22, 2010, as amended at 76 FR 18362, Apr. 4, 2011] § 226.4 Finance charge. (a) Definition. (1) Charges by third parties. (i) Requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or (ii) Retains a portion of the third-party charge, to the extent of the portion retained. (2) Special rule; closing agent charges. (i) Requires the particular services for which the consumer is charged; (ii) Requires the imposition of the charge; or (iii) Retains a portion of the third-party charge, to the extent of the portion retained. (3) Special rule; mortgage broker fees. (b) Examples of finance charges. (1) Interest, time price differential, and any amount payable under an add-on or discount system of additional charges. (2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature. (3) Points, loan fees, assumption fees, finder's fees, and similar charges. (4) Appraisal, investigation, and credit report fees. (5) Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer's default or other credit loss. (6) Charges imposed on a creditor by another person for purchasing or accepting a consumer's obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation. (7) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction. (8) Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction. (9) Discounts for the purpose of inducing payment by a means other than the use of credit. (10) Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law. (c) Charges excluded from the finance charge. (1) Application fees charged to all applicants for credit, whether or not credit is actually extended. (2) Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a similar occurrence. (3) Charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing. (4) Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis. (5) Seller's points. (6) Interest forfeited as a result of an interest reduction required by law on a time deposit used as security for an extension of credit. (7) Real-estate related fees. (i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes. (ii) Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents. (iii) Notary and credit-report fees. (iv) Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest-infestation or flood-hazard determinations. (v) Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge. (8) Discounts offered to induce payment for a purchase by cash, check, or other means, as provided in section 167(b) of the Act. (d) Insurance and debt cancellation and debt suspension coverage Voluntary credit insurance premiums. (i) The insurance coverage is not required by the creditor, and this fact is disclosed in writing. (ii) The premium for the initial term of insurance coverage is disclosed in writing. If the term of insurance is less than the term of the transaction, the term of insurance also shall be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under § 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage. (iii) The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified in this paragraph, except as provided in paragraph (d)(4) of this section. Any consumer in the transaction may sign or initial the request. (2) Property insurance premiums. 5 5 (i) The insurance coverage may be obtained from a person of the consumer's choice, 6 6 (ii) If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. If the term of insurance is less than the term of the transaction, the term of insurance shall also be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under § 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage. (3) Voluntary debt cancellation or debt suspension fees. (i) The debt cancellation or debt suspension agreement or coverage is not required by the creditor, and this fact is disclosed in writing; (ii) The fee or premium for the initial term of coverage is disclosed in writing. If the term of coverage is less than the term of the credit transaction, the term of coverage also shall be disclosed. The fee or premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under § 226.17(g), and certain closed-end credit transactions involving a debt cancellation agreement that limits the total amount of indebtedness subject to coverage; (iii) The following are disclosed, as applicable, for debt suspension coverage: That the obligation to pay loan principal and interest is only suspended, and that interest will continue to accrue during the period of suspension. (iv) The consumer signs or initials an affirmative written request for coverage after receiving the disclosures specified in this paragraph, except as provided in paragraph (d)(4) of this section. Any consumer in the transaction may sign or initial the request. (4) Telephone purchases. (i) Maintain evidence that the consumer, after being provided the disclosures orally, affirmatively elected to purchase the insurance or coverage; and (ii) Mail the disclosures under paragraphs (d)(1)(i) and (ii) or (d)(3)(i) through (iii) of this section, as applicable, within three business days after the telephone purchase. (e) Certain security interest charges. (1) Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest. (2) The premium for insurance in lieu of perfecting a security interest to the extent that the premium does not exceed the fees described in paragraph (e)(1) of this section that otherwise would be payable. (3) Taxes on security instruments. (f) Prohibited offsets. [75 FR 7794, Feb. 22, 2010] Subpart B—Open-End Credit § 226.5 General disclosure requirements. (a) Form of disclosures. General. (ii) The creditor shall make the disclosures required by this subpart in writing, 7 8 7 8 (A) The following disclosures need not be written: Disclosures under § 226.6(b)(3) of charges that are imposed as part of an open-end (not home-secured) plan that are not required to be disclosed under § 226.6(b)(2) and related disclosures of charges under § 226.9(c)(2)(iii)(B); disclosures under § 226.9(c)(2)(vi); disclosures under § 226.9(d) when a finance charge is imposed at the time of the transaction; and disclosures under § 226.56(b)(1)(i). (B) The following disclosures need not be in a retainable form: Disclosures that need not be written under paragraph (a)(1)(ii)(A) of this section; disclosures for credit and charge card applications and solicitations under § 226.5a; home-equity disclosures under § 226.5b(d); the alternative summary billing-rights statement under § 226.9(a)(2); the credit and charge card renewal disclosures required under § 226.9(e); and the payment requirements under § 226.10(b), except as provided in § 226.7(b)(13). (iii) The disclosures required by this subpart may be provided to the consumer in electronic form, subject to compliance with 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. (2) Terminology. (ii) For home-equity plans subject to § 226.5b, the terms finance charge annual percentage rate, 9 9 (iii) If disclosures are required to be presented in a tabular format pursuant to paragraph (a)(3) of this section, the term penalty APR penalty APR required fixed, (3) Specific formats. (ii) Certain disclosures for home-equity plans must precede other disclosures and must be given in accordance with the requirements of § 226.5b(a). (iii) Certain account-opening disclosures must be provided in a tabular format in accordance with the requirements of § 226.6(b)(1). (iv) Certain disclosures provided on periodic statements must be grouped together in accordance with the requirements of § 226.7(b)(6) and (b)(13). (v) Certain disclosures provided on periodic statements must be given in accordance with the requirements of § 226.7(b)(12). (vi) Certain disclosures accompanying checks that access a credit card account must be provided in a tabular format in accordance with the requirements of § 226.9(b)(3). (vii) Certain disclosures provided in a change-in-terms notice must be provided in a tabular format in accordance with the requirements of § 226.9(c)(2)(iv)(D). (viii) Certain disclosures provided when a rate is increased due to delinquency, default or as a penalty must be provided in a tabular format in accordance with the requirements of § 226.9(g)(3)(ii). (b) Time of disclosures Account-opening disclosures General rule. (ii) Charges imposed as part of an open-end (not home-secured) plan. (iii) Telephone purchases. (A) The first transaction 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 by establishing an open-end plan with the merchant or third-party creditor; (B) The merchant or third-party creditor permits consumers to return any goods financed under the plan and provides consumers with a sufficient time to reject the plan and return the goods free of cost after the merchant or third-party creditor has provided the written disclosures required by § 226.6; and (C) The consumer's right to reject the plan and return the goods is disclosed to the consumer as a part of the offer to finance the purchase. (iv) Membership fees General. (B) Home-equity plans. (v) Application fees. See (2) Periodic statements Statement required. (A) Credit card accounts under an open-end (not home-secured) consumer credit plan. ( 1 ( 2 (B) Open-end consumer credit plans. ( 1 ( i ( ii ( 2 ( i ( ii ( 3 10 10 (3) Credit and charge card application and solicitation disclosures. (4) Home-equity plans. (c) Basis of disclosures and use of estimates. (d) Multiple creditors; multiple consumers. (e) Effect of subsequent events. [75 FR 7796, Feb. 22, 2010, as amended at 76 FR 22998, Apr. 25, 2011] § 226.5a Credit and charge card applications and solicitations. (a) General rules. (1) Definition of solicitation. solicitation (2) Form of disclosures; tabular format. (ii) The table described in paragraph (a)(2)(i) of this section shall contain only the information required or permitted by this section. Other information may be presented on or with an application or solicitation, provided such information appears outside the required table. (iii) Disclosures required by paragraphs (b)(1)(iv)(B), (b)(1)(iv)(C) and (b)(6) of this section must be placed directly beneath the table. (iv) When a tabular format is required, any annual percentage rate required to be disclosed pursuant to paragraph (b)(1) of this section, any introductory rate required to be disclosed pursuant to paragraph (b)(1)(ii) of this section, any rate that will apply after a premium initial rate expires required to be disclosed under paragraph (b)(1)(iii) of this section, and any fee or percentage amounts or maximum limits on fee amounts disclosed pursuant to paragraphs (b)(2), (b)(4), (b)(8) through (b)(13) of this section must be disclosed in bold text. However, bold text shall not be used for: The amount of any periodic fee disclosed pursuant to paragraph (b)(2) of this section that is not an annualized amount; and other annual percentage rates or fee amounts disclosed in the table. (v) For an application or a solicitation that is accessed by the consumer in electronic form, the disclosures required under this section may be provided to the consumer in electronic form on or with the application or solicitation. (vi)(A) Except as provided in paragraph (a)(2)(vi)(B) of this section, the table described in paragraph (a)(2)(i) of this section must be provided in a prominent location on or with an application or a solicitation. (B) If the table described in paragraph (a)(2)(i) of this section is provided electronically, it must be provided in close proximity to the application or solicitation. (3) Fees based on a percentage. (4) Fees that vary by state. (5) Exceptions. (i) Home-equity plans accessible by a credit or charge card that are subject to the requirements of § 226.5b; (ii) Overdraft lines of credit tied to asset accounts accessed by check-guarantee cards or by debit cards; (iii) Lines of credit accessed by check-guarantee cards or by debit cards that can be used only at automated teller machines; (iv) Lines of credit accessed solely by account numbers; (v) Additions of a credit or charge card to an existing open-end plan; (vi) General purpose applications unless the application, or material accompanying it, indicates that it can be used to open a credit or charge card account; or (vii) Consumer-initiated requests for applications. (b) Required disclosures. (1) Annual percentage rate. (i) Variable rate information. (ii) Discounted initial rate. (iii) Premium initial rate. (iv) Penalty rates In general. (B) Introductory rates. (C) Employee preferential rates. (v) Rates that depend on consumer's creditworthiness. (vi) APRs that vary by state. (2) Fees for issuance or availability. (ii) Any non-periodic fee that relates to opening an account. A card issuer must disclose that the fee is a one-time fee. (3) Fixed finance charge; minimum interest charge. (4) Transaction charges. (5) Grace period. (6) Balance computation method. (7) Statement on charge card payments. (8) Cash advance fee. (9) Late payment fee. (10) Over-the-limit fee. (11) Balance transfer fee. (12) Returned-payment fee. (13) Required insurance, debt cancellation or debt suspension coverage. (ii) A cross reference to any additional information provided about the insurance or coverage accompanying the application or solicitation, as applicable. (14) Available credit. (15) Web site reference. (c) Direct mail and electronic applications and solicitations General. (2) Accuracy. (ii) Disclosures provided in electronic form must be accurate as of the time they are sent, in the case of disclosures sent to a consumer's e-mail address, or as of the time they are viewed by the public, in the case of disclosures made available at a location such as a card issuer's Web site. An accurate variable annual percentage rate provided in electronic form is one in effect within 30 days before it is sent to a consumer's e-mail address, or viewed by the public, as applicable. (d) Telephone applications and solicitations Oral disclosure. (2) Alternative disclosure. (i)(A) Does not impose a fee described in paragraph (b)(2) of this section; or (B) Imposes such a fee but provides the consumer with a right to reject the plan consistent with § 226.5(b)(1)(iv); and (ii) The card issuer discloses in writing within 30 days after the consumer requests the card (but in no event later than the delivery of the card) the following: (A) The applicable information in paragraph (b) of this section; and (B) As applicable, the fact that the consumer has the right to reject the plan and not be obligated to pay fees described in paragraph (b)(2) or any other fees or charges until the consumer has used the account or made a payment on the account after receiving a billing statement. (3) Accuracy. (ii) The alternative disclosures under paragraph (d)(2) of this section generally must be accurate as of the time they are mailed or delivered. A variable annual percentage rate is one that is accurate if it was: (A) In effect at the time the disclosures are mailed or delivered; or (B) In effect as of a specified date (which rate is then updated from time to time, but no less frequently than each calendar month). (e) Applications and solicitations made available to general public. (1) Disclosure of required credit information. (i) The applicable information in paragraph (b) of this section; (ii) The date the required information was printed, including a statement that the required information was accurate as of that date and is subject to change after that date; and (iii) A statement that the consumer should contact the card issuer for any change in the required information since it was printed, and a toll-free telephone number or a mailing address for that purpose. (2) No disclosure of credit information. (i) There are costs associated with the use of the card; and (ii) The consumer may contact the card issuer to request specific information about the costs, along with a toll-free telephone number and a mailing address for that purpose. (3) Prompt response to requests for information. (4) Accuracy. (f) In-person applications and solicitations. (g) Balance computation methods defined. (1)(i) Average daily balance (including new purchases). (ii) Average daily balance (excluding new purchases). (2) Adjusted balance. (3) Previous balance. (4) Daily balance. [75 FR 7797, Feb. 22, 2010, as amended at 75 FR 37568, June 26, 2010; 76 FR 22999, Apr. 25, 2011] § 226.5b Requirements for home equity plans. The requirements of this section apply to open-end credit plans secured by the consumer's dwelling. For purposes of this section, an annual percentage rate is the annual percentage rate corresponding to the periodic rate as determined under § 226.14(b). (a) Form of disclosures General. (2) Precedence of certain disclosures. (3) For an application that is accessed by the consumer in electronic form, the disclosures required under this section may be provided to the consumer in electronic form on or with the application. (b) Time of disclosures. 10a 10a (c) Duties of third parties 10a (d) Content of disclosures. (1) Retention of information. (2) Conditions for disclosed terms. (ii) A statement that, if a disclosed term changes (other than a change due to fluctuations in the index in a variable-rate plan) prior to opening the plan and the consumer therefore elects not to open the plan, the consumer may receive a refund of all fees paid in connection with the application. (3) Security interest and risk to home. (4) Possible actions by creditor. (ii) A statement that the consumer may receive, upon request, information about the conditions under which such actions may occur. (iii) In lieu of the disclosure required under paragraph (d)(4)(ii) of this section, a statement of such conditions. (5) Payment terms. (i) The length of the draw period and any repayment period. (ii) An explanation of how the minimum periodic payment will be determined and the timing of the payments. If paying only the minimum periodic payments may not repay any of the principal or may repay less than the outstanding balance, a statement of this fact, as well as a statement that a balloon payment may result. 10b 10b (iii) An example, based on a $10,000 outstanding balance and a recent annual percentage rate, 10c 10c If different payment terms may apply to the draw and any repayment period, or if different payment terms may apply within either period, the disclosures shall reflect the different payment terms. (6) Annual percentage rate. 10c (7) Fees imposed by creditor. (8) Fees imposed by third parties to open a plan. (9) Negative amortization. (10) Transaction requirements. (11) Tax implications. (12) Disclosures for variable-rate plans. (i) The fact that the annual percentage rate, payment, or term may change due to the variable-rate feature. (ii) A statement that the annual percentage rate does not include costs other than interest. (iii) The index used in making rate adjustments and a source of information about the index. (iv) An explanation of how the annual percentage rate will be determined, including an explanation of how the index is adjusted, such as by the addition of a margin. (v) A statement that the consumer should ask about the current index value, margin, discount or premium, and annual percentage rate. (vi) A statement that the initial annual percentage rate is not based on the index and margin used to make later rate adjustments, and the period of time such initial rate will be in effect. (vii) The frequency of changes in the annual percentage rate. (viii) Any rules relating to changes in the index value and the annual percentage rate and resulting changes in the payment amount, including, for example, an explanation of payment limitations and rate carryover. (ix) A statement of any annual or more frequent periodic limitations on changes in the annual percentage rate (or a statement that no annual limitation exists), as well as a statement of the maximum annual percentage rate that may be imposed under each payment option. (x) The minimum periodic payment required when the maximum annual percentage rate for each payment option is in effect for a $10,000 outstanding balance, and a statement of the earliest date or time the maximum rate may be imposed. (xi) An historical example, based on a $10,000 extension of credit, illustrating how annual percentage rates and payments would have been affected by index value changes implemented according to the terms of the plan. The historical example shall be based on the most recent 15 years of index values (selected for the same time period each year) and shall reflect all significant plan terms, such as negative amortization, rate carryover, rate discounts, and rate and payment limitations, that would have been affected by the index movement during the period. (xii) A statement that rate information will be provided on or with each periodic statement. (e) Brochure. (f) Limitations on home equity plans. (1) Change the annual percentage rate unless: (i) Such change is based on an index that is not under the creditor's control; and (ii) Such index is available to the general public. (2) Terminate a plan and demand repayment of the entire outstanding balance in advance of the original term (except for reverse mortgage transactions that are subject to paragraph (f)(4) of this section) unless: (i) There is fraud or material misrepresentation by the consumer in connection with the plan; (ii) The consumer fails to meet the repayment terms of the agreement for any outstanding balance; (iii) Any action or inaction by the consumer adversely affects the creditor's security for the plan, or any right of the creditor in such security; or (iv) Federal law dealing with credit extended by a depository institution to its executive officers specifically requires that as a condition of the plan the credit shall become due and payable on demand, provided that the creditor includes such a provision in the initial agreement. (3) Change any term, except that a creditor may: (i) Provide in the initial agreement that it may prohibit additional extensions of credit or reduce the credit limit during any period in which the maximum annual percentage rate is reached. A creditor also may provide in the initial agreement that specified changes will occur if a specified event takes place (for example, that the annual percentage rate will increase a specified amount if the consumer leaves the creditor's employment). (ii) Change the index and margin used under the plan if the original index is no longer available, the new index has an historical movement substantially similar to that of the original index, and the new index and margin would have resulted in an annual percentage rate substantially similar to the rate in effect at the time the original index became unavailable. (iii) Make a specified change if the consumer specifically agrees to it in writing at that time. (iv) Make a change that will unequivocally benefit the consumer throughout the remainder of the plan. (v) Make an insignificant change to terms. (vi) Prohibit additional extensions of credit or reduce the credit limit applicable to an agreement during any period in which: (A) The value of the dwelling that secures the plan declines significantly below the dwelling's appraised value for purposes of the plan; (B) The creditor reasonably believes that the consumer will be unable to fulfill the repayment obligations under the plan because of a material change in the consumer's financial circumstances; (C) The consumer is in default of any material obligation under the agreement; (D) The creditor is precluded by government action from imposing the annual percentage rate provided for in the agreement; (E) The priority of the creditor's security interest is adversely affected by government action to the extent that the value of the security interest is less than 120 percent of the credit line; or (F) The creditor is notified by its regulatory agency that continued advances constitute an unsafe and unsound practice. (4) For reverse mortgage transactions that are subject to § 226.33, terminate a plan and demand repayment of the entire outstanding balance in advance of the original term except: (i) In the case of default; (ii) If the consumer transfers title to the property securing the note; (iii) If the consumer ceases using the property securing the note as the primary dwelling; or (iv) Upon the consumer's death. (g) Refund of fees. (h) Imposition of nonrefundable fees. 10d 10d [Reg. Z, 54 FR 24686, June 9, 1989, as amended at 55 FR 38312, Sept. 18, 1990; 55 FR 42148, Oct. 17, 1990; 57 FR 34681, Aug. 6, 1992; 60 FR 15471, Mar. 24, 1995; 66 FR 17338, Mar. 30, 2001; 72 FR 63474, Nov. 9, 2007] § 226.6 Account-opening disclosures. (a) Rules affecting home-equity plans. (1) Finance charge. (i) A statement of when finance charges begin to accrue, including an explanation of whether or not any time period exists within which any credit extended may be repaid without incurring a finance charge. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge when payment is received after the time period's expiration. (ii) A disclosure of each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable, 11 12 11 12 (iii) An explanation of the method used to determine the balance on which the finance charge may be computed. (iv) An explanation of how the amount of any finance charge will be determined, 13 13 (2) Other charges. (3) Home-equity plan information. (i) A statement of the conditions under which the creditor may take certain action, as described in § 226.5b(d)(4)(i), such as terminating the plan or changing the terms. (ii) The payment information described in § 226.5b(d)(5)(i) and (ii) for both the draw period and any repayment period. (iii) A statement that negative amortization may occur as described in § 226.5b(d)(9). (iv) A statement of any transaction requirements as described in § 226.5b(d)(10). (v) A statement regarding the tax implications as described in § 226.5b(d)(11). (vi) A statement that the annual percentage rate imposed under the plan does not include costs other than interest as described in § 226.5b(d)(6) and (d)(12)(ii). (vii) The variable-rate disclosures described in § 226.5b(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and (d)(12)(xii), as well as the disclosure described in § 226.5b(d)(5)(iii), unless the disclosures provided with the application were in a form the consumer could keep and included a representative payment example for the category of payment option chosen by the consumer. (4) Security interests. (5) Statement of billing rights. (b) Rules affecting open-end (not home-secured) plans. (1) Form of disclosures; tabular format for open-end (not home-secured) plans. 2 (i) Highlighting. (ii) Location. 2 2 3 (iii) Fees that vary by state. (iv) Fees based on a percentage. (2) Required disclosures for account-opening table for open-end (not home-secured) plans. (i) Annual percentage rate. (A) Variable-rate information. (B) Discounted initial rates. (C) Premium initial rate. (D) Penalty rates 1 In general. 2 3 ( 2 Introductory rates. ( 3 Employee preferential rates. (E) Point of sale where APRs vary by state or based on creditworthiness. ( 1 ( 2 (F) Credit card accounts under an open-end (not home-secured) consumer credit plan. ( 1 ( 2 (ii) Fees for issuance or availability. (B) Any non-periodic fee that relates to opening the plan. A creditor must disclose that the fee is a one-time fee. (iii) Fixed finance charge; minimum interest charge. (iv) Transaction charges. (v) Grace period. (vi) Balance computation method. (vii) Cash advance fee. (viii) Late payment fee. (ix) Over-the-limit fee. (x) Balance transfer fee. (xi) Returned-payment fee. (xii) Required insurance, debt cancellation or debt suspension coverage. (B) A cross reference to any additional information provided about the insurance or coverage, as applicable. (xiii) Available credit. (xiv) Web site reference. (xv) Billing error rights reference. (3) Disclosure of charges imposed as part of open-end (not home-secured) plans. (i) For charges imposed as part of an open-end (not home-secured) plan, the circumstances under which the charge may be imposed, including the amount of the charge or an explanation of how the charge is determined. For finance charges, a statement of when the charge begins to accrue and an explanation of whether or not any time period exists within which any credit that has been extended may be repaid without incurring the charge. If such a time period is provided, a creditor may, at its option and without disclosure, elect not to impose a finance charge when payment is received after the time period expires. (ii) Charges imposed as part of the plan are: (A) Finance charges identified under § 226.4(a) and § 226.4(b). (B) Charges resulting from the consumer's failure to use the plan as agreed, except amounts payable for collection activity after default, attorney's fees whether or not automatically imposed, and post-judgment interest rates permitted by law. (C) Taxes imposed on the credit transaction by a state or other governmental body, such as documentary stamp taxes on cash advances. (D) Charges for which the payment, or nonpayment, affect the consumer's access to the plan, the duration of the plan, the amount of credit extended, the period for which credit is extended, or the timing or method of billing or payment. (E) Charges imposed for terminating a plan. (F) Charges for voluntary credit insurance, debt cancellation or debt suspension. (iii) Charges that are not imposed as part of the plan include: (A) Charges imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system. (B) A charge for a package of services that includes an open-end credit feature, if the fee is required whether or not the open-end credit feature is included and the non-credit services are not merely incidental to the credit feature. (C) Charges under § 226.4(e) disclosed as specified. (4) Disclosure of rates for open-end (not home-secured) plans. (i) For each periodic rate that may be used to calculate interest: (A) Rates. (B) Range of balances. (C) Type of transaction. (D) Balance computation method. (ii) Variable-rate accounts. (A) The fact that the annual percentage rate may increase. (B) How the rate is determined, including the margin. (C) The circumstances under which the rate may increase. (D) The frequency with which the rate may increase. (E) Any limitation on the amount the rate may change. (F) The effect(s) of an increase. (G) Except as specified in paragraph (b)(4)(ii)(H) of this section, a 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. (H) 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 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 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. (iii) Rate changes not due to index or formula. (A) The initial rate (expressed as a periodic rate and a corresponding annual percentage rate) required under paragraph (b)(4)(i)(A) of this section. (B) How long the initial rate will remain in effect and the specific events that cause the initial rate to change. (C) The rate (expressed as a periodic rate and a corresponding annual percentage rate) that will apply when the initial rate is no longer in effect and any limitation on the time period the new rate will remain in effect. (D) The balances to which the new rate will apply. (E) The balances to which the current rate at the time of the change will apply. (5) Additional disclosures for open-end (not home-secured) plans. (i) Voluntary credit insurance, debt cancellation or debt suspension. (ii) Security interests. (iii) Statement of billing rights. [75 FR 7800, Feb. 22, 2010, as amended at 75 FR 37568, June 26, 2010; 76 FR 22999, Apr. 25, 2011] § 226.7 Periodic statement. The creditor shall furnish the consumer with a periodic statement that discloses the following items, to the extent applicable: (a) Rules affecting home-equity plans. (1) Previous balance. (2) Identification of transactions. (3) Credits. (4) Periodic rates. 14 15 14 15 (ii) Exception. (5) Balance on which finance charge computed. (6) Amount of finance charge and other charges. (i) Finance charges. finance charge. (ii) Other charges. (7) Annual percentage rate. annual percentage rate. (8) Grace period. (9) Address for notice of billing errors. (10) Closing date of billing cycle; new balance. (b) Rules affecting open-end (not home-secured) plans. (1) Previous balance. (2) Identification of transactions. (3) Credits. (4) Periodic rates. Annual Percentage Rate, (ii) Exception. (5) Balance on which finance charge computed. Balance Subject to Interest Rate. (6) Charges imposed. (ii) Interest. Interest Charge, Interest Charged, Total Interest, (iii) Fees. Fees, Fees, (7) Change-in-terms and increased penalty rate summary for open-end (not home-secured) plans. (8) Grace period. (9) Address for notice of billing errors. (10) Closing date of billing cycle; new balance. (11) Due date; late payment costs. (A) The due date for a payment. The due date disclosed pursuant to this paragraph shall be the same day of the month for each billing cycle. (B) The amount of any late payment fee and any increased periodic rate(s) (expressed as an annual percentage rate(s)) that may be imposed on the account as a result of a late payment. If a range of late payment fees may be assessed, the card issuer may state the range of fees, or the highest fee and an indication that the fee imposed could be lower. If the rate may be increased for more than one feature or balance, the card issuer may state the range of rates or the highest rate that could apply and at the issuer's option an indication that the rate imposed could be lower. (ii) Exception. (A) Periodic statements provided solely for charge card accounts; and (B) Periodic statements provided for a charged-off account where payment of the entire account balance is due immediately. (12) Repayment disclosures In general. (A) The following statement with a bold heading: “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;” (B) The minimum payment repayment estimate, as described in appendix M1 to this part. If the minimum payment repayment estimate is less than 2 years, the card issuer must disclose the estimate in months. Otherwise, the estimate must be disclosed in years and rounded to the nearest whole year; (C) The minimum payment total cost estimate, as described in appendix M1 to this part. The minimum payment total cost estimate must be rounded either to the nearest whole dollar or to the nearest cent, at the card issuer's option; (D) 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. 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; (E) A toll-free telephone number where the consumer may obtain from the card issuer information about credit counseling services consistent with paragraph (b)(12)(iv) of this section; and (F)( 1 ( i ( ii ( iii ( iv ( 2 1 ( i ( ii 1 i ( iii (ii) Negative or no amortization. (A) 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”; (B) 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”; (C) The estimated monthly payment for repayment in 36 months, as described in appendix M1 to this part. The estimated monthly payment for repayment in 36 months must be rounded either to the nearest whole dollar or to the nearest cent, at the issuer's option; (D) 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; and (E) A toll-free telephone number where the consumer may obtain from the card issuer information about credit counseling services consistent with paragraph (b)(12)(iv) of this section. (13) Format requirements. (14) Deferred interest or similar transactions. [75 FR 7804, Feb. 22, 2010, as amended at 75 FR 37568, June 26, 2010; 76 FR 23000, Apr. 25, 2011] § 226.8 Identifying transactions on periodic statements. The creditor shall identify credit transactions on or with the first periodic statement that reflects the transaction by furnishing the following information, as applicable. 16 16 (a) Sale credit. (i) A brief identification 17 18 17 18 (ii) The seller's name; and the city and state or foreign country where the transaction took place. 19 19 (2) Creditors need not comply with paragraph (a)(1) of this section if an actual copy of the receipt or other credit document is provided with the first periodic statement reflecting the transaction, and the amount of the transaction and either the date of the transaction to the consumer's account or the date of debiting the transaction are disclosed on the copy or on the periodic statement. (b) Nonsale credit. 20 20 (c) Alternative creditor procedures; consumer inquiries for clarification or documentation. (1) Failure to disclose the information required by paragraphs (a) and (b) of this section is not a failure to comply with the regulation, provided that the creditor also maintains procedures reasonably designed to obtain and provide the information. This applies to transactions that take place outside a state, as defined in § 226.2(a)(26), whether or not the creditor maintains procedures reasonably adapted to obtain the required information. (2) As an alternative to the brief identification for sale or nonsale credit, the creditor may disclose a number or symbol that also appears on the receipt or other credit document given to the consumer, if the number or symbol reasonably identifies that transaction with that creditor. [75 FR 7806, Feb. 22, 2010] § 226.9 Subsequent disclosure requirements. (a) Furnishing statement of billing rights Annual statement. (2) Alternative summary statement. (b) Disclosures for supplemental credit access devices and additional features. (2) Except as provided in paragraph (b)(3) of this section, whenever a credit feature is added or a credit access device is mailed or delivered to the consumer, and the finance charge terms for the feature or device differ from disclosures previously given, the disclosures required by § 226.6(a)(1) or (b)(3)(ii)(A), as applicable, that are applicable to the added feature or device shall be given before the consumer uses the feature or device for the first time. (3) Checks that access a credit card account Disclosures. (A) If a promotional rate, as that term is defined in § 226.16(g)(2)(i) applies to the checks: ( 1 ( 2 ( 3 (B) If no promotional rate applies to the checks: ( 1 ( 2 (C) Any transaction fees applicable to the checks disclosed under § 226.6(b)(2)(iv); and (D) Whether or not a grace period is given within which any credit extended by use of the checks may be repaid without incurring a finance charge due to a periodic interest rate. When disclosing whether there is a grace period, the phrase “How to Avoid Paying Interest on Check Transactions” shall be used as the row heading when a grace period applies to credit extended by the use of the checks. When disclosing the fact that no grace period exists for credit extended by use of the checks, the phrase “Paying Interest” shall be used as the row heading. (ii) Accuracy. (iii) Variable rates. (c)(1) Rules affecting home-equity plans Written notice required. (ii) Notice not required. (iii) Notice to restrict credit. (2) Rules affecting open-end (not home-secured) plans Changes where written advance notice is required General. (B) Changes agreed to by the consumer. (ii) Significant changes in account terms. (iii) Charges not covered by § 226.6(b)(1) and (b)(2). (A) Comply with the requirements of paragraph (c)(2)(i) of this section; or (B) Provide notice of the amount of the charge before the consumer agrees to or becomes obligated to pay the charge, at a time and in a manner that a consumer would be likely to notice the disclosure of the charge. The notice may be provided orally or in writing. (iv) Disclosure requirements Significant changes in account terms. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 (B) Right to reject for credit card accounts under an open-end (not home-secured) consumer credit plan. (C) Changes resulting from failure to make minimum periodic payment within 60 days from due date for credit card accounts under an open-end (not home-secured) consumer credit plan. ( 1 ( 2 (D) Format requirements 1 Tabular format. 1 (v) Notice not required. (A) 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)(vi) of this section) or termination of an account or plan; when the change results from an agreement involving a court proceeding; when the change is an extension of the grace period; or if the change is applicable only to checks that access a credit card account and the changed terms are disclosed on or with the checks in accordance with paragraph (b)(3) of this section; (B) When the change is an increase in an annual percentage rate or fee upon the expiration of a specified period of time, provided that: ( 1 ( 2 ( 3 1 1 1 (C) When the change is an increase in a variable annual percentage rate in accordance with a credit card or other account agreement that provides for changes 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; or (D) When the change is an increase in an annual percentage rate, a fee or charge required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), (b)(2)(viii), (b)(2)(ix), (b)(2)(ix) or (b)(2)(xii), or the required minimum periodic payment due to the completion of a workout or temporary hardship arrangement by the consumer or the consumer's failure to comply with the terms of such an arrangement, provided that: (vi) Reduction of the credit limit. (d) Finance charge imposed at time of transaction. (2) The card issuer, other than the person honoring the consumer's credit card, shall have no responsibility for the disclosure required by paragraph (d)(1) of this section, and shall not consider any such charge for the purposes of §§ 226.5a, 226.6 and 226.7. (e) Disclosures upon renewal of credit or charge card Notice prior to renewal. (i) The disclosures contained in § 226.5a(b)(1) through (b)(7) that would apply if the account were renewed; 20a 20a (ii) How and when the cardholder may terminate credit availability under the account to avoid paying the renewal fee, if applicable. (2) Notification on periodic statements. (f) Change in credit card account insurance provider Notice prior to change. (i) Any increase in the rate that will result from the change; (ii) Any substantial decrease in coverage that will result from the change; and (iii) A statement that the cardholder may discontinue the insurance. (2) Notice when change in provider occurs. (i) The name and address of the new insurance provider; (ii) A copy of the new policy or group certificate containing the basic terms of the insurance, including the rate to be charged; and (iii) A statement that the cardholder may discontinue the insurance. (3) Substantial decrease in coverage. (i) Type of coverage provided; (ii) Age at which coverage terminates or becomes more restrictive; (iii) Maximum insurable loan balance, maximum periodic benefit payment, maximum number of payments, or other term affecting the dollar amount of coverage or benefits provided; (iv) Eligibility requirements and number and identity of persons covered; (v) Definition of a key term of coverage such as disability; (vi) Exclusions from or limitations on coverage; and (vii) Waiting periods and whether coverage is retroactive. (4) Combined notification. (g) Increase in rates due to delinquency or default or as a penalty Increases subject to this section. (i) A rate is increased due to the consumer's delinquency or default; or (ii) A rate is increased as a penalty for one or more events specified in the account agreement, such as making a late payment or obtaining an extension of credit that exceeds the credit limit. (2) Timing of written notice. (3)(i) Disclosure requirements for rate increases General. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 (B) Rate increases resulting from failure to make minimum periodic payment within 60 days from due date. (ii) Format requirements. (B) If a notice required by paragraph (g)(1) of this section is not included on or with a periodic statement, the information described in paragraph (g)(3)(i) of this section must be disclosed on the front of the first page of the notice. Only information related to the increase in the rate to a penalty rate may be included with the notice, except that this notice may be combined with a notice described in paragraph (c)(2)(iv) or (g)(4) of this section. (4) Exception for decrease in credit limit. (i) The creditor provides at least 45 days in advance of imposing the penalty rate a notice, in writing, that includes: (A) A statement that the credit limit on the account has been or will be decreased. (B) A statement indicating the date on which the penalty rate will apply, if the outstanding balance exceeds the credit limit as of that date; (C) A statement that the penalty rate will not be imposed on the date specified in paragraph (g)(4)(i)(B) of this section, if the outstanding balance does not exceed the credit limit as of that date; (D) The circumstances under which the penalty rate, if applied, will cease to apply to the account, or that the penalty rate, if applied, will remain in effect for a potentially indefinite time period; (E) A statement indicating to which balances the penalty rate may be applied; and (F) 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 the consumer fails to make a minimum periodic payment within 60 days from the due date for that payment; and (ii) The creditor does not increase the rate applicable to the consumer's account to the penalty rate if the outstanding balance does not exceed the credit limit on the date set forth in the notice and described in paragraph (g)(4)(i)(B) of this section. (iii)(A) If a notice provided pursuant to paragraph (g)(4)(i) of this section is included on or with a periodic statement, the information described in paragraph (g)(4)(i) of this section must be in the form of a table and provided on the front of any page of the periodic statement; or (B) If a notice required by paragraph (g)(4)(i) of this section is not included on or with a periodic statement, the information described in paragraph (g)(4)(i) of this section must be disclosed on the front of the first page of the notice. Only information related to the reduction in credit limit may be included with the notice, except that this notice may be combined with a notice described in paragraph (c)(2)(iv) or (g)(1) of this section. (h) Consumer rejection of certain significant changes in terms Right to reject. (2) Effect of rejection. (i) Apply the change to the account; (ii) Impose a fee or charge or treat the account as in default solely as a result of the rejection; or (iii) Require repayment of the balance on the account using a method that is less beneficial to the consumer than one of the methods listed in § 226.55(c)(2). (3) Exception. [75 FR 7807, Feb. 22, 2010, as amended at 75 FR 37568, June 26, 2010; 76 FR 23000, Apr. 25, 2011] § 226.10 Payments. (a) General rule. (b) Specific requirements for payments General rule. (2) Examples of reasonable requirements for payments. (i) Requiring that payments be accompanied by the account number or payment stub; (ii) Setting reasonable cut-off times for payments to be received by mail, by electronic means, by telephone, and in person (except as provided in paragraph (b)(3) of this section), provided that such cut-off times shall 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; (iii) Specifying that only checks or money orders should be sent by mail; (iv) Specifying that payment is to be made in U.S. dollars; or (v) Specifying one particular address for receiving payments, such as a post office box. (3) In-person payments on credit card accounts General. (ii) Financial institution. (4) Nonconforming payments In general. (ii) Payment methods promoted by creditor. (c) Adjustment of account. (d) Crediting of payments when creditor does not receive or accept payments on due date General. (2) Payments accepted or received other than by mail. (e) Limitations on fees related to method of payment. (f) Changes by card issuer. [75 FR 7811, Feb. 22, 2010, as amended at 76 FR 23001, Apr. 25, 2011] § 226.11 Treatment of credit balances; account termination. (a) Credit balances. (1) Credit the amount of the credit balance to the consumer's account; (2) Refund any part of the remaining credit balance within seven business days from receipt of a written request from the consumer; (3) Make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than six months. No further action is required if the consumer's current location is not known to the creditor and cannot be traced through the consumer's last known address or telephone number. (b) Account termination. (2) Nothing in paragraph (b)(1) of this section prohibits a creditor from terminating an account that is inactive for three or more consecutive months. An account is inactive for purposes of this paragraph if no credit has been extended (such as by purchase, cash advance or balance transfer) and if the account has no outstanding balance. (c) Timely settlement of estate debts General rule Reasonable policies and procedures required. (ii) Application to joint accounts. (2) Timely statement of balance Requirement. (ii) Safe harbor. (3) Limitations after receipt of request from administrator Limitation on fees and increases in annual percentage rates. (ii) Limitation on trailing or residual interest. [75 FR 7812, Feb. 22, 2010] § 226.12 Special credit card provisions. (a) Issuance of credit cards. (1) In response to an oral or written request or application for the card; or (2) As a renewal of, or substitute for, an accepted credit card. 21 21 (b) Liability of cardholder for unauthorized use Definition of unauthorized use. (ii) Limitation on amount. 22 22 (2) Conditions of liability. (i) The credit card is an accepted credit card; (ii) The card issuer has provided adequate notice 23 23 (iii) The card issuer has provided a means to identify the cardholder on the account or the authorized user of the card. (3) Notification to card issuer. (4) Effect of other applicable law or agreement. (5) Business use of credit cards. (c) Right of cardholder to assert claims or defenses against card issuer 24 General rule. 25 24 25 (2) Adverse credit reports prohibited. (3) Limitations General. (A) The cardholder has made a good faith attempt to resolve the dispute with the person honoring the credit card; and (B) The amount of credit extended to obtain the property or services that result in the assertion of the claim or defense by the cardholder exceeds $50, and the disputed transaction occurred in the same state as the cardholder's current designated address or, if not within the same state, within 100 miles from that address. 26 26 (ii) Exclusion. (A) Is the same person as the card issuer; (B) Is controlled by the card issuer directly or indirectly; (C) Is under the direct or indirect control of a third person that also directly or indirectly controls the card issuer; (D) Controls the card issuer directly or indirectly; (E) Is a franchised dealer in the card issuer's products or services; or (F) Has obtained the order for the disputed transaction through a mail solicitation made or participated in by the card issuer. (d) Offsets by card issuer prohibited. (2) This paragraph does not alter or affect the right of a card issuer acting under state or federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: Obtain or enforce a consensual security interest in the funds; attach or otherwise levy upon the funds; or obtain or enforce a court order relating to the funds. (3) This paragraph does not prohibit a plan, if authorized in writing by the cardholder, under which the card issuer may periodically deduct all or part of the cardholder's credit card debt from a deposit account held with the card issuer (subject to the limitations in § 226.13(d)(1)). (e) Prompt notification of returns and crediting of refunds. (2) The card issuer shall, within 3 business days from receipt of a credit statement, credit the consumer's account with the amount of the refund. (3) If a creditor other than a card issuer routinely gives cash refunds to consumers paying in cash, the creditor shall also give credit or cash refunds to consumers using credit cards, unless it discloses at the time the transaction is consummated that credit or cash refunds for returns are not given. This section does not require refunds for returns nor does it prohibit refunds in kind. (f) Discounts; tie-in arrangements. (1) Prohibit any person who honors a credit card from offering a discount to a consumer to induce the consumer to pay by cash, check, or similar means rather than by use of a credit card or its underlying account for the purchase of property or services; or (2) Require any person who honors the card issuer's credit card to open or maintain any account or obtain any other service not essential to the operation of the credit card plan from the card issuer or any other person, as a condition of participation in a credit card plan. If maintenance of an account for clearing purposes is determined to be essential to the operation of the credit card plan, it may be required only if no service charges or minimum balance requirements are imposed. (g) Relation to Electronic Fund Transfer Act and Regulation E. [75 FR 7812, Feb. 22, 2010] § 226.13 Billing error resolution. 27 27 (a) Definition of billing error. (1) A reflection on or with a periodic statement of an extension of credit that is not made to the consumer or to a person who has actual, implied, or apparent authority to use the consumer's credit card or open-end credit plan. (2) A reflection on or with a periodic statement of an extension of credit that is not identified in accordance with the requirements of §§ 226.7(a)(2) or (b)(2), as applicable, and 226.8. (3) A reflection on or with a periodic statement of an extension of credit for property or services not accepted by the consumer or the consumer's designee, or not delivered to the consumer or the consumer's designee as agreed. (4) A reflection on a periodic statement of the creditor's failure to credit properly a payment or other credit issued to the consumer's account. (5) A reflection on a periodic statement of a computational or similar error of an accounting nature that is made by the creditor. (6) A reflection on a periodic statement of an extension of credit for which the consumer requests additional clarification, including documentary evidence. (7) The creditor's failure to mail or deliver a periodic statement to the consumer's last known address if that address was received by the creditor, in writing, at least 20 days before the end of the billing cycle for which the statement was required. (b) Billing error notice. 28 29 28 29 (1) Is received by a creditor at the address disclosed under § 226.7(a)(9) or (b)(9), as applicable, no later than 60 days after the creditor transmitted the first periodic statement that reflects the alleged billing error; (2) Enables the creditor to identify the consumer's name and account number; and (3) To the extent possible, indicates the consumer's belief and the reasons for the belief that a billing error exists, and the type, date, and amount of the error. (c) Time for resolution; general procedures. (2) The creditor shall comply with the appropriate resolution procedures of paragraphs (e) and (f) of this section, as applicable, within 2 complete billing cycles (but in no event later than 90 days) after receiving a billing error notice. (d) Rules pending resolution. (1) Consumer's right to withhold disputed amount; collection action prohibited. 30 30 (2) Adverse credit reports prohibited. (3) Acceleration of debt and restriction of account prohibited. (4) Permitted creditor actions. (e) Procedures if billing error occurred as asserted. (1) Correct the billing error and credit the consumer's account with any disputed amount and related finance or other charges, as applicable; and (2) Mail or deliver a correction notice to the consumer. (f) Procedures if different billing error or no billing error occurred. 31 31 (1) Mail or deliver to the consumer an explanation that sets forth the reasons for the creditor's belief that the billing error alleged by the consumer is incorrect in whole or in part; (2) Furnish copies of documentary evidence of the consumer's indebtedness, if the consumer so requests; and (3) If a different billing error occurred, correct the billing error and credit the consumer's account with any disputed amount and related finance or other charges, as applicable. (g) Creditor's rights and duties after resolution. (1) Shall promptly notify the consumer in writing of the time when payment is due and the portion of the disputed amount and related finance or other charges that the consumer still owes; (2) Shall allow any time period disclosed under § 226.6(a)(1) or (b)(2)(v), as applicable, and § 226.7(a)(8) or (b)(8), as applicable, during which the consumer can pay the amount due under paragraph (g)(1) of this section without incurring additional finance or other charges; (3) May report an account or amount as delinquent because the amount due under paragraph (g)(1) of this section remains unpaid after the creditor has allowed any time period disclosed under § 226.6(a)(1) or (b)(2)(v), as applicable, and § 226.7(a)(8) or (b)(8), as applicable or 10 days (whichever is longer) during which the consumer can pay the amount; but (4) May not report that an amount or account is delinquent because the amount due under paragraph (g)(1) of the section remains unpaid, if the creditor receives (within the time allowed for payment in paragraph (g)(3) of this section) further written notice from the consumer that any portion of the billing error is still in dispute, unless the creditor also: (i) Promptly reports that the amount or account is in dispute; (ii) Mails or delivers to the consumer (at the same time the report is made) a written notice of the name and address of each person to whom the creditor makes a report; and (iii) Promptly reports any subsequent resolution of the reported delinquency to all persons to whom the creditor has made a report. (h) Reassertion of billing error. (i) Relation to Electronic Fund Transfer Act and Regulation E. [75 FR 7814, Feb. 22, 2010] § 226.14 Determination of annual percentage rate. (a) General rule. 1/8 31a 31a (1) The error resulted from a corresponding error in a calculation tool used in good faith by the creditor; and (2) Upon discovery of the error, the creditor promptly discontinues use of that calculation tool for disclosure purposes, and notifies the Board in writing of the error in the calculation tool. (b) Annual percentage rate—in general. (c) Optional effective annual percentage rate for periodic statements for creditors offering open-end plans subject to the requirements of § 226.5b. (1) Solely periodic rates imposed. (i) By multiplying each periodic rate by the number of periods in a year; or (ii) By dividing the total finance charge for the billing cycle by the sum of the balances to which the periodic rates were applied and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year. (2) Minimum or fixed charge, but not transaction charge, imposed. 32 33 32 33 (3) Transaction charge imposed. 34 35 34 35 (4) If the finance charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the application of a periodic rate and the total finance charge imposed during the billing cycle does not exceed 50 cents for a monthly or longer billing cycle, or the pro rata part of 50 cents for a billing cycle shorter than monthly, at the creditor's option, by multiplying each applicable periodic rate by the number of periods in a year, notwithstanding the provisions of paragraphs (c)(2) and (c)(3) of this section. (d) Calculations where daily periodic rate applied. (1) By dividing the total finance charge by the average of the daily balances and multiplying the quotient by the number of billing cycles in a year; or (2) By dividing the total finance charge by the sum of the daily balances and multiplying the quotient by 365. [75 FR 7815, Feb. 22, 2010] § 226.15 Right of rescission. (a) Consumer's right to rescind. (ii) As provided in section 125(e) of the Act, the consumer does not have the right to rescind each credit extension made under the plan if such extension is made in accordance with a previously established credit limit for the plan. (2) To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram, or other means of written communication. Notice is considered given when mailed, or when filed for telegraphic transmission, or, if sent by other means, when delivered to the creditor's designated place of business. (3) The consumer may exercise the right to rescind until midnight of the third business day following the occurrence described in paragraph (a)(1) of this section that gave rise to the right of rescission, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, 36 36 material disclosures (4) When more than one consumer has the right to rescind, the exercise of the right by one consumer shall be effective as to all consumers. (b) Notice of right to rescind. (1) The retention or acquisition of a security interest in the consumer's principal dwelling. (2) The consumer's right to rescind, as described in paragraph (a)(1) of this section. (3) How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor's place of business. (4) The effects of rescission, as described in paragraph (d) of this section. (5) The date the rescission period expires. (c) Delay of creditor's performance. (d) Effects of rescission. (2) Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest. (3) If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer's option, tender of property may be made at the location of the property or at the consumer's residence. Tender of money must be made at the creditor's designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer's tender, the consumer may keep it without further obligation. (4) The procedures outlined in paragraphs (d)(2) and (3) of this section may be modified by court order. (e) Consumer's waiver of right to rescind. (2) The need of the consumer to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1993, pursuant to 42 U.S.C. 5170, to be a major disaster area because of severe storms and flooding in the Midwest. 36a 36a (3) The consumer's need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1994 to be a major disaster area, pursuant to 42 U.S.C. 5170, because of severe storms and flooding in the South. 36b 36b (4) The consumer's need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during October 1994 to be a major disaster area, pursuant to 42 U.S.C. 5170, because of severe storms and flooding in Texas. 36c 36c (f) Exempt transactions. (1) A residential mortgage transaction. (2) A credit plan in which a state agency is a creditor. [Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 54 FR 24688, June 9, 1989; 58 FR 40583, July 29, 1993; 59 FR 40204, Aug. 5, 1994; 59 FR 63715, Dec. 9, 1994; 66 FR 17338, Mar. 30, 2001; 72 FR 63474, Nov. 9, 2007] § 226.16 Advertising. (a) Actually available terms. (b) Advertisement of terms that require additional disclosures. 36d 36d (i) Any minimum, fixed, transaction, activity or similar charge that is a finance charge under § 226.4 that could be imposed. (ii) Any periodic rate that may be applied expressed as an annual percentage rate as determined under § 226.14(b). If the plan provides for a variable periodic rate, that fact shall be disclosed. (iii) Any membership or participation fee that could be imposed. (2) If an advertisement for credit to finance the purchase of goods or services specified in the advertisement states a periodic payment amount, the advertisement shall also state the total of payments and the time period to repay the obligation, assuming that the consumer pays only the periodic payment amount advertised. The disclosure of the total of payments and the time period to repay the obligation must be equally prominent to the statement of the periodic payment amount. (c) Catalogs or other multiple-page advertisements; electronic advertisements. (i) The table or schedule is clearly and conspicuously set forth; and (ii) Any statement of terms set forth in § 226.6 appearing anywhere else in the catalog or advertisement clearly refers to the page or location where the table or schedule begins. (2) A catalog or other multiple-page advertisement or an electronic advertisement (such as an advertisement appearing on an Internet Web site) complies with this paragraph if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered. (d) Additional requirements for home-equity plans Advertisement of terms that require additional disclosures. (i) Any loan fee that is a percentage of the credit limit under the plan and an estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range. (ii) Any periodic rate used to compute the finance charge, expressed as an annual percentage rate as determined under § 226.14(b). (iii) The maximum annual percentage rate that may be imposed in a variable-rate plan. (2) Discounted and premium rates. (i) The period of time such initial rate will be in effect; and (ii) A reasonably current annual percentage rate that would have been in effect using the index and margin. (3) Balloon payment. 36e 36e (i) That a balloon payment will result; and (ii) The amount and timing of the balloon payment that will result if the consumer makes only the minimum payments for the maximum period of time that the consumer is permitted to make such payments. (4) Tax implications. (i) The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes; and (ii) The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges. (5) Misleading terms. (6) Promotional rates and payments. Definitions. (A) Promotional rate. (B) Promotional payment. ( 1 ( i ( ii ( 2 (C) Promotional period. (ii) Stating the promotional period and post-promotional rate or payments. (A) The period of time during which the promotional rate or promotional payment will apply; (B) In the case of a promotional rate, any annual percentage rate that will apply under the plan. If such rate is variable, the annual percentage rate must be disclosed in accordance with the accuracy standards in §§ 226.5b or 226.16(b)(1)(ii) as applicable; and (C) In the case of a promotional payment, the amounts and time periods of any payments that will apply under the plan. In variable-rate transactions, payments that will be determined based on application of an index and margin shall be disclosed based on a reasonably current index and margin. (iii) Envelope excluded. (e) Alternative disclosures—television or radio advertisements. (f) Misleading terms. (g) Promotional rates and fees. Scope. (2) Definitions. Promotional rate (ii) Introductory rate (iii) Promotional period (iv) Promotional fee (v) Introductory fee (3) Stating the term “introductory”. introductory intro (4) Stating the promotional period and post-promotional rate or fee. (i) When the promotional rate or promotional fee will end; (ii) The annual percentage rate that will apply after the end of the promotional period. If such rate is variable, the annual percentage rate must comply with the accuracy standards in §§ 226.5a(c)(2), 226.5a(d)(3), 226.5a(e)(4), or 226.16(b)(1)(ii), as applicable. If such rate cannot be determined at the time disclosures are given because the rate depends at least in part on a later determination of the consumer's creditworthiness, the advertisement must disclose the specific rates or the range of rates that might apply; and (iii) The fee that will apply after the end of the promotional period. (5) Envelope excluded. (h) Deferred interest or similar offers. Scope. (2) Definitions. (3) Stating the deferred interest period. (4) Stating the terms of the deferred interest or similar offer. (i) A statement that interest will be charged from the date the consumer becomes obligated for the balance or transaction subject to the deferred interest offer if the balance or transaction is not paid in full within the deferred 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 interest offer if the account is in default before the end of the deferred interest period. (5) Envelope excluded. [75 FR 7816, Feb. 22, 201, as amended at 76 FR 23002, Apr. 25, 2011] Subpart C—Closed-End Credit § 226.17 General disclosure requirements. (a) Form of disclosures. et seq. 37 38 37 38 (2) Except for private education loan disclosures made in compliance with § 226.47, the terms “finance charge” and “annual percentage rate,” when required to be disclosed under § 226.18 (d) and (e) together with a corresponding amount or percentage rate, shall be more conspicuous than any other disclosure, except the creditor's identity under § 226.18(a). For private education loan disclosures made in compliance with § 226.47, the term “annual percentage rate,” and the corresponding percentage rate must be less conspicuous than the term “finance charge” and corresponding amount under § 226.18(d), the interest rate under §§ 226.47(b)(1)(i) and (c)(1), and the notice of the right to cancel under § 226.47(c)(4). (b) Time of disclosures. (c) Basis of disclosures and use of estimates. (2)(i) If any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available at the time the disclosure is provided to the consumer, and shall state clearly that the disclosure is an estimate. (ii) For a transaction in which a portion of the interest is determined on a per-diem basis and collected at consummation, any disclosure affected by the per-diem interest shall be considered accurate if the disclosure is based on the information known to the creditor at the time that the disclosure documents are prepared for consummation of the transaction. (3) The creditor may disregard the effects of the following in making calculations and disclosures. (i) That payments must be collected in whole cents. (ii) That dates of scheduled payments and advances may be changed because the scheduled date is not a business day. (iii) That months have different numbers of days. (iv) The occurrence of leap year. (4) In making calculations and disclosures, the creditor may disregard any irregularity in the first period that falls within the limits described below and any payment schedule irregularity that results from the irregular first period: (i) For transactions in which the term is less than 1 year, a first period not more than 6 days shorter or 13 days longer than a regular period; (ii) For transactions in which the term is at least 1 year and less than 10 years, a first period not more than 11 days shorter or 21 days longer than a regular period; and (iii) For transactions in which the term is at least 10 years, a first period shorter than or not more than 32 days longer than a regular period. (5) If an obligation is payable on demand, the creditor shall make the disclosures based on an assumed maturity of 1 year. If an alternate maturity date is stated in the legal obligation between the parties, the disclosures shall be based on that date. (6)(i) A series of advances under an agreement to extend credit up to a certain amount may be considered as one transaction. (ii) When a multiple-advance loan to finance the construction of a dwelling may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction. (d) Multiple creditors; multiple consumers. (e) Effect of subsequent events. (f) Early disclosures. 39 39 (1) Any changed term unless the term was based on an estimate in accordance with § 226.17(c)(2) and was labelled an estimate; (2) All changed terms, if the annual percentage rate at the time of consummation varies from the annual percentage rate disclosed earlier by more than 1/8 1/4 (g) Mail or telephone orders—delay in disclosures. (1) The cash price or the principal loan amount. (2) The total sale price. (3) The finance charge. (4) The annual percentage rate, and if the rate may increase after consummation, the following disclosures: (i) The circumstances under which the rate may increase. (ii) Any limitations on the increase. (iii) The effect of an increase. (5) The terms of repayment. (h) Series of sales—delay in disclosures. (1) The consumer has approved in writing the annual percentage rate or rates, the range of balances to which they apply, and the method of treating any unearned finance charge on an existing balance. (2) The creditor retains no security interest in any property after the creditor has received payments equal to the cash price and any finance charge attributable to the sale of that property. For purposes of this provision, in the case of items purchased on different dates, the first purchased is deemed the first item paid for; in the case of items purchased on the same date, the lowest priced is deemed the first item paid for. (i) Interim student credit extensions. [Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 52 FR 48670, Dec. 24, 1987; 61 FR 49246, Sept. 19, 1996; 66 FR 17338, Mar. 30, 2001; 67 FR 16982, Apr. 9, 2002; 72 FR 63474, Nov. 9, 2007; 73 FR 44600, July 30, 2008; 74 FR 23301, May 19, 2009; 73 FR 44600, July 30, 2008; 74 FR 41232, Aug. 14, 2009] § 226.18 Content of disclosures. For each transaction, the creditor shall disclose the following information as applicable: (a) Creditor. (b) Amount financed. amount financed, the amount of credit provided to you or on your behalf. (1) Determining the principal loan amount or the cash price (subtracting any downpayment); (2) Adding any other amounts that are financed by the creditor and are not part of the finance charge; and (3) Subtracting any prepaid finance charge. (c) Itemization of amount financed. 40 40 et seq. (i) The amount of any proceeds distributed directly to the consumer. (ii) The amount credited to the consumer's account with the creditor. (iii) Any amounts paid to other persons by the creditor on the consumer's behalf. The creditor shall identify those persons. 41 41 (iv) The prepaid finance charge. (2) The creditor need not comply with paragraph (c)(1) of this section if the creditor provides a statement that the consumer has the right to receive a written itemization of the amount financed, together with a space for the consumer to indicate whether it is desired, and the consumer does not request it. (d) Finance charge. finance charge, (1) Mortgage loans. (i) Is understated by no more than $100; or (ii) Is greater than the amount required to be disclosed. (2) Other credit. (e) Annual percentage rate. annual percentage rate, 42 42 (f) Variable rate. 43 43 (i) The circumstances under which the rate may increase. (ii) Any limitations on the increase. (iii) The effect of an increase. (iv) An example of the payment terms that would result from an increase. (2) If the annual percentage rate may increase after consummation in a transaction secured by the consumer's principal dwelling with a term greater than one year, the following disclosures: (i) The fact that the transaction contains a variable-rate feature. (ii) A statement that variable-rate disclosures have been provided earlier. (g) Payment schedule. (1) In a demand obligation with no alternate maturity date, the creditor may comply with this paragraph by disclosing the due dates or payment periods of any scheduled interest payments for the first year. (2) In a transaction in which a series of payments varies because a finance charge is applied to the unpaid principal balance, the creditor may comply with this paragraph by disclosing the following information: (i) The dollar amounts of the largest and smallest payments in the series. (ii) A reference to the variations in the other payments in the series. (h) Total of payments. total of payments, 44 44 (i) Demand feature. (j) Total sale price. total sale price, (k) Prepayment. (2) When an obligation includes a finance charge other than the finance charge described in paragraph (k)(1) of this section, a statement indicating whether or not the consumer is entitled to a rebate of any finance charge if the obligation is prepaid in full. (l) Late payment. (m) Security interest. (n) Insurance and debt cancellation. (o) Certain security interest charges. (p) Contract reference. (q) Assumption policy. (r) Required deposit. 45 45 (s) Interest rate and payment summary for mortgage transactions. (1) Form of disclosures. (2) Interest rates Amortizing loans. (B) For an adjustable-rate or step-rate mortgage— ( 1 ( 2) ( 3 (C) If the loan provides for payment increases as described in paragraph (s)(3)(i)(B) of this section, the interest rate in effect at the time the first such payment increase is scheduled to occur and the date on which the increase will occur, labeled as “first adjustment” if the loan is an adjustable-rate mortgage or, otherwise, labeled as “first increase.” (ii) Negative amortization loans. (A) The interest rate at consummation and, if it will adjust after consummation, the length of time until it will adjust, and the label “introductory” or “intro”; (B) The maximum interest rate that could apply when the consumer must begin making fully amortizing payments under the terms of the legal obligation; (C) If the minimum required payment will increase before the consumer must begin making fully amortizing payments, the maximum interest rate that could apply at the time of the first payment increase and the date the increase is scheduled to occur; and (D) If a second increase in the minimum required payment may occur before the consumer must begin making fully amortizing payments, the maximum interest rate that could apply at the time of the second payment increase and the date the increase is scheduled to occur. (iii) Introductory rate disclosure for amortizing adjustable-rate mortgages. (A) The interest rate that applies at consummation and the period of time for which it applies; (B) A statement that, even if market rates do not change, the interest rate will increase at the first adjustment and a designation of the place in sequence of the month or year, as applicable, of such rate adjustment; and (C) The fully-indexed rate. (3) Payments for amortizing loans Principal and interest payments. (A) The corresponding periodic principal and interest payment, labeled as “principal and interest;” (B) If the periodic payment may increase without regard to an interest rate adjustment, the payment that corresponds to the first such increase and the earliest date on which the increase could occur; (C) If an escrow account will be established, an estimate of the amount of taxes and insurance, including any mortgage insurance, payable with each periodic payment; and (D) The sum of the amounts disclosed under paragraphs (s)(3)(i)(A) and (C) of this section or (s)(3)(i)(B) and (C) of this section, as applicable, labeled as “total estimated monthly payment.” (ii) Interest-only payments. (A) If the payment will be applied to only accrued interest, the amount applied to interest, labeled as “interest payment,” and a statement that none of the payment is being applied to principal; (B) If the payment will be applied to accrued interest and principal, an itemization of the amount of the first such payment applied to accrued interest and to principal, labeled as “interest payment” and “principal payment,” respectively; (C) The escrow information described in paragraph (s)(3)(i)(C) of this section; and (D) The sum of all amounts required to be disclosed under paragraphs (s)(3)(ii)(A) and (C) of this section or (s)(3)(ii)(B) and (C) of this section, as applicable, labeled as “total estimated monthly payment.” (4) Payments for negative amortization loans. (i)(A) The minimum periodic payment required until the first payment increase or interest rate increase, corresponding to the interest rate disclosed under paragraph (s)(2)(ii)(A) of this section; (B) The minimum periodic payment that would be due at the first payment increase and the second, if any, corresponding to the interest rates described in paragraphs (s)(2)(ii)(C) and (D) of this section; and (C) A statement that the minimum payment pays only some interest, does not repay any principal, and will cause the loan amount to increase; (ii) The fully amortizing periodic payment amount at the earliest time when such a payment must be made, corresponding to the interest rate disclosed under paragraph (s)(2)(ii)(B) of this section; and (iii) If applicable, in addition to the payments in paragraphs (s)(4)(i) and (ii) of this section, for each interest rate disclosed under paragraph (s)(2)(ii) of this section, the amount of the fully amortizing periodic payment, labeled as the “full payment option,” and a statement that these payments pay all principal and all accrued interest. (5) Balloon payments. (ii) If the balloon payment is scheduled to occur at the same time as another payment required to be disclosed in the table pursuant to paragraph (s)(3) or (s)(4) of this section, then the balloon payment must be disclosed in the table. (6) Special disclosures for loans with negative amortization. (i) The maximum interest rate, the shortest period of time in which such interest rate could be reached, the amount of estimated taxes and insurance included in each payment disclosed, and a statement that the loan offers payment options, two of which are shown. (ii) The dollar amount of the increase in the loan's principal balance if the consumer makes only the minimum required payments for the maximum possible time and the earliest date on which the consumer must begin making fully amortizing payments, assuming that the maximum interest rate is reached at the earliest possible time. (7) Definitions. (i) The term “adjustable-rate mortgage” means a transaction secured by real property or a dwelling for which the annual percentage rate may increase after consummation. (ii) The term “step-rate mortgage” means a transaction secured by real property or a dwelling for which the interest rate will change after consummation, and the rates that will apply and the periods for which they will apply are known at consummation. (iii) The term “fixed-rate mortgage” means a transaction secured by real property or a dwelling that is not an adjustable-rate mortgage or a step-rate mortgage. (iv) The term “interest-only” means that, under the terms of the legal obligation, one or more of the periodic payments may be applied solely to accrued interest and not to loan principal; an “interest-only loan” is a loan that permits interest-only payments. (v) The term “amortizing loan” means a loan in which payment of the periodic payments does not result in an increase in the principal balance under the terms of the legal obligation; the term “negative amortization” means payment of periodic payments that will result in an increase in the principal balance under the terms of the legal obligation; the term “negative amortization loan” means a loan, other than a reverse mortgage subject to § 226.33, that provides for a minimum periodic payment that covers only a portion of the accrued interest, resulting in negative amortization. (vi) The term “fully-indexed rate” means the interest rate calculated using the index value and margin at the time of consummation. (t) “ No-guarantee-to-refinance” statement Disclosure. (2) Format. [46 FR 20892, Apr. 7, 1981; 46 FR 29246, June 1, 1981, as amended at 52 FR 48670, Dec. 24, 1987; 61 FR 49246, Sept. 19, 1996; 75 FR 58482, Sept. 24, 2010; 75 FR 81841, Dec. 29, 2010] § 226.19 Certain mortgage and variable-rate transactions. (a) Mortgage transactions subject to RESPA Time of disclosures. et seq. (ii) Imposition of fees. (iii) Exception to fee restriction. bona fide (2) Waiting periods for early disclosures and corrected disclosures. (ii) If the annual percentage rate disclosed under paragraph (a)(1)(i) of this section becomes inaccurate, as defined in § 226.22, the creditor shall provide corrected disclosures with all changed terms. The consumer must receive the corrected disclosures no later than three business days before consummation. If the corrected disclosures are mailed to the consumer or delivered to the consumer by means other than delivery in person, the consumer is deemed to have received the corrected disclosures three business days after they are mailed or delivered. (3) Consumer's waiver of waiting period before consummation. bona fide (4) Notice. (5) Timeshare plans. et seq. (i) The requirements of paragraphs (a)(1) through (a)(4) of this section do not apply; (ii) The creditor shall make good faith estimates of the disclosures required by § 226.18 before consummation, or shall deliver or place them in the mail not later than three business days after the creditor receives the consumer's written application, whichever is earlier; and (iii) If the annual percentage rate at the time of consummation varies from the annual percentage rate disclosed under paragraph (a)(5)(ii) of this section by more than 1/8 1/4 (b) Certain variable-rate transactions. 45a 45b 45a 45b (1) The booklet titled Consumer Handbook on Adjustable Rate Mortgages (2) A loan program disclosure for each variable-rate program in which the consumer expresses an interest. The following disclosures, as applicable, shall be provided: (i) The fact that the interest rate, payment, or term of the loan can change. (ii) The index or formula used in making adjustments, and a source of information about the index or formula. (iii) An explanation of how the interest rate and payment will be determined, including an explanation of how the index is adjusted, such as by the addition of a margin. (iv) A statement that the consumer should ask about the current margin value and current interest rate. (v) The fact that the interest rate will be discounted, and a statement that the consumer should ask about the amount of the interest rate discount. (vi) The frequency of interest rate and payment changes. (vii) Any rules relating to changes in the index, interest rate, payment amount, and outstanding loan balance including, for example, an explanation of interest rate or payment limitations, negative amortization, and interest rate carryover. (viii) At the option of the creditor, either of the following: (A) A historical example, based on a $10,000 loan amount, illustrating how payments and the loan balance would have been affected by interest rate changes implemented according to the terms of the loan program disclosure. The example shall reflect the most recent 15 years of index values. The example shall reflect all significant loan program terms, such as negative amortization, interest rate carryover, interest rate discounts, and interest rate and payment limitations, that would have been affected by the index movement during the period. (B) The maximum interest rate and payment for a $10,000 loan originated at the initial interest rate (index value plus margin, adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure assuming the maximum periodic increases in rates and payments under the program; and the initial interest rate and payment for that loan and a statement that the periodic payment may increase or decrease substantially depending on changes in the rate. (ix) An explanation of how the consumer may calculate the payments for the loan amount to be borrowed based on either: (A) The most recent payment shown in the historical example in paragraph (b)(2)(viii)(A) of this section; or (B) The initial interest rate used to calculate the maximum interest rate and payment in paragraph (b)(2)(viii)(B) of this section. (x) The fact that the loan program contains a demand feature. (xi) The type of information that will be provided in notices of adjustments and the timing of such notices. (xii) A statement that disclosure forms are available for the creditor's other variable-rate loan programs. (c) Electronic disclosures. [Reg. Z, 52 FR 48670, Dec. 24, 1987; 53 FR 467, Jan. 7, 1988, as amended at 61 FR 49246, Sept. 19, 1996; 62 FR 63443, Dec. 1, 1997; 72 FR 63474, Nov. 9, 2007; 73 FR 44600, July 30, 2008; 73 FR 44600, July 30, 2008; 74 FR 23301, May 19, 2009] § 226.20 Subsequent disclosure requirements. (a) Refinancings. (1) A renewal of a single payment obligation with no change in the original terms. (2) A reduction in the annual percentage rate with a corresponding change in the payment schedule. (3) An agreement involving a court proceeding. (4) A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in § 226.4(d). (5) The renewal of optional insurance purchased by the consumer and added to an existing transaction, if disclosures relating to the initial purchase were provided as required by this subpart. (b) Assumptions. (1) The unpaid balance of the obligation assumed. (2) The total charges imposed by the creditor in connection with the assumption. (3) The information required to be disclosed under § 226.18(k), (l), (m), and (n). (4) The annual percentage rate originally imposed on the obligation. (5) The payment schedule under § 226.18(g) and the total of payments under § 226.18(h) based on the remaining obligation. (c) Variable-rate adjustments. 45c 45c (1) The current and prior interest rates. (2) The index values upon which the current and prior interest rates are based. (3) The extent to which the creditor has foregone any increase in the interest rate. (4) The contractual effects of the adjustment, including the payment due after the adjustment is made, and a statement of the loan balance. (5) The payment, if different from that referred to in paragraph (c)(4) of this section, that would be required to fully amortize the loan at the new interest rate over the remainder of the loan term. [46 FR 20892, Apr. 7, 1981, as amended at 52 FR 48671, Dec. 24, 1987] § 226.21 Treatment of credit balances. When a credit balance in excess of $1 is created in connection with a transaction (through transmittal of funds to a creditor in excess of the total balance due on an account, through rebates of unearned finance charges or insurance premiums, or through amounts otherwise owed to or held for the benefit of a consumer), the creditor shall: (a) Credit the amount of the credit balance to the consumer's account; (b) Refund any part of the remaining credit balance, upon the written request of the consumer; and (c) Make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than 6 months, except that no further action is required if the consumer's current location is not known to the creditor and cannot be traced through the consumer's last known address or telephone number. § 226.22 Determination of annual percentage rate. (a) Accuracy of annual percentage rate. 45d 45d (2) As a general rule, the annual percentage rate shall be considered accurate if it is not more than 1/8 (3) In an irregular transaction, the annual percentage rate shall be considered accurate if it is not more than 1/4 46 46 (4) Mortgage loans. (i) The rate results from the disclosed finance charge; and (ii)(A) The disclosed finance charge would be considered accurate under § 226.18(d)(1); or (B) For purposes of rescission, if the disclosed finance charge would be considered accurate under § 226.23(g) or (h), whichever applies. (5) Additional tolerance for mortgage loans. (i) If the disclosed finance charge is understated, and the disclosed annual percentage rate is also understated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section; (ii) If the disclosed finance charge is overstated, and the disclosed annual percentage rate is also overstated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section. (b) Computation tools. (2) Creditors may use any other computation tool in determining the annual percentage rate if the rate so determined equals the rate determined in accordance with appendix J, within the degree of accuracy set forth in paragraph (a) of this section. (c) Single add-on rate transactions. (d) Certain transactions involving ranges of balances. [46 FR 20892, Apr. 7, 1981, as amended at 47 FR 756, Jan. 7, 1982; 48 FR 14886, Apr. 6, 1983; 61 FR 49246, Sept. 19, 1996] § 226.23 Right of rescission. (a) Consumer's right to rescind. 47 47 (2) To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor's designated place of business. (3) The consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, 48 48 (4) When more than one consumer in a transaction has the right to rescind, the exercise of the right by one consumer shall be effective as to all consumers. (b)(1) Notice of right to rescind. (i) The retention or acquisition of a security interest in the consumer's principal dwelling. (ii) The consumer's right to rescind the transaction. (iii) How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor's place of business. (iv) The effects of rescission, as described in paragraph (d) of this section. (v) The date the rescission period expires. (2) Proper form of notice. (c) Delay of creditor's performance. (d) Effects of rescission. (2) Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest. (3) If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer's option, tender of property may be made at the location of the property or at the consumer's residence. Tender of money must be made at the creditor's designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer's tender, the consumer may keep it without further obligation. (4) The procedures outlined in paragraphs (d) (2) and (3) of this section may be modified by court order. (e) Consumer's waiver of right to rescind. (2) The need of the consumer to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1993, pursuant to 42 U.S.C. 5170, to be a major disaster area because of severe storms and flooding in the Midwest. 48a 48a (3) The consumer's need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1994 to be a major disaster area, pursuant to 42 U.S.C. 5170, because of severe storms and flooding in the South. 48b 48b (4) The consumer's need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during October 1994 to be a major disaster area, pursuant to 42 U.S.C. 5170, because of severe storms and flooding in Texas. 48c 48c (f) Exempt transactions. (1) A residential mortgage transaction. (2) A refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer's principal dwelling. The right of rescission shall apply, however, to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation. (3) A transaction in which a state agency is a creditor. (4) An advance, other than an initial advance, in a series of advances or in a series of single-payment obligations that is treated as a single transaction under § 226.17(c)(6), if the notice required by paragraph (b) of this section and all material disclosures have been given to the consumer. (5) A renewal of optional insurance premiums that is not considered a refinancing under § 226.20(a)(5). (g) Tolerances for accuracy One-half of 1 percent tolerance. (i) is understated by no more than 1/2 (ii) is greater than the amount required to be disclosed. (2) One percent tolerance. (i) is understated by no more than 1 percent of the face amount of the note or $100, whichever is greater; or (ii) is greater than the amount required to be disclosed. (h) Special rules for foreclosures Right to rescind. (i) A mortgage broker fee that should have been included in the finance charge was not included; or (ii) The creditor did not provide the properly completed appropriate model form in appendix H of this part, or a substantially similar notice of rescission. (2) Tolerance for disclosures. (i) is understated by no more than $35; or (ii) is greater than the amount required to be disclosed. [Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 51 FR 45299, Dec. 18, 1986; 58 FR 40583, July 29, 1993; 59 FR 40204, Aug. 5, 1994; 59 FR 63715, Dec. 9, 1994; 60 FR 15471, Mar. 24, 1995; 61 FR 49247, Sept. 19, 1996; 66 FR 17338, Mar. 30, 2001; 72 FR 63474, Nov. 9, 2007; 73 FR 44601, July 24, 2008] § 226.24 Advertising. (a) Actually available terms. (b) Clear and conspicuous standard. (c) Advertisement of rate of finance charge. (d) Advertisement of terms that require additional disclosures Triggering terms. (i) The amount or percentage of any downpayment. (ii) The number of payments or period of repayment. (iii) The amount of any payment. (iv) The amount of any finance charge. (2) Additional terms. 49 49 (i) The amount or percentage of the downpayment. (ii) The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment. (iii) The “annual percentage rate,” using that term, and, if the rate may be increased after consummation, that fact. (e) Catalogs or other multiple-page advertisements; electronic advertisements (i) The table or schedule is clearly and conspicuously set forth; and (ii) Any statement of the credit terms in paragraph (d)(1) of this section appearing anywhere else in the catalog or advertisement clearly refers to the page or location where the table or schedule begins. (2) A catalog or other multiple-page advertisement or an electronic advertisement (such as an advertisement appearing on an Internet Web site) complies with paragraph (d)(2) of this section if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered. (f) Disclosure of rates and payments in advertisements for credit secured by a dwelling Scope. (2) Disclosure of rates In general. (A) Each simple annual rate of interest that will apply. In variable-rate transactions, a rate determined by adding an index and margin shall be disclosed based on a reasonably current index and margin; (B) The period of time during which each simple annual rate of interest will apply; and (C) The annual percentage rate for the loan. If such rate is variable, the annual percentage rate shall comply with the accuracy standards in §§ 226.17(c) and 226.22. (ii) Clear and conspicuous requirement. (3) Disclosure of payments In general. (A) The amount of each payment that will apply over the term of the loan, including any balloon payment. In variable-rate transactions, payments that will be determined based on the application of the sum of an index and margin shall be disclosed based on a reasonably current index and margin; (B) The period of time during which each payment will apply; and (C) In an advertisement for credit secured by a first lien on a dwelling, the fact that the payments do not include amounts for taxes and insurance premiums, if applicable, and that the actual payment obligation will be greater. (ii) Clear and conspicuous requirement. (4) Envelope excluded. (g) Alternative disclosures—television or radio advertisements. (1) Stating clearly and conspicuously each of the additional disclosures required under paragraph (d)(2) of this section; or (2) Stating clearly and conspicuously the information required by paragraph (d)(2)(iii) of this section and listing a toll-free telephone number, or any telephone number that allows a consumer to reverse the phone charges when calling for information, along with a reference that such number may be used by consumers to obtain additional cost information. (h) Tax implications. (1) The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes; and (2) The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges. (i) Prohibited acts or practices in advertisements for credit secured by a dwelling. (1) Misleading advertising of “fixed” rates and payments. (i) In the case of an advertisement solely for one or more variable-rate transactions, (A) The phrase “Adjustable-Rate Mortgage,” “Variable-Rate Mortgage,” or “ARM” appears in the advertisement before the first use of the word “fixed” and is at least as conspicuous as any use of the word “fixed” in the advertisement; and (B) Each use of the word “fixed” to refer to a rate or payment is accompanied by an equally prominent and closely proximate statement of the time period for which the rate or payment is fixed, and the fact that the rate may vary or the payment may increase after that period; (ii) In the case of an advertisement solely for non-variable-rate transactions where the payment will increase ( e.g. (iii) In the case of an advertisement for both variable-rate transactions and non-variable-rate transactions, (A) The phrase “Adjustable-Rate Mortgage,” “Variable-Rate Mortgage,” or “ARM” appears in the advertisement with equal prominence as any use of the term “fixed,” “Fixed-Rate Mortgage,” or similar terms; and (B) Each use of the word “fixed” to refer to a rate, payment, or the credit transaction either refers solely to the transactions for which rates are fixed and complies with paragraph (i)(1)(ii) of this section, if applicable, or, if it refers to the variable-rate transactions, is accompanied by an equally prominent and closely proximate statement of the time period for which the rate or payment is fixed, and the fact that the rate may vary or the payment may increase after that period. (2) Misleading comparisons in advertisements. (i) In general. (ii) Application to variable-rate transactions. (3) Misrepresentations about government endorsement. (4) Misleading use of the current lender's name. (i) Discloses with equal prominence the name of the person or creditor making the advertisement; and (ii) Includes a clear and conspicuous statement that the person making the advertisement is not associated with, or acting on behalf of, the consumer's current lender. (5) Misleading claims of debt elimination. (6) Misleading use of the term “counselor”. (7) Misleading foreign-language advertisements. [Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 66 FR 17338, Mar. 30, 2001; 72 FR 63474, Nov. 9, 2007; 73 FR 44601, July 30, 2008] Subpart D—Miscellaneous § 226.25 Record retention. (a) General rule. (b) Inspection of records. § 226.26 Use of annual percentage rate in oral disclosures. (a) Open-end credit. (b) Closed-end credit. § 226.27 Language of disclosures. Disclosures required by this regulation may be made in a language other than English, provided that the disclosures are made available in English upon the consumer's request. This requirement for providing English disclosures on request does not apply to advertisements subject to §§ 226.16 and 226.24. [66 FR 17339, Mar. 30, 2001] § 226.28 Effect on State laws. (a) Inconsistent disclosure requirements. (2)(i) State law requirements are inconsistent with the requirements contained in sections 161 (Correction of billing errors) or 162 (Regulation of credit reports) of the Act and the implementing provisions of this regulation and are preempted if they provide rights, responsibilities, or procedures for consumers or creditors that are different from those required by the Federal law. However, a State law that allows a consumer to inquire about an open-end credit account and imposes on the creditor an obligation to respond to such inquiry after the time allowed in the Federal law for the consumer to submit written notice of a billing error shall not be preempted in any situation where the time period for making written notice under this regulation has expired. If a creditor gives written notice of a consumer's rights under such State law, the notice shall state that reliance on the longer time period available under State law may result in the loss of important rights that could be preserved by acting more promptly under Federal law; it shall also explain that the State law provisions apply only after expiration of the time period for submitting a proper written notice of a billing error under the Federal law. If the State disclosures are made on the same side of a page as the required Federal disclosures, the State disclosures shall appear under a demarcation line below the Federal disclosures, and the Federal disclosures shall be identified by a heading indicating that they are made in compliance with Federal law. (ii) State law requirements are inconsistent with the requirements contained in chapter 4 (Credit billing) of the Act (other than section 161 or 162) and the implementing provisions of this regulation and are preempted if the creditor cannot comply with State law without violating Federal law. (iii) A State may request the Board to determine whether its law is inconsistent with chapter 4 of the Act and its implementing provisions. (b) Equivalent disclosure requirements. (c) Request for determination. (d) Special rule for credit and charge cards. [Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 54 FR 13867, Apr. 6, 1989; 54 FR 32954, Aug. 11, 1989; 60 FR 15471, Mar. 24, 1995] § 226.29 State exemptions. (a) General rule. (1) The State law is substantially similar to the Federal law or, in the case of chapter 4, affords the consumer greater protection than the Federal law; and (2) There is adequate provision for enforcement. (b) Civil liability. (2) If an exemption has been granted, the disclosures required by the applicable State law (except any additional requirements not imposed by Federal law) shall constitute the disclosures required by this Act. (c) Applications. [46 FR 20892, Apr. 7, 1981; 46 FR 29246, June 1, 1981] § 226.30 Limitation on rates. A creditor shall include in any consumer credit contract secured by a dwelling and subject to the act and this regulation the maximum interest rate that may be imposed during the term of the obligation 50 50 (a) In the case of closed-end credit, the annual percentage rate may increase after consummation, or (b) In the case of open-end credit, the annual percentage rate may increase during the plan. [75 FR 7818, Feb. 22, 2010] Subpart E—Special Rules for Certain Home Mortgage Transactions Source: Reg. Z, 60 FR 15471, Mar. 24, 1995, unless otherwise noted. § 226.31 General rules. (a) Relation to other subparts in this part. (b) Form of disclosures. et seq. (c) Timing of disclosure Disclosures for certain closed-end home mortgages. (i) Change in terms. (ii) Telephone disclosures. (A) The creditor provides new written disclosures; and (B) The consumer and creditor sign a statement that the new disclosures were provided by telephone at least three days prior to consummation. (iii) Consumer's waiver of waiting period before consummation. (2) Disclosures for reverse mortgages. (i) Consummation of a closed-end credit transaction; or (ii) The first transaction under an open-end credit plan. (d) Basis of disclosures and use of estimates Legal Obligation. (2) Estimates. (3) Per-diem interest. (e) Multiple creditors; multiple consumers. (f) Effect of subsequent events. (g) Accuracy of annual percentage rate. [Reg. Z, 60 FR 15471, Mar. 24, 1995, as amended at 60 FR 29969, June 7, 1995; 61 FR 49247, Sept. 19, 1996; 66 FR 17339, Mar. 30, 2001; 72 FR 63475, Nov. 9, 2007] § 226.32 Requirements for certain closed-end home mortgages. (a) Coverage. (i) The annual percentage rate at consummation will exceed by more than 8 percentage points for first-lien loans, or by more than 10 percentage points for subordinate-lien loans, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or (ii) The total points and fees payable by the consumer at or before loan closing will exceed the greater of 8 percent of the total loan amount, or $400; the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1. (2) This section does not apply to the following: (i) A residential mortgage transaction. (ii) A reverse mortgage transaction subject to § 226.33. (iii) An open-end credit plan subject to subpart B of this part. (b) Definitions. (1) For purposes of paragraph (a)(1)(ii) of this section, points and fees (i) All items required to be disclosed under § 226.4(a) and 226.4(b), except interest or the time-price differential; (ii) All compensation paid to mortgage brokers; (iii) All items listed in § 226.4(c)(7) (other than amounts held for future payment of taxes) unless the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor; and (iv) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-cancellation coverage (whether or not the debt-cancellation coverage is insurance under applicable law) that provides for cancellation of all or part of the consumer's liability in the event of the loss of life, health, or income or in the case of accident, written in connection with the credit transaction. (2) Affiliate et seq. (c) Disclosures. (1) Notices. (2) Annual percentage rate. (3) Regular payment; balloon payment. (4) Variable-rate. (5) Amount borrowed. (d) Limitations. (1)(i) Balloon payment. (ii) Exception. (2) Negative amortization. (3) Advance payments. (4) Increased interest rate. (5) Rebates. (6) Prepayment penalties. (7) Prepayment penalty exception. (i) The penalty will not apply after the two-year period following consummation; (ii) The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor; (iii) At consummation, the consumer's total monthly debt payments (including amounts owed under the mortgage) do not exceed 50 percent of the consumer's monthly gross income, as verified in accordance with § 226.34(a)(4)(ii); and (iv) The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation. (8) Due-on-demand clause. (i) There is fraud or material misrepresentation by the consumer in connection with the loan; (ii) The consumer fails to meet the repayment terms of the agreement for any outstanding balance; or (iii) There is any action or inaction by the consumer that adversely affects the creditor's security for the loan, or any right of the creditor in such security. [Reg. Z, 60 FR 15472, Mar. 24, 1995, as amended at 60 FR 29969, June 7, 1995; 66 FR 65617, Dec. 20, 2001; 73 FR 44602, July 30, 2008] § 226.33 Requirements for reverse mortgages. (a) Definition. reverse mortgage transaction (1) A mortgage, deed of trust, or equivalent consensual security interest securing one or more advances is created in the consumer's principal dwelling; and (2) Any principal, interest, or shared appreciation or equity is due and payable (other than in the case of default) only after: (i) The consumer dies; (ii) The dwelling is transferred; or (iii) The consumer ceases to occupy the dwelling as a principal dwelling. (b) Content of disclosures. (1) Notice. (2) Total annual loan cost rates. (3) Itemization of pertinent information. (4) Explanation of table. (c) Projected total cost of credit. (1) Costs to consumer. (2) Payments to consumer. (3) Additional creditor compensation. (4) Limitations on consumer liability. (5) Assumed annual appreciation rates. (i) 0 percent. (ii) 4 percent. (iii) 8 percent. (6) Assumed loan period. (A) Two years. (B) The actuarial life expectancy of the consumer to become obligated on the reverse mortgage transaction (as of that consumer's most recent birthday). In the case of multiple consumers, the period shall be the actuarial life expectancy of the youngest consumer (as of that consumer's most recent birthday). (C) The actuarial life expectancy specified by paragraph (c)(6)(i)(B) of this section, multiplied by a factor of 1.4 and rounded to the nearest full year. (ii) At the creditor's option, the actuarial life expectancy specified by paragraph (c)(6)(i)(B) of this section, multiplied by a factor of .5 and rounded to the nearest full year. § 226.34 Prohibited acts or practices in connection with credit subject to § 226.32. (a) Prohibited acts or practices for loans subject to § 226.32. (1) Home improvement contracts. (i) By an instrument payable to the consumer or jointly to the consumer and the contractor; or (ii) At the election of the consumer, through a third-party escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor prior to the disbursement. (2) Notice to assignee. (3) Refinancings within one-year period. (4) Repayment ability. (i) Mortgage-related obligations. (ii) Verification of repayment ability. (A) A creditor must verify amounts of income or assets that it relies on to determine repayment ability, including expected income or assets, by the consumer's Internal Revenue Service Form W-2, tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of the consumer's income or assets. (B) Notwithstanding paragraph (a)(4)(ii)(A), a creditor has not violated paragraph (a)(4)(ii) if the amounts of income and assets that the creditor relied upon in determining repayment ability are not materially greater than the amounts of the consumer's income or assets that the creditor could have verified pursuant to paragraph (a)(4)(ii)(A) at the time the loan was consummated. (C) A creditor must verify the consumer's current obligations. (iii) Presumption of compliance. (A) Verifies the consumer's repayment ability as provided in paragraph (a)(4)(ii); (B) Determines the consumer's repayment ability using the largest payment of principal and interest scheduled in the first seven years following consummation and taking into account current obligations and mortgage-related obligations as defined in paragraph (a)(4)(i); and (C) Assesses the consumer's repayment ability taking into account at least one of the following: The ratio of total debt obligations to income, or the income the consumer will have after paying debt obligations. (iv) Exclusions from presumption of compliance. (A) The regular periodic payments for the first seven years would cause the principal balance to increase; or (B) The term of the loan is less than seven years and the regular periodic payments when aggregated do not fully amortize the outstanding principal balance. (v) Exemption. (b) Prohibited acts or practices for dwelling-secured loans; open-end credit. [Reg. Z, 66 FR 65618, Dec. 20, 2001, as amended at 73 FR 44603, July 30, 2008] § 226.35 Prohibited acts or practices in connection with higher-priced mortgage loans. (a) Higher-priced mortgage loans (2) “Average prime offer rate” means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics. The Board publishes average prime offer rates for a broad range of types of transactions in a table updated at least weekly as well as the methodology the Board uses to derive these rates. (3) Notwithstanding paragraph (a)(1) of this section, the term “higher-priced mortgage loan” does not include a transaction to finance the initial construction of a dwelling, a temporary or “bridge” loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months, a reverse-mortgage transaction subject to § 226.33, or a home equity line of credit subject to § 226.5b. (b) Rules for higher-priced mortgage loans. (1) Repayment ability. (2) Prepayment penalties. (i) The penalty is otherwise permitted by law, including § 226.32(d)(7) if the loan is a mortgage transaction described in § 226.32(a); and (ii) Under the terms of the loan— (A) The penalty will not apply after the two-year period following consummation; (B) The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor; and (C) The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation. (3) Escrows Failure to escrow for property taxes and insurance. (ii) Exemptions for loans secured by shares in a cooperative and for certain condominium units (B) Insurance premiums described in paragraph (b)(3)(i) of this section need not be included in escrow accounts for loans secured by condominium units, where the condominium association has an obligation to the condominium unit owners to maintain a master policy insuring condominium units. (iii) Cancellation. (iv) Definition of escrow account. (v) “Jumbo” loans. (4) Evasion; open-end credit. [Reg. Z, 73 FR 44603, July 30, 2008, as amended at 76 FR 11324, Mar. 2, 2011] § 226.36 Prohibited acts or practices in connection with credit secured by a dwelling. (a) Loan originator and mortgage broker defined Loan originator. bona fide (2) Mortgage broker. (b) [Reserved] (c) Servicing practices. (i) Fail to credit a payment to the consumer's loan account as of the date of receipt, except when a delay in crediting does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency, or except as provided in paragraph (c)(2) of this section; (ii) Impose on the consumer any late fee or delinquency charge in connection with a payment, when the only delinquency is attributable to late fees or delinquency charges assessed on an earlier payment, and the payment is otherwise a full payment for the applicable period and is paid on its due date or within any applicable grace period; or (iii) Fail to provide, within a reasonable time after receiving a request from the consumer or any person acting on behalf of the consumer, an accurate statement of the total outstanding balance that would be required to satisfy the consumer's obligation in full as of a specified date. (2) If a servicer specifies in writing requirements for the consumer to follow in making payments, but accepts a payment that does not conform to the requirements, the servicer shall credit the payment as of 5 days after receipt. (3) For purposes of this paragraph (c), the terms “servicer” and “servicing” have the same meanings as provided in 24 CFR 3500.2(b), as amended. (d) Prohibited payments to loan originators Payments based on transaction terms or conditions. (ii) For purposes of this paragraph (d)(1), the amount of credit extended is not deemed to be a transaction term or condition, provided compensation received by or paid to a loan originator, directly or indirectly, is based on a fixed percentage of the amount of credit extended; however, such compensation may be subject to a minimum or maximum dollar amount. (iii) This paragraph (d)(1) shall not apply to any transaction in which paragraph (d)(2) of this section applies. (2) Payments by persons other than consumer. (i) No loan originator shall receive compensation, directly or indirectly, from any person other than the consumer in connection with the transaction; and (ii) No person who knows or has reason to know of the consumer-paid compensation to the loan originator (other than the consumer) shall pay any compensation to a loan originator, directly or indirectly, in connection with the transaction. (3) Affiliates. (e) Prohibition on steering General. (2) Permissible transactions. (i) A loan has an annual percentage rate that cannot increase after consummation; (ii) A loan has an annual percentage rate that may increase after consummation; or (iii) A loan is a reverse mortgage. (3) Loan options presented. (i) The loan originator must obtain loan options from a significant number of the creditors with which the originator regularly does business and, for each type of transaction in which the consumer expressed an interest, must present the consumer with loan options that include: (A) The loan with the lowest interest rate; (B) The loan with the lowest interest rate without negative amortization, a prepayment penalty, interest-only payments, a balloon payment in the first 7 years of the life of the loan, a demand feature, shared equity, or shared appreciation; or, in the case of a reverse mortgage, a loan without a prepayment penalty, or shared equity or shared appreciation; and (C) The loan with the lowest total dollar amount for origination points or fees and discount points. (ii) The loan originator must have a good faith belief that the options presented to the consumer pursuant to paragraph (e)(3)(i) of this section are loans for which the consumer likely qualifies. (iii) For each type of transaction, if the originator presents to the consumer more than three loans, the originator must highlight the loans that satisfy the criteria specified in paragraph (e)(3)(i) of this section. (4) Number of loan options presented. (f) This section does not apply to a home-equity line of credit subject to § 226.5b. Section 226.36(d) and (e) do not apply to a loan that is secured by a consumer's interest in a timeshare plan described in 11 U.S.C. 101(53D). [73 FR 44604, July 30, 2008, as amended at 75 FR 58533, Sept. 24, 2010] §§ 226.37-226.38 [Reserved] § 226.39 Mortgage transfer disclosures. (a) Scope. (1) A “ covered person” (2) A “ mortgage loan” (b) Disclosure required. (1) Form of disclosures. et seq. (2) The date of transfer. (3) Multiple consumers. (4) Multiple transfers. (5) Multiple covered persons. (c) Exceptions. (1) The covered person sells, or otherwise transfers or assigns legal title to the mortgage loan on or before the 30th calendar day following the date that the covered person acquired the mortgage loan which shall be the date of transfer recognized for purposes of paragraph (b)(2) of this section; (2) The mortgage loan is transferred to the covered person in connection with a repurchase agreement that obligates the transferor to repurchase the loan. However, if the transferor does not repurchase the loan, the covered person must provide the disclosures required by this section within 30 days after the date that the transaction is recognized as an acquisition on its books and records; or (3) The covered person acquires only a partial interest in the loan and the party authorized to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan does not change as a result of the transfer of the partial interest. (d) Content of required disclosures. (1) The name, address, and telephone number of the covered person. (i) If a single disclosure is provided on behalf of more than one covered person, the information required by this paragraph shall be provided for each of them unless paragraph (d)(1)(ii) of this section applies. (ii) If a single disclosure is provided on behalf of more than one covered person and one of them has been authorized in accordance with paragraph (d)(3) of this section to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan, the information required by paragraph (d)(1) of this section may be provided only for that covered person. (2) The date of transfer. (3) The name, address and telephone number of an agent or party authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. However, no information is required to be provided under this paragraph if the consumer can use the information provided under paragraph (d)(1) of this section for these purposes. (4) Where transfer of ownership of the debt to the covered person is or may be recorded in public records, or, alternatively, that the transfer of ownership has not been recorded in public records at the time the disclosure is provided. (e) Optional disclosures. [75 FR 58501, Sept. 24, 2010] §§ 226.40-226.41 [Reserved] § 226.42 Valuation independence. (a) Scope. (b) Definitions. (1) “Covered person” means a creditor with respect to a covered transaction or a person that provides “settlement services,” as defined in 12 U.S.C. 2602(3) and implementing regulations, in connection with a covered transaction. (2) “Covered transaction” means an extension of consumer credit that is or will be secured by the consumer's principal dwelling, as defined in § 226.2(a)(19). (3) “Valuation” means an estimate of the value of the consumer's principal dwelling in written or electronic form, other than one produced solely by an automated model or system. (4) “Valuation management functions” means: (i) Recruiting, selecting, or retaining a person to prepare a valuation; (ii) Contracting with or employing a person to prepare a valuation; (iii) Managing or overseeing the process of preparing a valuation, including by providing administrative services such as receiving orders for and receiving a valuation, submitting a completed valuation to creditors and underwriters, collecting fees from creditors and underwriters for services provided in connection with a valuation, and compensating a person that prepares valuations; or (iv) Reviewing or verifying the work of a person that prepares valuations. (c) Valuation of consumer's principal dwelling Coercion. (i) Examples of actions that violate paragraph (c)(1) include: (A) Seeking to influence a person that prepares a valuation to report a minimum or maximum value for the consumer's principal dwelling; (B) Withholding or threatening to withhold timely payment to a person that prepares a valuation or performs valuation management functions because the person does not value the consumer's principal dwelling at or above a certain amount; (C) Implying to a person that prepares valuations that current or future retention of the person depends on the amount at which the person estimates the value of the consumer's principal dwelling; (D) Excluding a person that prepares a valuation from consideration for future engagement because the person reports a value for the consumer's principal dwelling that does not meet or exceed a predetermined threshold; and (E) Conditioning the compensation paid to a person that prepares a valuation on consummation of the covered transaction. (2) Mischaracterization of value Misrepresentation. bona fide (ii) Falsification or alteration. (iii) Inducement of mischaracterization. (3) Permitted actions. (i) Asking a person that prepares a valuation to consider additional, appropriate property information, including information about comparable properties, to make or support a valuation; (ii) Requesting that a person that prepares a valuation provide further detail, substantiation, or explanation for the person's conclusion about the value of the consumer's principal dwelling; (iii) Asking a person that prepares a valuation to correct errors in the valuation; (iv) Obtaining multiple valuations for the consumer's principal dwelling to select the most reliable valuation; (v) Withholding compensation due to breach of contract or substandard performance of services; and (vi) Taking action permitted or required by applicable federal or state statute, regulation, or agency guidance. (d) Prohibition on conflicts of interest In general. (ii) Employees and affiliates of creditors; providers of multiple settlement services. (A) Is an employee or affiliate of the creditor; or (B) Provides a settlement service in addition to preparing valuations or performing valuation management functions, or based solely on the fact that the person's affiliate performs another settlement service. (2) Employees and affiliates of creditors with assets of more than $250 million for both of the past two calendar years. (i) The compensation of the person preparing a valuation or performing valuation management functions is not based on the value arrived at in any valuation; (ii) The person preparing a valuation or performing valuation management functions reports to a person who is not part of the creditor's loan production function, as defined in paragraph (d)(5)(i) of this section, and whose compensation is not based on the closing of the transaction to which the valuation relates; and (iii) No employee, officer or director in the creditor's loan production function, as defined in paragraph (d)(5)(i) of this section, is directly or indirectly involved in selecting, retaining, recommending or influencing the selection of the person to prepare a valuation or perform valuation management functions, or to be included in or excluded from a list of approved persons who prepare valuations or perform valuation management functions. (3) Employees and affiliates of creditors with assets of $250 million or less for either of the past two calendar years. (i) The compensation of the person preparing a valuation or performing valuation management functions is not based on the value arrived at in any valuation; and (ii) The creditor requires that any employee, officer or director of the creditor who orders, performs, or reviews a valuation for a covered transaction abstain from participating in any decision to approve, not approve, or set the terms of that transaction. (4) Providers of multiple settlement services. (i) The creditor had assets of more than $250 million as of December 31st for both of the past two calendar years and the conditions in paragraph (d)(2)(i)-(iii) are met; or (ii) The creditor had assets of $250 million or less as of December 31st for either of the past two calendar years and the conditions in paragraph (d)(3)(i)-(ii) are met. (5) Definitions. (i) Loan production function. (ii) Settlement service. et seq. (iii) Affiliate. (e) When extension of credit prohibited. (f) Customary and reasonable compensation Requirement to provide customary and reasonable compensation to fee appraisers. (2) Presumption of compliance. (i) The creditor or its agents compensate the fee appraiser in an amount that is reasonably related to recent rates paid for comparable appraisal services performed in the geographic market of the property being appraised. In determining this amount, a creditor or its agents shall review the factors below and make any adjustments to recent rates paid in the relevant geographic market necessary to ensure that the amount of compensation is reasonable: (A) The type of property, (B) The scope of work, (C) The time in which the appraisal services are required to be performed, (D) Fee appraiser qualifications, (E) Fee appraiser experience and professional record, and (F) Fee appraiser work quality; and (ii) The creditor and its agents do not engage in any anticompetitive acts in violation of state or federal law that affect the compensation paid to fee appraisers, including— (A) Entering into any contracts or engaging in any conspiracies to restrain trade through methods such as price fixing or market allocation, as prohibited under section 1 of the Sherman Antitrust Act, 15 U.S.C. 1, or any other relevant antitrust laws; or (B) Engaging in any acts of monopolization such as restricting any person from entering the relevant geographic market or causing any person to leave the relevant geographic market, as prohibited under section 2 of the Sherman Antitrust Act, 15 U.S.C. 2, or any other relevant antitrust laws. (3) Alternative presumption of compliance. (i) Is based on objective third-party information, including fee schedules, studies, and surveys prepared by independent third parties such as government agencies, academic institutions, and private research firms; (ii) Is based on recent rates paid to a representative sample of providers of appraisal services in the geographic market of the property being appraised or the fee schedules of those providers; and (iii) In the case of information based on fee schedules, studies, and surveys, such fee schedules, studies, or surveys, or the information derived therefrom, excludes compensation paid to fee appraisers for appraisals ordered by appraisal management companies, as defined in paragraph (f)(4)(iii) of this section. (4) Definitions. (i) Fee appraiser. (A) A natural person who is a state-licensed or state-certified appraiser and receives a fee for performing an appraisal, but who is not an employee of the person engaging the appraiser; or (B) An organization that, in the ordinary course of business, employs state-licensed or state-certified appraisers to perform appraisals, receives a fee for performing appraisals, and is not subject to the requirements of section 1124 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3331 et seq. (ii) Appraisal services. (iii) Appraisal management company. (A) Recruit, select, and retain fee appraisers; (B) Contract with fee appraisers to perform appraisal services; (C) Manage the process of having an appraisal performed, including providing administrative services such as receiving appraisal orders and appraisal reports, submitting completed appraisal reports to creditors and underwriters, collecting fees from creditors and underwriters for services provided, and compensating fee appraisers for services performed; or (D) Review and verify the work of fee appraisers. (g) Mandatory reporting Reporting required. (2) Timing of reporting. (3) Definition. [75 FR 66580, Oct. 28, 2010, 75 FR 80676, Dec. 23, 2010] § 226.43 Appraisals for higher-priced mortgage loans. (a) Definitions. (1) Certified or licensed appraiser et seq. (2) Consummation (3) Creditor (4) Credit risk (5) Higher-priced mortgage loan (6) Manufactured home (7) Manufacturer's invoice (8) National Registry (9) New manufactured home (10) State agency (b) Exemptions. (1) A loan that satisfies the criteria of a qualified mortgage as defined pursuant to 15 U.S.C. 1639c; (2) An extension of credit for which the amount of credit extended is equal to or less than the applicable threshold amount, which is adjusted every year to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as applicable, and published in the official staff commentary to this paragraph (b)(2); (3) A transaction secured by a mobile home, boat, or trailer. (4) A transaction to finance the initial construction of a dwelling. (5) A loan with a maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition of a dwelling intended to become the consumer's principal dwelling. (6) A reverse-mortgage transaction subject to 12 CFR 1026.33(a). (7) An extension of credit that is a refinancing secured by a first lien, with refinancing defined as in 12 CFR 1026.20(a) (except that the creditor need not be the original creditor or a holder or servicer of the original obligation), provided that the refinancing meets the following criteria: (i) Either— (A) The credit risk of the refinancing is retained by the person that held the credit risk of the existing obligation and there is no commitment, at consummation, to transfer the credit risk to another person; or (B) The refinancing is insured or guaranteed by the same Federal government agency that insured or guaranteed the existing obligation; (ii) The regular periodic payments under the refinance loan do not— (A) Cause the principal balance to increase; (B) Allow the consumer to defer repayment of principal; or (C) Result in a balloon payment, as defined in 12 CFR 1026.18(s)(5)(i); and (iii) The proceeds from the refinancing are used only to satisfy the existing obligation and to pay amounts attributed solely to the costs of the refinancing; and (8) A transaction secured by: (i) A new manufactured home and land, but the exemption shall only apply to the requirement in paragraph (c)(1) of this section that the appraiser conduct a physical visit of the interior of the new manufactured home; or (ii) A manufactured home and not land, for which the creditor obtains one of the following and provides a copy to the consumer no later than three business days prior to consummation of the transaction— (A) For a new manufactured home, the manufacturer's invoice for the manufactured home securing the transaction, provided that the date of manufacture is no earlier than 18 months prior to the creditor's receipt of the consumer's application for credit; (B) A cost estimate of the value of the manufactured home securing the transaction obtained from an independent cost service provider; or (C) A valuation, as defined in 12 CFR 1026.42(b)(3), of the manufactured home performed by a person who has no direct or indirect interest, financial or otherwise, in the property or transaction for which the valuation is performed and has training in valuing manufactured homes. (c) Appraisals required In general. (2) Safe harbor. (i) Orders that the appraiser perform the appraisal in conformity with the Uniform Standards of Professional Appraisal Practice and title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (12 U.S.C. 3331 et seq. (ii) Verifies through the National Registry that the appraiser who signed the appraiser's certification was a certified or licensed appraiser in the State in which the appraised property is located as of the date the appraiser signed the appraiser's certification; (iii) Confirms that the elements set forth in appendix N to this part are addressed in the written appraisal; and (iv) Has no actual knowledge contrary to the facts or certifications contained in the written appraisal. (d) Additional appraisal for certain higher-priced mortgage loans In general. (i) The seller acquired the property 90 or fewer days prior to the date of the consumer's agreement to acquire the property and the price in the consumer's agreement to acquire the property exceeds the seller's acquisition price by more than 10 percent; or (ii) The seller acquired the property 91 to 180 days prior to the date of the consumer's agreement to acquire the property and the price in the consumer's agreement to acquire the property exceeds the seller's acquisition price by more than 20 percent. (2) Different certified or licensed appraisers. (3) Relationship to general appraisal requirements. (4) Required analysis in the additional appraisal. (i) The difference between the price at which the seller acquired the property and the price that the consumer is obligated to pay to acquire the property, as specified in the consumer's agreement to acquire the property from the seller; (ii) Changes in market conditions between the date the seller acquired the property and the date of the consumer's agreement to acquire the property; and (iii) Any improvements made to the property between the date the seller acquired the property and the date of the consumer's agreement to acquire the property. (5) No charge for the additional appraisal. (6) Creditor's determination of prior sale date and price Reasonable diligence. (ii) Inability to determine prior sale date or price—modified requirements for additional appraisal. (7) Exemptions from the additional appraisal requirement. (i) From a local, State or Federal government agency; (ii) From a person who acquired title to the property through foreclosure, deed-in-lieu of foreclosure, or other similar judicial or non-judicial procedure as a result of the person's exercise of rights as the holder of a defaulted mortgage loan; (iii) From a non-profit entity as part of a local, State, or Federal government program under which the non-profit entity is permitted to acquire title to single-family properties for resale from a seller who acquired title to the property through the process of foreclosure, deed-in-lieu of foreclosure, or other similar judicial or non-judicial procedure; (iv) From a person who acquired title to the property by inheritance or pursuant to a court order of dissolution of marriage, civil union, or domestic partnership, or of partition of joint or marital assets to which the seller was a party; (v) From an employer or relocation agency in connection with the relocation of an employee; (vi) From a servicemember, as defined in 50 U.S.C. App. 511(1), who received a deployment or permanent change of station order after the servicemember purchased the property; (vii) Located in an area designated by the President as a federal disaster area, if and for as long as the Federal financial institutions regulatory agencies, as defined in 12 U.S.C. 3350(6), waive the requirements in title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (12 U.S.C. 3331 et seq. (viii) Located in a rural county, as defined in 12 CFR 1026.35(b)(2)(iv)(A). (e) Required disclosure In general. (2) Timing of disclosure. (f) Copy of appraisals In general. (2) Timing. (i) No later than three business days prior to consummation of the loan; or (ii) In the case of a loan that is not consummated, no later than 30 days after the creditor determines that the loan will not be consummated. (3) Form of copy. et seq. (4) No charge for copy of appraisal. (g) Relation to other rules. [78 FR 10437, Feb. 13, 2013, as amended at 78 FR 78582, 78583, Dec. 26, 2013] §§ 226.44-226.45 [Reserved] Subpart F—Special Rules for Private Education Loans Source: 74 FR 41232, Aug. 14, 2009, unless otherwise noted. § 226.46 Special disclosure requirements for private education loans. (a) Coverage. (1) Relation to other subparts in this part. (2) [Reserved] (b) Definitions. (1) Covered educational institution (i) An educational institution that meets the definition of an institution of higher education, as defined in paragraph (b)(2) of this section, without regard to the institution's accreditation status; and (ii) Includes an agent, officer, or employee of the institution of higher education. An agent means an institution-affiliated organization as defined by section 151 of the Higher Education Act of 1965 (20 U.S.C. 1019) or an officer or employee of an institution-affiliated organization. (2) Institution of higher education (3) Postsecondary educational expenses (4) Preferred lender arrangement (5) Private education loan (i) Is not made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq. (ii) Is extended to a consumer expressly, in whole or in part, for postsecondary educational expenses, regardless of whether the loan is provided by the educational institution that the student attends; (iii) Does not include open-end credit any loan that is secured by real property or a dwelling; and (iv) Does not include an extension of credit in which the covered educational institution is the creditor if: (A) The term of the extension of credit is 90 days or less; or (B) an interest rate will not be applied to the credit balance and the term of the extension of credit is one year or less, even if the credit is payable in more than four installments. (c) Form of disclosures Clear and conspicuous. (2) Transaction disclosures. (ii) The disclosures may include an acknowledgement of receipt, the date of the transaction, and the consumer's name, address, and account number. The following disclosures may be made together with or separately from other required disclosures: the creditor's identity under § 226.18(a), insurance or debt cancellation under § 226.18(n), and certain security interest charges under § 226.18(o). (iii) The term “finance charge” and corresponding amount, when required to be disclosed under § 226.18(d), and the interest rate required to be disclosed under §§ 226.47(b)(1)(i) and (c)(1), shall be more conspicuous than any other disclosure, except the creditor's identity under § 228.18(a). (3) Electronic disclosures. et seq. (d) Timing of disclosures Application or solicitation disclosures. (ii) The creditor may, at its option, disclose orally the information in § 226.47(a) in a telephone application or solicitation. Alternatively, if the creditor does not disclose orally the information in § 226.47(a), the creditor must provide the disclosures or place them in the mail no later than three business days after the consumer has applied for the credit, except that, if the creditor either denies the consumer's application or provides or places in the mail the disclosures in § 226.47(b) no later than three business days after the consumer requests the credit, the creditor need not also provide the § 226.47(a) disclosures. (iii) Notwithstanding paragraph (d)(1)(i), for a loan that the consumer may use for multiple purposes including, but not limited to, postsecondary educational expenses, the creditor need not provide the disclosures required by § 226.47(a). (2) Approval disclosures. (3) Final disclosures. (4) Receipt of mailed disclosures. (e) Basis of disclosures and use of estimates Legal obligation. (2) Estimates. (f) Multiple creditors; multiple consumers. (g) Effect of subsequent events Approval disclosures. (2) Final disclosures. § 226.47 Content of disclosures. (a) Application or solicitation disclosures. (1) Interest rates. (ii) Whether the interest rates applicable to the loan are fixed or variable. (iii) If the interest rate may increase after consummation of the transaction, any limitations on the interest rate adjustments, or lack thereof; a statement that the consumer's actual rate could be higher or lower than the rates disclosed under paragraph (a)(1)(i) of this section, if applicable; and, if the limitation is determined by applicable law, that fact. (iv) Whether the applicable interest rates typically will be higher if the loan is not co-signed or guaranteed. (2) Fees and default or late payment costs. (ii) Any fees, changes to the interest rate, and adjustments to principal based on the consumer's defaults or late payments. (3) Repayment terms. (ii) A description of any payment deferral options, or, if the consumer does not have the option to defer payments, that fact. (iii) For each payment deferral option applicable while the student is enrolled at a covered educational institution: (A) Whether interest will accrue during the deferral period; and (B) If interest accrues, whether payment of interest may be deferred and added to the principal balance. (iv) A statement that if the consumer files for bankruptcy, the consumer may still be required to pay back the loan. (4) Cost estimates. (i) Using the highest rate of interest disclosed under paragraph (a)(1) of this section and including all finance charges applicable to loans at that rate; (ii) Using an amount financed of $10,000, or $5000 if the creditor only offers loans of this type for less than $10,000; and (iii) Calculated for each payment option. (5) Eligibility. (6) Alternatives to private education loans. et seq. (ii) The interest rates available under each program under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq. (iii) A statement that the consumer may obtain additional information concerning Federal student financial assistance from the institution of higher education that the student attends, or at the Web site of the U.S. Department of Education, including an appropriate Web site address. (iv) A statement that a covered educational institution may have school-specific education loan benefits and terms not detailed on the disclosure form. (7) Rights of the consumer. (8) Self-certification information. (b) Approval disclosures. (1) Interest rate. (ii) Whether the interest rate is fixed or variable. (iii) If the interest rate may increase after consummation of the transaction, any limitations on the rate adjustments, or lack thereof. (2) Fees and default or late payment costs. (ii) Any fees, changes to the interest rate, and adjustments to principal based on the consumer's defaults or late payments. (3) Repayment terms. (ii) The term of the loan, which is the period during which regularly scheduled payments of principal and interest will be due. (iii) A description of the payment deferral option chosen by the consumer, if applicable, and any other payment deferral options that the consumer may elect at a later time. (iv) Any payments required while the student is enrolled at a covered educational institution, based on the deferral option chosen by the consumer. (v) The amount of any unpaid interest that will accrue while the student is enrolled at a covered educational institution, based on the deferral option chosen by the consumer. (vi) A statement that if the consumer files for bankruptcy, the consumer may still be required to pay back the loan. (vii) An estimate of the total amount of payments calculated based on: (A) The interest rate applicable to the loan. Compliance with § 226.18(h) constitutes compliance with this requirement. (B) The maximum possible rate of interest for the loan or, if a maximum rate cannot be determined, a rate of 25%. (C) If a maximum rate cannot be determined, the estimate of the total amount for repayment must include a statement that there is no maximum rate and that the total amount for repayment disclosed under paragraph (b)(3)(vii)(B) of this section is an estimate and will be higher if the applicable interest rate increases. (viii) The maximum monthly payment based on the maximum rate of interest for the loan or, if a maximum rate cannot be determined, a rate of 25%. If a maximum cannot be determined, a statement that there is no maximum rate and that the monthly payment amount disclosed is an estimate and will be higher if the applicable interest rate increases. (4) Alternatives to private education loans. et seq. (ii) The interest rates available under each program under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq. (iii) A statement that the consumer may obtain additional information concerning Federal student financial assistance from the institution of higher education that the student attends, or at the Web site of the U.S. Department of Education, including an appropriate Web site address. (5) Rights of the consumer. (ii) A statement that, except for changes to the interest rate and other changes permitted by law, the rates and terms of the loan may not be changed by the creditor during the period described in paragraph (b)(5)(i) of this section. (c) Final disclosures. (1) Interest rate. (2) Fees and default or late payment costs. (3) Repayment terms. (4) Cancellation right. (i) the consumer has the right to cancel the loan, without penalty, at any time before the cancellation period under § 226.48(d) expires, and (ii) loan proceeds will not be disbursed until after the cancellation period under § 226.48(d) expires. The statement must include the specific date on which the cancellation period expires and state that the consumer may cancel by that date. The statement must also specify the method or methods by which the consumer may cancel. If the creditor permits cancellation by mail, the statement must specify that the consumer's mailed request will be deemed timely if placed in the mail not later than the cancellation date specified on the disclosure. The disclosures required by this paragraph (c)(4) must be made more conspicuous than any other disclosure required under this section, except for the finance charge, the interest rate, and the creditor's identity, which must be disclosed in accordance with the requirements of § 226.46(c)(2)(iii). § 226.48 Limitations on private education loans. (a) Co-branding prohibited. (2) A creditor's marketing of private education loans does not imply that the covered education institution endorses the creditor's loans if the marketing includes a clear and conspicuous disclosure that is equally prominent and closely proximate to the reference to the covered educational institution that the covered educational institution does not endorse the creditor's loans and that the creditor is not affiliated with the covered educational institution. (b) Endorsed lender arrangements. (c) Consumer's right to accept. (2) Except for changes permitted under paragraphs (c)(3) and (c)(4), the rate and terms of the private education loan that are required to be disclosed under §§ 226.47(b) and (c) may not be changed by the creditor prior to the earlier of: (i) The date of disbursement of the loan; or (ii) The expiration of the 30 calendar day period described in paragraph (c)(1) of this section if the consumer has not accepted the loan within that time. (3) Exceptions not requiring re-disclosure. (A) Withdrawing an offer before consummation of the transaction if the extension of credit would be prohibited by law or if the creditor has reason to believe that the consumer has committed fraud in connection with the loan application; (B) Changing the interest rate based on adjustments to the index used for a loan; (C) Changing the interest rate and terms if the change will unequivocally benefit the consumer; or (D) Reducing the loan amount based upon a certification or other information received from the covered educational institution, or from the consumer, indicating that the student's cost of attendance has decreased or the consumer's other financial aid has increased. A creditor may make corresponding changes to the rate and other terms only to the extent that the consumer would have received the terms if the consumer had applied for the reduced loan amount. (ii) If the creditor changes the rate or terms of the loan under this paragraph (c)(3), the creditor need not provide the disclosures required under § 228.47(b) for the new loan terms, nor need the creditor provide an additional 30-day period to the consumer to accept the new terms of the loan under paragraph (c)(1) of this section. (4) Exceptions requiring re-disclosure. (ii) If the creditor changes the rate or terms of the loan under this paragraph (c)(4), the creditor shall provide the disclosures required under § 228.47(b) and shall provide the consumer the 30-day period to accept the loan under paragraph (c)(1) of this section. The creditor shall not make further changes to the rates and terms of the loan, except as specified in paragraphs (c)(3) and (4) of this section. Except as permitted under § 226.48(c)(3), unless the consumer accepts the loan offered by the creditor in response to the consumer's request, the creditor may not withdraw or change the rates or terms of the loan for which the consumer was approved prior to the consumer's request for a change in loan terms. (d) Consumer's right to cancel. (e) Self-certification form. (f) Provision of information by preferred lenders. Subpart G—Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students Source: 75 FR 7818, Feb. 22, 2010, unless otherwise noted. § 226.51 Ability to Pay. (a) General rule Consideration of ability to pay. (ii) Reasonable policies and procedures. (2) Minimum periodic payments Reasonable method. (ii) Safe harbor. (A) The card issuer assumes utilization, from the first day of the billing cycle, of the full credit line that the issuer is considering offering to the consumer; and (B) The card issuer uses 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, provided that: ( 1 ( 2 (b) Rules affecting young consumers Applications from young consumers. (i) Financial information indicating the consumer has an independent ability to make the required minimum periodic payments on the proposed extension of credit in connection with the account, consistent with paragraph (a) of this section; or (ii)(A) A signed agreement of a cosigner, guarantor, or joint applicant who is at least 21 years old to be either secondarily liable for any debt on the account incurred by the consumer before the consumer has attained the age of 21 or jointly liable with the consumer for any debt on the account, and (B) Financial information indicating such cosigner, guarantor, or joint applicant has the ability to make the required minimum periodic payments on such debts, consistent with paragraph (a) of this section. (2) Credit line increases for young consumers. [75 FR 7818, Feb. 22, 2010, as amended at 76 FR 23002, Apr. 25, 2011] § 226.52 Limitations on fees. (a) Limitations prior to account opening and during first year after account opening General rule. (2) Fees not subject to limitations. (i) Late payment fees, over-the-limit fees, and returned-payment fees; or (ii) Fees that the consumer is not required to pay with respect to the account. (3) Rule of construction. (b) Limitations on penalty fees. (1) General rule. (i) Fees based on costs. (ii) Safe harbors. (A) $25.00; (B) $35.00 if the card issuer previously imposed a fee pursuant to paragraph (b)(1)(ii)(A) of this section for a violation of the same type that occurred during the same billing cycle or one of the next six billing cycles; or (C) Three percent of the delinquent balance on a charge card account that requires payment of outstanding balances in full at the end of each billing cycle if the card issuer has not received the required payment for two or more consecutive billing cycles. (D) The amounts in paragraphs (b)(1)(ii)(A) and (b)(1)(ii)(B) of this section will be adjusted annually by the Board to reflect changes in the Consumer Price Index. (2) Prohibited fees Fees that exceed dollar amount associated with violation Generally. (B) No dollar amount associated with violation. ( 1 ( 2 ( 3 (ii) Multiple fees based on a single event or transaction. [75 FR 7818, Feb. 22, 2010, as amended at 75 FR 37571, June 26, 2010; 76 FR 23002, Apr. 25, 2011] § 226.53 Allocation of payments. (a) General rule. (b) Special rules Accounts with balances subject to deferred interest or similar program. (i) Last two billing cycles. (ii) Consumer request. (2) Accounts with secured balances. [75 FR 7818, Feb. 22, 2010, as amended at 76 FR 23003, Apr. 25, 2011] § 226.54 Limitations on the imposition of finance charges. (a) Limitations on imposing finance charges as a result of the loss of a grace period General rule. (i) Balances for days in billing cycles that precede the most recent billing cycle; or (ii) Any portion of a balance subject to a grace period that was repaid prior to the expiration of the grace period. (2) Definition of grace period. 3 (b) Exceptions. (1) Adjustments to finance charges as a result of the resolution of a dispute under § 226.12 or § 226.13; or (2) Adjustments to finance charges as a result of the return of a payment. § 226.55 Limitations on increasing annual percentage rates, fees, and charges. (a) General rule. (b) Exceptions. (1) Temporary rate, fee, or charge exception. (i) Prior to the commencement of that period, the card issuer disclosed in writing to the consumer, in a clear and conspicuous manner, the length of the period and the annual percentage rate, fee, or charge that would apply after expiration of the period; and (ii) Upon expiration of the specified period: (A) The card issuer must not apply an annual percentage rate, fee, or charge to transactions that occurred prior to the period that exceeds the annual percentage rate, fee, or charge that applied to those transactions prior to the period; (B) If the disclosures required by paragraph (b)(1)(i) of this section are provided pursuant to § 226.9(c), the card issuer must not apply an annual percentage rate, fee, or charge to transactions that occurred within 14 days after provision of the notice that exceeds the annual percentage rate, fee, or charge that applied to that category of transactions prior to provision of the notice; and (C) The card issuer must not apply an annual percentage rate, fee, or charge to transactions that occurred during the period that exceeds the increased annual percentage rate, fee, or charge disclosed pursuant to paragraph (b)(1)(i) of this section. (2) Variable rate exception. (i) The annual percentage rate varies according to an index that is not under the card issuer's control and is available to the general public; and (ii) The increase in the annual percentage rate is due to an increase in the index. (3) Advance notice exception. (i) 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; (ii) If a card issuer discloses an increased annual percentage rate, fee, or charge pursuant to § 226.9(c) or (g), the card issuer must not apply that rate, fee, or charge to transactions that occurred prior to or within 14 days after provision of the notice; and (iii) This exception 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), (iii), or (xii) during the first year after the account is opened, while the account is closed, or while the card issuer does not permit the consumer to use the account for new transactions. For purposes of this paragraph, an account is considered open no earlier than the date on which the account may first be used by the consumer to engage in transactions. (4) Delinquency exception. (i) The card issuer must disclose in a clear and conspicuous manner in the notice of the increase pursuant to § 226.9(c) or (g): (A) A statement of the reason for the increase; and (B) That the increased annual percentage rate, fee, or charge will cease to apply if the card issuer 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; and (ii) If the card issuer 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 card issuer must reduce any annual percentage rate, fee, or charge increased pursuant to this exception to the annual percentage rate, fee, or charge that applied prior to the increase with respect to transactions that occurred prior to or within 14 days after provision of the § 226.9(c) or (g) notice. (5) Workout and temporary hardship arrangement exception. (i) Prior to commencement of the arrangement (except as provided in § 226.9(c)(2)(v)(D)), the card issuer has provided the consumer with a clear and conspicuous written disclosure of the terms of the arrangement (including any increases due to the completion or failure of the arrangement); and (ii) Upon the completion or failure of the arrangement, the card issuer must not apply to any transactions that occurred prior to commencement of the arrangement an annual percentage rate, fee, or charge that exceeds the annual percentage rate, fee, or charge that applied to those transactions prior to commencement of the arrangement. (6) Servicemembers Civil Relief Act exception. (c) Treatment of protected balances Definition of protected balance. (2) Repayment of protected balance. (i) The method of repayment for the account before the effective date of the increase; (ii) An amortization period of not less than five years, beginning no earlier than the effective date of the increase; or (iii) A required minimum periodic payment that includes a percentage of the balance that is equal to no more than twice the percentage required before the effective date of the increase. (d) Continuing application. (1) The account is closed or acquired by another creditor; or (2) The balance is transferred from a credit card account under an open-end (not home-secured) consumer credit plan issued by a creditor to another credit account issued by the same creditor or its affiliate or subsidiary (unless the account to which the balance is transferred is subject to § 226.5b). (e) Promotional waivers or rebates of interest, fees, and other charges. [75 FR 7818, Feb. 22, 2010, as amended at 76 FR 23003, Apr. 25, 2011] § 226.56 Requirements for over-the-limit transactions. (a) Definition. (b) Opt-in requirement General. (i) Provides the consumer with an oral, written or electronic notice, segregated from all other information, describing the consumer's right to affirmatively consent, or opt in, to the card issuer's payment of an over-the-limit transaction; (ii) Provides a reasonable opportunity for the consumer to affirmatively consent, or opt in, to the card issuer's payment of over-the-limit transactions; (iii) Obtains the consumer's affirmative consent, or opt-in, to the card issuer's payment of such transactions; (iv) Provides the consumer with confirmation of the consumer's consent in writing, or if the consumer agrees, electronically; and (v) Provides the consumer notice in writing of the right to revoke that consent following the assessment of an over-the-limit fee or charge. (2) Completion of over-the-limit transactions without consumer consent. (c) Method of election. (d) Timing and placement of notices Initial notice General. (ii) Oral or electronic consent. (2) Confirmation of opt-in. (3) Notice of right of revocation. (e) Content Initial notice. (i) Fees. (ii) APRs. (iii) Disclosure of opt-in right. (2) Subsequent notice. (3) Safe harbor. (f) Joint relationships. (g) Continuing right to opt in or revoke opt-in. (h) Duration of opt-in. (i) Time to comply with revocation request. (j) Prohibited practices. (1) Fees or charges imposed per cycle General rule. (ii) Exception. (2) Failure to promptly replenish. (3) Conditioning. (4) Over-the-limit fees attributed to fees or interest. § 226.57 Reporting and marketing rules for college student open-end credit. (a) Definitions: (1) College student credit card. (2) College student. (3) Institution of higher education. (4) Affiliated organization. (5) College credit card agreement. (b) Public disclosure of agreements. (c) Prohibited inducements. (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. (d) Annual report to the Board Requirement to report. (2) Contents of report. (i) Identifying information about 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); (ii) A copy of any college credit card agreement to which the card issuer was a party that was in effect at any time during the period covered by the report; (iii) A copy of any memorandum of understanding in effect at any time during the period covered by the report between the card issuer and an institution of higher education or affiliated organization 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; (iv) The total dollar amount of any payments pursuant to a college credit card agreement from the card issuer to an institution of higher education or affiliated organization during the period covered by the report, and the method or formula used to determine such amounts; (v) The total number of credit card accounts opened pursuant to any college credit card agreement during the period covered by the report; and (vi) The total number of credit card accounts opened pursuant to any such agreement that were open at the end of the period covered by the report. (3) Timing of reports. § 226.58 Internet posting of credit card agreements. (a) Applicability. (b) Definitions Agreement. (2) Amends. (3) Business day. (4) Card issuer. (5) Offers. (6) Open account. (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 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.” (7) Pricing information. (8) Private label credit card account and private label credit card plan. (i) “private label credit card account” means 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 (ii) “private label credit card plan” means 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. (c) Submission of agreements to Board Quarterly submissions. (i) Identifying information about 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); (ii) The credit card agreements that the card issuer offered to the public as of the last business day of the preceding calendar quarter that the card issuer has not previously submitted to the Board; (iii) Any credit card agreement previously submitted to the Board that was amended during the preceding calendar quarter and that the card issuer offered to the public as of the last business day of the preceding calendar quarter, as described in § 226.58(c)(3); and (iv) Notification regarding any credit card agreement previously submitted to the Board that the issuer is withdrawing, as described in § 226.58(c)(4), (c)(5), (c)(6), and (c)(7). (2) [Reserved] (3) Amended agreements. (4) Withdrawal of agreements. (5) De minimis exception. (ii) 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. (iii) If a card 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 card issuer is withdrawing all agreements it previously submitted to the Board. (6) Private label credit card exception. (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. (ii) 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. (iii) 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. (7) Product testing exception. (A) is offered as part of a product test offered to only a limited group of consumers for a limited period of time; (B) is used for fewer than 10,000 open accounts; and (C) is not offered to the public other than in connection with such a product test. (ii) If an agreement that previously qualified for the product testing 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. (iii) If an agreement that did not previously qualify for the product testing 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. (8) Form and content of agreements submitted to the Board Form and content generally. (B) Agreements must not include any personally identifiable information relating to any cardholder, such as name, address, telephone number, or account number. (C) The following are not deemed to be part of the agreement for purposes of § 226.58, and therefore are not required to be included in submissions to the Board: ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 (D) Agreements must be presented in a clear and legible font. (ii) Pricing information. (B) Pricing information that may vary from one cardholder to another depending on the cardholder's creditworthiness or state of residence or other factors must be disclosed either by setting forth all the possible variations (such as purchase APRs of 13 percent, 15 percent, 17 percent, and 19 percent) or by providing a range of possible variations (such as purchase APRs ranging from 13 percent to 19 percent). (C) If a rate included in the pricing information is a variable rate, the issuer must identify the index or formula used in setting the rate and the margin. Rates that may vary from one cardholder to another must be disclosed by providing the index and the possible margins (such as the prime rate plus 5 percent, 8 percent, 10 percent, or 12 percent) or range of margins (such as the prime rate plus from 5 to 12 percent). The value of the rate and the value of the index are not required to be disclosed. (iii) Optional variable terms addendum. (iv) Integrated agreement. (d) Posting of agreements offered to the public. (2) Except as provided in § 226.58(d), agreements posted pursuant to § 226.58(d) must conform to the form and content requirements for agreements submitted to the Board specified in § 226.58(c)(8). (3) Agreements posted pursuant to § 226.58(d) may be posted in any electronic format that is readily usable by the general public. Agreements must be placed in a location that is prominent and readily accessible by the public and must be accessible without submission of personally identifiable information. (4) The card issuer must update the agreements posted on its Web site pursuant to § 226.58(d) at least as frequently as the quarterly schedule required for submission of agreements to the Board under § 226.58(c). If the issuer chooses to update the agreements on its Web site more frequently, the agreements posted on the issuer's Web site may contain the provisions of the agreement and the pricing information in effect as of a date other than the last business day of the preceding calendar quarter. (e) Agreements for all open accounts Availability of individual cardholder's agreement. (i) Post and maintain the cardholder's agreement on its Web site; or (ii) Promptly provide a copy of the cardholder's agreement to the cardholder upon the cardholder's request. If the card issuer makes an agreement available upon request, the issuer must provide the cardholder with the ability to request a copy of the agreement both by using the issuer's Web site (such as by clicking on a clearly identified box to make the request) and by calling a readily available telephone line the number for which is displayed on the issuer's Web site and clearly identified as to purpose. The card issuer must send to the cardholder or otherwise make available to the cardholder a copy of the cardholder's agreement in electronic or paper form no later than 30 days after the issuer receives the cardholder's request. (2) Special rule for issuers without interactive Web sites. (3) Form and content of agreements. (ii) If the card issuer posts an agreement on its Web site or otherwise provides an agreement to a cardholder electronically under § 226.58(e), the agreement may be posted or provided in any electronic format that is readily usable by the general public and must be placed in a location that is prominent and readily accessible to the cardholder. (iii) Agreements posted or otherwise provided pursuant to § 226.58(e) may contain personally identifiable information relating to the cardholder, such as name, address, telephone number, or account number, provided that the issuer takes appropriate measures to make the agreement accessible only to the cardholder or other authorized persons. (iv) Agreements posted or otherwise provided pursuant to § 226.58(e) must set forth the specific provisions and pricing information applicable to the particular cardholder. Provisions and pricing information must be complete and accurate as of a date no more than 60 days prior to: (1) the date on which the agreement is posted on the card issuer's Web site under § 226.58(e)(1)(i); or (2) the date the cardholder's request is received under § 226.58(e)(1)(ii) or (e)(2). (v) Agreements provided upon cardholder request pursuant to § 226.58(e)(1)(ii) or (e)(2) may be provided by the issuer in either electronic or paper form, regardless of the form of the cardholder's request. (f) E-Sign Act requirements. et seq. [75 FR 7818, Feb. 22, 2010, as amended at 76 FR 23003, Apr. 25, 2011] § 226.59 Reevaluation of rate increases. (a) General rule Evaluation of increased rate. (i) Evaluate the factors described in paragraph (d) of this section; and (ii) Based on its review of such factors, reduce the annual percentage rate applicable to the consumer's account, as appropriate. (2) Rate reductions Timing. (ii) Applicability of rate reduction. (A) Any outstanding balances to which the increased rate described in paragraph (a)(1) of this section has been applied; and (B) New transactions that occur after the effective date of the rate reduction that would otherwise have been subject to the increased rate. (b) Policies and procedures. (c) Timing. (d) Factors In general. (i) The factors on which the increase in an annual percentage rate was originally based; or (ii) The factors that the card issuer currently considers when determining the annual percentage rates applicable to similar new credit card accounts under an open-end (not home-secured) consumer credit plan. (2) Rate increases imposed between January 1, 2009 and February 21, 2010. (e) Rate increases subject to § 226.55(b)(4). (f) Termination of obligation to review factors. (1) If the issuer reduces the annual percentage rate applicable to a credit card account under an open-end (not home-secured) consumer credit plan to the rate applicable immediately prior to the increase, or, if the rate applicable immediately prior to the increase was a variable rate, to a variable rate determined by the same formula (index and margin) that was used to calculate the rate applicable immediately prior to the increase; or (2) If the issuer reduces the annual percentage rate to a rate that is lower than the rate described in paragraph (f)(1) of this section. (g) Acquired accounts General. (2) Review of acquired portfolio. (i) Except as provided in paragraph (g)(2)(iii), the card issuer is required to conduct reviews described in paragraph (a) of this section only for rate increases that are imposed as a result of its review under this paragraph. See §§ 226.9 and 226.55 for additional requirements regarding rate increases on acquired accounts. (ii) Except as provided in paragraph (g)(2)(iii) of this section, the card issuer is not required to conduct reviews in accordance with paragraph (a) of this section for any rate increases made prior to the card issuer's acquisition of such accounts. (iii) If as a result of the card issuer's review, an account is subject to, or continues to be subject to, an increased rate as a penalty, or due to the consumer's delinquency or default, the requirements of paragraph (a) of this section apply. (h) Exceptions Servicemembers Civil Relief Act exception. (2) Charged off accounts. [75 FR 37572, June 26, 2010] Appendix A to Part 226—Effect on State Laws Request for Determination A request for a determination that a State law is inconsistent or that a State law is substantially the same as the Act and regulation shall be in writing and addressed to the Secretary, Board of Governors of the Federal Reserve System, Washington, DC 20551. The request shall be made pursuant to the procedures herein and the Board's Rules of Procedure (12 CFR Part 262). Supporting Documents A request for a determination shall include the following items: (1) The text of the State statute, regulation, or other document that is the subject of the request. (2) Any other statute, regulation, or judicial or administrative opinion that implements, interprets, or applies the relevant provision. (3) A comparison of the State law with the corresponding provision of the Federal law, including a full discussion of the basis for the requesting party's belief that the State provision is either inconsistent or substantially the same. (4) Any other information that the requesting party believes may assist the Board in its determination. Public Notice of Determination Notice that the Board intends to make a determination (either on request or on its own motion) will be published in the Federal Register, Subject to the Board's Rules Regarding Availability of Information (12 CFR Part 261), all requests made, including any documents and other material submitted in support of the requests, will be made available for public inspection and copying. Notice After Determination Notice of a final determination will be published in the Federal Register, Reversal of Determination The Board reserves the right to reverse a determination for any reason bearing on the coverage or effect of State or Federal law. Notice of reversal of a determination will be published in the Federal Register [Reg. Z, 46 FR 20892, Apr. 7, 1981; 46 FR 29246, June 1, 1981] Appendix B to Part 226—State Exemptions Application Any State may apply to the Board for a determination that a class of transactions subject to State law is exempt from the requirements of the Act and this regulation. An application shall be in writing and addressed to the Secretary, Board of Governors of the Federal Reserve System, Washington, DC 20551, and shall be signed by the appropriate State official. The application shall be made pursuant to the procedures herein and the Board's Rules of Procedure (12 CFR Part 262). Supporting Documents An application shall be accompanied by: (1) The text of the State statute or regulation that is the subject of the application, and any other statute, regulation, or judicial or administrative opinion that implements, interprets, or applies it. (2) A comparison of the State law with the corresponding provisions of the Federal law. (3) The text of the State statute or regulation that provides for civil and criminal liability and administrative enforcement of the State law. (4) A statement of the provisions for enforcement, including an identification of the State office that administers the relevant law, information on the funding and the number and qualifications of personnel engaged in enforcement, and a description of the enforcement procedures to be followed, including information on examination procedures, practices, and policies. If an exemption application extends to federally chartered institutions, the applicant must furnish evidence that arrangements have been made with the appropriate Federal agencies to ensure adequate enforcement of State law in regard to such creditors. (5) A statement of reasons to support the applicant's claim that an exemption should be granted. Public Notice of Application Notice of an application will be published, with an opportunity for public comment, in the Federal Register, Subject to the Board's Rules Regarding Availability of Information (12 CFR Part 261), all applications made, including any documents and other material submitted in support of the applications, will be made available for public inspection and copying. A copy of the application also will be made available at the Federal Reserve Bank of each district in which the applicant is situated. Favorable Determination If the Board determines on the basis of the information before it that an exemption should be granted, notice of the exemption will be published in the Federal Register, The appropriate State official shall inform the Board within 30 days of any change in its relevant law or regulations. The official shall file with the Board such periodic reports as the Board may require. The Board will inform the appropriate State official of any subsequent amendments to the Federal law, regulation, interpretations, or enforcement policies that might require an amendment to State law, regulation, interpretations, or enforcement procedures. Adverse Determination If the Board makes an initial determination that an exemption should not be granted, the Board will afford the applicant a reasonable opportunity to demonstrate further that an exemption is proper. If the Board ultimately finds that an exemption should not be granted, notice of an adverse determination will be published in the Federal Register Revocation of Exemption The Board reserves the right to revoke an exemption if at any time it determines that the standards required for an exemption are not met. Before taking such action, the Board will notify the appropriate State official of its intent, and will afford the official such opportunity as it deems appropriate in the circumstances to demonstrate that revocation is improper. If the Board ultimately finds that revocation is proper, notice of the Board's intention to revoke such exemption will be published in the Federal Register Notice of revocation of an exemption will be published in the Federal Register. Appendix C to Part 226—Issuance of Staff Interpretations Official Staff Interpretations Officials in the Board's Division of Consumer and Community Affairs are authorized to issue official staff interpretations of this regulation. These interpretations provide the protection afforded under section 130(f) of the Act. Except in unusual circumstances, such interpretations will not be issued separately but will be incorporated in an official commentary to the regulation which will be amended periodically. Requests for Issuance of Official Staff Interpretations A request for an official staff interpretation shall be in writing and addressed to the Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, DC 20551. The request shall contain a complete statement of all relevant facts concerning the issue, including copies of all pertinent documents. Scope of Interpretations No staff interpretations will be issued approving creditors' forms, statements, or calculation tools or methods. This restriction does not apply to forms, statements, tools, or methods whose use is required or sanctioned by a government agency. Appendix D to Part 226—Multiple Advance Construction Loans Section 226.17(c)(6) permits creditors to treat multiple advance loans to finance construction of a dwelling that may be permanently financed by the same creditor either as a single transaction or as more than one transaction. If the actual schedule of advances is not known, the following methods may be used to estimate the interest portion of the finance charge and the annual percentage rate and to make disclosures. If the creditor chooses to disclose the construction phase separately, whether interest is payable periodically or at the end of construction, part I may be used. If the creditor chooses to disclose the construction and the permanent financing as one transaction, part II may be used. Part I—Construction Period Disclosed Separately A. If interest is payable only on the amount actually advanced for the time it is outstanding: 1. Estimated interest—Assume that one-half of the commitment amount is outstanding at the contract interest rate for the entire construction period. 2. Estimated annual percentage rate—Assume a single payment loan that matures at the end of the construction period. The finance charge is the sum of the estimated interest and any prepaid finance charge. The amount financed for computation purposes is determined by subtracting any prepaid finance charge from one-half of the commitment amount. 3. Repayment schedule—The number and amounts of any interest payments may be omitted in disclosing the payment schedule under § 226.18(g). The fact that interest payments are required and the timing of such payments shall be disclosed. 4. Amount financed—The amount financed for disclosure purposes is the entire commitment amount less any prepaid finance charge. B. If interest is payable on the entire commitment amount without regard to the dates or amounts of actual disbursement: 1. Estimated interest—Assume that the entire commitment amount is outstanding at the contract interest rate for the entire construction period. 2. Estimated annual percentage rate—Assume a single payment loan that matures at the end of the construction period. The finance charge is the sum of the estimated interest and any prepaid finance charge. The amount financed for computation purposes is determined by subtracting any prepaid finance charge from one-half of the commitment amount. 3. Repayment schedule—Interest payments shall be disclosed in making the repayment schedule disclosure under § 226.18(g). Appendix E to Part 226—Rules for Card Issuers That Bill on a Transaction-by-Transaction Basis The following provisions of Subpart B apply if credit cards are issued and the card issuer and the seller are the same or related persons; no finance charge is imposed; consumers are billed in full for each use of the card on a transaction-by-transaction basis, by means of an invoice or other statement reflecting each use of the card; and no cumulative account is maintained which reflects the transactions by each consumer during a period of time, such as a month. The term “related person” refers to, for example, a franchised or licensed seller of a creditor's product or service or a seller who assigns or sells sales accounts to a creditor or arranges for credit under a plan that allows the consumer to use the credit only in transactions with that seller. A seller is not related to the creditor merely because the seller and the creditor have an agreement authorizing the seller to honor the creditor's credit card. 1. Section 226.6(a)(5) or § 226.6(b)(5)(iii). 2. Section 226.6(a)(2) or § 226.6(b)(3)(ii)(B), as applicable. 3. Section 226.6(a)(4) or § 226.6(b)(5)(ii). 4. Section 226.7(a)(2) or § 226.7(b)(2), as applicable; § 226.7(a)(9) or § 226.7(b)(9), as applicable. 5. Section 226.9(a). 6. Section 226.9(c). 7. Section 226.10. 8. Section 226.11(a). 9. Section 226.12 including § 226.12(c) and (d), as applicable. 10. Section 226.13, as applicable. 11. Section 226.15, as applicable. [75 FR 7824, Feb. 22, 2010] Appendix F to Part 226—Optional Annual Percentage Rate Computations for Creditors Offering Open-End Plans Subject to the Requirements of § 226.5b In determining the denominator of the fraction under § 226.14(c)(3), no amount will be used more than once when adding the sum of the balances 1 1 1. Previous balance—none. A specific transaction of $100 occurs on the first day of the billing cycle. The average daily balance is $100. A specific transaction charge of 3 percent is applicable to the specific transaction. The periodic rate is 1 1/2 The annual percentage rate is the quotient (which is 4 1/2 2. Previous balance—$100. A specific transaction of $100 occurs at the midpoint of the billing cycle. The average daily balance is $150. A specific transaction charge of 3 percent is applicable to the specific transaction. The periodic rate is 1 1/2 1/2 3. If, in example 2, the periodic rate applies only to the previous balance, the numerator is $4.50 and the denominator is $200 (the amount of the transaction, $100, plus the balance subject only to the periodic rate, the $100 previous balance). As explained in example 1, the annual percentage rate is 2 1/4 4. If, in example 2, the periodic rate applies only to an adjusted balance (previous balance less payments and credits) and the consumer made a payment of $50 at the midpoint of the billing cycle, the numerator is $3.75 and the denominator is $150 (the amount of the transaction, $100, plus the balance subject to the periodic rate, the $50 adjusted balance). As explained in example 1, the annual percentage rate is 2 1/2 5. Previous balance—$100. A specific transaction (check) of $100 occurs at the midpoint of the billing cycle. The average daily balance is $150. The specific transaction charge is $.25 per check. The periodic rate is 1 1/2 2/3 6. Previous balance—none. A specific transaction of $100 occurs at the midpoint of the billing cycle. The average daily balance is $50. The specific transaction charge is 3 percent of the transaction amount or $3.00. The periodic rate is 1 1/2 3/4 [75 FR 7824, Feb. 22, 2010] Appendix G to Part 226—Open-End Model Forms and Clauses G-1 Balance Computation Methods Model Clauses (Home-equity Plans) (§§ 226.6 and 226.7) G-1(A) Balance Computation Methods Model Clauses (Plans other than Home-equity Plans) (§§ 226.6 and 226.7) G-2 Liability for Unauthorized Use Model Clause (Home-equity Plans) (§ 226.12) G-2(A) Liability for Unauthorized Use Model Clause (Plans Other Than Home-equity Plans) (§ 226.12) G-3 Long-Form Billing-Error Rights Model Form (Home-equity Plans) (§§ 226.6 and 226.9) G-3(A) Long-Form Billing-Error Rights Model Form (Plans Other Than Home-equity Plans) (§§ 226.6 and 226.9) G-4 Alternative Billing-Error Rights Model Form (Home-equity Plans) (§ 226.9) G-4(A) Alternative Billing-Error Rights Model Form (Plans Other Than Home-equity Plans) (§ 226.9) G-5 Rescission Model Form (When Opening an Account) (§ 226.15) G-6 Rescission Model Form (For Each Transaction) (§ 226.15) G-7 Rescission Model Form (When Increasing the Credit Limit) (§ 226.15) G-8 Rescission Model Form (When Adding a Security Interest) (§ 226.15) G-9 Rescission Model Form (When Increasing the Security) (§ 226.15) G-10(A) Applications and Solicitations Model Form (Credit Cards) (§ 226.5a(b)) G-10(B) Applications and Solicitations Sample (Credit Cards) (§ 226.5a(b)) G-10(C) Applications and Solicitations Sample (Credit Cards) (§ 226.5a(b)) G-10(D) Applications and Solicitations Model Form (Charge Cards) (§ 226.5a(b)) G-10(E) Applications and Solicitations Sample (Charge Cards) (§ 226.5a(b)) G-11 Applications and Solicitations Made Available to General Public Model Clauses (§ 226.5a(e)) G-12 [Reserved] G-13(A) Change in Insurance Provider Model Form (Combined Notice) (§ 226.9(f)) G-13(B) Change in Insurance Provider Model Form (§ 226.9(f)(2)) G-14A Home-equity Sample G-14B Home-equity Sample G-15 Home-equity Model Clauses G-16(A) Debt Suspension Model Clause (§ 226.4(d)(3)) G-16(B) Debt Suspension Sample (§ 226.4(d)(3)) G-17(A) Account-opening Model Form (§ 226.6(b)(2)) G-17(B) Account-opening Sample (§ 226.6(b)(2)) G-17(C) Account-opening Sample (§ 226.6(b)(2)) G-17(D) Account-opening Sample (§ 226.6(b)(2)) G-18(A) Transactions; Interest Charges; Fees Sample (§ 226.7(b)) G-18(B) Late Payment Fee Sample (§ 226.7(b)) G-18(C)(1) Minimum Payment Warning (When Amortization Occurs and the 36-Month Disclosures Are Required) (§ 226.7(b)) G-18(C)(2) Minimum Payment Warning (When Amortization Occurs and the 36-Month Disclosures Are Not Required) (§ 226.7(b)) G-18(C)(3) Minimum Payment Warning (When Negative or No Amortization Occurs) (§ 226.7(b)) G-18(D) Periodic Statement New Balance, Due Date, Late Payment and Minimum Payment Sample (Credit cards) (§ 226.7(b)) G-18(E) [Reserved] G-18(F) Periodic Statement Form G-18(G) Periodic Statement Form G-18(H) Deferred Interest Periodic Statement Clause G-19 Checks Accessing a Credit Card Account Sample (§ 226.9(b)(3)) G-20 Change-in-Terms Sample (Increase in Annual Percentage Rate) (§ 226.9(c)(2)) G-21 Change-in-Terms Sample (Increase in Fees) (§ 226.9(c)(2)) G-22 Penalty Rate Increase Sample (Payment 60 or Fewer Days Late) (§ 226.9(g)(3)) G-23 Penalty Rate Increase Sample (Payment More Than 60 Days Late) (§ 226.9(g)(3)) G-24 Deferred Interest Offer Clauses (§ 226.16(h)) G-25(A) Consent Form for Over-the-Limit Transactions (§ 226.56) G-25(B) Revocation Notice for Periodic Statement Regarding Over-the-Limit Transactions (§ 226.56) G-1—Balance Computation Methods Model Clauses (Home-Equity Plans) (a) Adjusted balance method We figure [a portion of] the finance charge on your account by applying the periodic rate to the “adjusted balance” of your account. We get the “adjusted balance” by taking the balance you owed at the end of the previous billing cycle and subtracting [any unpaid finance charges and] any payments and credits received during the present billing cycle. (b) Previous balance method We figure [a portion of] the finance charge on your account by applying the periodic rate to the amount you owe at the beginning of each billing cycle [minus any unpaid finance charges]. We do not subtract any payments or credits received during the billing cycle. [The amount of payments and credits to your account this billing cycle was $ ______.] (c) Average daily balance method (excluding current transactions) We figure [a portion of] the finance charge on your account by applying the periodic rate to the “average daily balance” of your account (excluding current transactions). To get the “average daily balance” we take the beginning balance of your account each day and subtract any payments or credits [and any unpaid finance charges]. We do not add in any new [purchases/advances/loans]. This gives us the daily balance. Then, we add all the daily balances for the billing cycle together and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.” (d) Average daily balance method (including current transactions) We figure [a portion of] the finance charge on your account by applying the periodic rate to the “average daily balance” of your account (including current transactions). To get the “average daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/loans], and subtract any payments or credits, [and unpaid finance charges]. This gives us the daily balance. Then, we add up all the daily balances for the billing cycle and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.” (e) Ending balance method We figure [a portion of] the finance charge on your account by applying the periodic rate to the amount you owe at the end of each billing cycle (including new purchases and deducting payments and credits made during the billing cycle). (f) Daily balance method (including current transactions) We figure [a portion of] the finance charge on your account by applying the periodic rate to the “daily balance” of your account for each day in the billing cycle. To get the “daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/fees], and subtract [any unpaid finance charges and] any payments or credits. This gives us the daily balance. G-1(A)—Balance Computation Methods Model Clauses (Plans Other Than Home-Equity Plans) (a) Adjusted balance method We figure the interest charge on your account by applying the periodic rate to the “adjusted balance” of your account. We get the “adjusted balance” by taking the balance you owed at the end of the previous billing cycle and subtracting [any unpaid interest or other finance charges and] any payments and credits received during the present billing cycle. (b) Previous balance method We figure the interest charge on your account by applying the periodic rate to the amount you owe at the beginning of each billing cycle. We do not subtract any payments or credits received during the billing cycle. (c) Average daily balance method (excluding current transactions) We figure the interest charge on your account by applying the periodic rate to the “average daily balance” of your account. To get the “average daily balance” we take the beginning balance of your account each day and subtract [any unpaid interest or other finance charges and] any payments or credits. We do not add in any new [purchases/advances/fees]. This gives us the daily balance. Then, we add all the daily balances for the billing cycle together and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.” (d) Average daily balance method (including current transactions) We figure the interest charge on your account by applying the periodic rate to the “average daily balance” of your account. To get the “average daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/fees], and subtract [any unpaid interest or other finance charges and] any payments or credits. This gives us the daily balance. Then, we add up all the daily balances for the billing cycle and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.” (e) Ending balance method We figure the interest charge on your account by applying the periodic rate to the amount you owe at the end of each billing cycle (including new [purchases/advances/fees] and deducting payments and credits made during the billing cycle). (f) Daily balance method (including current transactions) We figure the interest charge on your account by applying the periodic rate to the “daily balance” of your account for each day in the billing cycle. To get the “daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/fees], and subtract [any unpaid interest or other finance charges and] any payments or credits. This gives us the daily balance. G-2—Liability for Unauthorized Use Model Clause (Home-Equity Plans) You may be liable for the unauthorized use of your credit card [or other term that describes the credit card]. You will not be liable for unauthorized use that occurs after you notify [name of card issuer or its designee] at [address], orally or in writing, of the loss, theft, or possible unauthorized use. [You may also contact us on the Web: [Creditor Web or email address]] In any case, your liability will not exceed [insert $50 or any lesser amount under agreement with the cardholder]. G-2(A)—Liability for Unauthorized Use Model Clause (Plans Other Than Home-Equity Plans) If you notice the loss or theft of your credit card or a possible unauthorized use of your card, you should write to us immediately at: [address] [address listed on your bill], or call us at [telephone number]. [You may also contact us on the Web: [Creditor Web or email address]] You will not be liable for any unauthorized use that occurs after you notify us. You may, however, be liable for unauthorized use that occurs before your notice to us. In any case, your liability will not exceed [insert $50 or any lesser amount under agreement with the cardholder]. G-3—Long-Form Billing-Error Rights Model Form (Home-Equity Plans) YOUR BILLING RIGHTS KEEP THIS NOTICE FOR FUTURE USE This notice contains important information about your rights and our responsibilities under the Fair Credit Billing Act. Notify Us in Case of Errors or Questions About Your Bill If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [address] [the address listed on your bill]. Write to us as soon as possible. We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. [You may also contact us on the Web: [Creditor Web or email address]] You can telephone us, but doing so will not preserve your rights. In your letter, give us the following information: • Your name and account number. • The dollar amount of the suspected error. • Describe the error and explain, if you can, why you believe there is an error. If you need more information, describe the item you are not sure about. If you have authorized us to pay your credit card bill automatically from your savings or checking account, you can stop the payment on any amount you think is wrong. To stop the payment your letter must reach us three business days before the automatic payment is scheduled to occur. Your Rights and Our Responsibilities After We Receive Your Written Notice We must acknowledge your letter within 30 days, unless we have corrected the error by then. Within 90 days, we must either correct the error or explain why we believe the bill was correct. After we receive your letter, we cannot try to collect any amount you question, or report you as delinquent. We can continue to bill you for the amount you question, including finance charges, and we can apply any unpaid amount against your credit limit. You do not have to pay any questioned amount while we are investigating, but you are still obligated to pay the parts of your bill that are not in question. If we find that we made a mistake on your bill, you will not have to pay any finance charges related to any questioned amount. If we didn't make a mistake, you may have to pay finance charges, and you will have to make up any missed payments on the questioned amount. In either case, we will send you a statement of the amount you owe and the date that it is due. If you fail to pay the amount that we think you owe, we may report you as delinquent. However, if our explanation does not satisfy you and you write to us within ten days telling us that you still refuse to pay, we must tell anyone we report you to that you have a question about your bill. And, we must tell you the name of anyone we reported you to. We must tell anyone we report you to that the matter has been settled between us when it finally is. If we don't follow these rules, we can't collect the first $50 of the questioned amount, even if your bill was correct. Special Rule for Credit Card Purchases If you have a problem with the quality of property or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the property or services. There are two limitations on this right: (a) You must have made the purchase in your home state or, if not within your home state within 100 miles of your current mailing address; and (b) The purchase price must have been more than $50. These limitations do not apply if we own or operate the merchant, or if we mailed you the advertisement for the property or services. G-3(A)—Long-Form Billing-Error Rights Model Form (Plans Other Than Home-Equity Plans) Your Billing Rights: Keep This Document For Future Use This notice tells you about your rights and our responsibilities under the Fair Credit Billing Act. What To Do If You Find A Mistake On Your Statement If you think there is an error on your statement, write to us at: [Creditor Name] [Creditor Address] [You may also contact us on the Web: [Creditor Web or email address]] In your letter, give us the following information: • Account information: • Dollar amount: • Description of problem: You must contact us: • Within 60 days after the error appeared on your statement. • At least 3 business days before an automated payment is scheduled, if you want to stop payment on the amount you think is wrong. You must notify us of any potential errors in writing What Will Happen After We Receive Your Letter When we receive your letter, we must do two things: 1. Within 30 days of receiving your letter, we must tell you that we received your letter. We will also tell you if we have already corrected the error. 2. Within 90 days of receiving your letter, we must either correct the error or explain to you why we believe the bill is correct. While we investigate whether or not there has been an error: • We cannot try to collect the amount in question, or report you as delinquent on that amount. • The charge in question may remain on your statement, and we may continue to charge you interest on that amount. • While you do not have to pay the amount in question, you are responsible for the remainder of your balance. • We can apply any unpaid amount against your credit limit. After we finish our investigation, one of two things will happen: • If we made a mistake: • If we do not believe there was a mistake: If you receive our explanation but still believe your bill is wrong, you must write to us within 10 days If we do not follow all of the rules above, you do not have to pay the first $50 of the amount you question even if your bill is correct. Your Rights If You Are Dissatisfied With Your Credit Card Purchases If you are dissatisfied with the goods or services that you have purchased with your credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the purchase. To use this right, all of the following must be true: 1. The purchase must have been made in your home state or within 100 miles of your current mailing address, and the purchase price must have been more than $50. (Note: Neither of these are necessary if your purchase was based on an advertisement we mailed to you, or if we own the company that sold you the goods or services.) 2. You must have used your credit card for the purchase. Purchases made with cash advances from an ATM or with a check that accesses your credit card account do not qualify. 3. You must not yet have fully paid for the purchase. If all of the criteria above are met and you are still dissatisfied with the purchase, contact us in writing [Creditor Name] [Creditor Address] [[Creditor Web or e-mail address]] While we investigate, the same rules apply to the disputed amount as discussed above. After we finish our investigation, we will tell you our decision. At that point, if we think you owe an amount and you do not pay, we may report you as delinquent. G-4—Alternative Billing-Error Rights Model Form (Home-Equity Plans) BILLING RIGHTS SUMMARY In Case of Errors or Questions About Your Bill If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [address] [the address shown on your bill] as soon as possible. [You may also contact us on the Web: [Creditor Web or e-mail address]] We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. You can telephone us, but doing so will not preserve your rights. In your letter, give us the following information: • Your name and account number. • The dollar amount of the suspected error. • Describe the error and explain, if you can, why you believe there is an error. If you need more information, describe the item you are unsure about. You do not have to pay any amount in question while we are investigating, but you are still obligated to pay the parts of your bill that are not in question. While we investigate your question, we cannot report you as delinquent or take any action to collect the amount you question. Special Rule for Credit Card Purchases If you have a problem with the quality of goods or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may not have to pay the remaining amount due on the goods or services. You have this protection only when the purchase price was more than $50 and the purchase was made in your home state or within 100 miles of your mailing address. (If we own or operate the merchant, or if we mailed you the advertisement for the property or services, all purchases are covered regardless of amount or location of purchase.) G-4(A)—Alternative Billing-Error Rights Model Form (Plans Other Than Home-Equity Plans) What To Do If You Think You Find A Mistake On Your Statement If you think there is an error on your statement, write to us at: [Creditor Name] [Creditor Address] [You may also contact us on the Web: [Creditor Web or e-mail address]] In your letter, give us the following information: • Account information: • Dollar amount: • Description of Problem: You must contact us within 60 days after the error appeared on your statement. You must notify us of any potential errors in writing While we investigate whether or not there has been an error, the following are true: • We cannot try to collect the amount in question, or report you as delinquent on that amount. • The charge in question may remain on your statement, and we may continue to charge you interest on that amount. But, if we determine that we made a mistake, you will not have to pay the amount in question or any interest or other fees related to that amount. • While you do not have to pay the amount in question, you are responsible for the remainder of your balance. • We can apply any unpaid amount against your credit limit. Your Rights If You Are Dissatisfied With Your Credit Card Purchases If you are dissatisfied with the goods or services that you have purchased with your credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the purchase. To use this right, all of the following must be true: 1. The purchase must have been made in your home state or within 100 miles of your current mailing address, and the purchase price must have been more than $50. ( Note: 2. You must have used your credit card for the purchase. Purchases made with cash advances from an ATM or with a check that accesses your credit card account do not qualify. 3. You must not yet have fully paid for the purchase. If all of the criteria above are met and you are still dissatisfied with the purchase, contact us in writing [Creditor Name] [Creditor Address] [[Creditor Web address]] While we investigate, the same rules apply to the disputed amount as discussed above. After we finish our investigation, we will tell you our decision. At that point, if we think you owe an amount and you do not pay we may report you as delinquent. G-11—Applications and Solicitations Made Available to the General Public Model Clauses (a) Disclosure of Required Credit Information The information about the costs of the card described in this [application]/[solicitation] is accurate as of ( month/year telephone number address (b) No Disclosure of Credit Information There are costs associated with the use of this card. To obtain information about these costs, call us at ( telephone number address G-12 [Reserved] G-13(A)—Change in Insurance Provider Model Form (Combined Notice) The credit card account you have with us is insured. This is to notify you that we plan to replace your current coverage with insurance coverage from a different insurer. If we obtain insurance for your account from a different insurer, you may cancel the insurance. [Your premium rate will increase to $ ____ per ____.] [Your coverage will be affected by the following: [ ] The elimination of a type of coverage previously provided to you. [(explanation)] [See ____ of the attached policy for details.] [ ] A lowering of the age at which your coverage will terminate or will become more restrictive. [(explanation)] [See ____ of the attached policy or certificate for details.] [ ] A decrease in your maximum insurable loan balance, maximum periodic benefit payment, maximum number of payments, or any other decrease in the dollar amount of your coverage or benefits. [(explanation)] [See ____ of the attached policy or certificate for details.] [ ] A restriction on the eligibility for benefits for you or others. [(explanation)] [See ____ of the attached policy or certificate for details.] [ ] A restriction in the definition of “disability” or other key term of coverage. [(explanation)] [See ____ of the attached policy or certificate for details.] [ ] The addition of exclusions or limitations that are broader or other than those under the current coverage. [(explanation)] [See ____ of the attached policy or certificate for details.] [ ] An increase in the elimination (waiting) period or a change to nonretroactive coverage. [(explanation)] [See ____ of the attached policy or certificate for details).] [The name and mailing address of the new insurer providing the coverage for your account is (name and address).] G-13(B)—Change in Insurance Provider Model Form We have changed the insurer providing the coverage for your account. The new insurer's name and address are (name and address). A copy of the new policy or certificate is attached. You may cancel the insurance for your account. G-16(A) Debt Suspension Model Clause Please enroll me in the optional [insert name of program], and bill my account the fee of [how cost is determined]. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate. [To Enroll, Sign Here]/[To Enroll, Initial Here]. X G-16(B) Debt Suspension Sample Please enroll me in the optional [name of program], and bill my account the fee of $.83 per $100 of my month-end account balance. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate. To Enroll, Initial Here. X G-18(H)—Deferred Interest Periodic Statement Clause [You must pay your promotional balance in full by [date] to avoid paying accrued interest charges.] G-24—Deferred Interest Offer Clauses (a) For Credit Card Accounts Under an Open-End (Not Home-Secured) Consumer Credit Plan [Interest will be charged to your account from the purchase date if the purchase balance is not paid in full within the/by [deferred interest period/date] or if you make a late payment.] (b) For Other Open-End Plans [Interest will be charged to your account from the purchase date if the purchase balance is not paid in full within the/by [deferred interest period/date] or if your account is otherwise in default.] G-25(A)—Consent Form for Over-the-Credit Limit Transactions Your choice regarding over-the-credit limit coverage Unless you tell us otherwise, we will decline any transaction that causes you to go over your credit limit. If you want us to authorize these transactions, you can request over-the-credit limit coverage. If you have over-the-credit limit coverage and you go over your credit limit, we will charge you a fee of up to $35. We may also increase your APRs to the Penalty APR of XX.XX%. You will only pay one fee per billing cycle, even if you go over your limit multiple times in the same cycle. Even if you request over-the-credit limit coverage, in some cases we may still decline a transaction that would cause you to go over your limit, such as if you are past due or significantly over your credit limit. If you want over-the-limit coverage and to allow us to authorize transactions that go over your credit limit, please: —Call us at [telephone number]; —Visit [Web site]; or —Check or initial the box below, and return the form to us at [address]. __ I want over-the-limit coverage. I understand that if I go over my credit limit, my APRs may be increased and I will be charged a fee of up to $35. [I have the right to cancel this coverage at any time.] [__ I do not Printed Name: Date: [Account Number]: G-25(B)—Revocation Notice for Periodic Statement Regarding Over-the-Credit Limit Transactions You currently have over-the-credit limit coverage on your account, which means that we pay transactions that cause you go to over your credit limit. If you do go over your credit limit, we will charge you a fee of up to $35. We may also increase your APRs. To remove over-the-credit-limit coverage from your account, call us at 1-800-xxxxxxx or visit [insert web site]. [You may also write us at: [insert address].] [You may also check or initial the box below and return this form to us at: [insert address]. __ I want to cancel over-the-limit coverage for my account. Printed Name: Date: [Account Number]: [Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 46 FR 60191, Dec. 9, 1981; 54 FR 13868, Apr. 6, 1989; 54 FR 24689, June 9, 1989; 55 FR 38312, Sept. 18, 1990; 65 FR 58908, Oct. 3, 2000; 75 FR 7825, Feb. 22, 2010; 75 FR 37573, June 26, 2010] Appendix H to Part 226—Closed-End Model Forms and Clauses H-1 Credit Sale Model Form (§ 226.18) H-2 Loan Model Form (§ 226.18) H-3 Amount Financed Itemization Model Form (§ 226.18(c)) H-4(A) Variable-Rate Model Clauses (§ 226.18(f)(1)) H-4(B) Variable-Rate Model Clauses (§ 226.18(f)(2)) H-4(C) Variable-Rate Model Clauses (§ 226.19(b)) H-4(D) Variable-Rate Model Clauses (§ 226.20(c)) H-4(E)—Fixed-Rate Mortgage Interest Rate and Payment Summary Model Clause (§ 226.18(s)) H-4(F)—Adjustable-Rate Mortgage or Step-Rate Mortgage Interest Rate and Payment Summary Model Clause (§ 226.18(s)) H-4(G)—Mortgage with Negative Amortization Interest Rate and Payment Summary Model Clause (§ 226.18(s)) H-4(H)—Fixed-Rate Mortgage with Interest-Only Interest Rate and Payment Summary Model Clause (§ 226.18(s)) H-4(I)—Adjustable-Rate Mortgage Introductory Rate Disclosure Model Clause (§ 226.18(s)(2)(iii)) H-4(J)—Balloon Payment Disclosure Model Clause (§ 226.18(s)(5)) H-4(K)—No Guarantee to Refinance Statement Model Clause (§ 226.18(t)) H-5 Demand Feature Model Clauses (§ 226.18(i)) H-6 Assumption Policy Model Clause (§ 226.18(q)) H-7 Required Deposit Model Clause (§ 226.18(r)) H-8 Rescission Model Form (General) (§ 226.23) H-9 Rescission Model Form (Refinancing (with Original Creditor)) (§ 226.23) H-10 Credit Sale Sample H-11 Installment Loan Sample H-12 Refinancing Sample H-13 Mortgage with Demand Feature Sample H-14 Variable-Rate Mortgage Sample (§ 226.19(b)) H-15 Graduated-Payment Mortgage Sample H-16 Mortgage Sample H-17(A) Debt Suspension Model Clause H-17(B) Debt Suspension Sample H-4(C)—Variable-Rate Model Clauses This disclosure describes the features of the adjustable-rate mortgage (ARM) program you are considering. Information on other ARM programs is available upon request. How Your Interest Rate and Payment Are Determined • Your interest rate will be based on [an index plus a margin] [a formula]. • Your payment will be based on the interest rate, loan balance, and loan term. —[The interest rate will be based on (identification of index) plus our margin. Ask for our current interest rate and margin.] —[The interest rate will be based on (identification of formula). Ask us for our current interest rate.] —Information about the index [formula for rate adjustments] is published [can be found] ________________. —[The initial interest rate is not based on the (index) (formula) used to make later adjustments. Ask us for the amount of current interest rate discounts.] How Your Interest Rate Can Change • Your interest rate can change (frequency). • [Your interest rate cannot increase or decrease more than ______ percentage points at each adjustment.] • Your interest rate cannot increase [or decrease] more than ______ percentage points over the term of the loan. How Your Payment Can Change • Your payment can change (frequency) based on changes in the interest rate. • [Your payment cannot increase more than (amount or percentage) at each adjustment.] • You will be notified in writing ________ days before the due date of a payment at a new level. This notice will contain information about your interest rates, payment amount, and loan balance. • [You will be notified once each year during which interest rate adjustments, but no payment adjustments, have been made to your loan. This notice will contain information about your interest rates, payment amount, and loan balance.] • [For example, on a $10,000 [term] loan with an initial interest rate of ________ [(the rate shown in the interest rate column below for the year 19 ________)] [(in effect (month) (year)], the maximum amount that the interest rate can rise under this program is ________ percentage points, to ________%, and the monthly payment can rise from a first-year payment of $________ to a maximum of $________ in the __________ year. To see what your payments would be, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, the monthly payment for a mortgage amount of $60,000 would be: $60,000 ÷ $10,000 = 6; 6 × ________ = $________ per month.)] [Example The example below shows how your payments would have changed under this ARM program based on actual changes in the index from 1982 to 1996. This does not necessarily indicate how your index will change in the future. The example is based on the following assumptions: Amount $10,000 Term __________ Change date __________ Payment adjustment (frequency) Interest adjustment (frequency) [Margin] * ________ Caps ________ [periodic interest rate cap] ________ [lifetime interest rate cap ________ [payment cap] [Interest rate carryover] [Negative amortization] [Interest rate discount] ** Index.......(identification of index or formula) * This is a margin we have used recently, your margin may be different. ** This is the amount of a discount we have provided recently; your loan may be discounted by a different amount.] Year Index Margin Interest Monthly Remaining 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be: $60,000 ÷ $10,000 = 6; 6 × ________ = $________ per month.) H-4(I)—Introductory Rate Model Clause [Introductory Rate Notice You have a discounted introductory rate of ________ % that ends after (period). In the (period in sequence), even if market rates do not change, this rate will increase to ____ %.] H-4(J)—Balloon Payment Model Clause [Final Balloon Payment due (date): $________] H-4(K)—“No-Guarantee-to-Refinance” Statement Model Clause There is no guarantee that you will be able to refinance to lower your rate and payments. H-9—Rescission Model Form (Refinancing with Original Creditor) NOTICE OF RIGHT TO CANCEL Your Right To Cancel You are entering into a new transaction to increase the amount of credit previously provided to you. Your home is the security for this new transaction. You have a legal right under federal law to cancel this new transaction, without cost, within three business days from whichever of the following events occurs last: (1) the date of this new transaction, which is ________________; or (2) the date you received your new Truth in Lending disclosures; or (3) the date you received this notice of your right to cancel. If you cancel this new transaction, it will not affect any amount that you presently owe. Your home is the security for that amount. Within 20 calendar days after we receive your notice of cancellation of this new transaction, we must take the steps necessary to reflect the fact that your home does not secure the increase of credit. We must also return any money you have given to us or anyone else in connection with this new transaction. You may keep any money we have given you in this new transaction until we have done the things mentioned above, but you must then offer to return the money at the address below. If we do not take possession of the money within 20 calendar days of your offer, you may keep it without further obligation. How To Cancel If you decide to cancel this new transaction, you may do so by notifying us in writing, at (Creditor's name and business address). You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important information about your rights. If you cancel by mail or telegram, you must send the notice no later than midnight of (Date) (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I WISH TO CANCEL Consumer's Signature Date H-14—Variable-Rate Mortgage Sample This disclosure describes the features of the adjustable-rate mortgage (ARM) program you are considering. Information on other ARM programs is available upon request. How Your Interest Rate and Payment Are Determined • Your interest rate will be based on an index rate plus a margin. • Your payment will be based on the interest rate, loan balance, and loan term. —The interest rate will be based on the weekly average yield on United States Treasury securities adjusted to a constant maturity of 1 year (your index), plus our margin. Ask us for our current interest rate and margin. —Information about the index rate is published weekly in the Wall Street Journal. • Your interest rate will equal the index rate plus our margin unless your interest rate “caps” limit the amount of change in the interest rate. How Your Interest Rate Can Change • Your interest rate can change yearly. • Your interest rate cannot increase or decrease more than 2 percentage points per year. • Your interest rate cannot increase or decrease more than 5 percentage points over the term of the loan. How Your Monthly Payment Can Change • Your monthly payment can increase or decrease substantially based on annual changes in the interest rate. • [For example, on a $10,000, 30-year loan with an initial interest rate of 12.41 percent in effect in July 1996, the maximum amount that the interest rate can rise under this program is 5 percentage points, to 17.41 percent, and the monthly payment can rise from a first-year payment of $106.03 to a maximum of $145.34 in the fourth year. To see what your payment is, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, the monthly payment for a mortgage amount of $60,000 would be: $60,000 ÷ $10,000 = 6; 6 × 106.03 = $636.18 per month.) • You will be notified in writing 25 days before the annual payment adjustment may be made. This notice will contain information about your interest rates, payment amount and loan balance.] [Example The example below shows how your payments would have changed under this ARM program based on actual changes in the index from 1982 to 1996. This does not necessarily indicate how your index will change in the future. The example is based on the following assumptions: Amount $10,000 Term 30 years Payment adjustment 1 year Interest adjustment 1 year Margin 3 percentage points Caps________ 2 percentage points annual interest rate ________ 5 percentage points lifetime interest rate Index________ Weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year. Year Index Margin* Interest Monthly Remaining 1982 14.41 3 17.41 145.90 9,989.37 1983 9.78 3 **15.41 129.81 9,969.66 1984 12.17 3 15.17 127.91 9,945.51 1985 7.66 3 **13.17 112.43 9,903.70 1986 6.36 3 ***12.41 106.73 9,848.94 1987 6.71 3 ***12.41 106.73 9,786.98 1988 7.52 3 ***12.41 106.73 9,716.88 1989 7.97 3 ***12.41 106.73 9,637.56 1990 8.06 3 ***12.41 106.73 9,547.83 1991 6.40 3 ***12.41 106.73 9,446.29 1992 3.96 3 ***12.41 106.73 9,331.56 1993 3.42 3 ***12.41 106.73 9,201.61 1994 5.47 3 ***12.41 106.73 9,054.72 1995 5.53 3 ***12.41 106.73 8,888.52 1996 5.82 3 ***12.41 106.73 8,700.37 *This is a margin we have used recently; your margin may be different. **This interest rate reflects a 2 percentage point annual interest rate cap. ***This interest rate reflects a 5 percentage point lifetime interest rate cap. Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be: $60,000 ÷ $10,000 = 6; 6 × $106.73 = $640.38.) • You will be notified in writing 25 days before the annual payment adjustment may be made. This notice will contain information about your interest rates, payment amount and loan balance.] H-17(A) Debt Suspension Model Clause Please enroll me in the optional [insert name of program], and bill my account the fee of [insert charge for the initial term of coverage]. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate. [To Enroll, Sign Here]/[To Enroll, Initial Here]. X ____________________ H-17(B) Debt Suspension Sample Please enroll me in the optional [name of program], and bill my account the fee of $200.00. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate. To Enroll, Initial Here. X ____________________ [46 FR 20892, Apr. 7, 1981, as amended at 46 FR 29246, June 1, 1981; 52 FR 48671, Dec. 24, 1987; 53 FR 467, Jan. 7, 1988; Reg. Z, 60 FR 15473, Mar. 24, 1995; 61 FR 49247, Sept. 19, 1996; 62 FR 63444, 63445, Dec. 1, 1997; 62 FR 66179, Dec. 17, 1997; Reg. Z, 63 FR 2723, Jan. 16, 1998; 66 FR 65618, Dec. 20, 2001; 74 FR 41236, Aug. 14, 2009; 75 FR 7845, Feb. 22, 2010; 75 FR 58484, Sept. 24, 2010] Appendix I to Part 226—Federal Enforcement Agencies The following list indicates which federal agency enforces Regulation Z for particular classes of businesses. Any questions concerning compliance by a particular business should be directed to the appropriate enforcement agency. Terms that are not defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in the International Banking Act of 1978 (12 U.S.C. 3101). National banks and federal branches and federal agencies of foreign banks District office of the Office of the Comptroller of the Currency for the district in which the institution is located. 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 Federal Reserve Bank serving the district in which the institution is located. Non-member insured banks and insured state branches of foreign banks Federal Deposit Insurance Corporation Regional director for the region in which the institution is located. Savings institutions insured under the Savings Association Insurance Fund of the FDIC and federally chartered savings banks insured under the Bank Insurance Fund of the FDIC (but not including state-chartered savings banks insured under the Bank Insurance Fund). Office of Thrift Supervision Regional Director for the region in which the institution is located. Federal Credit Unions Regional office of the National Credit Union Administration serving the area in which the Federal credit union is located. Air Carriers Assistant General Counsel for Aviation Enforcement and Proceedings, Department of Transportation, 400 Seventh Street, SW., Washington, DC 20590. Creditors Subject to Packers and Stockyards Act Nearest Packers and Stockyards Administration area supervisor. Federal Land Banks, Federal Land Bank Associations, Federal Intermediate Credit Banks and Production Credit Associations. Farm Credit Administration, 490 L'Enfant Plaza, SW., Washington, DC 20578. Retail, Department Stores, Consumer Finance Companies, All Other Creditors, and All Nonbank Credit Card Issuers (Creditors operating on a local or regional basis should use the address of the FTC Regional Office in which they operate.) Division of Credit Practices, Bureau of Consumer Protection, Federal Trade Commission, Washington, DC 20580. [Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 50 FR 8708, Mar. 5, 1985; 54 FR 53539, Dec. 29, 1989; 56 FR 51322, Oct. 11, 1991; 57 FR 20400, May 13, 1992] Appendix J to Part 226—Annual Percentage Rate Computations for Closed-End Credit Transactions ( a (1) Section 226.22(a) of Regulation Z provides that the annual percentage rate for other than open end credit transactions shall be determined in accordance with either the actuarial method or the United States Rule method. This appendix contains an explanation of the actuarial method as well as equations, instructions and examples of how this method applies to single advance and multiple advance transactions. (2) Under the actuarial method, at the end of each unit-period (or fractional unit-period) the unpaid balance of the amount financed is increased by the finance charge earned during that period and is decreased by the total payment (if any) made at the end of that period. The determination of unit-periods and fractional unit-periods shall be consistent with the definitions and rules in paragraphs (b) (3), (4) and (5) of this section and the general equation in paragraph (b)(8) of this section. (3) In contrast, under the United States Rule method, at the end of each payment period, the unpaid balance of the amount financed is increased by the finance charge earned during that payment period and is decreased by the payment made at the end of that payment period. If the payment is less than the finance charge earned, the adjustment of the unpaid balance of the amount financed is postponed until the end of the next payment period. If at that time the sum of the two payments is still less than the total earned finance charge for the two payment periods, the adjustment of the unpaid balance of the amount financed is postponed still another payment period, and so forth. ( b (1) General Rule The annual percentage rate shall be the nominal annual percentage rate determined by multiplying the unit-period rate by the number of unit-periods in a year. (2) Term of the Transaction The term of the transaction begins on the date of its consummation, except that if the finance charge or any portion of it is earned beginning on a later date, the term begins on the later date. The term ends on the date the last payment is due, except that if an advance is scheduled after that date, the term ends on the later date. For computation purposes, the length of the term shall be equal to the time interval between any point in time on the beginning date to the same point in time on the ending date. (3) Definitions of Time Intervals (i) A period is the interval of time between advances or between payments and includes the interval of time between the date the finance charge begins to be earned and the date of the first advance thereafter or the date of the first payment thereafter, as applicable. (ii) A common period is any period that occurs more than once in a transaction. (iii) A standard interval of time is a day, week, semimonth, month, or a multiple of a week or a month up to, but not exceeding, 1 year. (iv) All months shall be considered equal. Full months shall be measured from any point in time on a given date of a given month to the same point in time on the same date of another month. If a series of payments (or advances) is scheduled for the last day of each month, months shall be measured from the last day of the given month to the last day of another month. If payments (or advances) are scheduled for the 29th or 30th of each month, the last day of February shall be used when applicable. (4) Unit-period (i) In all transactions other than a single advance, single payment transaction, the unit-period shall be that common period, not to exceed 1 year, that occurs most frequently in the transaction, except that (A) If 2 or more common periods occur with equal frequency, the smaller of such common periods shall be the unit-period; or (B) If there is no common period in the transaction, the unit-period shall be that period which is the average of all periods rounded to the nearest whole standard interval of time. If the average is equally near 2 standard intervals of time, the lower shall be the unit-period. (ii) In a single advance, single payment transaction, the unit-period shall be the term of the transaction, but shall not exceed 1 year. (5) Number of Unit-periods Between 2 Given Dates (i) The number of days between 2 dates shall be the number of 24-hour intervals between any point in time on the first date to the same point in time on the second date. (ii) If the unit-period is a month, the number of full unit-periods between 2 dates shall be the number of months measured back from the later date. The remaining fraction of a unit-period shall be the number of days measured forward from the earlier date to the beginning of the first full unit-period, divided by 30. If the unit-period is a month, there are 12 unit-periods per year. (iii) If the unit-period is a semimonth or a multiple of a month not exceeding 11 months, the number of days between 2 dates shall be 30 times the number of full months measured back from the later date, plus the number of remaining days. The number of full unit-periods and the remaining fraction of a unit-period shall be determined by dividing such number of days by 15 in the case of a semimonthly unit-period or by the appropriate multiple of 30 in the case of a multimonthly unit-period. If the unit-period is a semimonth, the number of unit-periods per year shall be 24. If the number of unit-periods is a multiple of a month, the number of unit-periods per year shall be 12 divided by the number of months per unit-period. (iv) If the unit-period is a day, a week, or a multiple of a week, the number of full unit-periods and the remaining fractions of a unit-period shall be determined by dividing the number of days between the 2 given dates by the number of days per unit-period. If the unit-period is a day, the number of unit-periods per year shall be 365. If the unit-period is a week or a multiple of a week, the number of unit-periods per year shall be 52 divided by the number of weeks per unit-period. (v) If the unit-period is a year, the number of full unit-periods between 2 dates shall be the number of full years (each equal to 12 months) measured back from the later date. The remaining fraction of a unit-period shall be (A) The remaining number of months divided by 12 if the remaining interval is equal to a whole number of months, or (B) The remaining number of days divided by 365 if the remaining interval is not (vi) In a single advance, single payment transaction in which the term is less than a year and is equal to a whole number of months, the number of unit-periods in the term shall be 1, and the number of unit-periods per year shall be 12 divided by the number of months in the term or 365 divided by the number of days in the term. (vii) In a single advance, single payment transaction in which the term is less than a year and is not (6) Percentage Rate for a Fraction of a Unit-period The percentage rate of finance charge for a fraction (less than 1) of a unit-period shall be equal to such fraction multiplied by the percentage rate of finance charge per unit-period. [Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 46 FR 29246, June 1, 1981] Appendix K to Part 226—Total Annual Loan Cost Rate Computations for Reverse Mortgage Transactions (a) Introduction. (b) Instructions and equations for the total annual loan cost rate General rule. (2) Term of the transaction. (3) Definitions of time intervals. (i) A period (ii) A common period (iii) A standard interval of time (iv) All months shall be considered to have an equal number of days. (4) Unit-period. (A) If two or more common periods occur with equal frequency, the smaller of such common periods shall be the unit-period; or (B) If there is no common period in the transaction, the unit-period shall be that period which is the average of all periods rounded to the nearest whole standard interval of time. If the average is equally near two standard intervals of time, the lower shall be the unit-period. (ii) In a single-advance, single-payment transaction, the unit-period shall be the term of the transaction, but shall not exceed one year. (5) Number of unit-periods between two given dates. (ii) If the unit-period is a month, the number of full unit-periods between two dates shall be the number of months. If the unit-period is a month, the number of unit-periods per year shall be 12. (iii) If the unit-period is a semimonth or a multiple of a month not exceeding 11 months, the number of days between two dates shall be 30 times the number of full months. The number of full unit-periods shall be determined by dividing the number of days by 15 in the case of a semimonthly unit-period or by the appropriate multiple of 30 in the case of a multimonthly unit-period. If the unit-period is a semimonth, the number of unit-periods per year shall be 24. If the number of unit-periods is a multiple of a month, the number of unit-periods per year shall be 12 divided by the number of months per unit-period. (iv) If the unit-period is a day, a week, or a multiple of a week, the number of full unit-periods shall be determined by dividing the number of days between the two given dates by the number of days per unit-period. If the unit-period is a day, the number of unit-periods per year shall be 365. If the unit-period is a week or a multiple of a week, the number of unit-periods per year shall be 52 divided by the number of weeks per unit-period. (v) If the unit-period is a year, the number of full unit-periods between two dates shall be the number of full years (each equal to 12 months). (6) Symbols. A j i = Percentage rate of the total annual loan cost per unit-period, expressed as a decimal equivalent. j = The number of unit-periods until the jth advance. n = The number of unit-periods between consummation and repayment of the debt. P n n n Bal n Val n 0 y 0 n σ = The summation operator. Symbols used in the examples shown in this appendix are defined as follows: w = The number of unit-periods per year. I = wi × 100 = the nominal total annual loan cost rate. (7) General equation. (8) Solution of general equation by iteration process. Using the iteration procedures found in steps 1 through 4 of (b)(9)(i) of appendix J of this part, the total annual loan cost rate, correct to two decimals, is 48.53%. (ii) In using these iteration procedures, it is expected that calculators or computers will be programmed to carry all available decimals throughout the calculation and that enough iterations will be performed to make virtually certain that the total annual loan cost rate obtained, when rounded to two decimals, is correct. Total annual loan cost rates in the examples below were obtained by using a 10-digit programmable calculator and the iteration procedure described in appendix J of this part. (9) Assumption for discretionary cash advances. (10) Assumption for variable-rate reverse mortgage transactions. (11) Assumption for closing costs. (c) Examples of total annual loan cost rate computations Lump-sum advance at consummation. Lump-sum advance to consumer at consummation: $30,000 Total of consumer's loan costs financed at consummation: $4,500 Contract interest rate: 11.60% Estimated time of repayment (based on life expectancy of a consumer at age 78): 10 years Appraised value of dwelling at consummation: $100,000 Assumed annual dwelling appreciation rate: 4% P 10 i = .1317069438 Total annual loan cost rate (100(.1317069438 × 1)) = 13.17% (2) Monthly advance beginning at consummation. Monthly advance to consumer, beginning at consummation: $492.51 Total of consumer's loan costs financed at consummation: $4,500 Contract interest rate: 9.00% Estimated time of repayment (based on life expectancy of a consumer at age 78): 10 years Appraised value of dwelling at consummation: $100,000 Assumed annual dwelling appreciation rate: 8% Total annual loan cost rate (100(.009061140 × 12)) = 10.87% (3) Lump sum advance at consummation and monthly advances thereafter. Lump sum advance to consumer at consummation: $10,000 Monthly advance to consumer, beginning at consummation: $725 Total of consumer's loan costs financed at consummation: $4,500 Contract rate of interest: 8.5% Estimated time of repayment (based on life expectancy of a consumer at age 75): 12 years Appraised value of dwelling at consummation: $100,000 Assumed annual dwelling appreciation rate: 8% Total annual loan cost rate (100(.007708844 × 12)) = 9.25% (d) Reverse mortgage model form and sample form Model form. Total Annual Loan Cost Rate Loan Terms Age of youngest borrower: Appraised property value: Interest rate: Monthly advance: Initial draw: Line of credit: Initial Loan Charges Closing costs: Mortgage insurance premium: Annuity cost: Monthly Loan Charges Servicing fee: Other Charges: Mortgage insurance: Shared Appreciation: Repayment Limits Assumed annual appreciation Total annual loan cost rate 2-year loan term [ ]-year loan term] [ ]-year loan term [ ]-year loan term 0% [ ] 4% [ ] 8% [ ] The cost of any reverse mortgage loan depends on how long you keep the loan and how much your house appreciates in value. Generally, the longer you keep a reverse mortgage, the lower the total annual loan cost rate will be. This table shows the estimated cost of your reverse mortgage loan, expressed as an annual rate. It illustrates the cost for three [four] loan terms: 2 years, [half of life expectancy for someone your age,] that life expectancy, and 1.4 times that life expectancy. The table also shows the cost of the loan, assuming the value of your home appreciates at three different rates: 0%, 4% and 8%. The total annual loan cost rates in this table are based on the total charges associated with this loan. These charges typically include principal, interest, closing costs, mortgage insurance premiums, annuity costs, and servicing costs (but not costs when you sell the home). The rates in this table are estimates. Your actual cost may differ if, for example, the amount of your loan advances varies or the interest rate on your mortgage changes. Signing an Application or Receiving These Disclosures Does Not Require You To Complete This Loan (2) Sample Form. Total Annual Loan Cost Rate Loan Terms Age of youngest borrower: 75 Appraised property value: $100,000 Interest rate: 9% Monthly advance: $301.80 Initial draw: $1,000 Line of credit: $4,000 Initial Loan Charges Closing costs: $5,000 Mortgage insurance premium: None Annuity cost: None Monthly Loan Charges Servicing fee: None Other Charges Mortgage insurance: None Shared Appreciation: None Repayment Limits Net proceeds estimated at 93% of projected home sale Assumed annual appreciation Total annual loan cost rate 2-year loan term [6-year loan term] 12-year loan term 17-year loan term 0% 39.00% [14.94%] 9.86% 3.87% 4% 39.00% [14.94%] 11.03% 10.14% 8% 39.00% [14.94%] 11.03% 10.20% The cost of any reverse mortgage loan depends on how long you keep the loan and how much your house appreciates in value. Generally, the longer you keep a reverse mortgage, the lower the total annual loan cost rate will be. This table shows the estimated cost of your reverse mortgage loan, expressed as an annual rate. It illustrates the cost for three [four] loan terms: 2 years, [half of life expectancy for someone your age,] that life expectancy, and 1.4 times that life expectancy. The table also shows the cost of the loan, assuming the value of your home appreciates at three different rates: 0%,4% and 8%. The total annual loan cost rates in this table are based on the total charges associated with this loan. These charges typically include principal, interest, closing costs, mortgage insurance premiums, annuity costs, and servicing costs (but not disposition costs—costs when you sell the home). The rates in this table are estimates. Your actual cost may differ if, for example, the amount of your loan advances varies or the interest rate on your mortgage changes. Signing an Application or Receiving These Disclosures Does Not Require You To Complete This Loan [Reg. Z, 60 FR 15474, Mar. 24, 1995, as amended at 60 FR 50400, Sept. 29, 1995] Appendix L to Part 226—Assumed Loan Periods for Computations of Total Annual Loan Cost Rates (a) Required tables. (b) Loan periods. (2) Loan Period 2 is the life expectancy in years of the youngest borrower to become obligated on the reverse mortgage loan, as shown in the U.S. Decennial Life Tables for 1979-1981 for females, rounded to the nearest whole year. (3) Loan Period 3 is the life expectancy figure in Loan Period 3, multiplied by 1.4 and rounded to the nearest full year (life expectancy figures at .5 have been rounded up to 1). (4) At the creditor's option, an additional period may be included, which is the life expectancy figure in Loan Period 2, multiplied by .5 and rounded to the nearest full year (life expectancy figures at .5 have been rounded up to 1). Age of youngest borrower Loan period 1 (in years) [Optional loan period (in years)] Loan period 2 (life expectancy) (in years) Loan period 3 (in years) 62 2 [11] 21 29 63 2 [10] 20 28 64 2 [10] 19 27 65 2 [9] 18 25 66 2 [9] 18 25 67 2 [9] 17 24 68 2 [8] 16 22 69 2 [8] 16 22 70 2 [8] 15 21 71 2 [7] 14 20 72 2 [7] 13 18 73 2 [7] 13 18 74 2 [6] 12 17 75 2 [6] 12 17 76 2 [6] 11 15 77 2 [5] 10 14 78 2 [5] 10 14 79 2 [5] 9 13 80 2 [5] 9 13 81 2 [4] 8 11 82 2 [4] 8 11 83 2 [4] 7 10 84 2 [4] 7 10 85 2 [3] 6 8 86 2 [3] 6 8 87 2 [3] 6 8 88 2 [3] 5 7 89 2 [3] 5 7 90 2 [3] 5 7 91 2 [2] 4 6 92 2 [2] 4 6 93 2 [2] 4 6 94 2 [2] 4 6 95 and over 2 [2] 3 4 [60 FR 15476, Mar. 24, 1995] Appendix M1 to Part 226—Repayment Disclosures (a) Definitions. (2) “Deferred interest or similar plan” means a plan where a consumer will not be obligated to pay interest that accrues on balances or transactions if those balances or transactions are paid in full prior to the expiration of a specified period of time. (b) Calculating minimum payment repayment estimates. Minimum payment formulas. (2) Annual percentage rate. (3) Beginning balance. (4) Assumptions. (i) Only minimum monthly payments are made each month. In addition, minimum monthly payments are made each month—for example, a debt cancellation or suspension agreement, or skip payment feature does not apply to the account. (ii) No additional extensions of credit are obtained, such as new purchases, transactions, fees, charges or other activity. No refunds or rebates are given. (iii) The annual percentage rate or rates that apply to a cardholder's account will not change, through either the operation of a variable rate or the change to a rate, except as provided in paragraph (b)(2) of this Appendix. For example, if a penalty annual percentage rate currently applies to a consumer's account, a card issuer may assume that the penalty annual percentage rate will apply to the consumer's account indefinitely, even if the consumer may potentially return to a non-penalty annual percentage rate in the future under the account agreement. (iv) There is no grace period. (v) The final payment pays the account in full ( i.e., (vi) The average daily balance method is used to calculate the balance. (vii) All months are the same length and leap year is ignored. A monthly or daily periodic rate may be assumed. If a daily periodic rate is assumed, the issuer may either assume (1) a year is 365 days long, and all months are 30.41667 days long, or (2) a year is 360 days long, and all months are 30 days long. (viii) Payments are credited either on the last day of the month or the last day of the billing cycle. (ix) Payments are allocated to lower annual percentage rate balances before higher annual percentage rate balances. (x) The account is not past due and the account balance does not exceed the credit limit. (xi) When calculating the minimum payment repayment estimate, the assumed payments, current balance and interest charges for each month may be rounded to the nearest cent, as shown in Appendix M2 to this part. (5) Tolerance. (c) Calculating the minimum payment total cost estimate. (d) Calculating the estimated monthly payment for repayment in 36 months. In general. (2) Weighted annual percentage rate. (3) Assumptions. (4) Tolerance. 1 i (e) Calculating the total cost estimate for repayment in 36 months. (f) Calculating the savings estimate for repayment in 36 months. [75 FR 7846, Feb. 22, 2010, as amended at 76 FR 23004, Apr. 25, 2011] Appendix M2 to Part 226—Sample Calculations of Repayment Disclosures The following is an example of how to calculate the minimum payment repayment estimate, the minimum payment total cost estimate, the estimated monthly payment for repayment in 36 months, the total cost estimate for repayment in 36 months, and the savings estimate for repayment in 36 months using the guidance in Appendix M1 to this part where three annual percentage rates apply (where one of the rates is a promotional APR), the total outstanding balance is $1000, and the minimum payment formula is 2 percent of the outstanding balance or $20, whichever is greater. The following calculation is written in SAS code. data one; /* Note: month = number of months to repay total balance if making only minimum payments pmt = minimum monthly payment fc = monthly finance charge sumpmts = sum of payments for minimum payments */ * inputs; * annual percentage rates; apr1 = 0.0; apr2 = 0.17; apr3 = 0.21; * insert in ascending order; * outstanding balances; cbal1 = 500; cbal2 = 250; cbal3 = 250; * dollar minimum payment; dmin = 20; * percent minimum payment; pmin = 0.02; * (0.02 + perrate); * promotional rate information; * last month for promotional rate; expm = 6; * = 0 if no promotional rate; * regular rate; rrate = .17; * = 0 if no promotional rate; array apr(3); array perrate(3); days = 365/12; * calculate days in month; * calculate estimated monthly payment to pay off balances in 36 months, and total cost of repaying balance in 36 months; array xperrate(3); do I = 1 to 3; xperrate(I) = (apr(I)/365)*days; * calculate periodic rate; end; if expm gt 0 then xperrate1a = (expm/36) * xperrate1 + (1 - (expm/36)) * (rrate/365) * days; else xperrate1a = xperrate1; tbal = cbal1 + cbal2 + cbal3; perrate36 = (cbal1 * xperrate1a + cbal2 * xperrate2 + cbal3 * xperrate3) / (cbal1 + cbal2 + cbal3); * months to repay; dmonths = 36; * initialize counters for sum of payments for repayment in 36 months; Sumpmts36 = 0; pvaf = (1 - (1 + perrate36) ** -dmonths) / perrate36; * calculate present value of annuity factor; pmt01 = round(tbal/pvaf,0.01); * calculate monthly payment for designated number of months; sumpmts36 = pmt01 * 36; * calculate time to repay and total cost of making minimum payments each month; * initialize counter for months, and sum of payments; month = 0; sumpmts = 0; do I = 1 to 3; perrate(I) = (apr(I) / 365) * days; * calculate periodic rate; end; put perrate1 = perrate2 = perrate3 = ; eins: month = month + 1; * increment month counter; pmt = round(pmin*tbal,0.01); * calculate payment as percentage of balance; if month ge expm and expm ne 0 then perrate1 = (rrate / 365) * days; if pmt lt dmin then pmt = dmin; * set dollar minimum payment; array xxxbal(3); array cbal(3); do I = 1 to 3; xxxbal(I) = round(cbal(I) * (1 + perrate(I)),0.01); end; fc = xxxbal1 + xxxbal2 + xxxbal3 − tbal; if pmt gt (tbal + fc) then do; do I = 1 to 3; if cbal(I) gt 0 then pmt = round(cbal(I) * (1 + perrate(I)),0.01); * set final payment amount; end; end; if pmt le xxxbal1 then do; cbal1 = xxxbal1 − pmt; cbal2 = xxxbal2; cbal3 = xxxbal3; end; if pmt gt xxxbal1 and xxxbal2 gt 0 and pmt le (xxxbal1 + xxxbal2) then do; cbal2 = xxxbal2 − (pmt − xxxbal1); cbal1 = 0; cbal3 = xxxbal3; end; if pmt gt xxxbal2 and xxxbal3 gt 0 then do; cbal3 = xxxbal3 − (pmt − xxxbal1 − xxxbal2); cbal2 = 0; end; sumpmts = sumpmts + pmt; * increment sum of payments; tbal = cbal1 + cbal2 + cbal3; * calculate new total balance; * print month, balance, payment amount, and finance charge; put month = tbal = cbal1 = cbal2 = cbal3 = pmt = fc = ; if tbal gt 0 then go to eins; * go to next month if balance is greater than zero; * initialize total cost savings; savtot = 0; savtot = round(sumpmts,1) − round (sumpmts36,1); * print number of months to repay debt if minimum payments made, final balance (zero), total cost if minimum payments made, estimated monthly payment for repayment in 36 months, total cost for repayment in 36 months, and total savings if repaid in 36 months; put title = ‘ ’; put title = ‘number of months to repay debt if minimum payment made, final balance, total cost if minimum payments made, estimated monthly payment for repayment in 36 months, total cost for repayment in 36 months, and total savings if repaid in 36 months’; put month = tbal = sumpmts = pmt01 = sumpmts36 = savto t =; put title = ‘ ’; run; [75 FR 7846, Feb. 22, 2010] Appendix N to Part 226—Higher-Priced Mortgage Loan Appraisal Safe Harbor Review To qualify for the safe harbor provided in § 226.43(c)(2), a creditor must confirm that the written appraisal: 1. Identifies the creditor who ordered the appraisal and the property and the interest being appraised. 2. Indicates whether the contract price was analyzed. 3. Addresses conditions in the property's neighborhood. 4. Addresses the condition of the property and any improvements to the property. 5. Indicates which valuation approaches were used, and includes a reconciliation if more than one valuation approach was used. 6. Provides an opinion of the property's market value and an effective date for the opinion. 7. Indicates that a physical property visit of the interior of the property was performed, as applicable. 8. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with the requirements of the Uniform Standards of Professional Appraisal Practice. 9. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with the requirements of title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended (12 U.S.C. 3331 et seq. [78 FR 10439, Feb. 13, 2013, as amended at 78 FR 78583, Dec. 26, 2013] Appendix O to Part 226—Illustrative Written Source Documents for Higher-Priced Mortgage Loan Appraisal Rules A creditor acts with reasonable diligence under § 226.43(d)(6)(i) if the creditor bases its determination on information contained in written source documents, such as: 1. A copy of the recorded deed from the seller. 2. A copy of a property tax bill. 3. A copy of any owner's title insurance policy obtained by the seller. 4. A copy of the RESPA settlement statement from the seller's acquisition ( i.e., 5. A property sales history report or title report from a third-party reporting service. 6. Sales price data recorded in multiple listing services. 7. Tax assessment records or transfer tax records obtained from local governments. 8. A written appraisal performed in compliance with § 226.43(c)(1) for the same transaction. 9. A copy of a title commitment report detailing the seller's ownership of the property, the date it was acquired, or the price at which the seller acquired the property. 10. A property abstract. [78 FR 10439, Feb. 13, 2013] Supplement I to Part 226—Official Staff Interpretations Introduction 1. Official status. 2. Procedure for requesting interpretations. Federal Register. 3. Rules of construction. (b) Throughout the commentary, reference to “this section” or “this paragraph” means the section or paragraph in the regulation that is the subject of the comment. 4. Comment designations. Subpart A—General Section 226.1—Authority, Purpose, Coverage, Organization, Enforcement and Liability 1(c) Coverage. 1. Foreign applicability. 1(d) Organization. Paragraph 1(d)(1). 1. [Reserved] Paragraph 1(d)(2). 1. [Reserved] Paragraph 1(d)(3). 1. Effective date. Paragraph 1(d)(4). 1. [Reserved] Paragraph 1(d)(5). 1. Effective dates. i. The Board's revisions published on July 30, 2008 (the “final rules”) apply to covered loans (including refinance loans and assumptions considered new transactions under § 226.20) for which the creditor receives an application on or after October 1, 2009, except for the final rules on advertising, escrows, and loan servicing. But see comment 1(d)(3)-1. The final rules on escrow in § 226.35(b)(3) are effective for covered loans (including refinancings and assumptions in § 226.20) for which the creditor receives an application on or after April 1, 2010; but for such loans secured by manufactured housing on or after October 1, 2010. The final rules applicable to servicers in § 226.36(c) apply to all covered loans serviced on or after October 1, 2009. The final rules on advertising apply to advertisements occurring on or after October 1, 2009. For example, a radio ad occurs on the date it is first broadcast; a solicitation occurs on the date it is mailed to the consumer. The following examples illustrate the application of the effective dates for the final rules. A. General. B. Escrows. C. Servicing. (ii) The interim final rule on appraisal independence in § 226.42 published on October 28, 2010 is mandatory on April 1, 2011, for open- and closed-end extensions of consumer credit secured by the consumer's principal dwelling. Section 226.36(b), which is substantially similar to § 226.42(b) and (e), is removed effective April 1, 2011. Applications for closed-end extensions of credit secured by the consumer's principal dwelling that are received by creditors before April 1, 2011, are subject to § 226.36(b) regardless of the date on which the transaction is consummated. However, parties subject to § 226.36(b) may, at their option, choose to comply with § 226.42 instead of § 226.36(b), for applications received before April 1, 2011. Thus, an application for a closed-end extension of credit secured by the consumer's principal dwelling that is received by a creditor on March 20, 2011, and consummated on May 1, 2011, is subject to § 226.36(b), however, the creditor may choose to comply with § 226.42 instead. For an application for open- or closed-end credit secured by the consumer's principal dwelling that is received on or after April 1, 2011, the creditor must comply with § 226.42. iii. The final rule revising escrow requirements under § 226.35(b)(3) published on March 2, 2011 applies to certain closed-end extensions of consumer credit secured by the consumer's principal dwelling. See Paragraph 1(d)(6). 1. Mandatory compliance dates. 2. Optional compliance. Paragraph 1(d)(7). 1. [Reserved] Section 226.2—Definitions and Rules of Construction 2(a)(2) Advertisement. 1. Coverage. i. Examples include: A. Messages in a newspaper, magazine, leaflet, promotional flyer, or catalog. B. Announcements on radio, television, or public address system. C. Electronic advertisements, such as on the Internet. D. Direct mail literature or other printed material on any exterior or interior sign. E. Point of sale displays. F. Telephone solicitations. G. Price tags that contain credit information. H. Letters sent to customers or potential customers as part of an organized solicitation of business. I. Messages on checking account statements offering auto loans at a stated annual percentage rate. J. Communications promoting a new open-end plan or closed-end transaction. ii. The term does not include: A. Direct personal contacts, such as follow-up letters, cost estimates for individual consumers, or oral or written communication relating to the negotiation of a specific transaction. B. Informational material, for example, interest-rate and loan-term memos, distributed only to business entities. C. Notices required by federal or state law, if the law mandates that specific information be displayed and only the information so mandated is included in the notice. D. News articles the use of which is controlled by the news medium. E. Market-research or educational materials that do not solicit business. F. Communications about an existing credit account (for example, a promotion encouraging additional or different uses of an existing credit card account). 2. Persons covered. persons 2(a)(3) Reserved. 2(a)(4) Billing cycle or cycle. 1. Intervals. 2. Creditors that do not bill. cycle billing cycle 3. Equal cycles. See 4. Payment reminder. 2(a)(6) Business day. 1. Business function test. 2. Rule for rescission, disclosures for certain mortgage transactions, and private education loans. 2(a)(7) Card issuer. 1. Agent. 2(a)(8) Cardholder. 1. General rule. 2. Limited application of regulation. any any 3. Issuance. 4. Dual-purpose cards and dual-card systems. 2(a)(9) Cash price. 1. Components. 2. Service contracts. 3. Rebates. 2(a)(10) Closed-end credit. 1. General. 2(a)(11) Consumer. 1. Scope. 2. Rescission rules. 3. Land trusts. 2(a)(12) Consumer credit. 1. Primary purpose. 2(a)(13) Consummation. 1. State law governs. 2. Credit v. sale. 2(a)(14) Credit. 1. Exclusions. i. Layaway plans, unless the consumer is contractually obligated to continue making payments. Whether the consumer is so obligated is a matter to be determined under applicable law. The fact that the consumer is not entitled to a refund of any amounts paid towards the cash price of the merchandise does not bring layaways within the definition of credit. ii. Tax liens, tax assessments, court judgments, and court approvals of reaffirmation of debts in bankruptcy. However, third-party financing of such obligations (for example, a bank loan obtained to pay off a tax lien) is credit for purposes of the regulation. iii. Insurance premium plans that involve payment in installments with each installment representing the payment for insurance coverage for a certain future period of time, unless the consumer is contractually obligated to continue making payments. iv. Home improvement transactions that involve progress payments, if the consumer pays, as the work progresses, only for work completed and has no contractual obligation to continue making payments. v. Borrowing against the accrued cash value of an insurance policy or a pension account, if there is no independent obligation to repay. vi. Letters of credit. vii. The execution of option contracts. However, there may be an extension of credit when the option is exercised, if there is an agreement at that time to defer payment of a debt. viii. Investment plans in which the party extending capital to the consumer risks the loss of the capital advanced. This includes, for example, an arrangement with a home purchaser in which the investor pays a portion of the downpayment and of the periodic mortgage payments in return for an ownership interest in the property, and shares in any gain or loss of property value. ix. Mortgage assistance plans administered by a government agency in which a portion of the consumer's monthly payment amount is paid by the agency. No finance charge is imposed on the subsidy amount, and that amount is due in a lump-sum payment on a set date or upon the occurrence of certain events. (If payment is not made when due, a new note imposing a finance charge may be written, which may then be subject to the regulation.) 2. Payday loans; deferred presentment. 2(a)(15) Credit card. 1. Usable from time to time. 2. Examples. A. A card that guarantees checks or similar instruments, if the asset account is also tied to an overdraft line or if the instrument directly accesses a line of credit. B. A card that accesses both a credit and an asset account (that is, a debit-credit card). C. An identification card that permits the consumer to defer payment on a purchase. D. An identification card indicating loan approval that is presented to a merchant or to a lender, whether or not the consumer signs a separate promissory note for each credit extension. E. A card or device that can be activated upon receipt to access credit, even if the card has a substantive use other than credit, such as a purchase-price discount card. Such a card or device is a credit card notwithstanding the fact that the recipient must first contact the card issuer to access or activate the credit feature. ii. In contrast, credit card does not include, for example A. A check-guarantee or debit card with no credit feature or agreement, even if the creditor occasionally honors an inadvertent overdraft. B. Any card, key, plate, or other device that is used in order to obtain petroleum products for business purposes from a wholesale distribution facility or to gain access to that facility, and that is required to be used without regard to payment terms. C. An account number that accesses a credit account, unless the account number can access an open-end line of credit to purchase goods or services. For example, if a creditor provides a consumer with an open-end line of credit that can be accessed by an account number in order to transfer funds into another account (such as an asset account with the same creditor), the account number is not a credit card for purposes of § 226.2(a)(15)(i). However, if the account number can also access the line of credit to purchase goods or services (such as an account number that can be used to purchase goods or services on the Internet), the account number is a credit card for purposes of § 226.2(a)(15)(i), regardless of whether the creditor treats such transactions as purchases, cash advances, or some other type of transaction. Furthermore, if the line of credit can also be accessed by a card (such as a debit card), that card is a credit card for purposes of § 226.2(a)(15)(i). 3. Charge card. charge card credit card credit card account under an open-end (not home-secured) consumer credit plan 4. Credit card account under an open-end (not home-secured) consumer credit plan. i. The account is accessed by a credit card, as defined in § 226.2(a)(15)(i); and ii. The account is not excluded under § 226.2(a)(15)(ii)(A) or (a)(15)(ii)(B). 2(a)(16) Credit sale. 1. Special disclosure. 2. Sellers who arrange credit. 3. Refinancings. 4. Incidental sales. sell 5. Credit extensions for educational purposes. 2(a)(17) Creditor. 1. General. Paragraph 2(a)(17)(i). 1. Prerequisites. i. First, A. A written (rather than oral) agreement to pay in more than four installments. A letter that merely confirms an oral agreement does not constitute a written agreement for purposes of the definition. B. A finance charge imposed for the credit. The obligation to pay the finance charge need not be in writing. ii. Second, bearer, 2. Assignees. i. An auto dealer and a bank have a business relationship in which the bank supplies the dealer with credit sale contracts that are initially made payable to the dealer and provide for the immediate assignment of the obligation to the bank. The dealer and purchaser execute the contract only after the bank approves the creditworthiness of the purchaser. Because the obligation is initially payable on its face to the dealer, the dealer is the only creditor in the transaction. 3. Numerical tests. 4. Counting transactions. transactions 5. Relationship between consumer credit in general and credit secured by a dwelling. not 6. Effect of satisfying one test. 7. Trusts. i. A bank is the trustee for three trusts. Trust A makes 15 extensions of consumer credit annually; Trust B makes 10 extensions of consumer credit annually; and Trust C makes 30 extensions of consumer credit annually. Only Trust C is a creditor for purposes of the regulation. Paragraph 2(a)(17)(ii). Paragraph 2(a)(17)(iii). 1. Card issuers subject to Subpart B. Paragraph 2(a)(17)(iv). 1. Card issuers subject to Subparts B and C. 2(a)(18) Downpayment. 1. Allocation. 2. Pick-up payments. pick-up payments, A. It is subtracted in arriving at the amount financed under § 226.18(b). B. It may, but need not, be reflected in the payment schedule under § 226.18(g). ii. If the pick-up payment does not meet the definition (for example, if it is payable after the second regularly scheduled payment) or if the creditor chooses not to treat it as part of the downpayment: A. It must be included in the amount financed. B. It must be shown in the payment schedule. iii. Whichever way the pick-up payment is treated, the total of payments under § 226.18(h) must equal the sum of the payments disclosed under § 226.18(g). 3. Effect of existing liens. i. No cash payment. ii. Cash payment. A. If the downpayment disclosed is equal to the cash payment, the $2,000 deficit must be reflected as an additional amount financed under § 226.18(b)(2). B. If the consumer provides $1,500 in cash (which does not extinguish the $2,000 deficit), the creditor may disclose a downpayment of $1,500 or of $0. C. If the consumer provides $3,000 in cash, the creditor may disclose a downpayment of $3,000 or of $1,000. 2(a)(19) Dwelling. 1. Scope. principal See 2. Use as a residence. 3. Relation to exemptions. 2(a)(20) Open-end credit. 1. General. all 3 2. Existence of a plan. 3. Repeated transactions. 4. Finance charge on an outstanding balance. 5. Reusable line. i. Under a closed-end commitment, the creditor might agree to lend a total of $10,000 in a series of advances as needed by the consumer. When a consumer has borrowed the full $10,000, no more is advanced under that particular agreement, even if there has been repayment of a portion of the debt. ( See ii. This criterion does not mean that the creditor must establish a specific credit limit for the line of credit or that the line of credit must always be replenished to its original amount. The creditor may reduce a credit limit or refuse to extend new credit in a particular case due to changes in the creditor's financial condition or the consumer's creditworthiness. (The rules in § 226.5b(f), however, limit the ability of a creditor to suspend credit advances for home equity plans.) While consumers should have a reasonable expectation of obtaining credit as long as they remain current and within any preset credit limits, further extensions of credit need not be an absolute right in order for the plan to meet the self-replenishing criterion. 6. Verifications of collateral value. 7. Open-end real estate mortgages. 2(a)(21) Periodic rate. 1. Basis. 1/2 1/360 i. May disclose a 1/360 daily ii. Would have to apply the rate to the balance to disclose the annual percentage rate with the degree of accuracy required in the regulation (that is, within 1/8 2. Transaction charges. Periodic rate 2(a)(22) Person. 1. Joint ventures. 2. Attorneys. 3. Trusts. 2(a)(23) Prepaid finance charge. 1. General. 2. Examples. A. Buyer's points. B. Service fees. C. Loan fees. D. Finder's fees. E. Loan-guarantee insurance. F. Credit-investigation fees. ii. However, in order for these or any other finance charges to be considered prepaid, they must be either paid separately in cash or check or withheld from the proceeds. Prepaid finance charges include any portion of the finance charge paid prior to or at closing or settlement. 3. Exclusions. Add-on discount prepaid See 4. Allocation of lump-sum payments. 2(a)(24) Residential mortgage transaction. 1. Relation to other sections. i. Section 226.4(c)(7)—exclusions from the finance charge. ii. Section 226.15(f)—exemption from the right of rescission. iii. Section 226.18(q)—whether or not the obligation is assumable. iv. Section 226.20(b)—disclosure requirements for assumptions. v. Section 226.23(f)—exemption from the right of rescission. 2. Lien status. residential mortgage transaction 3. Principal dwelling. one See 4. Construction financing. i. The creditor makes a construction loan to finance the initial construction of the consumer's principal dwelling, and the loan will be disbursed in five advances. The creditor gives six sets of disclosures (five for the construction phase and one for the permanent phase). Each one is a residential mortgage transaction. ii. One creditor finances the initial construction of the consumer's principal dwelling and another creditor makes a loan to satisfy the construction loan and provide permanent financing. Both transactions are residential mortgage transactions. 5. Acquisition. ii. Examples of new transactions involving a previously acquired dwelling include the financing of a balloon payment due under a land sale contract and an extension of credit made to a joint owner of property to buy out the other joint owner's interest. In these instances, disclosures are not required under § 226.18(q) (assumability policies). However, the rescission rules of §§ 226.15 and 226.23 do apply to these new transactions. iii. In other cases, the disclosure and rescission rules do not apply. For example, where a buyer enters into a written agreement with the creditor holding the seller's mortgage, allowing the buyer to assume the mortgage, if the buyer had previously purchased the property and agreed with the seller to make the mortgage payments, § 226.20(b) does not apply (assumptions involving residential mortgages). 6. Multiple purpose transactions. 7. Construction on previously acquired vacant land. 2(a)(25) Security interest. 1. Threshold test. 2. Exclusions. 3. Incidental interests. A. Assignment of rents. B. Right to condemnation proceeds. C. Interests in accessories and replacements. D. Interests in escrow accounts, such as for taxes and insurance. E. Waiver of homestead or personal property rights. ii. The notion of an incidental interest 4. Operation of law. 5. Rescission rules. 6. Specificity of disclosure. 2(b) Rules of construction. 1. Footnotes. 2. Amount. Section 226.3—Exempt Transactions 1. Relationship to § 226.12. 3(a) Business, commercial, agricultural, or organizational credit. 1. Primary purposes. 2. Business purpose purchases. i. Business-purpose credit cards—extensions of credit for consumer purposes. ii. Consumer-purpose credit cards—extensions of credit for business purposes. 3. Factors. i. General. A. The relationship of the borrower's primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose. B. The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose. C. The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose. D. The size of the transaction. The larger the transaction, the more likely it is to be business purpose. E. The borrower's statement of purpose for the loan. ii. Business-purpose examples. A. A loan to expand a business, even if it is secured by the borrower's residence or personal property. B. A loan to improve a principal residence by putting in a business office. C. A business account used occasionally for consumer purposes. iii. Consumer-purpose examples. A. Credit extensions by a company to its employees or agents if the loans are used for personal purposes. B. A loan secured by a mechanic's tools to pay a child's tuition. C. A personal account used occasionally for business purposes. 4. Non-owner-occupied rental property. See 5. Owner-occupied rental property. i. Credit extended to acquire the rental property is deemed to be for business purposes if it contains more than 2 housing units. ii. Credit extended to improve or maintain the rental property is deemed to be for business purposes if it contains more than 4 housing units. Since the amended statute defines dwelling to include 1 to 4 housing units, this rule preserves the right of rescission for credit extended for purposes other than acquisition. Neither of these rules means that an extension of credit for property containing fewer than the requisite number of units is necessarily consumer credit. In such cases, the determination of whether it is business or consumer credit should be made by considering the factors listed in comment 3(a)-3. 6. Business credit later refinanced. 7. Credit card renewal. 8. Agricultural purpose. 9. Organizational credit. 10. Land trusts. 3(b) Credit over applicable threshold amount. Threshold amount. 2. No increase in the CPI-W. i. Net increases. ii. Net decreases. 3. Threshold. i. Prior to July 21, 2011, the threshold amount is $25,000. ii. From July 21, 2011, through December 31, 2011, the threshold amount is $50,000. iii. From January 1, 2012, through December 31, 2012, the threshold amount is $51,800. iv. From January 1, 2013, through December 31, 2013, the threshold amount is $53,000. v. From January 1, 2014, through December 31, 2014, the threshold amount is $53,500. vi. From January 1, 2015, through December 31, 2015, the threshold amount is $54,600. vii. From January 1, 2016, through December 31, 2016, the threshold amount is $54,600. viii. From January 1, 2017, through December 31, 2017, the threshold amount is $54,600. ix. From January 1, 2018, through December 31, 2018, the threshold amount is $55,800. x. From January 1, 2019, through December 31, 2019, the threshold amount is $57,200. xi. From January 1, 2020, through December 31, 2020, the threshold amount is $58,300. xii. From January 1, 2021, through December 31, 2021, the threshold amount is $58,300. xiii. From January 1, 2022, through December 31, 2022, the threshold amount is $61,000. xiv. From January 1, 2023, through December 31, 2023, the threshold amount is $66,400. xv. From January 1, 2024, through December 31, 2024, the threshold amount is $69,500. xvi. From January 1, 2025, through December 31, 2025, the threshold amount is $71,900. xvii. From January 1, 2026, through December 31, 2026, the threshold amount is $73,400. 4. Open-end credit. i. Qualifying for exemption. A. The creditor makes an initial extension of credit at or after account opening that exceeds the threshold amount in effect at the time the initial extension is made. If a creditor makes an initial extension of credit after account opening that does not exceed the threshold amount in effect at the time the extension is made, the creditor must have satisfied all of the applicable requirements of this part from the date the account was opened (or earlier, if applicable), including but not limited to the requirements of § 226.6 (account-opening disclosures), § 226.7 (periodic statements), § 226.52 (limitations on fees), and § 226.55 (limitations on increasing annual percentages rates, fees, and charges). For example: (1) Assume that the threshold amount in effect on January 1 is $50,000. On February 1, an account is opened but the creditor does not make an initial extension of credit at that time. On July 1, the creditor makes an initial extension of credit of $60,000. In this circumstance, no requirements of this part apply to the account. (2) Assume that the threshold amount in effect on January 1 is $50,000. On February 1, an account is opened but the creditor does not make an initial extension of credit at that time. On July 1, the creditor makes an initial extension of credit of $50,000 or less. In this circumstance, the account is not exempt, and the creditor must have satisfied all of the applicable requirements of this part from the date the account was opened (or earlier, if applicable). B. The creditor makes a firm written commitment at account opening to extend a total amount of credit in excess of the threshold amount in effect at the time the account is opened with no requirement of additional credit information for any advances on the account (except as permitted from time to time with respect to open-end accounts pursuant to § 226.2(a)(20)). ii. Subsequent changes generally. iii. Subsequent changes when exemption is based on initial extension of credit. iv. Subsequent changes when exemption is based on firm commitment. A. General. (1) Assume that, at account opening in year one, the threshold amount in effect is $50,000 and the account is exempt under § 226.3(b) based on the creditor's firm commitment to extend $55,000 in credit. If during year one the creditor reduces its firm commitment to $53,000, the account remains exempt under § 226.3(b). However, if during year one the creditor reduces its firm commitment to $40,000, the account is no longer exempt under § 226.3(b). (2) Assume that, at account opening in year one, the threshold amount in effect is $50,000 and the account is exempt under § 226.3(b) based on the creditor's firm commitment to extend $55,000 in credit. If the threshold amount is $56,000 on January 1 of year six as a result of increases in the CPI-W, the account remains exempt. However, if the creditor reduces its firm commitment to $54,000 on July 1 of year six, the account ceases to be exempt under § 226.3(b). B. Initial extension of credit. (1) Assume that, at account opening in year one, the threshold amount in effect is $50,000 and the account is exempt under § 226.3(b) based on the creditor's firm commitment to extend $55,000 in credit. The account is not used for an extension of credit during year one. On January 1 of year two, the threshold amount is increased to $51,000 pursuant to § 226.3(b)(1)(ii) as a result of an increase in the CPI-W. On July 1 of year two, the consumer uses the account for an initial extension of $52,000. As a result of this extension of credit, the account remains exempt under § 226.3(b) even if, after July 1 of year two, the creditor reduces the firm commitment to $51,000 or less. (2) Same facts as in paragraph 4.iv.B(1) of this section except that the consumer uses the account for an initial extension of $30,000 on July 1 of year two and for an extension of $22,000 on July 15 of year two. In these circumstances, the account is not exempt under § 226.3(b) based on the $30,000 initial extension of credit because that extension did not exceed the applicable threshold amount ($51,000), although the account remains exempt based on the firm commitment to extend $55,000 in credit. (3) Same facts as in paragraph 4.iv.B(1) of this section except that, on April 1 of year two, the creditor reduces the firm commitment to $50,000, which is below the $51,000 threshold then in effect. Because the account ceases to qualify for a § 226.3(b) exemption on April 1 of year two, the account does not qualify for a § 226.3(b) exemption based on a $52,000 initial extension of credit on July 1 of year two. 5. Closed-end credit. i. Qualifying for exemption. A. The creditor makes an extension of credit at consummation that exceeds the threshold amount in effect at the time of consummation. In these circumstances, the loan remains exempt under § 226.3(b) even if the amount owed is subsequently reduced below the threshold amount (such as through repayment of the loan). B. The creditor makes a commitment at consummation to extend a total amount of credit in excess of the threshold amount in effect at the time of consummation. In these circumstances, the loan remains exempt under § 226.3(b) even if the total amount of credit extended does not exceed the threshold amount. ii. Subsequent changes. 6. Addition of a security interest in real property or a dwelling after account opening or consummation. i. Open-end credit. ii. Closed-end credit. 7. Application to extensions secured by mobile homes. 8. Transition rule for open-end accounts exempt prior to July 21, 2011. i. Assume that, on July 20, 2011, the account is exempt under § 226.3(b) based on the creditor's firm commitment to extend $30,000 in credit. On November 1, 2011, the creditor increases the firm commitment on the account to $55,000. In these circumstances, the account remains exempt under § 226.3(b)(1) regardless of subsequent increases in the threshold amount as a result of increases in the CPI-W. ii. Same facts as paragraph 8.i. of this section except, on November 1, 2011, the creditor increases the firm commitment on the account to $40,000. In these circumstances, the account ceases to be exempt under § 226.3(b)(2) after December 31, 2011, and the creditor must begin to comply with the applicable requirements of this part. 3(c) Public utility credit. 1. Examples. i. General. A. Gas, water, or electrical services. B. Cable television services. C. Installation of new sewer lines, water lines, conduits, telephone poles, or metering equipment in an area not already serviced by the utility. ii. Extensions of credit not covered. A. To purchase appliances such as gas or electric ranges, grills, or telephones. B. To finance home improvements such as new heating or air conditioning systems. 3(d) Securities or commodities accounts. 1. Coverage. 3(e) Home fuel budget plans. 1. Definition. 3(f) Student loan programs. 1. Coverage. et seq. Section 226.4—Finance Charge 4(a) Definition. 1. Charges in comparable cash transactions. i. For example, the following items are not finance charges: A. Taxes, license fees, or registration fees paid by both cash and credit customers. B. Discounts that are available to cash and credit customers, such as quantity discounts. C. Discounts available to a particular group of consumers because they meet certain criteria, such as being members of an organization or having accounts at a particular financial institution. This is the case even if an individual must pay cash to obtain the discount, provided that credit customers who are members of the group and do not qualify for the discount pay no more than the nonmember cash customers. D. Charges for a service policy, auto club membership, or policy of insurance against latent defects offered to or required of both cash and credit customers for the same price. ii. In contrast, the following items are finance charges: A. Inspection and handling fees for the staged disbursement of construction-loan proceeds. B. Fees for preparing a Truth in Lending disclosure statement, if permitted by law (for example, the Real Estate Settlement Procedures Act prohibits such charges in certain transactions secured by real property). C. Charges for a required maintenance or service contract imposed only in a credit transaction. iii. If the charge in a credit transaction exceeds the charge imposed in a comparable cash transaction, only the difference is a finance charge. For example: A. If an escrow agent is used in both cash and credit sales of real estate and the agent's charge is $100 in a cash transaction and $150 in a credit transaction, only $50 is a finance charge. 2. Costs of doing business. i. A discount imposed on a credit obligation when it is assigned by a seller-creditor to another party is not a finance charge as long as the discount is not separately imposed on the consumer. ( See ii. A tax imposed by a state or other governmental body on a creditor is not a finance charge if the creditor absorbs the tax as a cost of doing business and does not separately impose the tax on the consumer. (For additional discussion of the treatment of taxes, see other commentary to § 226.4(a).) 3. Forfeitures of interest. A. A consumer borrows $5,000 for 90 days and secures it with a $10,000 certificate of deposit paying 15% interest. The creditor charges the consumer an interest rate of 6% on the loan and stops paying interest on $5,000 of the $10,000 certificate for the term of the loan. The interest lost is a finance charge and must be reflected in the annual percentage rate on the loan. B. However, the consumer must be entitled to the interest that is not paid in order for the lost interest to be a finance charge. For example: iii. A consumer wishes to buy from a financial institution a $10,000 certificate of deposit paying 15% interest but has only $4,000. The financial institution offers to lend the consumer $6,000 at an interest rate of 6% but will pay the 15% interest only on the amount of the consumer's deposit, $4,000. The creditor's failure to pay interest on the $6,000 does not result in an additional finance charge on the extension of credit, provided the consumer is entitled by the deposit agreement with the financial institution to interest only on the amount of the consumer's deposit. iv. A consumer enters into a combined time deposit/credit agreement with a financial institution that establishes a time deposit account and an open-end line of credit. The line of credit may be used to borrow against the funds in the time deposit. The agreement provides for an interest rate on any credit extension of, for example, 1%. In addition, the agreement states that the creditor will pay 0% interest on the amount of the time deposit that corresponds to the amount of the credit extension(s). The interest that is not paid on the time deposit by the financial institution is not a finance charge (and therefore does not affect the annual percentage rate computation). 4. Treatment of transaction fees on credit card plans. i. Any charge imposed on a credit cardholder by a card issuer for the use of an automated teller machine (ATM) to obtain a cash advance (whether in a proprietary, shared, interchange, or other system) is a finance charge regardless of whether the card issuer imposes a charge on its debit cardholders for using the ATM to withdraw cash from a consumer asset account, such as a checking or savings account. ii. Any charge imposed on a credit cardholder for making a purchase or obtaining a cash advance outside the United States, with a foreign merchant, or in a foreign currency is a finance charge, regardless of whether a charge is imposed on debit cardholders for such transactions. The following principles apply in determining what is a foreign transaction fee and the amount of the fee: A. Included are (1) fees imposed when transactions are made in a foreign currency and converted to U.S. dollars; (2) fees imposed when transactions are made in U.S. dollars outside the U.S.; and (3) fees imposed when transactions are made (whether in a foreign currency or in U.S. dollars) with a foreign merchant, such as via a merchant's Web site. For example, a consumer may use a credit card to make a purchase in Bermuda, in U.S. dollars, and the card issuer may impose a fee because the transaction took place outside the United States. B. Included are fees imposed by the card issuer and fees imposed by a third party that performs the conversion, such as a credit card network or the card issuer's corporate parent. (For example, in a transaction processed through a credit card network, the network may impose a 1 percent charge and the card-issuing bank may impose an additional 2 percent charge, for a total of a 3 percentage point foreign transaction fee being imposed on the consumer.) C. Fees imposed by a third party are included only if they are directly passed on to the consumer. For example, if a credit card network imposes a 1 percent fee on the card issuer, but the card issuer absorbs the fee as a cost of doing business (and only passes it on to consumers in the general sense that the interest and fees are imposed on all its customers to recover its costs), then the fee is not a foreign transaction fee and need not be disclosed. In another example, if the credit card network imposes a 1 percent fee for a foreign transaction on the card issuer, and the card issuer imposes this same fee on the consumer who engaged in the foreign transaction, then the fee is a foreign transaction fee and a finance charge. D. A card issuer is not required to disclose a fee imposed by a merchant. For example, if the merchant itself performs the currency conversion and adds a fee, this fee need not be disclosed by the card issuer. Under § 226.9(d), a card issuer is not obligated to disclose finance charges imposed by a party honoring a credit card, such as a merchant, although the merchant is required to disclose such a finance charge if the merchant is subject to the Truth in Lending Act and Regulation Z. E. The foreign transaction fee is determined by first calculating the dollar amount of the transaction by using a currency conversion rate outside the card issuer's and third party's control. Any amount in excess of that dollar amount is a foreign transaction fee. Conversion rates outside the card issuer's and third party's control include, for example, a rate selected from the range of rates available in the wholesale currency exchange markets, an average of the highest and lowest rates available in such markets, or a government-mandated or government-managed exchange rate (or a rate selected from a range of such rates). F. The rate used for a particular transaction need not be the same rate that the card issuer (or third party) itself obtains in its currency conversion operations. In addition, the rate used for a particular transaction need not be the rate in effect on the date of the transaction (purchase or cash advance). 5. Taxes. i. Generally, a tax imposed by a state or other governmental body solely on a creditor is a finance charge if the creditor separately imposes the charge on the consumer. ii. In contrast, a tax is not a finance charge (even if it is collected by the creditor) if applicable law imposes the tax: A. Solely on the consumer; B. On the creditor and the consumer jointly; C. On the credit transaction, without indicating which party is liable for the tax; or D. On the creditor, if applicable law directs or authorizes the creditor to pass the tax on to the consumer. (For purposes of this section, if applicable law is silent as to passing on the tax, the law is deemed not to authorize passing it on.) iii. For example, a stamp tax, property tax, intangible tax, or any other state or local tax imposed on the consumer, or on the credit transaction, is not a finance charge even if the tax is collected by the creditor. iv. In addition, a tax is not a finance charge if it is excluded from the finance charge by another provision of the regulation or commentary (for example, if the tax is imposed uniformly in cash and credit transactions). 4(a)(1) Charges by third parties. 1. Choosing the provider of a required service. 2. Annuities associated with reverse mortgages. i. The credit documents reflect the purchase of an annuity from a specific provider or providers. ii. The creditor assesses an additional charge on consumers who do not purchase an annuity from a specific provider. iii. The annuity is intended to replace in whole or in part the creditor's payments to the consumer either immediately or at some future date. 4(a)(2) Special rule; closing agent charges. 1. General. 2. Required closing agent. 4(a)(3) Special rule; mortgage broker fees. 1. General. 2. Coverage. 3. Compensation by lender. 4(b) Examples of finance charges. 1. Relationship to other provisions. i. Premiums for credit life insurance, shown as an example of a finance charge under § 226.4(b)(7), may be excluded if the requirements of § 226.4(d)(1) are met. ii. Appraisal fees mentioned in § 226.4(b)(4) are excluded for real property or residential mortgage transactions under § 226.4(c)(7). Paragraph 4(b)(2). 1. Checking account charges. i. A $5 service charge is imposed on an account with an overdraft line of credit (where the institution has agreed in writing to pay an overdraft), while a $3 service charge is imposed on an account without a credit feature; the $2 difference is a finance charge. (If the difference is not related to account activity, however, it may be excludable as a participation fee. See the commentary to § 226.4(c)(4).) ii. A $5 service charge is imposed for each item that results in an overdraft on an account with an overdraft line of credit, while a $25 service charge is imposed for paying or returning each item on a similar account without a credit feature; the $5 charge is not a finance charge. Paragraph 4(b)(3). 1. Assumption fees. Paragraph 4(b)(5). 1. Credit loss insurance. 2. Residual value insurance. Paragraphs 4(b)(7) and (b)(8). 1. Pre-existing insurance policy. 2. Insurance written in connection with a transaction. 3. Substitution of life insurance. 4. Other insurance. i. The premium for a hospitalization insurance policy, if it is required to be purchased only in a credit transaction, is a finance charge. Paragraph 4(b)(9). 1. Discounts for payment by other than credit. i. The seller of land offers individual tracts for $10,000 each. If the purchaser pays cash, the price is $9,000, but if the purchaser finances the tract with the seller the price is $10,000. The $1,000 difference is a finance charge for those who buy the tracts on credit. 2. Exception for cash discounts. i. Creditors may exclude from the finance charge discounts offered to consumers for using cash or another means of payment instead of using a credit card or an open-end plan. The discount may be in whatever amount the seller desires, either as a percentage of the regular price (as defined in section 103(z) of the act, as amended) or a dollar amount. Pursuant to section 167(b) of the act, this provision applies only to transactions involving an open-end credit plan or a credit card (whether open-end or closed-end credit is extended on the card). The merchant must offer the discount to prospective buyers whether or not they are cardholders or members of the open-end credit plan. The merchant may, however, make other distinctions. For example: A. The merchant may limit the discount to payment by cash and not offer it for payment by check or by use of a debit card. B. The merchant may establish a discount plan that allows a 15% discount for payment by cash, a 10% discount for payment by check, and a 5% discount for payment by a particular credit card. None of these discounts is a finance charge. ii. Pursuant to section 171(c) of the act, discounts excluded from the finance charge under this paragraph are also excluded from treatment as a finance charge or other charge for credit under any state usury or disclosure laws. 3. Determination of the regular price. i. The regular price discount surcharge, regular price * * * the tag or posted price charged for the property or service if a single price is tagged or posted, or the price charged for the property or service when payment is made by use of an open-end credit account or a credit card if either (1) no price is tagged or posted, or (2) two prices are tagged or posted. * * * ii. For example, in the sale of motor vehicle fuel, the tagged or posted price is the price displayed at the pump. As a result, the higher price (the open-end credit or credit card price) must be displayed at the pump, either alone or along with the cash price. Service station operators may designate separate pumps or separate islands as being for either cash or credit purchases and display only the appropriate prices at the various pumps. If a pump is capable of displaying on its meter either a cash or a credit price depending upon the consumer's means of payment, both the cash price and the credit price must be displayed at the pump. A service station operator may display the cash price of fuel by itself on a curb sign, as long as the sign clearly indicates that the price is limited to cash purchases. 4(b)(10) Debt cancellation and debt suspension fees. 1. Definition. 2. Coverage written in connection with a transaction. 4(c) Charges excluded from the finance charge. Paragraph 4(c)(1). 1. Application fees. Paragraph 4(c)(2). 1. Late payment charges. i. Late payment charges can be excluded from the finance charge under § 226.4(c)(2) whether or not the person imposing the charge continues to extend credit on the account or continues to provide property or services to the consumer. In determining whether a charge is for actual unanticipated late payment on a 30-day account, for example, factors to be considered include: A. The terms of the account. For example, is the consumer required by the account terms to pay the account balance in full each month? If not, the charge may be a finance charge. B. The practices of the creditor in handling the accounts. For example, regardless of the terms of the account, does the creditor allow consumers to pay the accounts over a period of time without demanding payment in full or taking other action to collect? If no effort is made to collect the full amount due, the charge may be a finance charge. ii. Section 226.4(c)(2) applies to late payment charges imposed for failure to make payments as agreed, as well as failure to pay an account in full when due. 2. Other excluded charges. Paragraph 4(c)(3). 1. Assessing interest on an overdraft balance. Paragraph 4(c)(4). 1. Participation fees—periodic basis. 2. Participation fees—exclusions. Paragraph 4(c)(5). 1. Seller's points. commitment fee 2. Other seller-paid amounts. Paragraph 4(c)(6). 1. Lost interest. Paragraph 4(c)(7). 1. Real estate or residential mortgage transaction charges. 2. Lump-sum charges. 3. Charges assessed during the loan term. 4(d) Insurance and debt cancellation and debt suspension coverage. 1. General. 2. Timing of disclosures. 3. Premium rate increases. 4. Unit-cost disclosures. i. Open-end credit. ii. Closed-end credit. 5. Required credit life insurance; debt cancellation or suspension coverage. 6. Other types of voluntary insurance. 7. Signatures. 8. Property insurance. 9. Single-interest insurance. i. The insurer waives any right of subrogation. ii. The other requirements of § 226.4(d)(2) are met. This includes, of course, giving the consumer the option of obtaining the insurance from a person of the consumer's choice. The creditor need not ascertain whether the consumer is able to purchase the insurance from someone else. 10. Single-interest insurance defined. single-interest insurance vendor's single-interest insurance VSI 11. Initial term. i. The initial term of insurance or debt cancellation or debt suspension coverage determines the period for which a premium amount must be disclosed, unless one of the options discussed under comment 4(d)-12 is available. For purposes of § 226.4(d), the initial term is the period for which the insurer or creditor is obligated to provide coverage, even though the consumer may be allowed to cancel the coverage or coverage may end due to nonpayment before that term expires. ii. For example: A. The initial term of a property insurance policy on an automobile that is written for one year is one year even though premiums are paid monthly and the term of the credit transaction is four years. B. The initial term of an insurance policy is the full term of the credit transaction if the consumer pays or finances a single premium in advance. 12. Initial term; alternative. i. General. A. The initial term is indefinite or not clear, or B. The consumer has agreed to pay a premium or fee that is assessed periodically but the consumer is under no obligation to continue the coverage, whether or not the consumer has made an initial payment. ii. Open-end plans. iii. Examples. A. A credit life insurance policy providing coverage for a 30-year mortgage loan has an initial term of 30 years, even though premiums are paid monthly and the consumer is not required to continue the coverage. Disclosures may be based on the initial term, but the creditor also has the option of making disclosures on the basis of coverage for an assumed initial term of one year. 13. Loss-of-income insurance. 4(d)(3) Voluntary debt cancellation or debt suspension fees. 1. General. 2. Disclosures. 3. Multiple events. 4. Disclosures in programs combining debt cancellation and debt suspension features. 4(d)(4) Telephone purchases. 1. Affirmative request. 4(e) Certain security interest charges. 1. Examples. i. Excludable charges. ii. Charges not excludable. 2. Itemization. 3. Notary fees. i. The document to be notarized is one used to perfect, release, or continue a security interest. ii. The document is required by law to be notarized. iii. A notary is considered a public official under applicable law. iv. The amount of the fee is set or authorized by law. 4. Nonfiling insurance. i. The fee for perfecting a security interest is $5.00 and the fee for releasing the security interest is $3.00. The creditor charges $10.00 for nonfiling insurance. Only $8.00 of the $10.00 is excludable from the finance charge. 4(f) Prohibited offsets. 1. Earnings on deposits or investments. Subpart B—Open-End Credit Section 226.5—General Disclosure Requirements 5(a) Form of disclosures. 5(a)(1) General. 1. Clear and conspicuous standard. 2. Clear and conspicuous—reasonably understandable form. i. Pluralizing required terminology (“finance charge” and “annual percentage rate”). ii. Adding to the required disclosures such items as contractual provisions, explanations of contract terms, state disclosures, and translations. iii. Sending promotional material with the required disclosures. iv. Using commonly accepted or readily understandable abbreviations (such as “mo.” for “month” or “Tx.” for “Texas”) in making any required disclosures. v. Using codes or symbols such as “APR” (for annual percentage rate), “FC” (for finance charge), or “Cr” (for credit balance), so long as a legend or description of the code or symbol is provided on the disclosure statement. 3. Clear and conspicuous—readily noticeable standard. 4. Integrated document. i. Multiple pages provided in the same envelope that cover related material and are folded together, numbered consecutively, or clearly labeled to show that they relate to one another; or ii. A brochure that contains disclosures and explanatory material about a range of services the creditor offers, such as credit, checking account, and electronic fund transfer features. 5. Disclosures covered. Paragraph 5(a)(1)(ii)(A). 1. Electronic disclosures. et seq. Paragraph 5(a)(1)(iii). 1. Disclosures not subject to E-Sign Act. 5(a)(2) Terminology. 1. When disclosures must be more conspicuous. finance charge annual percentage rate, finance charge annual percentage rate i. In disclosing the annual percentage rate as required by § 226.6(a)(1)(ii), the term annual percentage rate more conspicuous ii. In disclosing the amount of the finance charge, required by § 226.7(a)(6)(i), the term finance charge more conspicuous iii. Although neither finance charge annual percentage rate 2. Making disclosures more conspicuous. finance charge annual percentage rate finance charge annual percentage rate total finance charge finance charge i. Capitalizing the words when other disclosures are printed in lower case. ii. Putting them in bold print or a contrasting color. iii. Underlining them. iv. Setting them off with asterisks. v. Printing them in larger type. 3. Disclosure of figures—exception to more conspicuous rule. annual percentage rate finance charge 4. Consistent terminology. 5(b) Time of disclosures. 5(b)(1) Account-opening disclosures. 5(b)(1)(i) General rule. 1. Disclosure before the first transaction. i. Purchases. ii. Advances. 2. Reactivation of suspended account. 3. Reopening closed account. 4. Converting closed-end to open-end credit. 5. Balance transfers. 6. Substitution or replacement of credit card accounts. i. Generally. ii. Relevant facts and circumstances. A. Whether the card issuer provides the consumer with a new credit card; B. Whether the card issuer provides the consumer with a new account number; C. Whether the account provides new features or benefits after the substitution or replacement (such as rewards on purchases); D. Whether the account can be used to conduct transactions at a greater or lesser number of merchants after the substitution or replacement (such as when a retail card is replaced with a cobranded general purpose credit card that can be used at a wider number of merchants); E. Whether the card issuer implemented the substitution or replacement on an individualized basis (such as in response to a consumer's request); and F. 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). iii. Replacement as a result of theft or unauthorized use. 5(b)(1)(ii) Charges imposed as part of an open-end (not home-secured) plan. 1. Disclosing charges before the fee is imposed. 5(b)(1)(iii) Telephone purchases. 1. Return policies. 5(b)(1)(iv) Membership fees. 1. Membership fees. 2. Rejecting the plan. 3. Using the account. 4. Home-equity plans. 5(b)(2) Periodic statements. Paragraph 5(b)(2)(i). 1. Periodic statements not required. i. If the creditor adjusts an account balance so that at the end of the cycle the balance is less than $1—so long as no finance charge has been imposed on the account for that cycle. ii. If a statement was returned as undeliverable. If a new address is provided, however, within a reasonable time before the creditor must send a statement, the creditor must resume sending statements. Receiving the address at least 20 days before the end of a cycle would be a reasonable amount of time to prepare the statement for that cycle. For example, if an address is received 22 days before the end of the June cycle, the creditor must send the periodic statement for the June cycle. ( See 2. Termination of draw privileges. 3. Uncollectible accounts. 4. Instituting collection proceedings. Paragraph 5(b)(2)(ii). 1. Mailing or delivery of periodic statements. 1 2 A. If a creditor has adopted reasonable procedures designed to ensure that periodic statements for a credit card account under an open-end (not home-secured) consumer credit plan or an account under an open-end consumer credit plan that provides a grace period are mailed or delivered to consumers no later than three days after the closing date of the billing cycle, the payment due date for purposes of § 226.5(b)(2)(ii)(A) and the date on which any grace period expires for purposes of § 226.5(b)(2)(ii)(B)( 1 1 B. If a creditor has adopted reasonable procedures designed to ensure that periodic statements for an account under an open-end consumer credit plan that does not provide a grace period are mailed or delivered to consumers no later than five days after the closing date of the billing cycle, the date on which a payment must be received in order to avoid being treated as late for purposes of § 226.5(b)(2)(ii)(B)( 2 2 2. Treating a payment as late for any purpose. 2 2 ii i. Assume that, for a credit card account under an open-end (not home-secured) consumer credit plan, a periodic statement mailed on April 4 states that a required minimum periodic payment of $50 is due on April 25. If the card issuer does not receive any payment on or before April 25, § 226.5(b)(2)(ii)(A)( 2 ii. Same facts as in paragraph i. above. On April 20, the card issuer receives a payment of $30 and no additional payment is received on or before April 25. Section 226.5(b)(2)(ii)(A)( 2 iii. Same facts as in paragraph i. above. On May 4, the card issuer has not received the $50 required minimum periodic payment that was due on April 25. The periodic statement mailed on May 4 states that a required minimum periodic payment of $150 is due on May 25. Section 226.5(b)(2)(ii)(A)( 2 iv. Assume that, for an account under an open-end consumer credit plan that does not provide a grace period, a periodic statement mailed on September 10 states that a required minimum periodic payment of $100 is due on September 24. If the creditor does not receive any payment on or before September 24, § 226.5(b)(2)(ii)(B)( 2 ii 3. Grace periods. Definition of grace period. See ii. Applicability of § 226.5(b)(2)(ii)(B)(1). 1 1 See 1 ii iii. Example. 1 i 1 ii 1 ii 4. Application of § 226.5(b)(2)(ii) to charge card and charged-off accounts. Charge card accounts. 1 1 2 2 1 ii. Charged-off accounts. 1 1 2 2 See 2 2 ii 1 5. Consumer request to pick up periodic statements. 6. Deferred interest and similar promotional programs. 5(c) Basis of disclosures and use of estimates. 1. Legal obligation. i. The legal obligation is determined by applicable state or other law. ii. The fact that a term or contract may later be deemed unenforceable by a court on the basis of equity or other grounds does not, by itself, mean that disclosures based on that term or contract did not reflect the legal obligation. iii. The legal obligation normally is presumed to be contained in the contract that evidences the agreement. But this may be rebutted if another agreement between the parties legally modifies that contract. 2. Estimates—obtaining information. 3. Estimates—redisclosure. 5(d) Multiple creditors; multiple consumers. 1. Multiple creditors. i. Creditors must choose which of them will make the disclosures. ii. A single, complete set of disclosures must be provided, rather than partial disclosures from several creditors. iii. All disclosures for the open-end credit plan must be given, even if the disclosing creditor would not otherwise have been obligated to make a particular disclosure. 2. Multiple consumers. 3. Card issuer and person extending credit not the same person. 5(e) Effect of subsequent events. 1. Events causing inaccuracies. 2. Use of inserts. i. Should clearly refer to the disclosure provision it replaces. ii. Need not be physically attached or affixed to the basic disclosure statement. iii. May be used only until the supply of outdated forms is exhausted. Section 226.5a—Credit and Charge Card Applications and Solicitations 1. General. 2. Substitution of account-opening summary table for the disclosures required by § 226.5a. 3. Clear and conspicuous standard. 5a(a) General rules. 5a(a)(1) Definition of solicitation. 1. Invitations to apply. solicitation, 5a(a)(2) Form of disclosures; tabular format. 1. Location of table. General. ii. Electronic disclosures. A. The disclosures could automatically appear on the screen when the application or reply form appears; B. The disclosures could be located on the same Web page as the application or reply form (whether or not they appear on the initial screen), if the application or reply form contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable; C. Card issuers could provide a link to the electronic disclosures on or with the application (or reply form) as long as consumers cannot bypass the disclosures before submitting the application or reply form. The link would take the consumer to the disclosures, but the consumer need not be required to scroll completely through the disclosures; or D. The disclosures could be located on the same Web page as the application or reply form without necessarily appearing on the initial screen, immediately preceding the button that the consumer will click to submit the application or reply. Whatever method is used, a card issuer need not confirm that the consumer has read the disclosures. 2. Multiple accounts. 3. Information permitted in the table. See 4. Deletion of inapplicable disclosures. Foreign transaction Foreign transaction none. 5. Highlighting of annual percentage rates and fee amounts. In general. ii. Maximum limits on fees. iii. Periodic fees. 6. Form of disclosures. i. If a consumer accesses a credit card application or solicitation electronically (other than as described under ii. below), such as on-line at a home computer, the card issuer must provide the disclosures in electronic form (such as with the application or solicitation on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application or solicitation. If the issuer instead mailed paper disclosures to the consumer, this requirement would not be met. ii. In contrast, if a consumer is physically present in the card issuer's office, and accesses a credit card application or solicitation electronically, such as via a terminal or kiosk (or if the consumer uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the card issuer to provide applications or solicitations to consumers), the issuer may provide disclosures in either electronic or paper form, provided the issuer complies with the timing and delivery (“on or with”) requirements of the regulation. 7. Terminology. see 5a(a)(4) Fees that vary by state. 1. Manner of disclosing range. 5a(a)(5) Exceptions. 1. Noncoverage of consumer-initiated requests. 5a(b) Required disclosures. 1. Tabular format. 2. Accuracy. 5a(b)(1) Annual percentage rate. 1. Variable-rate accounts—definition. See 2. Variable-rate accounts—fact that rate varies and how the rate will be determined. Wall Street Journal See 3. Discounted initial rates. Immediate proximity. See ii. Subsequent changes in terms. iii. More than one introductory rate. 4. Premium initial rates—subsequent changes in terms. 5. Increased penalty rates. In general. See See ii. Introductory rates—general. See See iii. Introductory rates—limitations on revocation. iv. Employee preferential rates. 6. Rates that depend on consumer's creditworthiness. In general. See ii. Penalty rates. iii. Other factors. 7. Rate based on another rate on the account. See 8. Rates. 9. Deferred interest or similar transactions. 5a(b)(2) Fees for issuance or availability. 1. Membership fees. 2. Enhancements. See 3. One-time fees. i. Fees for reissuing a lost or stolen card. ii. Statement reproduction fees. 4. Waived or reduced fees. 5. Periodic fees and one-time fees. See 5a(b)(3) Fixed finance charge; minimum interest charge. 1. Example of brief statement. See 2. Adjustment of $1.00 threshold amount. 5a(b)(4) Transaction charges. 1. Charges imposed by person other than card issuer. 2. Foreign transaction fees. 5a(b)(5) Grace period. 1. How grace period disclosure is made. 2. No grace period. 3. Grace period on some purchases. 5a(b)(6) Balance computation method. 1. Form of disclosure. 2. Determining the method. 5a(b)(7) Statement on charge card payments. 1. Applicability and content. 5a(b)(8) Cash advance fee. 1. Content. See 2. Foreign cash advances. See 3. ATM fees. 5a(b)(9) Late payment fee. 1. Applicability. See See 5a(b)(10) Over-the-limit fee. 1. Applicability. See 5a(b)(13) Required insurance, debt cancellation, or debt suspension coverage. 1. Content. See 5a(b)(14) Available credit. 1. Calculating available credit. 2. Content. See 5a(b)(15) Web site reference. 1. Content. See 5a(c) Direct mail and electronic applications and solicitations. 1. Mailed publications. take-ones take-one take-one take-one, take-one 5a(d) Telephone applications and solicitations. 1. Coverage. A. A telephone conversation between a card issuer and consumer may result in the issuance of a card as a consequence of an issuer-initiated offer to open an account for which the issuer does not require any application (that is, a prescreened B. The card issuer initiates the contact and at the same time takes application information over the telephone. ii. This paragraph does not apply to: A. Telephone applications initiated by the consumer. B. Situations where no card will be issued—because, for example, the consumer indicates that he or she does not want the card, or the card issuer decides either during the telephone conversation or later not to issue the card. 2. Right to reject the plan. 3. Substituting account-opening table for alternative written disclosures. 5a(e) Applications and solicitations made available to general public. 1. Coverage. take-one 2. In-person applications and solicitations. See 3. Toll-free telephone number. 5a(e)(1) Disclosure of required credit information. 1. Date of printing. 2. Form of disclosures. 5a(e)(2) No disclosure of credit information. 1. When disclosure option available. no annual fee, low interest rate, favorable rates, low costs 5a(e)(3) Prompt response to requests for information. 1. Prompt disclosure. 2. Information disclosed. 3. Manner of response. 5a(f) In-person applications and solicitations. 1. Coverage. A. An in-person conversation between a card issuer and a consumer may result in the issuance of a card as a consequence of an issuer-initiated offer to open an account for which the issuer does not require any application (that is, a preapproved B. The card issuer initiates the contact and at the same time takes application information in person. For example, the following are covered: 1. 2. ii. This paragraph does not apply to: A. In-person applications initiated by the consumer. B. Situations where no card will be issued—because, for example, the consumer indicates that he or she does not want the card, or the card issuer decides during the in-person conversation not to issue the card. Section 226.5b—Requirements for Home-equity Plans 1. Coverage. dwelling, 2. Changes to home equity plans entered into on or after November 7, 1989. 3. Transition rules and renewals of preexistinq plans. 4. Disclosure of repayment phase—applicability of requirements. 5. Payment terms—applicability of closed-end provisions and substantive rules. • If the initial agreement provides for a repayment phase or for other payment terms such as options permitting conversion of part or all of the balance to a fixed rate during the draw period, these terms must be disclosed pursuant to §§ 226.5b and 226.6, and not under subpart C. Furthermore, the creditor must continue to provide periodic statements under § 226.7 and comply with other provisions of subpart B (such as the substantive requirements of § 226.5b(f)) throughout the plan, including the repayment phase. • If the consumer and the creditor enter into an agreement during the draw period to repay all or part of the principal balance on different terms (for example, with a fixed rate of interest) and the amount of available credit will be replenished as the principal balance is repaid, the creditor must continue to comply with subpart B. For example, the creditor must continue to provide periodic statements and comply with the substantive requirements of § 226.5b(f) throughout the plan. • If the consumer and creditor enter into an agreement during the draw period to repay all or part of the principal balance and the amount of available credit will not be replenished as the principal balance is repaid, the creditor must give closed-end credit disclosures pursuant to subpart C for that new agreement. In such cases, subpart B, including the substantive rules, does not apply to the closed-end credit transaction, although it will continue to apply to any remaining open-end credit available under the plan. 6. Spreader clause. spreader clause dragnet 7. Appraisals and other valuations. 5b(a) Form of Disclosure 5b(a)(1) General 1. Written disclosures. See 2. Disclosure of annual percentage rate—more conspicuous requirement. annual percentage rate 3. Segregation of disclosures. • Any prepayment penalty • How a substitute index may be chosen • Actions the creditor may take short of terminating and accelerating an outstanding balance • Renewal terms • Rebate of fees An example of information that does not explain or expand on the required disclosures and thus cannot be included is the creditor's underwriting criteria, although the creditor could provide such information separately from the required disclosures. 4. Method of providing disclosures. 5. Form of electronic disclosures provided on or with electronic applications. i. The disclosures could automatically appear on the screen when the application appears; ii. The disclosures could be located on the same web page as the application (whether or not they appear on the initial screen), if the application contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable; iii. Creditors could provide a link to the electronic disclosures on or with the application as long as consumers cannot bypass the disclosures before submitting the application. The link would take the consumer to the disclosures, but the consumer need not be required to scroll completely through the disclosures; or iv. The disclosures could be located on the same web page as the application without necessarily appearing on the initial screen, immediately preceding the button that the consumer will click to submit the application. Whatever method is used, a creditor need not confirm that the consumer has read the disclosures. 5b(a)(2) Precedence of Certain Disclosures 1. Precedence rule. Paragraph 5b(a)(3) 1. Form of disclosures. i. If a consumer accesses a home equity credit line application electronically (other than as described under ii. below), such as online at a home computer, the creditor must provide the disclosures in electronic form (such as with the application form on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application. If the creditor instead mailed paper disclosures to the consumer, this requirement would not be met. ii. In contrast, if a consumer is physically present in the creditor's office, and accesses a home equity credit line application electronically, such as via a terminal or kiosk (or if the consumer uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the creditor to provide applications to consumers), the creditor may provide disclosures in either electronic or paper form, provided the creditor complies with the timing, delivery, and retainability requirements of the regulation. 5b(b) Time of Disclosures 1. Mail and telephone applications. 2. General purpose applications. 3. Publicly-available applications. take-ones, 4. Response cards. response card 5. Denial or withdrawal of application. 6. Intermediary agent or broker. intermediary agent or broker 5b(c) Duties of Third Parties 1. Disclosure requirements. 5b(d) Content of Disclosures 1. Disclosures given as applicable. 2. Duty to respond to requests for information. 5b(d)(1) Retention of Information 1. When disclosure not required. 5b(d)(2) Conditions for Disclosed Terms Paragraph 5b(d)(2)(i) 1. Guaranteed terms. 2. Date for obtaining disclosed terms. Paragraph 5b(d)(2)(ii) 1. Relation to other provisions. 5b(d)(4) Possible Actions by Creditor Paragraph 5b(d)(4)(i) 1. Fees imposed upon termination. 2. Changes specified in the initial agreement. Paragraph 5b(d)(4)(iii) 1. Disclosure of conditions. 2. Form of disclosure. 5b(d)(5) Payment Terms Paragraph 5b(d)(5)(i) 1. Length of the plan. 2. Renewal provisions. Paragraph 5b(d)(5)(ii) 1. Determination of the minimum periodic payment. 2. Fixed rate and term payment options during draw period. 3. Balloon payments. Paragraph 5b(d)(5)(iii) 1. Minimum periodic payment example. 2. Representative examples. interest only 1/180 The example used to represent a category must be an option commonly chosen by consumers, or a typical or representative example. (See the commentary to § 226.5b(d)(12) (x) and (xi) for a discussion of the use of representative examples for making those disclosures. Creditors using a representative example within each category must use the same example for purposes of the disclosures under § 226.5b (d)(5)(iii) and (d)(12) (x) and (xi).) Creditors may use representative examples under § 226.5b(d)(5) only with respect to the payment example required under paragraph (d)(5)(iii). Creditors must provide a full narrative description of all payment options under § 226.5b(d)(5) (i) and (ii). 3. Examples for draw and repayment periods. 4. Reverse mortgages. • If the reverse mortgage has a specified period for advances and disbursements but repayment is due only upon occurrence of a future event such as the death of the consumer, the creditor must assume that disbursements will be made until they are scheduled to end. The creditor must assume repayment will occur when disbursements end (or within a period following the final disbursement which is not longer than the regular interval between disbursements). This assumption should be used even though repayment may occur before or after the disbursements are scheduled to end. In such cases, the creditor may include a statement such as “The disclosures assume that you will repay the line at the time the draw period and our payments to you end. As provided in your agreement, your repayment may be rquired at a different time.” The single payment should be considered the “minimum periodic payment” and consequently would not be treated as a balloon payment. The example of the minimum payment under § 226.5b(d)(5)(iii) should assume a single $10,000 draw. • If the reverse mortgage has neither a specified period for advances or disbursements nor a specified repayment date and these terms will be determined solely by reference to future events, including the consumer's death, the creditor may assume that the draws and disbursements will end upon the consumer's death (estimated by using actuarial tables, for example) and that repayment will be required at the same time (or within a period following the date of the final disbursement which is not longer than the regular interval for disbursements). Alternatively, the creditor may base the disclosures upon another future event it estimates will be most likely to occur first. (If terms will be determined by reference to future events which do not include the consumer's death, the creditor must base the disclosures upon the occurrence of the event estimated to be most likely to occur first.) • In making the disclosures, the creditor must assume that all draws and disbursements and accrued interest will be paid by the consumer. For example, if the note has a non-recourse provision providing that the consumer is not obligated for an amount greater than the value of the house, the creditor must nonetheless assume that the full amount to be drawn or disbursed will be repaid. In this case, however, the creditor may include a statement such as “The disclosures assume full repayment of the amount advanced plus accrued interest, although the amount you may be required to pay is limited by your agreement.” • Some reverse mortgages provide that some or all of the appreciation in the value of the property will be shared between the consumer and the creditor. The creditor must disclose the appreciation feature, including describing how the creditor's share will be determined, any limitations, and when the feature may be exercised. 5b(d)(6) Annual Percentage Rate 1. Preferred-rate plans. 5b(d)(7) Fees Imposed by Creditor 1. Applicability. 2. Manner of describing fees. 3. Fees not required to be disclosed. 4. Rebates of closing costs. 5. Terms used in disclosure. finance charge other charge 5b(d)(8) Fees Imposed by Third Parties to Open a Plan 1. Applicability. 2. Itemization of third-party fees. 3. Manner of describing fees. 4. Rebates of third party fees. 5b(d)(9) Negative Amortization 1. Disclosure required. 5b(d)(10) Transaction Requirements 1. Applicability. 5b(d)(12) Disclosures for Variable-Rate Plans 1. Variable-rate provisions. Paragraph 5b(d)(12)(iv) 1. Determination of annual percentage rate. Paragraph 5b(d)(12)(viii) 1. Preferred-rate provisions. 2. Provisions on conversion to fixed rates. Paragraph 5b(d)(12)(ix) 1. Periodic limitations on increases in rates. 2. Maximum limitations on increases in rates. 3. Form of disclosures. Paragraph 5b(d)(12)(x) 1. Maximum rate payment example. 2. Time the maximum rate could be reached. Paragraph 5b(d)(12)(xi) 1. Index movement. 2. Selection of index values. 3. Selection of margin. 4. Amount of discount or premium. 5. Rate limitations. 6. Assumed advances. 7. Representative payment options. 8. Payment information. • If the draw period is 10 years and the repayment period is 15 years, the example should illustrate the entire 10-year draw period and the first 5 years of the repayment period. • If the length of the draw period is 15 years and there is a 15-year repayment phase, the historical example must reflect the payments for the 15-year draw period and would not show any of the repayment period. No additional historical example would be required to reflect payments for the repayment period. • If the length of the plan is less than 15 years, payments in the historical example need only be shown for the number of years in the term. In such cases, however, the creditor must show the index values, margin and annual percentage rates and continue to reflect all significant plan terms such as rate limitations for the entire 15 years. A creditor need show only a single payment per year in the example, even though payments may vary during a year. The calculations should be based on the actual payment computation formula, although the creditor may assume that all months have an equal number of days. The creditor may assume that payments are made on the last day of the billing cycle, the billing date or the payment due date, but must be consistent in the manner in which the period used to illustrate payment information is selected. Information about balloon payments and remaining balance may, but need not, be reflected in the example. 9. Disclosures for repayment period. 10. Reverse mortgages. 5b(e) Brochure 1. Substitutes. 2. Effect of third party delivery of brochure. 5b(f) Limitations on Home Equity Plans 1. Coverage. Paragraph 5b(f)(1) 1. External index. 2. Publicly available. 3. Provisions not prohibited. Paragraph 5b(f)(2) 1. Limitations on termination and acceleration. 2. Other actions permitted. Paragraph 5b(f)(2)(i) 1. Fraud or material misrepresentation. Paragraph 5b(f)(2)(ii) 1. Failure to meet repayment terms. Paragraph 5b(f)(2)(iii) 1. Impairment of security. 2. Examples. • The consumer transfers title to the property or sells the property without the permission of the creditor • The consumer fails to maintain required insurance on the dwelling • The consumer fails to pay taxes on the property • The consumer permits the filing of a lien senior to that held by the creditor • The sole consumer obligated on the plan dies • The property is taken through eminent domain • A prior lienholder forecloses By contrast, the filing of a judgment against the consumer would permit termination and acceleration only if the amount of the judgment and collateral subject to the judgment is such that the creditor's security is adversely affected. If the consumer commits waste or otherwise destructively uses or fails to maintain the property such that the action adversely affects the security, the plan may be terminated and the balance accelerated. Illegal use of the property by the consumer would permit termination and acceleration if it subjects the property to seizure. If one of two consumers obligated on a plan dies the creditor may terminate the plan and accelerate the balance if the security is adversely affected. If the consumer moves out of the dwelling that secures the plan and that action adversely affects the security, the creditor may terminate a plan and accelerate the balance. Paragraph 5b(f)(3) 1. Scope of provision. 2. Charges not covered. Paragraph 5b(f)(3)(i) 1. Changes provided for in agreement. 2. Prohibited provisions. Paragraph 5b(f)(3)(ii) 1. Substitution of index. Paragraph 5b(f)(3)(iii) 1. Changes by written agreement. 2. Written agreement. Paragraph 5b(f)(3)(iv) 1. Beneficial changes. Paragraph 5b(f)(3)(v) 1. Insignificant changes. 2. Examples of insignificant changes. Paragraph 5b(f)(3)(vi) 1. Suspension of credit privileges or reduction of credit limit. 2. Temporary nature of suspension or reduction. 3. Imposition of fees. 4. Reinstatement of credit privileges. 5. Suspension of credit privileges following request by consumer. 6. Significant decline defined. 7. Material change in financial circumstances. 8. Default of a material obligation. 9. Government limits on the annual percentage rate. 5b(g) Refund of Fees 1. Refund of fees required. 2. Variable-rate plans. 3. Changes in terms. 4. Timing of refunds and relation to other provisions. 5b(h) Imposition of Nonrefundable Fees 1. Collection of fees after consumer receives disclosures. 2. Collection of fees before consumer receives disclosures. 3. Relation to other provisions. Section 226.6—Account-Opening Disclosures 6(a) Rules affecting home-equity plans. 6(a)(1) Finance charge. Paragraph 6(a)(1)(i). 1. When finance charges accrue. 2. Grace periods. Paragraph 6(a)(1)(ii). 1. Range of balances. i. If only one periodic rate may be applied to the entire account balance. ii. If only one periodic rate may be applied to the entire balance for a feature (for example, cash advances), even though the balance for another feature (purchases) may be subject to two rates (a 1.5% monthly periodic rate on purchase balances of $0-$500, and a 1% monthly periodic rate for balances above $500). In this example, the creditor must give a range of balances disclosure for the purchase feature. 2. Variable-rate disclosures—coverage. i. Examples. A. Rate changes that are tied to the rate the creditor pays on its six-month certificates of deposit. B. Rate changes that are tied to Treasury bill rates. C. Rate changes that are tied to changes in the creditor's commercial lending rate. ii. An open-end credit plan in which the employee receives a lower rate contingent upon employment (that is, with the rate to be increased upon termination of employment) is not a variable-rate plan. 3. Variable-rate plan—rate(s) in effect. 4. Variable-rate plan—additional disclosures required. 5. Variable-rate plan—index. 6. Variable-rate plan—circumstances for increase. i. Circumstances under which the rate(s) may increase include, for example: A. An increase in the Treasury bill rate. B. An increase in the Federal Reserve discount rate. ii. The creditor must disclose when the increase will take effect; for example: A. “An increase will take effect on the day that the Treasury bill rate increases,” or B. “An increase in the Federal Reserve discount rate will take effect on the first day of the creditor's billing cycle.” 7. Variable-rate plan—limitations on increase. See i. “The rate on the plan will not exceed 25% annual percentage rate.” ii. “Not more than 1/2 8. Variable-rate plan—effects of increase. i. Any requirement for additional collateral if the annual percentage rate increases beyond a specified rate. ii. Any increase in the scheduled minimum periodic payment amount. 9. Variable-rate plan—change-in-terms notice not required. 10. Discounted variable-rate plans. i. For example, a creditor may calculate interest rates according to a formula using the six-month Treasury bill rate plus a 2 percent margin. If the current Treasury bill rate is 10 percent, the creditor may forgo the 2 percent spread and charge only 10 percent for a limited time, instead of setting an initial rate of 12 percent, or the creditor may disregard the index or formula and set the initial rate at 9 percent. ii. When creditors use an initial rate that is not calculated using the index or formula for later rate adjustments, the account-opening disclosure statement should reflect: A. The initial rate (expressed as a periodic rate and a corresponding annual percentage rate), together with a statement of how long the initial rate will remain in effect; B. The current rate that would have been applied using the index or formula (also expressed as a periodic rate and a corresponding annual percentage rate); and C. The other variable-rate information required in § 226.6(a)(1)(ii). iii. In disclosing the current periodic and annual percentage rates that would be applied using the index or formula, the creditor may use any of the disclosure options described in comment 6(a)(1)(ii)-3. 11. Increased penalty rates. Paragraph 6(a)(1)(iii). 1. Explanation of balance computation method. 2. Allocation of payments. See Paragraph 6(a)(1)(iv). 1. Finance charges. 6(a)(2) Other charges. 1. General; examples of other charges. i. Late-payment and over-the-credit-limit charges. ii. Fees for providing documentary evidence of transactions requested under § 226.13 (billing error resolution). iii. Charges imposed in connection with residential mortgage transactions or real estate transactions such as title, appraisal, and credit-report fees (see § 226.4(c)(7)). iv. A tax imposed on the credit transaction by a state or other governmental body, such as a documentary stamp tax on cash advances. ( See v. A membership or participation fee for a package of services that includes an open-end credit feature, unless the fee is required whether or not the open-end credit feature is included. For example, a membership fee to join a credit union is not an “other charge,” even if membership is required to apply for credit. For example, if the primary benefit of membership in an organization is the opportunity to apply for a credit card, and the other benefits offered (such as a newsletter or a member information hotline) are merely incidental to the credit feature, the membership fee would be disclosed as an “other charge.” vi. Charges imposed for the termination of an open-end credit plan. 2. Exclusions. i. Fees charged for documentary evidence of transactions for income tax purposes. ii. Amounts payable by a consumer for collection activity after default; attorney's fees, whether or not automatically imposed; foreclosure costs; post-judgment interest rates imposed by law; and reinstatement or reissuance fees. iii. Premiums for voluntary credit life or disability insurance, or for property insurance, that are not part of the finance charge. iv. Application fees under § 226.4(c)(1). v. A monthly service charge for a checking account with overdraft protection that is applied to all checking accounts, whether or not a credit feature is attached. vi. Charges for submitting as payment a check that is later returned unpaid (See commentary to § 226.4(c)(2)). vii. Charges imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system. ( See viii. Taxes and filing or notary fees excluded from the finance charge under § 226.4(e). ix. A fee to expedite delivery of a credit card, either at account opening or during the life of the account, provided delivery of the card is also available by standard mail service (or other means at least as fast) without paying a fee for delivery. x. A fee charged for arranging a single payment on the credit account, upon the consumer's request (regardless of how frequently the consumer requests the service), if the credit plan provides that the consumer may make payments on the account by another reasonable means, such as by standard mail service, without paying a fee to the creditor. 6(a)(3) Home-equity plan information. 1. Additional disclosures required. See 2. Form of disclosures. 3. Disclosure of payment and variable-rate examples. i. The payment-example disclosure in § 226.5b(d)(5)(iii) and the variable-rate information in § 226.5b(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and (d)(12)(xii) need not be provided with the disclosures under § 226.6 if the disclosures under § 226.5b(d) were provided in a form the consumer could keep; and the disclosures of the payment example under § 226.5b(d)(5)(iii), the maximum-payment example under § 226.5b(d)(12)(x) and the historical table under § 226.5b(d)(12)(xi) included a representative payment example for the category of payment options the consumer has chosen. ii. For example, if a creditor offers three payment options (one for each of the categories described in the commentary to § 226.5b(d)(5)), describes all three options in its early disclosures, and provides all of the disclosures in a retainable form, that creditor need not provide the § 226.5b(d)(5)(iii) or (d)(12) disclosures again when the account is opened. If the creditor showed only one of the three options in the early disclosures (which would be the case with a separate disclosure form rather than a combined form, as discussed under § 226.5b(a)), the disclosures under § 226.5b(d)(5)(iii), (d)(12)(viii), (d)(12)(x), (d)(12)(xi) and (d)(12)(xii) must be given to any consumer who chooses one of the other two options. If the § 226.5b(d)(5)(iii) and (d)(12) disclosures are provided with the second set of disclosures, they need not be transaction-specific, but may be based on a representative example of the category of payment option chosen. 4. Disclosures for the repayment period. 6(a)(4) Security interests. 1. General. 2. Identification of property. motor vehicle household appliances. 3. Spreader clause. 4. Additional collateral. 5. Collateral from third party. 6(a)(5) Statement of billing rights. 1. See 6(b) Rules affecting open-end (not home-secured) plans. 6(b)(1) Form of disclosures; tabular format for open-end (not home-secured) plans. 1. Relation to tabular summary for applications and solicitations. i. Creditors must use the accuracy standard for annual percentage rates in § 226.6(b)(4)(ii)(G). ii. Generally, creditors must disclose the specific rate for each feature that applies to the account. If the rates on an open-end (not home-secured) plan vary by state and the creditor is providing the account-opening table in person at the time the plan is established in connection with financing the purchase of goods or services the creditor may, at its option, disclose in the account-opening table (A) the rate applicable to the consumer's account, or (B) the range of rates, if the disclosure includes a statement that the rate varies by state and refers the consumer to the account agreement or other disclosure provided with the account-opening table where the rate applicable to the consumer's account is disclosed. iii. Creditors must explain whether or not a grace period exists for all features on the account. The row heading “Paying Interest” must be used if any one feature on the account does not have a grace period. iv. Creditors must name the balance computation method used for each feature of the account and state that an explanation of the balance computation method(s) is provided in the account-opening disclosures. v. Creditors must state that consumers' billing rights are provided in the account-opening disclosures. vi. If fees on an open-end (not home-secured) plan vary by state and the creditor is providing the account-opening table in person at the time the plan is established in connection with financing the purchase of goods or services the creditor may, at its option, disclose in the account-opening table (A) the specific fee applicable to the consumer's account, or (B) the range of fees, if the disclosure includes a statement that the amount of the fee varies by state and refers the consumer to the account agreement or other disclosure provided with the account-opening table where the fee applicable to the consumer's account is disclosed. vii. Creditors that must disclose the amount of available credit must state the initial credit limit provided on the account. viii. Creditors must disclose directly beneath the table the circumstances under which an introductory rate may be revoked and the rate that will apply after the introductory rate is revoked. Issuers of credit card accounts under an open-end (not home-secured) consumer credit plan are subject to limitations on the circumstances under which an introductory rate may be revoked. (See comment 5a(b)(1)-5 for guidance on how a card issuer may disclose the circumstances under which an introductory rate may be revoked.) ix. The applicable forms providing safe harbors for account-opening tables are under appendix G-17 to part 226. 2. Clear and conspicuous standard. 3. Terminology. 6(b)(2) Required disclosures for account-opening table for open-end (not home-secured) plans. 6(b)(2)(iii) Fixed finance charge; minimum interest charge. 1. Example of brief statement. See 6(b)(2)(v) Grace period. 1. Grace period. 2. No grace period. 3. Grace period on some features. 6(b)(2)(vi) Balance computation method. 1. Use of same balance computation method for all features. e.g., average daily balance (including new purchases)” average daily balance (including new purchases)” e.g., “average daily balance (including new transactions)” See 2. Use of balance computation names in § 226.5a(g) for balances other than purchases. average daily balance (including new cash advances)” average daily balance (excluding new cash advances)” See 6(b)(2)(xiii) Available credit. 1. Right to reject the plan. 6(b)(3) Disclosure of charges imposed as part of open-end (not home-secured) plans. 1. When finance charges accrue. 2. Grace periods. 3. No finance charge imposed below certain balance. Paragraph 6(b)(3)(ii). 1. Failure to use the plan as agreed. 2. Examples of fees that affect the plan. i. Access to the plan. ii. Amount of credit extended. iii. Timing or method of billing or payment. 3. Threshold test. Paragraph 6(b)(3)(iii)(B). 1. Fees for package of services. 6(b)(4) Disclosure of rates for open-end (not home-secured) plans. Paragraph 6(b)(4)(i)(B). 1. Range of balances. i. If only one periodic interest rate may be applied to the entire account balance. ii. If only one periodic interest rate may be applied to the entire balance for a feature (for example, cash advances), even though the balance for another feature (purchases) may be subject to two rates (a 1.5% monthly periodic interest rate on purchase balances of $0-$500, and a 1% periodic interest rate for balances above $500). In this example, the creditor must give a range of balances disclosure for the purchase feature. Paragraph 6(b)(4)(i)(D). 1. Explanation of balance computation method. See See 2. Allocation of payments. 6(b)(4)(ii) Variable-rate accounts. 1. Variable-rate disclosures—coverage. i. Examples. A. Rate changes that are tied to the rate the creditor pays on its six-month certificates of deposit. B. Rate changes that are tied to Treasury bill rates. C. Rate changes that are tied to changes in the creditor's commercial lending rate. ii. Examples of open-end plans that permit the rate to change and are not considered variable-rate include: A. Rate changes that are invoked under a creditor's contract reservation to increase the rate without reference to such an index or formula (for example, a plan that simply provides that the creditor reserves the right to raise its rates). B. Rate changes that are triggered by a specific event such as an open-end credit plan in which the employee receives a lower rate contingent upon employment, and the rate increases upon termination of employment. 2. Variable-rate plan—circumstances for increase. i. The following are examples that comply with the requirement to disclose circumstances under which the rate(s) may increase: A. “The Treasury bill rate increases.” B. “The Federal Reserve discount rate increases.” ii. Disclosing the frequency with which the rate may increase includes disclosing when the increase will take effect; for example: A. “An increase will take effect on the day that the Treasury bill rate increases.” B. “An increase in the Federal Reserve discount rate will take effect on the first day of the creditor's billing cycle.” 3. Variable-rate plan—limitations on increase. i. “The rate on the plan will not exceed 25% annual percentage rate.” ii. “Not more than 1/2 4. Variable-rate plan—effects of increase. i. Any requirement for additional collateral if the annual percentage rate increases beyond a specified rate. ii. Any increase in the scheduled minimum periodic payment amount. 5. Discounted variable-rate plans. i. For example, a creditor may calculate interest rates according to a formula using the six-month Treasury bill rate plus a 2 percent margin. If the current Treasury bill rate is 10 percent, the creditor may forgo the 2 percent spread and charge only 10 percent for a limited time, instead of setting an initial rate of 12 percent, or the creditor may disregard the index or formula and set the initial rate at 9 percent. ii. When creditors disclose in the account-opening disclosures an initial rate that is not calculated using the index or formula for later rate adjustments, the disclosure should reflect: A. The initial rate (expressed as a periodic rate and a corresponding annual percentage rate), together with a statement of how long the initial rate will remain in effect; B. The current rate that would have been applied using the index or formula (also expressed as a periodic rate and a corresponding annual percentage rate); and C. The other variable-rate information required by § 226.6(b)(4)(ii). 6(b)(4)(iii) Rate changes not due to index or formula. 1. Events that cause the initial rate to change. i. Changes based on expiration of time period. ii. Changes based on specified contract terms. 2. Rate that will apply after initial rate changes. i. Increased margins. ii. Risk-based pricing. 3. Effect of rate change on balances. 6(b)(5) Additional disclosures for open-end (not home-secured) plans. 6(b)(5)(i) Voluntary credit insurance, debt cancellation or debt suspension. 1. Timing. 6(b)(5)(ii) Security interests. 1. General. 2. Identification of property. motor vehicle household appliances. 3. Spreader clause. 4. Additional collateral. 5. Collateral from third party. 6(b)(5)(iii) Statement of billing rights. 1. See the commentary to Model Forms G-3(A) and G-4(A). Section 226.7—Periodic Statement 1. Multifeatured plans. 7(a) Rules affecting home-equity plans. 7(a)(1) Previous balance. 1. Credit balances. 2. Multifeatured plans. 3. Accrued finance charges allocated from payments. 7(a)(2) Identification of transactions. 1. Multifeatured plans. 2. Automated teller machine (ATM) charges imposed by other institutions in shared or interchange systems. 7(a)(3) Credits. 1. Identification—sufficiency. 2. Format. 3. Date. 4. Totals. 7(a)(4) Periodic rates. 1. Disclosure of periodic rates—whether or not actually applied. i. If the consumer's account has both a purchase feature and a cash advance feature, the creditor must disclose the rate for each, even if the consumer only makes purchases on the account during the billing cycle. ii. If the rate varies (such as when it is tied to a particular index), the creditor must disclose each rate in effect during the cycle for which the statement was issued. 2. Disclosure of periodic rates required only if imposition possible. could have i. If the creditor is changing rates effective during the next billing cycle (because of a variable-rate plan), the rates required to be disclosed under § 226.7(a)(4) are only those in effect during the billing cycle reflected on the periodic statement. For example, if the monthly rate applied during May was 1.5%, but the creditor will increase the rate to 1.8% effective June 1, 1.5% (and its corresponding annual percentage rate) is the only required disclosure under § 226.7(a)(4) for the periodic statement reflecting the May account activity. ii. If rates applicable to a particular type of transaction changed after a certain date and the old rate is only being applied to transactions that took place prior to that date, the creditor need not continue to disclose the old rate for those consumers that have no outstanding balances to which that rate could be applied. 3. Multiple rates—same transaction. same i. Disclose each periodic rate, the range of balances to which it is applicable, and the corresponding annual percentage rate for each. (For example, 1.5% monthly, 18% annual percentage rate; 0.1% monthly, 1.2% annual percentage rate.) ii. Disclose one composite periodic rate (that is, 1.6% per month) along with the applicable range of balances and the corresponding annual percentage rate. 4. Corresponding annual percentage rate. 5. Rate same as actual annual percentage rate. 6. Range of balances. 7(a)(5) Balance on which finance charge computed. 1. Limitation to periodic rates. 2. Split rates applied to balance ranges. See 3. Monthly rate on average daily balance. 4. Multifeatured plans. See, 5. Daily rate on daily balances. ii. If a single daily periodic rate is imposed, the balance to which it is applicable may be stated as: A. A balance for each day in the billing cycle. B. A balance for each day in the billing cycle on which the balance in the account changes. C. The sum of the daily balances during the billing cycle. D. The average daily balance during the billing cycle, in which case the creditor shall explain that the average daily balance is or can be multiplied by the number of days in the billing cycle and the periodic rate applied to the product to determine the amount of the finance charge. iii. If two or more daily periodic rates may be imposed, the balances to which the rates are applicable may be stated as: A. A balance for each day in the billing cycle. B. A balance for each day in the billing cycle on which the balance in the account changes. C. Two or more average daily balances, each applicable to the daily periodic rates imposed for the time that those rates were in effect, as long as the creditor explains that the finance charge is or may be determined by ( 1 2 3 6. Explanation of balance computation method. 7. Information to compute balance. 8. Non-deduction of credits. 9. Use of one balance computation method explanation when multiple balances disclosed. 7(a)(6) Amount of finance charge and other charges. Paragraph 7(a)(6)(i). 1. Total. 2. Itemization—types of finance charges. 3. Itemization—different periodic rates. 4. Multifeatured plans. 5. Finance charges not added to account. 6. Finance charges other than periodic rates. 7. Accrued finance charges allocated from payments. 8. Start-up fees. See Paragraph 7(a)(6)(ii). 1. Identification. other charges late charge membership fee, closing costs settlement costs, closing costs other charges closing costs settlement costs closing costs settlement costs See other charges. 2. Date. other charges 3. Total. 4. Itemization—types of other charges. other charge other charges Other charges 7(a)(7) Annual percentage rate. 1. Plans subject to the requirements of § 226.5b. 2. Labels. 7(a)(8) Grace period. 1. Terminology. 7(a)(9) Address for notice of billing errors. 1. Terminology. 2. Telephone number. 7(a)(10) Closing date of billing cycle; new balance. 1. Credit balances. 2. Multifeatured plans. 3. Accrued finance charges allocated from payments. 7(b) Rules affecting open-end (not home-secured) plans. 1. Deferred interest or similar transactions. i. Annual percentage rates. ii. Balances subject to periodic rates. iii. Amount of interest charge. iv. Due date to avoid obligation for finance charges under a deferred interest or similar program. 7(b)(1) Previous balance. 1. Credit balances. 2. Multifeatured plans. 3. Accrued finance charges allocated from payments. 7(b)(2) Identification of transactions. 1. Multifeatured plans. 2. Automated teller machine (ATM) charges imposed by other institutions in shared or interchange systems. 7(b)(3) Credits. 1. Identification—sufficiency. etc. See 2. Date. 3. Totals. 7(b)(4) Periodic rates. 1. Disclosure of periodic interest rates—whether or not actually applied. i. If the consumer's account has both a purchase feature and a cash advance feature, the creditor must disclose the annual percentage rate for each, even if the consumer only makes purchases on the account during the billing cycle. ii. If the annual percentage rate varies (such as when it is tied to a particular index), the creditor must disclose each annual percentage rate in effect during the cycle for which the statement was issued. 2. Disclosure of periodic interest rates required only if imposition possible. i. If the creditor is changing annual percentage rates effective during the next billing cycle (either because it is changing terms or because of a variable-rate plan), the annual percentage rates required to be disclosed under § 226.7(b)(4) are only those in effect during the billing cycle reflected on the periodic statement. For example, if the annual percentage rate applied during May was 18%, but the creditor will increase the rate to 21% effective June 1, 18% is the only required disclosure under § 226.7(b)(4) for the periodic statement reflecting the May account activity. ii. If the consumer has an overdraft line that might later be expanded upon the consumer's request to include secured advances, the rates for the secured advance feature need not be given until such time as the consumer has requested and received access to the additional feature. iii. If annual percentage rates applicable to a particular type of transaction changed after a certain date and the old rate is only being applied to transactions that took place prior to that date, the creditor need not continue to disclose the old rate for those consumers that have no outstanding balances to which that rate could be applied. 3. Multiple rates—same transaction. 4. Fees. 5. Ranges of balances. See 6. Deferred interest transactions. See 7(b)(5) Balance on which finance charge computed. 1. Split rates applied to balance ranges. See 2. Monthly rate on average daily balance. 3. Multifeatured plans. 4. Daily rate on daily balance. ii. If a single daily periodic interest rate is imposed, the balance to which it is applicable may be stated as A. A balance for each day in the billing cycle. B. A balance for each day in the billing cycle on which the balance in the account changes. C. The sum of the daily balances during the billing cycle. D. The average daily balance during the billing cycle, in which case the creditor may, at its option, explain that the average daily balance is or can be multiplied by the number of days in the billing cycle and the periodic rate applied to the product to determine the amount of interest. iii. If two or more daily periodic interest rates may be imposed, the balances to which the rates are applicable may be stated as A. A balance for each day in the billing cycle. B. A balance for each day in the billing cycle on which the balance in the account changes. C. Two or more average daily balances, each applicable to the daily periodic interest rates imposed for the time that those rates were in effect. The creditor may, at its option, explain that interest is or may be determined by ( 1 2 3 5. Information to compute balance. 6. Non-deduction of credits. 7. Use of one balance computation method explanation when multiple balances disclosed. e.g., average daily balance (including new purchases) average daily balance (including new purchases) e.g., average daily balance (including new transactions) 8. Use of balance computation names in § 226.5a(g) for balances other than purchases. average daily balance (including new cash advances) average daily balance (excluding new cash advances) See 7(b)(6) Charges imposed. 1. Examples of charges. See 2. Fees. 3. Total fees and interest charged for calendar year to date. i. Monthly statements. A. A creditor may disclose calendar-year-to-date totals at the end of the calendar year by separately aggregating finance charges attributable to periodic interest rates and fees for 12 monthly cycles, starting with the period that begins during January and finishing with the period that begins during December. For example, if statement periods begin on the 10th day of each month, the statement covering December 10, 2011 through January 9, 2012, may disclose the separate year-to-date totals for interest charged and fees imposed from January 10, 2011, through January 9, 2012. Alternatively, the creditor could provide a statement for the cycle ending January 9, 2012, showing the separate year-to-date totals for interest charged and fees imposed January 1, 2011, through December 31, 2011. B. A creditor may disclose calendar-year-to-date totals at the end of the calendar year by separately aggregating finance charges attributable to periodic interest rates and fees for 12 monthly cycles, starting with the period that begins during December and finishing with the period that begins during November. For example, if statement periods begin on the 10th day of each month, the statement covering November 10, 2011 through December 9, 2011, may disclose the separate year-to-date totals for interest charged and fees imposed from December 10, 2010, through December 9, 2011. ii. Quarterly statements. 4. Minimum charge in lieu of interest. 5. Adjustments to year-to-date totals. 6. Acquired accounts. 7. Account upgrades. 7(b)(7) Change-in-terms and increased penalty rate summary for open-end (not home-secured) plans. 1. Location of summary tables. 7(b)(8) Grace period. 1. Terminology. See 2. Deferred interest transactions. See 3. Limitation on the imposition of finance charges in § 226.54. 7(b)(9) Address for notice of billing errors. 1. Terminology. 2. Telephone number. 7(b)(10) Closing date of billing cycle; new balance. 1. Credit balances. See 2. Multifeatured plans. 3. Accrued finance charges allocated from payments. 7(b)(11) Due date; late payment costs. 1. Informal periods affecting late payments. 2. Assessment of late payment fees. 3. Fee or rate triggered by multiple events. 4. Range of late fees or penalty rates. 5. Penalty rate in effect. 6. Same day each month. 7. Change in due date. 8. Billing cycles longer than one month. 9. Payment due date when the creditor does not accept or receive payments by mail. 7(b)(12) Repayment disclosures. 1. Rounding. Paragraph 7(b)(12)(i)(F). 1. Minimum payment repayment estimate disclosed on the periodic statement is three years or less. 2 7(b)(12)(iv) Provision of information about credit counseling services. 1. Approved organizations. 2. Information regarding approved organizations. Provision of information obtained from United States Trustee or bankruptcy administrator. ii. Provision of information consistent with request of approved organization. iii. Information regarding approved organizations that provide credit counseling services in a language other than English. iv. Statements regarding approval by the United States Trustee or a bankruptcy administrator. A. The United States Trustee or a bankruptcy administrator has determined that the organizations meet the minimum requirements for nonprofit pre-bankruptcy budget and credit counseling; B. The organizations may provide other credit counseling services that have not been reviewed by the United States Trustee or a bankruptcy administrator; and C. The United States Trustee or the bankruptcy administrator does not endorse or recommend any particular organization. 3. Automated response systems or devices. 4. Toll-free telephone number. 5. Third parties. 6. Web site address. 7. Advertising or marketing information. i. Toll-free telephone number. ii. Web page. 7(b)(12)(v) Exemptions. 1. Billing cycle where paying the minimum payment due for that billing cycle will pay the outstanding balance on the account for that billing cycle. 7(b)(13) Format requirements. 1. Combined deposit account and credit account statements. Section 226.8—Identifying Transactions on Periodic Statements 8(a) Sale credit. 1. Sale credit. i. The purchase of funds-transfer services (such as a wire transfer) from an intermediary. ii. The purchase of services from the card issuer or creditor. For the purchase of services that are costs imposed as part of the plan under § 226.6(b)(3), card issuers and creditors comply with the requirements for identifying transactions under this section by disclosing the fees in accordance with the requirements of § 226.7(b)(6). For the purchases of services that are not costs imposed as part of the plan, card issuers and creditors may, at their option, identify transactions under this section or in accordance with the requirements of § 226.7(b)(6). 2. Amount—transactions not billed in full. 3. Date—when a transaction takes place. i. If the consumer conducts the transaction in person, the date of the transaction is the calendar date on which the consumer made the purchase or order, or secured the advance. ii. For transactions billed to the account on an ongoing basis (other than installments to pay a precomputed amount), the date of the transaction is the date on which the amount is debited to the account. This might include, for example, monthly insurance premiums. iii. For mail, Internet, or telephone orders, a creditor may disclose as the transaction date either the invoice date, the debiting date, or the date the order was placed by telephone or via the Internet. iv. In a foreign transaction, the debiting date may be considered the transaction date. 4. Date—sufficiency of description. i. If the creditor discloses only the date of the transaction, the creditor need not identify it as the “transaction date.” If the creditor discloses more than one date (for example, the transaction date and the posting date), the creditor must identify each. ii. The month and day sufficiently identify the transaction date, unless the posting of the transaction is delayed so long that the year is needed for a clear disclosure to the consumer. 5. Same or related persons. same or related persons A. Franchised or licensed sellers of a creditor's product or service. B. Sellers who assign or sell open-end sales accounts to a creditor or arrange for such credit under a plan that allows the consumer to use the credit only in transactions with that seller. ii. A seller is not related to the creditor merely because the seller and the creditor have an agreement authorizing the seller to honor the creditor's credit card. 6. Brief identification—sufficiency of description. i. While item-by-item descriptions are not necessary, reasonable precision is required. For example, “merchandise,” “miscellaneous,” “second-hand goods,” or “promotional items” would not suffice. ii. A reference to a department in a sales establishment that accurately conveys the identification of the types of property or services available in the department is sufficient—for example, “jewelry,” or “sporting goods.” iii. A number or symbol that is related to an identification list printed elsewhere on the statement that reasonably identifies the transaction with the creditor is sufficient. 7. Seller's name—sufficiency of description. i. A more complete spelling of the name that was alphabetically abbreviated on the receipt or other credit document. ii. An alphabetical abbreviation of the name on the periodic statement even if the name appears in a more complete spelling on the receipt or other credit document. Terms that merely indicate the form of a business entity, such as “Inc.,” “Co.,” or “Ltd.,” may always be omitted. 8. Location of transaction. i. If the seller has multiple stores or branches within a city, the creditor need not identify the specific branch at which the sale occurred. ii. When no meaningful address is available because the consumer did not make the purchase at any fixed location of the seller, the creditor may omit the address, or may provide some other identifying designation, such as “aboard plane,” “ABC Airways Flight,” “customer's home,” “telephone order,” “Internet order” or “mail order.” 8(b) Nonsale credit. 1. Nonsale credit. i. A cash advance. ii. An advance on a credit plan that is accessed by overdrafts on a checking account. iii. The use of a “supplemental credit device” in the form of a check or draft or the use of the overdraft credit plan accessed by a debit card, even if such use is in connection with a purchase of goods or services. iv. Miscellaneous debits to remedy mispostings, returned checks, and similar entries. 2. Amount—overdraft credit plans. i. The amount to be disclosed is that of the credit extension, not the face amount of the check or the total amount of the debit/credit transaction. ii. The creditor may disclose the amount of the credit extensions on a cumulative daily basis, rather than the amount attributable to each check or each use of the debit card that accesses the credit plan. 3. Date of transaction. 4. Nonsale transaction—sufficiency of identification. Section 226.9—Subsequent Disclosure Requirements 9(a) Furnishing statement of billing rights. 9(a)(1) Annual statement. 1. General. i. By sending it in one billing period per year to each consumer that gets a periodic statement for that period; or ii. By sending a copy to all of its accountholders sometime during the calendar year but not necessarily all in one billing period (for example, sending the annual notice in connection with renewal cards or when imposing annual membership fees). 2. Substantially similar. 9(a)(2) Alternative summary statement. 1. Changing from long-form to short form statement and vice versa. 2. Substantially similar. 9(b) Disclosures for supplemental credit access devices and additional features. 1. Credit access device—examples. Credit access device 2. Credit account feature—examples. feature i. The addition of overdraft checking to an existing account (although the regular checks that could trigger the overdraft feature are not themselves “devices”). ii. The option to use an existing credit card to secure cash advances, when previously the card could only be used for purchases. Paragraph 9(b)(2). 1. Different finance charge terms. 9(b)(3) Checks that access a credit card account. 9(b)(3)(i) Disclosures. 1. Front of the page containing the checks. i. Providing the tabular disclosure on the front of the first page on which checks appear, for an offer where checks are provided on multiple pages; ii. Providing the tabular disclosure on the front of a mini-book or accordion booklet containing the checks; or iii. Providing the tabular disclosure on the front of the solicitation letter, when the checks are printed on the front of the same page as the solicitation letter even if the checks can be separated by the consumer from the solicitation letter using perforations. 2. Combined disclosures for checks and other transactions subject to the same terms. Paragraph 9(b)(3)(i)(D). 1. Grace period. 9(c) Change in terms. 9(c) Change in terms. 9(c)(1) Rules affecting home-equity plans. 1. Changes initially disclosed. 2. State law issues. i. The types of changes a creditor may make. (But see § 226.5b(f)) ii. How changed terms affect existing balances, such as when a periodic rate is changed and the consumer does not pay off the entire existing balance before the new rate takes effect. 3. Change in billing cycle. 9(c)(1)(i) Written notice required. 1. Affected consumers. 2. Timing—effective date of change. 3. Timing—advance notice not required. i. If there is an increased periodic rate or any other finance charge attributable to the consumer's delinquency or default. ii. If the consumer agrees to the particular change. This provision is intended for use in the unusual instance when a consumer substitutes collateral or when the creditor can advance additional credit only if a change relatively unique to that consumer is made, such as the consumer's providing additional security or paying an increased minimum payment amount. Therefore, the following are not “agreements” between the consumer and the creditor for purposes of § 226.9(c)(1)(i): The consumer's general acceptance of the creditor's contract reservation of the right to change terms; the consumer's use of the account (which might imply acceptance of its terms under state law); and the consumer's acceptance of a unilateral term change that is not particular to that consumer, but rather is of general applicability to consumers with that type of account. 4. Form of change-in-terms notice. 5. Security interest change—form of notice. 6. Changes to home-equity plans entered into on or after November 7, 1989. i. If the index is changed, the maximum annual percentage rate is increased (to the limited extent permitted by § 226.30), or a variable-rate feature is added to a fixed-rate plan, the creditor must include the disclosures required by § 226.5b(d)(12)(x) and (d)(12)(xi), unless these disclosures are unchanged from those given earlier. ii. If the minimum payment requirement is changed, the creditor must include the disclosures required by § 226.5b(d)(5)(iii) (and, in variable-rate plans, the disclosures required by § 226.5b(d)(12)(x) and (d)(12)(xi)) unless the disclosures given earlier contained representative examples covering the new minimum payment requirement. (See the commentary to § 226.5b(d)(5)(iii), (d)(12)(x) and (d)(12)(xi) for a discussion of representative examples.) iii. When the terms are changed pursuant to a written agreement as described in § 226.5b(f)(3)(iii), the advance-notice requirement does not apply. 9(c)(1)(ii) Notice not required. 1. Changes not requiring notice. i. A change in the consumer's credit limit. ii. A change in the name of the credit card or credit card plan. iii. The substitution of one insurer for another. iv. A termination or suspension of credit privileges. (But see § 226.5b(f).) v. Changes arising merely by operation of law; for example, if the creditor's security interest in a consumer's car automatically extends to the proceeds when the consumer sells the car. 2. Skip features. 9(c)(1)(iii) Notice to restrict credit. 1. Written request for reinstatement. 2. Notice not required. 9(c)(2) Rules affecting open-end (not home-secured) plans. 1. Changes initially disclosed. 2. State law issues. 3. Change in billing cycle. See also 4. Relationship to § 226.9(b). 9(c)(2)(i) Changes where written advance notice is required. 1. Affected consumers. 2. Timing—effective date of change. 3. Changes agreed to by the consumer. See also 4. Form of change-in-terms notice. 5. Security interest change—form of notice. 6. Examples. See 9(c)(2)(iii) Charges not covered by § 226.6(b)(1) and (b)(2). 1. Applicability. See See 9(c)(2)(iv) Disclosure requirements. 1. Changing margin for calculating a variable rate. 2. Changing index for calculating a variable rate. 3. Changing from a variable rate to a non-variable rate. 4. Changing from a non-variable rate to a variable rate. See 5. Changes in the penalty rate, the triggers for the penalty rate, or how long the penalty rate applies. 6. Changes in fees. 7. Combining a notice described in § 226.9(c)(2)(iv) with a notice described in § 226.9(g)(3). 8. Content. 9. Clear and conspicuous standard. See 1 10. Terminology. See 1 11. Reasons for increase. In general. 8 8 8 ii. Example. 9(c)(2)(v) Notice not required. 1. Changes not requiring notice. i. A change in the consumer's credit limit except as otherwise required by § 226.9(c)(2)(vi). ii. A change in the name of the credit card or credit card plan. iii. The substitution of one insurer for another. iv. A termination or suspension of credit privileges. v. Changes arising merely by operation of law; for example, if the creditor's security interest in a consumer's car automatically extends to the proceeds when the consumer sells the car. 2. Skip features. Skipped or reduced payments. ii. Temporary reductions in interest rates or fees. See 3. Changing from a variable rate to a non-variable rate. See 4. Changing from a non-variable rate to a variable rate. See 5. Temporary rate or fee reductions offered by telephone. i. The consumer accepts the offer of the temporary rate or temporary fee by telephone; ii. The creditor permits the consumer to reject the temporary rate or temporary fee offer and have the rate or rates or fee 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), except that the creditor need not permit the consumer to reject a temporary rate or temporary fee offer if the rate or rates or fee that will apply following expiration of the temporary rate do not exceed the rate or rates or fee that applied immediately prior to commencement of the temporary rate or temporary fee; and iii. The disclosures required by § 226.9(c)(2)(v)(B) and the consumer's right to reject the temporary rate or temporary fee offer and have the rate or rates or fee that previously applied to the consumer's account reinstated, if applicable, are disclosed to the consumer as part of the temporary rate or temporary fee offer. 6. First listing. 1 7. Close proximity—point of sale. 8. Disclosure of annual percentage rates. 9. Deferred interest or similar programs. 1 1 i. “No interest if paid in full in 6 months. If the balance is not paid in full in 6 months, interest will be imposed from the date of purchase at a rate of 15.99%.” ii. “No interest if paid in full by December 31, 2010. If the balance is not paid in full by that date, interest will be imposed from the transaction date at a rate of 15%.” 10. Relationship between §§ 226.9(c)(2)(v)(B) and 226.6(b). 1 2 11. Disclosure of the terms of a workout or temporary hardship arrangement. 2 i. The annual percentage rate that will apply to balances subject to the workout or temporary hardship arrangement; ii. The annual percentage rate that will apply to such balances if the consumer completes or fails to comply with the terms of, the workout or temporary hardship arrangement; iii. Any reduced fee or charge of a type required to be disclosed under § 226.6(b)(2)(ii), (b)(2)(iii), (b)(2)(viii), (b)(2)(ix), (b)(2)(xi), or (b)(2)(xii) that will apply to balances subject to the workout or temporary hardship arrangement, as well as the fee or charge that will apply if the consumer completes or fails to comply with the terms of the workout or temporary hardship arrangement; iv. Any reduced minimum periodic payment that will apply to balances subject to the workout or temporary hardship arrangement, as well as the minimum periodic payment that will apply if the consumer completes or fails to comply with the terms of the workout or temporary hardship arrangement; and v. If applicable, that the consumer must make timely minimum payments in order to remain eligible for the workout or temporary hardship arrangement. 12. Index not under creditor's control. See 13. Temporary rates—relationship to § 226.59. General. See ii. Example. 9(d) Finance charge imposed at time of transaction. 1. Disclosure prior to imposition. 9(e) Disclosures upon renewal of credit or charge card. 1. Coverage. See 2. Form. 3. Terms at renewal. 4. Variable rate. 5. Renewals more frequent than annual. 6. Terminating credit availability. 7. Timing of termination by cardholder. 8. Timing of notices. 9. Prompt reversal of renewal fee upon termination. 10. Disclosure of changes in terms required to be disclosed pursuant to § 226.6(b)(1) and (b)(2). 9(e)(2) Notification on periodic statements. 1. Combined disclosures. 2. Preprinted notices on periodic statements. 9(f) Change in credit card account insurance provider. 1. Coverage. see 2. No increase in rate or decrease in coverage. 3. Form of notice. See 4. Discontinuation of insurance. 5. Mailing by third party. 9(f)(3) Substantial decrease in coverage. 1. Determination. 9(g) Increase in rates due to delinquency or default or as a penalty. 1. Relationship between § 226.9(c) and (g) and § 226.55—examples. 2. Affected consumers. 3. Combining a notice described in § 226.9(g)(3) with a notice described in § 226.9(c)(2)(iv). 4. Content. 5. Clear and conspicuous standard. 6. Terminology. 7. Reasons for increase. 9(g)(4) Exception for decrease in credit limit. 1. The following illustrates the requirements of § 226.9(g)(4). Assume that a creditor decreased the credit limit applicable to a consumer's account and sent a notice pursuant to § 226.9(g)(4) on January 1, stating among other things that the penalty rate would apply if the consumer's balance exceeded the new credit limit as of February 16. If the consumer's balance exceeded the credit limit on February 16, the creditor could impose the penalty rate on that date. However, a creditor could not apply the penalty rate if the consumer's balance did not exceed the new credit limit on February 16, even if the consumer's balance had exceeded the new credit limit on several dates between January 1 and February 15. If the consumer's balance did not exceed the new credit limit on February 16 but the consumer conducted a transaction on February 17 that caused the balance to exceed the new credit limit, the general rule in § 226.9(g)(1)(ii) would apply and the creditor would be required to give an additional 45 days' notice prior to imposition of the penalty rate (but under these circumstances the consumer would have no ability to cure the over-the-limit balance in order to avoid penalty pricing). 9(h) Consumer rejection of certain significant changes in terms. 1. Circumstances in which § 226.9(h) does not apply. 9(h)(1) Right to reject. 1. Reasonable requirements for submission of rejections. i. It would be reasonable for a creditor to require that rejections be made by the primary account holder and that the consumer identify the account number. ii. It would be reasonable for a creditor to require that rejections be made only using the toll-free telephone number disclosed pursuant to § 226.9(c). It would also be reasonable for a creditor to designate additional channels for the submission of rejections (such as an address for rejections submitted by mail) so long as the creditor does not require that rejections be submitted through such additional channels. iii. It would be reasonable for a creditor to require that rejections be received before the effective date disclosed pursuant to § 226.9(c) and to treat the account as not subject to § 226.9(h) if a rejection is received on or after that date. It would not, however, be reasonable to require that rejections be submitted earlier than the day before the effective date. If a creditor is unable to process all rejections received before the effective date, the creditor may delay implementation of the change in terms until all rejections have been processed. In the alternative, the creditor could implement the change on the effective date and then, on any account for which a timely rejection was received, reverse the change and remove or credit any interest charges or fees imposed as a result of the change. For example, if the effective date for a change in terms is June 15 and the creditor cannot process all rejections received by telephone on June 14 until June 16, the creditor may delay imposition of the change until June 17. Alternatively, the creditor could implement the change for all affected accounts on June 15 and then, once all rejections have been processed, return any account for which a timely rejection was received to the prior terms and ensure that the account is not assessed any additional interest or fees as a result of the change or that the account is credited for such interest or fees. 2. Use of account following provision of notice. 9(h)(2)(ii) Prohibition on penalties. 1. Termination or suspension of credit availability. 2. Solely as a result of rejection. See 9(h)(2)(iii) Repayment of outstanding balance. 1. Relevant date for repayment methods. 2. Balance on the account. i. In general. ii. Example. 9(h)(3) Exception. 1. Examples. i. Account becomes more than 60 days delinquent before notice provided. ii. Account becomes more than 60 days delinquent after rejection. Section 226.10—Payments 10(a) General rule. 1. Crediting date. as of 2. Date of receipt. i. Payment by check is received when the creditor gets it, not when the funds are collected. ii. In a payroll deduction plan in which funds are deposited to an asset account held by the creditor, and from which payments are made periodically to an open-end credit account, payment is received on the date when it is debited to the asset account (rather than on the date of the deposit), provided the payroll deduction method is voluntary and the consumer retains use of the funds until the contractual payment date. iii. If the consumer elects to have payment made by a third party payor such as a financial institution, through a preauthorized payment or telephone bill-payment arrangement, payment is received when the creditor gets the third party payor's check or other transfer medium, such as an electronic fund transfer, as long as the payment meets the creditor's requirements as specified under § 226.10(b). iv. Payment made via the creditor's Web site is received on the date on which the consumer authorizes the creditor to effect the payment, even if the consumer gives the instruction authorizing that payment in advance of the date on which the creditor is authorized to effect the payment. If the consumer authorizes the creditor to effect the payment immediately, but the consumer's instruction is received after 5 p.m. or any later cut-off time specified by the creditor, the date on which the consumer authorizes the creditor to effect the payment is deemed to be the next business day. 10(b) Specific requirements for payments. 1. Payment by electronic fund transfer. 2. Payment methods promoted by creditor. i. If a creditor promotes electronic payment via its Web site (such as by disclosing on the Web site itself that payments may be made via the Web site), any payments made via the creditor's Web site prior to the creditor's specified cut-off time, if any, would generally be conforming payments for purposes of § 226.10(b). ii. If a creditor promotes payment by telephone (for example, by including the option to pay by telephone in a menu of options provided to consumers at a toll-free number disclosed on its periodic statement), payments made by telephone would generally be conforming payments for purposes of § 226.10(b). iii. If a creditor promotes in-person payments, for example by stating in an advertisement that payments may be made in person at its branch locations, such in-person payments made at a branch or office of the creditor generally would be conforming payments for purposes of § 226.10(b). iv. If a creditor promotes that payments may be made through an unaffiliated third party, such as by disclosing the Web site address of that third party on the periodic statement, payments made via that third party's Web site generally would be conforming payments for purposes of § 226.10(b). In contrast, if a customer service representative of the creditor confirms to a consumer that payments may be made via an unaffiliated third party, but the creditor does not otherwise promote that method of payment, § 226.10(b) permits the creditor to treat payments made via such third party as nonconforming payments in accordance with § 226.10(b)(4). 3. Acceptance of nonconforming payments. 4. Implied guidelines for payments. i. Payments may be made at any location where the creditor conducts business. ii. Payments may be made any time during the creditor's normal business hours. iii. Payment may be by cash, money order, draft, or other similar instrument in properly negotiable form, or by electronic fund transfer if the creditor and consumer have so agreed. 5. Payments made at point of sale. 6. In-person payments on credit card accounts. 7. In-person payments at affiliate of card issuer. 10(d) Crediting of payments when creditor does not receive or accept payments on due date. 1. Example. 2. Treating a payment as late for any purpose. 10(e) Limitations on fees related to method of payment. 1. Separate fee to allow consumers to make a payment. 2. Expedited. 3. Service by a customer service representative. 4. Creditor. i. Assume that a creditor uses a service provider to receive, collect, or process on the creditor's behalf payments made through the creditor's Web site or made through an automated telephone payment service. In these circumstances, the service provider would be considered a creditor for purposes of paragraph (e). ii. Assume that a consumer pays a fee to a money transfer or payment service in order to transmit a payment to the creditor on the consumer's behalf. In these circumstances, the money transfer or payment service would not be considered a creditor for purposes of paragraph (e). iii. Assume that a consumer has a checking account at a depository institution. The consumer makes a payment to the creditor from the checking account using a bill payment service provided by the depository institution. In these circumstances, the depository institution would not be considered a creditor for purposes of paragraph (e). 10(f) Changes by card issuer. 1. Address for receiving payment. 2. Materiality. 3. Safe harbor. General. ii. Retail location. 4. Examples. i. A card issuer changes the mailing address for receiving payments by mail from a five-digit postal zip code to a nine-digit postal zip code. A consumer mails a payment using the five-digit postal zip code. The change in mailing address is immaterial and it does not cause a delay. Therefore, a card issuer may impose a late fee or finance charge for a late payment on the account. ii. A card issuer changes the mailing address for receiving payments by mail from one post office box number to another post office box number. For a 60-day period following the change, the card issuer continues to use both post office box numbers for the collection of payments received by mail. The change in mailing address would not cause a material delay in crediting a payment because payments would be received and credited at both addresses. Therefore, a card issuer may impose a late fee or finance charge for a late payment on the account during the 60-day period following the date on which the change took effect. iii. Same facts as paragraph ii. above, except the prior post office box number is no longer valid and mail sent to that address during the 60-day period following the change would be returned to sender. The change in mailing address is material and the change could cause a material delay in the crediting of a payment because a payment sent to the old address could be delayed past the due date. If, as a result, a consumer makes a late payment on the account during the 60-day period following the date on which the change took effect, a card issuer may not impose any late fee or finance charge for the late payment. iv. A card issuer permanently closes a local branch office at which payments are accepted on credit card accounts. The permanent closing of the local branch office is a material change in address for receiving payment. Relying on the safe harbor, the card issuer elects not to impose a late fee or finance charge for the 60-day period following the local branch closing for late payments on consumer accounts which the issuer reasonably determines are associated with the local branch and which could reasonably be expected to have been caused by the branch closing. v. A consumer has elected to make payments automatically to a credit card account, such as through a payroll deduction plan or a third party payor's preauthorized payment arrangement. A card issuer changes the procedures for handling such payments and as a result, a payment is delayed and not credited to the consumer's account before the due date. In these circumstances, a card issuer may not impose any late fee or finance charge during the 60-day period following the date on which the change took effect for a late payment on the account. vi. A card issuer no longer accepts payments in person at a retail location as a conforming method of payment, which is a material change in the procedures for handling cardholder payment. In the 60-day period following the date on which the change took effect, a consumer attempts to make a payment in person at a retail location of a card issuer. As a result, the consumer makes a late payment and the issuer charges a late fee on the consumer's account. The consumer notifies the card issuer of the late fee for the late payment which was caused by the material change. In order to comply with § 226.10(f), the card issuer must waive or remove the late fee or finance charge, or credit the consumer's account in an amount equal to the late fee or finance charge. 5. Finance charge due to periodic interest rate. Section 226.11—Treatment of Credit Balances; Account Termination 11(a) Credit balances. 1. Timing of refund. i. Refunding any credit balance to the consumer immediately. ii. Refunding any credit balance prior to receiving a written request (under § 226.11(a)(2)) from the consumer. iii. Refunding any credit balance upon the consumer's oral or electronic request. iv. Making a good faith effort to refund any credit balance before 6 months have passed. If that attempt is unsuccessful, the creditor need not try again to refund the credit balance at the end of the 6-month period. 2. Amount of refund. any part of the remaining credit balance any part of the credit balance remaining in the account Paragraph 11(a)(2). 1. Written requests standing orders. Paragraph 11(a)(3). 1. Good faith effort to refund. 2. Good faith effort unsuccessful. 11(b) Account termination. Paragraph 11(b)(1). 1. Expiration date. 11(c) Timely settlement of estate debts 1. Administrator of an estate. 2. Examples. i. A card issuer may decline future transactions and terminate the account upon receiving reasonable notice of the consumer's death. ii. A card issuer may credit the account for fees and charges imposed after the date of receiving reasonable notice of the consumer's death. iii. A card issuer may waive the estate's liability for all charges made to the account after receiving reasonable notice of the consumer's death. iv. A card issuer may authorize an agent to handle matters in accordance with the requirements of this rule. v. A card issuer may require administrators of an estate to provide documentation indicating authority to act on behalf of the estate. vi. A card issuer may establish or designate a department, business unit, or communication channel for administrators, such as a specific mailing address or toll-free number, to handle matters in accordance with the requirements of this rule. vii. A card issuer may direct administrators, who call a general customer service toll-free number or who send correspondence by mail to an address for general correspondence, to an appropriate customer service representative, department, business unit, or communication channel to handle matters in accordance with the requirements of this rule. 2. Request by an administrator of an estate. 3. Timely statement of balance. 4. Imposition of fees and interest charges. 5. Example. 6. Application to joint accounts. Section 226.12—Special Credit Card Provisions 1. Scope. 2. Definition of “accepted credit card”. 12(a) Issuance of credit cards. Paragraph 12(a)(1). 1. Explicit request. 2. Addition of credit features. 3. Variance of card from request. i. The name of the card requested may be different when issued. ii. The card may have features in addition to those reflected in the request or application. 4. Permissible form of request. 5. Time of issuance. 6. Persons to whom cards may be issued. i. The additional cards may be imprinted in either A's name or in the names of B and C. ii. No liability for unauthorized use (by persons other than B and C), not even the $50, may be imposed on B or C since they are merely users and not cardholders as that term is defined in § 226.2 and used in § 226.12(b); of course, liability of up to $50 for unauthorized use of B's and C's cards may be imposed on A. iii. Whether B and C may be held liable for their own use, or on the account generally, is a matter of state or other applicable law. 7. Issuance of non-credit cards. i. General. See ii. Examples. 8. Unsolicited issuance of PINs. Paragraph 12(a)(2). 1. Renewal. 2. Substitution—examples. i. Changed its name. ii. Changed the name of the card. iii. Changed the credit or other features available on the account. For example, the original card could be used to make purchases and obtain cash advances at teller windows. The substitute card might be usable, in addition, for obtaining cash advances through automated teller machines. (If the substitute card constitutes an access device, as defined in Regulation E, then the Regulation E issuance rules would have to be followed.) The substitution of one card with another on an unsolicited basis is not permissible, however, where in conjunction with the substitution an additional credit card account is opened and the consumer is able to make new purchases or advances under both the original and the new account with the new card. For example, if a retail card issuer replaces its credit card with a combined retailer/bank card, each of the creditors maintains a separate account, and both accounts can be accessed for new transactions by use of the new credit card, the card cannot be provided to a consumer without solicitation. iv. Substituted a card user's name on the substitute card for the cardholder's name appearing on the original card. v. Changed the merchant base, provided that the new card is honored by at least one of the persons that honored the original card. However, unless the change in the merchant base is the addition of an affiliate of the existing merchant base, the substitution of a new card for another on an unsolicited basis is not permissible where the account is inactive. A credit card cannot be issued in these circumstances without a request or application. For purposes of § 226.12(a), an account is inactive if no credit has been extended and if the account has no outstanding balance for the prior 24 months. (See § 226.11(b)(2).) 3. Substitution—successor card issuer. 4. Substitution—non-credit-card plan. 5. One-for-one rule. 6. One-for-one rule—exceptions. i. Replacing a debit/credit card with a credit card and another card with only debit functions (or debit functions plus an associated overdraft capability), since the latter card could be issued on an unsolicited basis under Regulation E. ii. Replacing an accepted card with more than one renewal or substitute card, provided that: A. No replacement card accesses any account not accessed by the accepted card; B. For terms and conditions required to be disclosed under § 226.6, all replacement cards are issued subject to the same terms and conditions, except that a creditor may vary terms for which no change in terms notice is required under § 226.9(c); and C. Under the account's terms the consumer's total liability for unauthorized use with respect to the account does not increase. 7. Methods of terminating replaced card. i. The issuer includes with the new card a notification that the existing card is no longer valid and should be destroyed immediately. ii. The original card contained an expiration date. iii. The card issuer, in order to preclude use of the card, reprograms computers or issues instructions to authorization centers. 8. Incomplete replacement. 9. Multiple entities. 12(b) Liability of cardholder for unauthorized use. 1. Meaning of cardholder. 2. Imposing liability. 3. Reasonable investigation. i. Reviewing the types or amounts of purchases made in relation to the cardholder's previous purchasing pattern. ii. Reviewing where the purchases were delivered in relation to the cardholder's residence or place of business. iii. Reviewing where the purchases were made in relation to where the cardholder resides or has normally shopped. iv. Comparing any signature on credit slips for the purchases to the signature of the cardholder or an authorized user in the card issuer's records, including other credit slips. v. Requesting documentation to assist in the verification of the claim. vi. Requiring a written, signed statement from the cardholder or authorized user. For example, the creditor may include a signature line on a billing rights form that the cardholder may send in to provide notice of the claim. However, a creditor may not require the cardholder to provide an affidavit or signed statement under penalty of perjury as part of a reasonable investigation. vii. Requesting a copy of a police report, if one was filed. viii. Requesting information regarding the cardholder's knowledge of the person who allegedly used the card or of that person's authority to do so. 4. Checks that access a credit card account. 12(b)(1)(ii) Limitation on amount. 1. Meaning of authority. 2. Liability limits—dollar amounts. 3. Implied or apparent authority. 4. Credit card obtained through robbery or fraud. 12(b)(2) Conditions of liability. 1. Issuer's option not to comply. Paragraph 12(b)(2)(ii). 1. Disclosure of liability and means of notifying issuer. 2. Meaning of “adequate notice.” Paragraph 12(b)(2)(iii). 1. Means of identifying cardholder or user. 2. Identification by magnetic strip. 3. Transactions not involving card. 12(b)(3) Notification to card issuer. 1. How notice must be provided. 2. Who must provide notice. 3. Relationship to § 226.13. 12(b)(5) Business use of credit cards. 1. Agreement for higher liability for business use cards. 2. Unauthorized use by employee. 12(c) Right of cardholder to assert claims or defenses against card issuer. 1. Relationship to § 226.13. 2. Claims and defenses assertible. 3. Transactions excluded. 4. Method of calculating the amount of credit outstanding. i. For examples of how to comply with §§ 226.12 and 226.53 for credit card accounts under an open-end (not home-secured) consumer credit plan, see comment 53-3. ii. For other types of credit card accounts, creditors may, at their option, apply payments consistent with § 226.53 and comment 53-3. In the alternative, payments and other credits may be applied to: Late charges in the order of entry to the account; then to finance charges in the order of entry to the account; and then to any debits other than the transaction subject to the claim or defense in the order of entry to the account. In these circumstances, if more than one item is included in a single extension of credit, credits are to be distributed pro rata according to prices and applicable taxes. 12(c)(1) General rule. 1. Situations excluded and included. i. Use of a credit card to obtain a cash advance, even if the consumer then uses the money to purchase goods or services. Such a transaction would not involve “property or services purchased with the credit card.” ii. The purchase of goods or services by use of a check accessing an overdraft account and a credit card used solely for identification of the consumer. (On the other hand, if the credit card is used to make partial payment for the purchase and not merely for identification, the right to assert claims or defenses would apply to credit extended via the credit card, although not to the credit extended on the overdraft line.) iii. Purchases made by use of a check guarantee card in conjunction with a cash advance check (or by cash advance checks alone). ( See iv. Purchases effected by use of either a check guarantee card or a debit card when used to draw on overdraft credit plans. ( See 12(c)(2) Adverse credit reports prohibited. 1. Scope of prohibition. i. That amount may be reported as disputed. ii. Nothing in this provision prohibits the card issuer from undertaking its normal collection activities for the delinquent and undisputed portion of the account. 2. Settlement of dispute. 12(c)(3) Limitations. Paragraph 12(c)(3)(i)(A). 1. Resolution with merchant. Paragraph 12(c)(3)(i)(B). 1. Geographic limitation. Paragraph 12(c)(3)(ii). 1. Merchant honoring card. 12(d) Offsets by card issuer prohibited. Paragraph 12(d)(1). 1. Holds on accounts. 2. Funds intended as deposits. 3. Types of indebtedness; overdraft accounts. 4. When prohibition applies in case of termination of account. Paragraph 12(d)(2). 1. Security interest—limitations. i. The consumer must be aware that granting a security interest is a condition for the credit card account (or for more favorable account terms) and must specifically intend to grant a security interest in a deposit account. Indicia of the consumer's awareness and intent include at least one of the following (or a substantially similar procedure that evidences the consumer's awareness and intent): A. Separate signature or initials on the agreement indicating that a security interest is being given. B. Placement of the security agreement on a separate page, or otherwise separating the security interest provisions from other contract and disclosure provisions. C. Reference to a specific amount of deposited funds or to a specific deposit account number. ii. The security interest must be obtainable and enforceable by creditors generally. If other creditors could not obtain a security interest in the consumer's deposit accounts to the same extent as the card issuer, the security interest is prohibited by § 226.12(d)(2). 2. Security interest—after-acquired property. 3. Court order. Paragraph 12(d)(3). 1. Automatic payment plans—scope of exception. i. The cardholder's authorization must be in writing and signed or initialed by the cardholder. ii. The authorizing language need not appear directly above or next to the cardholder's signature or initials, provided it appears on the same document and that it clearly spells out the terms of the automatic debit plan. iii. If the cardholder has the option to accept or reject the automatic debit feature (such option may be required under section 913 of the Electronic Fund Transfer Act), the fact that the option exists should be clearly indicated. 2. Automatic payment plans—additional exceptions. i. Automatically deducting charges for participation in a program of banking services (one aspect of which may be a credit card plan). ii. Debiting the cardholder's deposit account on the cardholder's specific request rather than on an automatic periodic basis (for example, a cardholder might check a box on the credit card bill stub, requesting the issuer to debit the cardholder's account to pay that bill). 12(e) Prompt notification of returns and crediting of refunds. Paragraph 12(e)(1). 1. Normal channels. Paragraph 12(e)(2). 1. Crediting account. Section 226.13—Billing Error Resolution 1. Creditor's failure to comply with billing error provisions. 2. Charges for error resolution. 13(a) Definition of billing error. Paragraph 13(a)(1). 1. Actual, implied, or apparent authority. See Paragraph 13(a)(3). 1. Coverage. A. The appearance on a periodic statement of a purchase, when the consumer refused to take delivery of goods because they did not comply with the contract. B. Delivery of property or services different from that agreed upon. C. Delivery of the wrong quantity. D. Late delivery. E. Delivery to the wrong location. ii. Section 226.13(a)(3) does not apply to a dispute relating to the quality of property or services that the consumer accepts. Whether acceptance occurred is determined by state or other applicable law. 2. Application to purchases made using a third-party payment intermediary. i. The extension of credit is made to fund the third-party payment intermediary “account,” but the consumer does not contemporaneously use those funds to purchase a good or service at that time. ii. The extension of credit is made to fund only a portion of the purchase amount, and the consumer uses other sources to fund the remaining amount. 3. Notice to merchant not required. Paragraph 13(a)(5). 1. Computational errors. Paragraph 13(a)(6). 1. Documentation requests. 13(b) Billing error notice. 1. Withdrawal of billing error notice by consumer. 2. Form of written notice. Paragraph 13(b)(1). 1. Failure to send periodic statement—timing. 2. Failure to reflect credit—timing. 3. Transmittal. Paragraph 13(b)(2). 1. Identity of the consumer. 13(c) Time for resolution; general procedures. 1. Temporary or provisional corrections. 2. Correction without investigation. 3. Relationship with § 226.12. See Paragraph 13(c)(2). 1. Time for resolution. 2. Finality of error resolution procedure. 13(d) Rules pending resolution. 1. Disputed amount. 13(d)(1) Consumer's right to withhold disputed amount; collection action prohibited. 1. Prohibited collection actions. 2. Right to withhold payment. 3. Imposition of additional charges on undisputed amounts. 4. Automatic payment plans—coverage. 5. Automatic payment plans—time of notice. 13(d)(2) Adverse credit reports prohibited. 1. Report of dispute. 2. Person. 3. Creditor's agent. 13(e) Procedures if billing error occurred as asserted. 1. Correction of error. 2. Form of correction notice. 3. Discovery of information after investigation period. See 13(f) Procedures if different billing error or no billing error occurred. 1. Different billing error. i. Differences in the amount of an error (for example, the customer asserts a $55.00 error but the error was only $53.00). ii. Differences in other particulars asserted by the consumer (such as when a consumer asserts that a particular transaction never occurred, but the creditor determines that only the seller's name was disclosed incorrectly). 2. Form of creditor's explanation. 3. Reasonable investigation. i. Unauthorized transaction. A. Reviewing the types or amounts of purchases made in relation to the consumer's previous purchasing pattern. B. Reviewing where the purchases were delivered in relation to the consumer's residence or place of business. C. Reviewing where the purchases were made in relation to where the consumer resides or has normally shopped. D. Comparing any signature on credit slips for the purchases to the signature of the consumer (or an authorized user in the case of a credit card account) in the creditor's records, including other credit slips. E. Requesting documentation to assist in the verification of the claim. F. Requiring a written, signed statement from the consumer (or authorized user, in the case of a credit card account). For example, the creditor may include a signature line on a billing rights form that the consumer may send in to provide notice of the claim. However, a creditor may not require the consumer to provide an affidavit or signed statement under penalty of perjury as a part of a reasonable investigation. G. Requesting a copy of a police report, if one was filed. H. Requesting information regarding the consumer's knowledge of the person who allegedly obtained an extension of credit on the account or of that person's authority to do so. ii. Nondelivery of property or services. iii. Incorrect information. 13(g) Creditor's rights and duties after resolution. Paragraph 13(g)(1). 1. Amounts owed by consumer. 2. Time of notice. Paragraph 13(g)(2). 1. Grace period if no error occurred. Paragraph 13(g)(3). 1. Time for payment. Paragraph 13(g)(4). 1. Credit reporting. 2. Adverse report to credit bureau. 13(i) Relation to Electronic Fund Transfer Act and Regulation E. 1. Coverage. 2. Incidental credit under agreement. 3. Application to debit/credit transactions-examples. i. An error asserted with respect to the transaction is subject, for error resolution purposes, to the applicable Regulation E provisions (such as timing and notice) for the entire transaction. ii. The creditor need not provisionally credit the consumer's account, under § 205.11(c)(2)(i) of Regulation E, for any portion of the unpaid extension of credit. iii. The creditor must credit the consumer's account under § 205.11(c) with any finance or other charges incurred as a result of the alleged error. iv. The provisions of §§ 226.13(d) and (g) apply only to the credit portion of the transaction. Section 226.14—Determination of Annual Percentage Rate 14(a) General rule. 1. Tolerance. 1/8 2. Rounding. 1/8 1/4 3. Periodic rates. 4. Finance charges. 5. Good faith reliance on faulty calculation tools. 6. Effect of leap year. 14(b) Annual percentage rate—in general. 1. Corresponding annual percentage rate computation. 14(c) Optional effective annual percentage rate for periodic statements for creditors offering open-end plans subject to the requirements of § 226.5b. 1. General rule. 2. Charges related to opening, renewing, or continuing an account. 3. Classification of charges. 4. Small finance charges. 1/2 5. Prior-cycle adjustments. A. A cash advance occurs on the last day of a billing cycle on an account that uses the transaction date to figure finance charges, and it is impracticable to post the transaction until the following cycle. B. An adjustment to the finance charge is made following the resolution of a billing error dispute. C. A consumer fails to pay the purchase balance under a deferred payment feature by the payment due date, and finance charges are imposed from the date of purchase. ii. Finance charges relating to activity in prior cycles should be reflected on the periodic statement as follows: A. If a finance charge imposed in the current billing cycle is attributable to periodic rates applicable to prior billing cycles (such as when a deferred payment balance was not paid in full by the payment due date and finance charges from the date of purchase are now being debited to the account, or when a cash advance occurs on the last day of a billing cycle on an account that uses the transaction date to figure finance charges and it is impracticable to post the transaction until the following cycle), and the creditor uses the quotient method to calculate the annual percentage rate, the numerator would include the amount of any transaction charges plus any other finance charges posted during the billing cycle. At the creditor's option, balances relating to the finance charge adjustment may be included in the denominator if permitted by the legal obligation, if it was impracticable to post the transaction in the previous cycle because of timing, or if the adjustment is covered by comment 14(c)-5.ii.B. B. If a finance charge that is posted to the account relates to activity for which a finance charge was debited or credited to the account in a previous billing cycle (for example, if the finance charge relates to an adjustment such as the resolution of a billing error dispute, or an unintentional posting error, or a payment by check that was later returned unpaid for insufficient funds or other reasons), the creditor shall at its option: 1. 2. 14(c)(1) Solely periodic rates imposed. 1. Periodic rates. i. By multiplying each periodic rate by the number of periods in the year; or ii. By the “quotient” method. This method refers to a composite annual percentage rate when different periodic rates apply to different balances. For example, a particular plan may involve a periodic rate of 1/2 14(c)(2) Minimum or fixed charge, but not transaction charge, imposed. 1. Certain charges not based on periodic rates. 2. No balance. 14(c)(3) Transaction charge imposed. 1. Transaction charges. A. A loan fee of $10 imposed on a particular advance. B. A charge of 3 percent of the amount of each transaction. ii. The reference to avoiding duplication in the computation requires that the amounts of transactions on which transaction charges were imposed not be included both in the amount of total balances and in the “other amounts on which a finance charge was imposed” figure. In a multifeatured plan, creditors may consider each bona fide feature separately in the calculation of the denominator. A creditor has considerable flexibility in defining features for open-end plans, as long as the creditor has a reasonable basis for the distinctions. For further explanation and examples of how to determine the components of this formula, see appendix F to part 226. 2. Daily rate with specific transaction charge. 14(d) Calculations where daily periodic rate applied. 1. Quotient method. 2. Daily rate with specific transaction charge. Section 226.15—Right of Rescission 1. Transactions not covered. credit extensions 15(a) Consumer's right to rescind. Paragraph 15(a)(1). 1. Occurrences subject to right. • Opening the account. • Each credit extension. • Increasing the credit limit. • Adding to an existing account a security interest in the consumer's principal dwelling. • Increasing the dollar amount of the security interest taken in the dwelling to secure the plan. For example, a consumer may open an account with a $10,000 credit limit, $5,000 of which is initially secured by the consumer's principal dwelling. The consumer has the right to rescind at that time and (except as noted in § 226.15(a)(1)(ii)) with each extension on the account. Later, if the creditor decides that it wants the credit line fully secured, and increases the amount of its interest in the consumer's dwelling, the consumer has the right to rescind the increase. 2. Exceptions. 3. Security interest arising from transaction. • A security interest that is acquired by a contractor who is also extending the credit in the transaction. • A mechanic's or materialman's lien that is retained by a subcontractor or supplier of a contractor-creditor, even when the latter has waived its own security interest in the consumer's home. The security interest is not part of the credit transaction, and therefore the transaction is not subject to the right of rescission when, for example: • A mechanic's or materialman's lien is obtained by a contractor who is not a party to the credit transaction but merely is paid with the proceeds of the consumer's cash advance. • All security interests that may arise in connection with the credit transaction are validly waived. • The creditor obtains a lien and completion bond that in effect satisfies all liens against the consumer's principal dwelling as a result of the credit transaction. Although liens arising by operation of law are not considered security interests for purposes of disclosure under § 226.2, that section specifically includes them in the definition for purposes of the right of rescission. Thus, even though an interest in the consumer's principal dwelling is not a required disclosure under § 226.6(c), it may still give rise to the right of rescission. 4. Consumer. 5. Principal dwelling. 6. Special rule for principal dwelling. Paragraph 15(a)(2). 1. Consumer's exercise of right. Paragraph 15 (a)(3). 1. Rescission period. • The occurrence that gives rise to the right of rescission. • Delivery of all • Delivery to the consumer of the required rescission notice. For example, an account is opened on Friday, June 1, and the disclosures and notice of the right to rescind were given on Thursday, May 31; the rescission period will expire at midnight of the third business day after June 1—that is, Tuesday June 5. In another example, if the disclosures are given and the account is opened on Friday, June 1, and the rescission notice is given on Monday, June 4, the rescission period expires at midnight of the third business day after June 4—that is Thursday, June 7. The consumer must place the rescission notice in the mail, file it for telegraphic transmission, or deliver it to the creditor's place of business within that period in order to exercise the right. 2. Material disclosures. 3. Material disclosures—variable rate program. 4. Unexpired right of rescission. • The expiration of three years after the occurrence giving rise to the right of rescission. • Transfer of all the consumer's interest in the property. • Sale of the consumer's interest in the property, including a transaction in which the consumer sells the dwelling and takes back a purchase money note and mortgage or retains legal title through a device such as an installment sale contract. Transfer of all the consumer's interest includes such transfers as bequests and gifts. A sale or transfer of the property need not be voluntary to terminate the right to rescind. For example, a foreclosure sale would terminate an unexpired right to rescind. As provided in section 125 of the act, the three-year limit may be extended by an administrative proceeding to enforce the provisions of § 226.15. A partial transfer of the consumer's interest, such as a transfer bestowing co-ownership on a spouse, does not terminate the right of rescission. Paragraph 15(a)(4). 1. Joint owners. 15(b) Notice of right to rescind. 1. Who receives notice. • Two copies of the rescission notice. • The material disclosures. In a transaction involving joint owners, both of whom are entitled to rescind, both must receive the notice of the right to rescind and disclosures. For example, if both spouses are entitled to rescind a transaction, each must receive two copies of the rescission notice (one copy to each if the notice is provided in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act) and one copy of the disclosures. 2. Format. 3. Content. • A description of the property subject to the security interest. • A statement that joint owners may have the right to rescind and that a rescission by one is effective for all. • The name and address of an agent of the creditor to receive notice of rescission. 4. Time of providing notice. 15(c) Delay of creditor's performance. 1. General rule. • Disburse advances to the consumer. • Begin performing services for the consumer. • Deliver materials to the consumer. A creditor may, however, continue to allow transactions under an existing open-end credit plan during a rescission period that results solely from the addition of a security interest in the consumer's principal dwelling. (See comment 15(c)-3 for other actions that may be taken during the delay period.) 2. Escrow. 3. Actions during the delay period. • Prepare the cash advance check. • Perfect the security interest. • Accrue finance charges during the delay period. 4. Performance by third party. 5. Delay beyond rescission period. • Waiting a reasonable time after expiration of the rescission period to allow for delivery of a mailed notice. • Obtaining a written statement from the consumer that the right has not been exercised. When more than one consumer has the right to rescind, the creditor cannot reasonably rely on the assurance of only one consumer, because other consumers may exercise the right. 15(d) Effects of rescission. Paragraph 15(d)(1). 1. Termination of security interest. 2. Extent of termination. • If the consumer's right to rescind is activated by the opening of a plan, any security interest in the principal dwelling is void. • If the right arises due to an increase in the credit limit, the security interest is void as to the amount of credit extensions over the prior limit, but the security interest in amounts up to the original credit limit is unaffected. • If the right arises with each individual credit extension, then the interest is void as to that extension, and other extensions are unaffected. Paragraph 15(d)(2). 1. Refunds to consumer. • If the occurrence is the opening of the plan, the creditor must return any membership or application fee paid. • If the occurrence is the increase in a credit limit or the addition of a security interest, the creditor must return any fee imposed for a new credit report or filing fees. • If the occurrence is a credit extension, the creditors must return fees such as application, title, and appraisal or survey fees, as well as any finance charges related to the credit extension. 2. Amounts not refundable to consumer. any amount 3. Reflection of security interest termination. Paragraph 15(d)(3). 1. Property exchange. must • A cash advance is considered money for purposes of this section even if the creditor knows what the consumer intends to purchase with the money. • In a 3-party open-end credit plan (that is, if the creditor and seller are not the same or related persons), extensions by the creditor that are used by the consumer for purchases from third-party sellers are considered to be the same as cash advances for purposes of tendering value to the creditor, even though the transaction is a purchase for other purposes under the regulation. For example, if a consumer exercises the unexpired right to rescind after using a 3-party credit card for one year, the consumer would tender the amount of the purchase price for the items charged to the account, rather than tendering the items themselves to the creditor. 2. Reasonable value. Paragraph 15(d)(4). 1. Modifications. 15(e) Consumer's waiver of right to rescind. 1. Need for waiver. 2. Procedure. 15(f) Exempt transactions. 1. Residential mortgage transaction. 2. State creditors. 3. Spreader clause. References Statute: Other sections: Previous regulation: 1981 Changes: The right to rescind applies not only to real property used as the consumer's principal dwelling, but to personal property as well. The regulation provides no specific text or format for the rescission notice. When a consumer exercises the right to rescind, the creditor now has 20 days to return a consumer's money or property and take the necessary action to terminate the security interest. The creditor has 20 days to take possession of the money or property after the consumer's tender before the consumer may keep it without further obligation. Under the revised regulation, the waiver provision has been relaxed. The lien status of the mortgage is irrelevant for purposes of the residential mortgage transaction exemption. The exemption for agricultural loans from the right to rescind has been deleted. Section 226.16—Advertising 1. Clear and conspicuous standard—general. see 2. Clear and conspicuous standard—promotional rates or payments; deferred interest or similar offers. ii. For purposes of § 226.16(g)(4) as it applies to written or electronic advertisements only, a clear and conspicuous disclosure means the required information in § 226.16(g)(4)(i) and, as applicable, (g)(4)(ii) and (g)(4)(iii) must be equally prominent to the promotional rate or promotional fee to which it applies. If the information in § 226.16(g)(4)(i) and, as applicable, (g)(4)(ii) and (g)(4)(iii) is the same type size as the promotional rate or promotional fee to which it applies, the disclosures would be deemed to be equally prominent. For purposes of § 226.16(h)(3) as it applies to written or electronic advertisements only, a clear and conspicuous disclosure means the required information in § 226.16(h)(3) must be equally prominent to each statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period. If the information required to be disclosed under § 226.16(h)(3) is the same type size as the statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period, the disclosure would be deemed to be equally prominent. 3. Clear and conspicuous standard—Internet advertisements for home-equity plans. 4. Clear and conspicuous standard—televised advertisements for home-equity plans. 5. Clear and conspicuous standard—oral advertisements for home-equity plans. 6. Expressing the annual percentage rate in abbreviated form. 7. Effective date. 16(a) Actually available terms. 1. General rule. 2. Specific credit terms. Specific credit terms 16(b) Advertisement of terms that require additional disclosures. Paragraph (b)(1). 1. Triggering terms. no interest no annual membership fee i. Small monthly service charge on the remaining balance, ii. 12 percent Annual Percentage Rate A $15 annual membership fee buys you $2,000 in credit, 2. Implicit terms. 3. Membership fees. 4. Deferred billing and deferred payment programs. 5. Variable-rate plans. 6. Membership fees for open-end (not home-secured) plans. Paragraph (b)(2). 1. Assumptions. i. Payments are made timely so as not to be considered late by the creditor; ii. Payments are made each period, and no debt cancellation or suspension agreement, or skip payment feature applies to the account; iii. No interest rate changes will affect the account; iv. No other balances are currently carried or will be carried on the account; v. No taxes or ancillary charges are or will be added to the obligation; vi. Goods or services are delivered on a single date; and vii. The consumer is not currently and will not become delinquent on the account. 2. Positive periodic payment amounts. e.g., 16(c) Catalogs or other multiple-page advertisements; electronic advertisements. 1. Definition. Paragraph 16(c)(1). 1. General. 2. Electronic advertisement. Paragraph 16(c)(2). 1. Table or schedule if credit terms depend on outstanding balance. 16(d) Additional requirements for home-equity plans. 1. Trigger terms. no annual fee, no points, we waive closing costs See no closing costs. low fees, 2. Fees to open the plan. See 3. Statements of tax deductibility. 4. Misleading terms prohibited. free money See 5. Promotional rates and payments in advertisements for home-equity plans. i. Variable-rate plans. ii. Equal prominence, close proximity. iii. Amounts and time periods of payments. iv. Plans other than variable-rate plans. v. Conversion option. vi. Preferred-rate provisions. 6. Reasonably current index and margin. i. For direct mail advertisements, it was in effect within 60 days before mailing; ii. For advertisements in electronic form it was in effect within 30 days before the advertisement is sent to a consumer's e-mail address, or in the case of an advertisement made on an Internet Web site, when viewed by the public; or iii. For printed advertisements made available to the general public, including ones contained in a catalog, magazine, or other generally available publication, it was in effect within 30 days before printing. 7. Relation to other sections. 8. Inapplicability of closed-end rules. 9. Balloon payment. See 16(e) Alternative disclosures—television or radio advertisements. 1. Multi-purpose telephone number. 2. Statement accompanying toll free number. 16(g) Promotional rates. 1. Rate in effect at the end of the promotional period. i.e., 2. Immediate proximity. 3. Prominent location closely proximate. 4. First listing. 5. Post-promotional rate depends on consumer's creditworthiness. 16(h) Deferred interest or similar offers. 1. Deferred interest or similar offers clarified. 2. Deferred interest period clarified. 3. Immediate proximity. 4. Prominent location closely proximate. 5. First listing. 6. Additional information. 7. Examples. Subpart C—Closed-End Credit Section 226.17—General Disclosure Requirements 17(a) Form of disclosures. Paragraph 17(a)(1). 1. Clear and conspicuous. 2. Segregation of disclosures. • By outlining them in a box • By bold print dividing lines • By a different color background • By a different type style (The general segregation requirement described in this subparagraph does not apply to the disclosures required under §§ 226.19(b) and 226.20(c) although the disclosures must be clear and conspicuous.) 3. Location. • They may appear on a disclosure statement separate from all other material. • They may be placed on the same document with the credit contract or other information, so long as they are segregated from that information. • They may be shown on the front or back of a document. • They need not begin at the top of a page. • They may be continued from one page to another. 4. Content of segregated disclosures. 5. Directly related. i. A description of a grace period after which a late payment charge will be imposed. For example, the disclosure given under § 226.18(l) may state that a late charge will apply to “any payment received more than 15 days after the due date.” ii. A statement that the transaction is not secured. For example, the creditor may add a category labelled “unsecured” or “not secured” to the security interest disclosures given under § 226.18(m). iii. The basis for any estimates used in making disclosures. For example, if the maturity date of a loan depends solely on the occurrence of a future event, the creditor may indicate that the disclosures assume that event will occur at a certain time. iv. The conditions under which a demand feature may be exercised. For example, in a loan subject to demand after five years, the disclosures may state that the loan will become payable on demand in five years. v. An explanation of the use of pronouns or other references to the parties to the transaction. For example, the disclosures may state, “‘You’ refers to the customer and ‘we’ refers to the creditor.” vi. Instructions to the creditor or its employees on the use of a multiple-purpose form. For example, the disclosures may state, “Check box if applicable.” vii. A statement that the borrower may pay a minimum finance charge upon prepayment in a simple-interest transaction. For example, when state law prohibits penalties, but would allow a minimum finance charge in the event of prepayment, the creditor may make the § 226.18(k)(1) disclosure by stating, “You may be charged a minimum finance charge.” viii. A brief reference to negative amortization in variable-rate transactions. For example, in the variable-rate disclosure, the creditor may include a short statement such as “Unpaid interest will be added to principal.” (See the commentary to § 226.18(f)(1)(iii).) ix. A brief caption identifying the disclosures. For example, the disclosures may bear a general title such as “Federal Truth in Lending Disclosures” or a descriptive title such as “Real Estate Loan Disclosures.” x. A statement that a due-on-sale clause or other conditions on assumption are contained in the loan document. For example, the disclosure given under § 226.18(q) may state, “Someone buying your home may, subject to conditions in the due-on-sale clause contained in the loan document, assume the remainder of the mortgage on the original terms.” xi. If a state or Federal law prohibits prepayment penalties and excludes the charging of interest after prepayment from coverage as a penalty, a statement that the borrower may have to pay interest for some period after prepayment in full. The disclosure given under § 226.18(k) may state, for example, “If you prepay your loan on other than the regular installment date, you may be assessed interest charges until the end of the month.” xii. More than one hypothetical example under § 226.18(f)(1)(iv) in transactions with more than one variable-rate feature. For example, in a variable-rate transaction with an option permitting consumers to convert to a fixed-rate transaction, the disclosures may include an example illustrating the effects on the payment terms of an increase resulting from conversion in addition to the example illustrating an increase resulting from changes in the index. xiii. The disclosures set forth under § 226.18(f)(1) for variable-rate transactions subject to § 226.18(f)(2). xiv. A statement whether or not a subsequent purchaser of the property securing an obligation may be permitted to assume the remaining obligation on its original terms. xv. A late-payment fee disclosure under § 226.18(l) on a single payment loan. xvi. The notice set forth in § 226.19(a)(4), in a closed-end transaction not subject to § 226.19(a)(1)(i). In a mortgage transaction subject to § 226.19(a)(1)(i), the creditor must disclose the notice contained in § 226.19(a)(4) grouped together with the disclosures made under § 226.18. See 6. Multiple-purpose forms. • The variable rate disclosure under § 226.18(f). • The demand feature disclosure under § 226.18(i). • A reference to the possibility of a security interest arising from a spreader clause, under § 226.18(m). • The assumption policy disclosure under § 226.18(q). • The required deposit disclosure under § 226.18(r). 7. Balloon payment financing with leasing characteristics. Paragraph 17(a)(2) 1. When disclosures must be more conspicuous. • The terms must be more conspicuous only in relation to the other required disclosures under § 226.18. For example, when the disclosures are included on the contract document, those two terms need not be more conspicuous as compared to the heading on the contract document or information required by state law. • The terms need not be more conspicuous except as part of the finance charge and annual percentage rate disclosures under § 226.18 (d) and (e), although they may, at the creditor's option, be highlighted wherever used in the required disclosures. For example, the terms may, but need not, be highlighted when used in disclosing a prepayment penalty under § 226.18(k) or a required deposit under § 226.18(r). • The creditor's identity under § 226.18(a) may, but need not, be more prominently displayed than the finance charge and annual percentage rate. • The terms need not be more conspicuous than figures (including, for example, numbers, percentages, and dollar signs). 2. Making disclosures more conspicuous. • Capitalized when other disclosures are printed in capital and lower case. • Printed in larger type, bold print or different type face. • Printed in a contrasting color. • Underlined. • Set off with asterisks. 17(b) Time of Disclosures 1. Consummation. 2. Converting open-end to closed-end credit. 3. Disclosures provided on credit contracts. See i. Example. A. A creditor gives a consumer a multiple-copy form containing a credit agreement and TILA disclosures. The consumer reviews and signs the form and returns it to the creditor, who separates the copies and gives one copy to the consumer to keep. The creditor has satisfied the disclosure requirement. 17(c) Basis of disclosures and use of estimates. Paragraph 17(c)(1). 1. Legal obligation. • The fact that a term or contract may later be deemed unenforceable by a court on the basis of equity or other grounds does not, by itself, mean that disclosures based on that term or contract did not reflect the legal obligation. 2. Modification of obligation. • If the creditor offers a preferential rate, such as an employee preferred rate, the disclosures should reflect the terms of the legal obligation. (See the commentary to § 226.19(b) for an example of a preferred-rate transaction that is a variable-rate transaction.) • If the contract provides for a certain monthly payment schedule but payments are made on a voluntary payroll deduction plan or an informal principal-reduction agreement, the disclosures should reflect the schedule in the contract. • If the contract provides for regular monthly payments but the creditor informally permits the consumer to defer payments from time to time, for instance, to take account of holiday seasons or seasonal employment, the disclosures should reflect the regular monthly payments. 3. Third-party buydowns. • If the lower rate is reflected in the credit contract between the consumer and the bank, the disclosures must take the buydown into account. For example, the annual percentage rate must be a composite rate that takes account of both the lower initial rate and the higher subsequent rate, and the payment schedule disclosures must reflect the 2 payment levels. However, the amount paid by the seller would not be specifically reflected in the disclosures given by the bank, since that amount constitutes seller's points and thus is not part of the finance charge. • If the lower rate is not reflected in the credit contract between the consumer and the bank and the consumer is legally bound to the 15% rate from the outset, the disclosures given by the bank must not reflect the seller buydown in any way. For example, the annual percentage rate and payment schedule would not take into account the reduction in the interest rate and payment level for the first 2 years resulting from the buydown. 4. Consumer buydowns. • The amount paid by the consumer is a prepaid finance charge (even if deposited in an escrow account). • A composite annual percentage rate must be calculated, taking into account both interest rates, as well as the effect of the prepaid finance charge. • The payment schedule must reflect the multiple payment levels resulting from the buydown. The rules regarding consumer buydowns do not apply to transactions known as “lender buydowns,” In lender buydowns. a creditor pays an amount (either into an account or to the party to whom the obligation is sold) to reduce the consumer's payments or interest rate for all or a portion of the credit term. Typically, these transactions are structured as a buydown of the interest rate during an initial period of the transaction with a higher than usual rate for the remainder of the term. The disclosures for lender buydowns should be based on the terms of the legal obligation between the consumer and the creditor. (See comment 17(c)(1)-3 for the analogous rules concerning third-party buydowns.) 5. Split buydowns. 6. Wrap-around financing. 7. Wrap-around financing with balloon payments. 8. Basis of disclosures in variable-rate transactions. 9. Use of estimates in variable-rate transactions. 10. Discounted and premium variable-rate transactions. i. When creditors use an initial interest rate that is not calculated using the index or formula for later rate adjustments, the disclosures should reflect a composite annual percentage rate based on the initial rate for as long as it is charged and, for the remainder of the term, the rate that would have been applied using the index or formula at the time of consummation. The rate at consummation need not be used if a contract provides for a delay in the implementation of changes in an index value. For example, if the contract specifies that rate changes are based on the index value in effect 45 days before the change date, creditors may use any index value in effect during the 45 day period before consummation in calculating a composite annual percentage rate. ii. The effect of the multiple rates must also be reflected in the calculation and disclosure of the finance charge, total of payments, and payment schedule. iii. If a loan contains a rate or payment cap that would prevent the initial rate or payment, at the time of the first adjustment, from changing to the rate determined by the index or formula at consummation, the effect of that rate or payment cap should be reflected in the disclosures. iv. Because these transactions involve irregular payment amounts, an annual percentage rate tolerance of 1/4 v. Examples of discounted variable-rate transactions include: A. A 30-year loan for $100,000 with no prepaid finance charges and rates determined by the Treasury bill rate plus 2 percent. Rate and payment adjustments are made annually. Although the Treasury bill rate at the time of consummation is 10 percent, the creditor sets the interest rate for one year at 9 percent, instead of 12 percent according to the formula. The disclosures should reflect a composite annual percentage rate of 11.63 percent based on 9 percent for one year and 12 percent for 29 years. Reflecting those two rate levels, the payment schedule should show 12 payments of $804.62 and 348 payments of $1,025.31. The finance charge should be $266,463.32 and the total of payments $366,463.32. B. Same loan as above, except with a 2 percent rate cap on periodic adjustments. The disclosures should reflect a composite annual percentage rate of 11.53 percent based on 9 percent for the first year, 11 percent for the second year, and 12 percent for the remaining 28 years. Reflecting those three rate levels, the payment schedule should show 12 payments of $804.62, 12 payments of $950.09, and 336 payments of $1,024.34. The finance charge should be $265,234.76 and the total of payments $365,234.76. C. Same loan as above, except with a 7 1/2 vi. A loan in which the initial interest rate is set according to the index or formula used for later adjustments but is not set at the value of the index or formula at consummation is not a discounted variable-rate loan. For example, if a creditor commits to an initial rate based on the formula on a date prior to consummation, but the index has moved during the period between that time and consummation, a creditor should base its disclosures on the initial rate. 11. Examples of variable-rate transactions. • Renewable balloon-payment instruments where the creditor is both unconditionally obligated to renew the balloon-payment loan at the consumer's option (or is obligated to renew subject to conditions within the consumer's control) and has the option of increasing the interest rate at the time of renewal. Disclosures must be based on the payment amortization (unless the specified term of the obligation with renewals is shorter) and on the rate in effect at the time of consummation of the transaction. (Examples of conditions within a consumer's control include requirements that a consumer be current in payments or continue to reside in the mortgaged property. In contrast, setting a limit on the rate at which the creditor would be obligated to renew or reserving the right to change the credit standards at the time of renewal are examples of conditions outside a consumer's control.) If, however, a creditor is not obligated to renew as described above, disclosures must be based on the term of the balloon-payment loan. Disclosures also must be based on the term of the balloon-payment loan in balloon-payment instruments in which the legal obligation provides that the loan will be renewed by a “refinancing” of the obligation, as that term is defined by § 226.20(a). If it cannot be determined from the legal obligation that the loan will be renewed by a “refinancing,” disclosures must be based either on the term of the balloon-payment loan or on the payment amortization, depending on whether the creditor is unconditionally obligated to renew the loan as described above. (This discussion does not apply to construction loans subject to § 226.17(c)(6).) • “Shared-equity” or “shared-appreciation” mortgages that have a fixed rate of interest and an appreciation share based on the consumer's equity in the mortgaged property. The appreciation share is payable in a lump sum at a specified time. Disclosures must be based on the fixed interest rate. (As discussed in the commentary to § 226.2, other types of shared-equity arrangements are not considered “credit” and are not subject to Regulation Z.) • Preferred-rate loans where the terms of the legal obligation provide that the initial underlying rate is fixed but will increase upon the occurrence of some event, such as an employee leaving the employ of the creditor, and the note reflects the preferred rate. The disclosures are to be based on the preferred rate. • Graduated-payment mortgages and step-rate transactions without a variable-rate feature are not considered variable-rate transactions. • “Price level adjusted mortgages” or other indexed mortgages that have a fixed rate of interest but provide for periodic adjustments to payments and the loan balance to reflect changes in an index measuring prices or inflation. Disclosures are to be based on the fixed interest rate. 12. Graduated payment adjustable rate mortgages. • The finance charge includes the amount of negative amortization based on the assumption that the rate in effect at consummation remains unchanged. • The amount financed does not include the amount of negative amortization. • As in any variable-rate transaction, the annual percentage rate is based on the terms in effect at consummation. • The schedule of payments discloses the amount of any scheduled initial payments followed by an adjusted level of payments based on the initial interest rate. Since some mortgage plans contain limits on the amount of the payment adjustment, the payment schedule may require several different levels of payments, even with the assumption that the original interest rate does not increase. 13. Growth-equity mortgages. • Estimate the amount of payment increases, based on the best information reasonably available; or • Disclose by analogy to the variable-rate disclosures in 226.18(f)(1). (This discussion does not apply to growth-equity mortgages in which the amount of payment increases can be accurately determined at the time of disclosure. For these mortgages, as for graduated-payment mortgages, disclosures should reflect the scheduled increases in payments.) 14. Reverse mortgages. • If the reverse mortgage has a specified period for disbursements but repayment is due only upon the occurrence of a future event such as the death of the consumer, the creditor must assume that disbursements will be made until they are scheduled to end. The creditor must assume repayment will occur when disbursements end (or within a period following the final disbursement which is not longer than the regular interval between disbursements). This assumption should be used even though repayment may occur before or after the disbursements are scheduled to end. In such cases, the creditor may include a statement such as “The disclosures assume that you will repay the loan at the time our payments to you end. As provided in your agreement, your repayment may be required at a different time.” • If the reverse mortgage has neither a specified period for disbursements nor a specified repayment date and these terms will be determined solely by reference to future events including the consumer's death, the creditor may assume that the disbursements will end upon the consumer's death (estimated by using actuarial tables, for example) and that repayment will be required at the same time (or within a period following the date of the final disbursement which is not longer than the regular interval for disbursements). Alternatively, the creditor may base the disclosures upon another future event it estimates will be most likely to occur first. (If terms will be determined by reference to future events which do not include the consumer's death, the creditor must base the disclosures upon the occurance of the event estimated to be most likely to occur first.) • In making the disclosures, the creditor must assume that all disbursements and accrued interest will be paid by the consumer. For example, if the note has a nonrecourse provision providing that the consumer is not obligated for an amount greater than the value of the house, the creditor must nonetheless assume that the full amount to be disbursed will be repaid. In this case, however, the creditor may include a statement such as “The disclosures assume full repayment of the amount advanced plus accrued interest, although the amount you may be required to pay is limited by your agreement.” • Some reverse mortgages provide that some or all of the appreciation in the value of the property will be shared between the consumer and the creditor. Such loans are considered variable-rate mortgages, as described in comment 17(c)(1)-11, and the appreciation feature must be disclosed in accordance with § 226.18(f)(1). If the reverse mortgage has a variable interest rate, is written for a term greater than one year, and is secured by the consumer's principal dwelling, the shared appreciation feature must be described under § 226.19(b)(2)(vii). 15. Morris Plan transactions. 16. Number of transactions. • When a creditor finances the credit sale of a radio and a television on the same day, the creditor may disclose the sales as either 1 or 2 credit sale transactions. • When a creditor finances a loan along with a credit sale of health insurance, the creditor may disclose in one of several ways: a single credit sale transaction, a single loan transaction, or a loan and a credit sale transaction. • The separate financing of a downpayment in a credit sale transaction may, but need not, be disclosed as 2 transactions (a credit sale and a separate transaction for the financing of the downpayment). 17. Special rules for tax refund anticipation loans. • If, under the terms of the legal obligation, repayment of the loan is required when the refund is received by the consumer (such as by deposit into the consumer's account), the disclosures should be based on the creditor's estimate of the time the refund will be delivered even if the loan also contains a demand clause. The practice of a creditor to demand repayment upon delivery of refunds does not determine whether the legal obligation requires that repayment be made at that time; this determination must be made according to applicable state or other law. (See comment 17(c)(5)-1 for the rules regarding disclosures if the loan is payable solely on demand or is payable either on demand or on an alternate maturity date.) • If the consumer is required to repay more than the amount borrowed, the difference is a finance charge unless excluded under § 226.4. In addition, to the extent that any fees charged in connection with the loan (such as for filing the tax return electronically) exceed those fees for a comparable cash transaction (that is, filing the tax return electronically without a loan), the difference must be included in the finance charge. 18. Pawn Transactions. i. The amount financed is the initial sum paid to the consumer. The pawnbroker creditor need not provide a separate itemization of the amount financed if that entire amount is paid directly to the consumer and the disclosed description of the amount financed is “the amount of cash given directly to you” or a similar phrase. ii. The finance charge is the difference between the initial sum paid to the consumer and the redemption price plus any other finance charges paid in connection with the transaction. (See § 226.4.) iii. The term of the transaction, for calculating the annual percentage rate, is the period of time agreed to by the pawnbroker creditor and the consumer. The term of the transaction does not include a grace period (including any statutory grace period) after the agreed redemption date. Paragraph 17(c)(2)(i). 1. Basis for estimates. 2. Labelling estimates. 3. Simple-interest transactions. Paragraph 17(c)(2)(ii). 1. Per-diem interest. Paragraph 17(c)(3) 1. Minor variations. • Creditors may ignore the effects of collecting payments in whole cents. Because payments cannot be collected in fractional cents, it is often difficult to amortize exactly an obligation with equal payments; the amount of the last payment may require adjustment to account for the rounding of the other payments to whole cents. • Creditors may base their disclosures on calculation tools that assume that all months have an equal number of days, even if their practice is to take account of the variations in months for purposes of collecting interest. For example, a creditor may use a calculation tool based on a 360-day year, when it in fact collects interest by applying a factor of 1/365 1/360 2. Use of special rules. Paragraph 17(c)(4). 1. Payment schedule irregularities. • A 36-month auto loan might be consummated on June 8 with payments due on July 1 and the first of each succeeding month. The creditor may base its calculations on a payment schedule that assumes 36 equal intervals and 36 equal installment payments, even though a precise computation would produce slightly different amounts because of the shorter first period. • By contrast, in the same example, if the first payment were not scheduled until August 1, the irregular first period would exceed the limits in § 226.17(c)(4); the creditor could not use the special rule and could not ignore the extra days in the first period in calculating its disclosures. 2. Measuring odd periods. • The first period is the period from the date on which the finance charge begins to be earned to the date of the first payment. • The term is the period from the date on which the finance charge begins to be earned to the date of the final payment. • The regular period is the most common interval between payments in the transaction. In transactions involving regular periods that are monthly, semimonthly or multiples of a month, the length of the irregular and regular periods may be calculated on the basis of either the actual number of days or an assumed 30-day month. In other transactions, the length of the periods is based on the actual number of days. 3. Use of special rules. 4. Relation to prepaid finance charges. Paragraph 17(c)(5). 1. Demand disclosures. 2. Future event as maturity date. 3. Demand after stated period. 4. Balloon mortgages. Paragraph 17(c)(6). 1. Series of advances. 2. Construction loans. 3. Multiple-advance construction loans. 4. Residential mortgage transaction. 5. Allocation of points. 17(d) Multiple creditors; multiple consumers. 1. Multiple creditors. • The creditors must choose which of them will make the disclosures. • A single, complete set of disclosures must be provided, rather than partial disclosures from several creditors. • All disclosures for the transaction must be given, even if the disclosing creditor would not otherwise have been obligated to make a particular disclosure. For example, if one of the creditors is the seller, the total sale price disclosure under § 226.18(j) must be made, even though the disclosing creditor is not the seller. 2. Multiple consumers. 17(e) Effect of subsequent events. 1. Events causing inaccuracies. 17(f) Early disclosures. 1. Change in rate or other terms. i. General. 1/8 B. In a regular transaction, if early disclosures are marked as estimates and the disclosed annual percentage rate is within 1/8 ii. Nonmortgage loan. iii. Mortgage loan. 2. Variable rate. 3. Content of new disclosures. 4. Special rules. Paragraph 17(f)(2). 1. Irregular transactions. 17(g) Mail or telephone orders—delay in disclosures. 1. Conditions for use. • The credit request is initiated without face-to-face or direct telephone solicitation. (Creditors may, however, use the special rule when credit requests are solicited by mail.) • The creditor has supplied the specified credit information about its credit terms either to the individual consumer or to the public generally. That information may be distributed through advertisements, catalogs, brochures, special mailers, or similar means. 2. Insurance. 17(h) Series of sales—delay in disclosures. 1. Applicability. 2. Basis of disclosures. • The cash price for the sale plus that portion of the finance charge and other charges applicable to that sale; or • The cash price for the sale, other charges applicable to the sale, and the total finance charge and outstanding principal. 17(i) Interim student credit extensions. 1. Definition. 2. Relation to other sections. 3. Basis of disclosures. 4. Consolidation. 5. Approved student credit forms. References Statute: Other sections: Previous regulation: 1981 changes: The assumed maturity period for demand loans has been increased from 6 months to 1 year. Any alternate maturity date must be stated in the legal obligation rather than inferred from the documents, in order to form a basis for disclosures. In multiple-advance transactions, a series of advances up to a certain amount and construction loans that may be permanently financed may be disclosed, at the creditor's option, as either a single transaction or several transactions. Appendix D is applicable only to multiple advances for the construction of a dwelling, whereas its predecessor, Interpretation § 226.813, could be used for all multiple-advance transactions. If disclosures are made before the date of consummation, the creditor need not provide updated disclosures at consummation unless the annual percentage rate has changed beyond certain limits or a variable rate feature has been added. Section 226.18—Content of Disclosures 1. As applicable. • In a loan transaction, the creditor may delete disclosure of the total sale price. • In a credit sale requiring disclosure of the total sale price under § 226.18(j), the creditor may delete any reference to a downpayment where no downpayment is involved. Where the amounts of several numerical disclosures are the same, the “as applicable” language also permits creditors to combine the terms, so long as it is done in a clear and conspicuous manner. For example: • In a transaction in which the amount financed equals the total of payments, the creditor may disclose “amount financed/total of payments,” together with descriptive language, followed by a single amount. • However, if the terms are separated on the disclosure statement and separate space is provided for each amount, both disclosures must be completed, even though the same amount is entered in each space. 2. Format. 18(a) Creditor. 1. Identification of creditor. 18(b) Amount financed. 1. Disclosure required. amount financed 2. Rebates and loan premiums. Paragraph 18(b)(1). 1. Downpayments. • Deferred downpayments that are not treated as part of the downpayment (either because they do not meet the definition or because the creditor simply chooses not to treat them as downpayments) are included in the amount financed. • Deferred downpayments that are treated as part of the downpayment are not part of the amount financed under § 226.18(b)(1). Paragraph 18(b)(2). 1. Adding other amounts. Paragraph 18(b)(3). 1. Prepaid finance charges. • A consumer applies for a loan of $2,500 with a $40 loan fee. The face amount of the note is $2,500 and the consumer pays the loan fee separately by cash or check at closing. The principal loan amount for purposes of § 226.18(b)(1) is $2,500 and $40 should be deducted under § 226.18(b(3), thereby yielding an amount financed of $2,460. In some instances, as when loan fees are financed by the creditor, finance charges are incorporated in the face amount of the note. Creditors have the option, when the charges are not add-on or discount charges, of determining a principal loan amount under § 226.18(b)(1) that either includes or does not include the amount of the finance charges. (Thus the principal loan amount may, but need not, be determined to equal the face amount of the note.) When the finance charges are included in the principal loan amount, they should be deducted as prepaid finance charges under § 226.18(b)(3). When the finance charges are not included in the principal loan amount, they should not be deducted under § 226.18(b)(3). The following examples illustrate the application of § 226.18(b) to this type of transaction. Each example assumes a loan request of $2,500 with a loan fee of $40; the creditor assesses the loan fee by increasing the face amount of the note to $2,540. • If the creditor determines the principal loan amount under § 226.18(b)(1) to be $2,540, it has included the loan fee in the principal loan amount and should deduct $40 as a prepaid finance charge under § 226.18(b)(3), thereby obtaining an amount financed of $2,500. • If the creditor determines the principal loan amount under § 226.18(b)(1) to be $2,500, it has not included the loan fee in the principal loan amount and should not deduct any amount under § 226.18(b)(3), thereby obtaining an amount financed of $2,500. The same rules apply when the creditor does not increase the face amount of the note by the amount of the charge but collects the charge by withholding it from the amount advanced to the consumer. To illustrate, the following examples assume a loan request of $2,500 with a loan fee of $40; the creditor prepares a note for $2,500 and advances $2,460 to the consumer. • If the creditor determines the principal loan amount under § 226.18(b)(1) to be $2,500, it has included the loan fee in the principal loan amount and should deduct $40 as a prepaid finance charge under § 226.18(b)(3), thereby obtaining an amount financed of $2,460. • If the creditor determines the principal loan amount under § 226.18(b)(1) to be $2,460, it has not included the loan fee in the principal loan amount and should not deduct any amount under § 226.18(b)(3), thereby obtaining an amount financed of $2,460. Thus in the examples where the creditor derives the net amount of credit by determining a principal loan amount that does not include the amount of the finance charge, no subtraction is appropriate. Creditors should note, however, that although the charges are not subtracted as prepaid 2. Add-on or discount charges. • The creditor assesses add-on interest of $60 which is added to the $1000 in loan proceeds for an obligation with a face amount of $1060. The principal for purposes of § 226.18(b)(1) is $1000, no amounts are added under § 226.18(b)(2), and the $10 loan fee is a prepaid finance charge to be deducted under § 226.18(b)(3). The amount financed is $990. • The creditor assesses discount interest of $60 and distributes $940 to the consumer, who is liable for an obligation with a face amount of $1000. The principal under § 226.18(b)(1) is $940, which results in an amount financed of $930, after deduction of the $10 prepaid finance charge under § 226.18(b)(3). • The creditor assesses $60 in discount interest by increasing the face amount of the obligation to $1060, with the consumer receiving $1000. The principal under § 226.18(b)(1) is thus $1000 and the amount financed $990, after deducting the $10 prepaid finance charge under § 226.18(b)(3). 18(c) Itemization of amount financed. 1. Disclosure required. • The creditor may inform the consumer, on the segregated disclosures, that a written itemization of the amount financed will be provided on request, furnishing the itemization only if the customer in fact requests it. • The creditor may provide an itemization as a matter of course, without notifying the consumer of the right to receive it or waiting for a request. Whether given as a matter of course or only on request, the itemization must be provided at the same time as the other disclosures required by § 226.18, although separate from those disclosures. 2. Additional information. i. Include amounts that reflect payments not part of the amount financed. For example, escrow items and certain insurance premiums may be included, as discussed in the commentary to § 226.18(g). ii. Organize the categories in any order. For example, the creditor may rearrange the terms in a mathematical progression that depicts the arithmetic relationship of the terms. iii. Add categories. For example, in a credit sale, the creditor may include the cash price and the downpayment. If the credit sale involves a trade-in of the consumer's car and an existing lien on that car exceeds the value of the trade-in amount, the creditor may disclose the consumer's trade-in value, the creditor's payoff of the existing lien, and the resulting additional amount financed. iv. Further itemize each category. For example, the amount paid directly to the consumer may be subdivided into the amount given by check and the amount credited to the consumer's savings account. v. Label categories with different language from that shown in § 226.18(c). For example, an amount paid on the consumer's account may be revised to specifically identify the account as “your auto loan with us.” vi. Delete, leave blank, mark “N/A” or otherwise not inapplicable categories in the itemization. For example, in a credit sale with no prepaid finance charges or amounts paid to others, the amount financed may consist of only the cash price less downpayment. In this case, the itemization may be composed of only a single category and all other categories may be eliminated. 3. Amounts appropriate to more than one category. • In a credit sale, the portion of the purchase price being financed by the creditor may be viewed as either an amount paid to the consumer or an amount paid on the consumer's account. 4. RESPA transactions. Paragraph 18(c)(1)(i). 1. Amounts paid to consumer. Paragraph 18(c)(1)(ii). 1. Amounts credited to consumer's account. consumer's account Paragraph 18(c)(1)(iii). 1. Amounts paid to others. 2. Charges added to amounts paid to others. Paragraph 18(c)(1)(iv). 1. Prepaid finance charge. 2. Prepaid mortgage insurance premiums. 18(d) Finance charge. 1. Disclosure required. finance charge, which is subject to change. 2. [Reserved] 18(d)(2) Other credit. 1. Tolerance. 18(e) Annual percentage rate. 1. Disclosure required. annual percentage rate, which is subject to change. annual percentage rate finance charge 2. Exception. 18(f) Variable rate. 1. Coverage. Paragraph 18(f)(1). 1. Terms used in disclosure. 2. Conversion feature. Paragraph 18(f)(1)(i). 1. Circumstances. • When no specific index is used, any identifiable factors used to determine whether to increase the rate must be disclosed. • When the increase in the rate is purely discretionary, the fact that any increase is within the creditor's discretion must be disclosed. • When the index is internally defined (for example, by that creditor's prime rate), the creditor may comply with this requirement by either a brief description of that index or a statement that any increase is in the discretion of the creditor. An externally defined index, however, must be identified. Paragraph 18(f)(1)(ii). 1. Limitations. Paragraph 18(f)(1)(iii). 1. Effects. Paragraph 18(f)(1)(iv). 1. Hypothetical example. 2. Hypothetical example not required. • Demand obligations with no alternate maturity date. • Private education loans as defined in § 226.46(b)(5). • Multiple-advance construction loans disclosed pursuant to appendix D, Part I. Paragraph 18(f)(2). 1. Disclosure required. 18(g) Payment schedule. 1. Amounts included in repayment schedule. 2. Deferred downpayments. 3. Total number of payments. 4. Timing of payments. General rule. ii. Exception. 5. Mortgage insurance. 6. Mortgage transactions. Paragraph 18(g)(1). 1. Demand obligations. Paragraph 18(g)(2). 1. Abbreviated disclosure. 2. Combined payment schedule disclosures. 3. Effect on other disclosures. Paragraph 18(h) Total of payments. 1. Disclosure required. 2. Calculation of total of payments. 3. Exception. 4. Demand obligations. Paragraph 18(i) Demand feature. 1. Disclosure requirements. 2. Covered demand features. 3. Relationship to payment schedule disclosures. Paragraph 18(j) Total sale price. 1. Disclosure required. total sale price 2. Calculation of total sale price. 3. Effect of existing liens. i. If the consumer pays $1,500 in cash, the creditor may apply the cash first to the lien, leaving a $500 deficit, and reflect a downpayment of $0. The total sale price would include the $20,000 cash price, an additional $500 financed under § 226.18(b)(2), and the amount of the finance charge. Alternatively, the creditor may reflect a downpayment of $1,500 and finance the $2,000 deficit. In that case, the total sale price would include the sum of the $20,000 cash price, the $2,000 lien payoff amount as an additional amount financed, and the amount of the finance charge. ii. If the consumer pays $3,000 in cash, the creditor may apply the cash first to extinguish the lien and reflect the remainder as a downpayment of $1,000. The total sale price would reflect the $20,000 cash price and the amount of the finance charge. (The cash payment extinguishes the trade-in deficit and no charges are added under § 226.18(b)(2).) Alternatively, the creditor may elect to reflect a downpayment of $3,000 and finance the $2,000 deficit. In that case, the total sale price would include the sum of the $20,000 cash price, the $2,000 lien payoff amount as an additional amount financed, and the amount of the finance charge. Paragraph 18(k) Prepayment. 1. Disclosure required. • The fact that no penalty will be imposed may not simply be inferred from the absence of a penalty disclosure; the creditor must indicate that prepayment will not result in a penalty. • If a penalty or refund is possible for one type of prepayment, even though not for all, a positive disclosure is required. This applies to any type of prepayment, whether voluntary or involuntary as in the case of prepayments resulting from acceleration. • Any difference in rebate or penalty policy, depending on whether prepayment is voluntary or not, must not be disclosed with the segregated disclosures. 2. Rebate-penalty disclosure. 3. Prepaid finance charge. Paragraph 18(k)(1). Paragraph 18(k)(1) 1. Penalty. • Interest charges for any period after prepayment in full is made. (See the commentary to § 226.17(a)(1) regarding disclosure of interest charges assessed for periods after prepayment in full as directly related information.) • A minimum finance charge in a simple-interest transaction. (See the commentary to § 226.17(a)(1) regarding the disclosure of a minimum finance charge as directly related information.) Items which are not penalties include, for example, loan guarantee fees. Paragraph 18(k)(2). 1. Rebate of finance charge. • Precomputed finance charges such as add-on charges. • Charges that take account of some but not all reductions in principal, such as mortgage guarantee insurance assessed on the basis of an annual declining balance, when the principal is reduced on a monthly basis. No description of the method of computing earned or unearned finance charges is required or permitted as part of the segregated disclosures under this section. Paragraph 18(l) Late payment. 1. Definition. • The right of acceleration. • Fees imposed for actual collection costs, such as repossession charges or attorney's fees. • Deferral and extension charges. • The continued accrual of simple interest at the contract rate after the payment due date. However, an increase in the interest rate is a late payment charge to the extent of the increase. 2. Content of disclosure. Paragraph 18(m) Security interest. 1. Purchase money transactions. 2. Nonpurchase money transactions. 3. Mixed collateral. 4. After-acquired property. 5. Spreader clause. 6. Terms used in disclosure. security interest, pledge, lien, mortgage. 7. Collateral from third party. 18(n) Insurance and debt cancellation. 1. Location. 2. Debt cancellation. Paragraph 18(o) Certain security interest charges. 1. Format. Paragraph 18(p) Contract reference. 1. Content. Paragraph 18(q) Assumption policy. 1. Policy statement. 2. Original terms. original terms Paragraph 18(r) Required deposit. 1. Disclosure required. 2. Pledged account mortgages. 3. Escrow accounts. 4. Interest-bearing accounts. 5. Morris Plan transactions. 6. Examples of amounts excluded. • Requirement that a borrower be a customer or a member even if that involves a fee or a minimum balance. • Required property insurance escrow on a mobile home transaction. • Refund of interest when the obligation is paid in full. • Deposits that are immediately available to the consumer. • Funds deposited with the creditor to be disbursed (for example, for construction) before the loan proceeds are advanced. • Escrow of condominium fees. • Escrow of loan proceeds to be released when the repairs are completed. References Statute: Other sections: Other regulations: Previous regulation: 1981 changes: The variable rate hypothetical is required in all variable rate transactions and may be either general or transaction-specific. The penalty and rebate disclosures in the event of prepayment have been modified and combined. The requirement of an explanation of how the rebates or penalties are computed has been eliminated. The late payment disclosure has also been narrowed to include only charges imposed before maturity for late payments. The information required in the security interest disclosure has been decreased by the deletion of the type of security interest and a reduction in the property description requirement. The disclosure of the required deposit is limited to a statement that the annual percentage rate does not reflect the required deposit; the presence of a required deposit has no effect on the annual percentage rate. Two disclosure requirements have been added: A reference to the contract documents for additional information and, in a residential mortgage transaction, a statement of the creditor's assumption policy. 18(s) Interest rate and payment summary for mortgage transactions. 1. In general. 2. Amortizing loans. See 3. Negative amortization. See See also 18(s)(2) Interest rates. 18(s)(2)(i) Amortizing loans. Paragraph 18(s)(2)(i)(A). 1. Fixed rate loans—payment increases. Paragraph 18(s)(2)(i)(B 1. Adjustable-rate mortgages and step-rate mortgages. 2. Maximum interest rate during first five years—adjustable-rate mortgages and step-rate mortgages. i. For an adjustable-rate mortgage, the creditor must take into account any interest rate caps when disclosing the maximum interest rate during the first five years. The creditor must also disclose the earliest date on which that adjustment may occur. ii. If the transaction is a step-rate mortgage, the creditor should disclose the rate that will apply after consummation. For example, the legal obligation may provide that the rate is 6 percent for the first two years following consummation, and then increases to 7 percent for at least the next three years. The creditor should disclose the maximum rate during the first five years as 7 percent and the date on which the rate is scheduled to increase to 7 percent. 3. Maximum interest rate at any time. i. For an adjustable-rate mortgage, the creditor must take into account any interest rate caps in disclosing the maximum interest rate. For example, if the legal obligation provides that at each annual adjustment the rate may increase by no more than 2 percentage points, the creditor must take this limit into account in determining the earliest date on which the maximum possible rate may be reached. ii. For a step-rate mortgage, the creditor should disclose the highest rate that could apply under the terms of the legal obligation and the date on which that rate will first apply. Paragraph 18(s)(2)(i)(C). 1. Payment increases. 18(s)(2)(ii) Negative amortization loans. 1. Rate at consummation. 2. Rates for adjustable-rate mortgages. 18(s)(2)(iii) Introductory rate disclosure for amortizing adjustable-rate mortgage. 1. Introductory rate. Paragraph 18(s)(2)(iii)(B). 1. Place in sequence. Paragraph 18(s)(2)(iii)(C). 1. Fully-indexed rate. 18(s)(3) Payments for amortizing loans. 1. Payments corresponding to interest rates. 2. Principal and interest payment amounts; examples. i. For fixed-rate interest-only transactions, § 226.18(s)(3)(ii)(B) requires scheduled increases in the regular periodic payment amounts to be disclosed along with the date of the increase. For example, in a fixed-rate interest-only loan, a scheduled increase in the payment amount from an interest-only payment to a fully amortizing payment must be disclosed. Similarly, in a fixed-rate balloon loan, the balloon payment must be disclosed in accordance with § 226.18(s)(5). ii. For adjustable-rate mortgage transactions, § 226.18(s)(3)(i)(A) requires that for each interest rate required to be disclosed under § 226.18(s)(2)(i) (the interest rate at consummation, the maximum rate during the first five years, and the maximum possible rate) a corresponding payment amount must be disclosed. iii. The format of the payment disclosure varies depending on whether all regular periodic payment amounts will include principal and interest, and whether there will be an escrow account for taxes and insurance. Paragraph 18(s)(3)(i)(C). 1. Taxes and insurance. 2. Mortgage insurance. Paragraph 18(s)(3)(i)(D). 1. Total monthly payment. 18(s)(3)(ii) Interest-only payments. 1. Interest-only loans that are also negative amortization loans. Paragraph 18(s)(3)(ii)(C). 1. Escrows. 18(s)(4) Payments for negative amortization loans. 1. Table. 2. Payment amounts. Paragraph 18(s)(4)(i). 1. Minimum required payments. Paragraph 18(s)(4)(iii). 1. Fully amortizing payments. 18(s)(5) Balloon payments. 1. General. 18(s)(6) Special disclosures for loans with negative amortization. 1. Escrows. 18(s)(7) Definitions. 1. Negative amortization loans. Section 226.19—Certain Mortgage and Variable-Rate Transactions 19(a)(1)(i) Time of disclosure 1. Coverage. 2. Timing and use of estimates. See See See 3. Written application. See See 4. Denied or withdrawn applications. 5. Itemization of amount financed. 19(a)(1)(ii) Imposition of fees. 1. Timing of fees. See 2. Fees restricted. bona fide 3. Collection of fees. i. The creditor receives a consumer's written application directly from the consumer and does not collect any fee, other than a fee for obtaining a consumer's credit history, until the consumer receives the early mortgage loan disclosure. ii. A third party submits a consumer's written application to a creditor and both the creditor and third party do not collect any fee, other than a fee for obtaining a consumer's credit history, until the consumer receives the early mortgage loan disclosure from the creditor. iii. A third party submits a consumer's written application to a second creditor following a prior creditor's denial of an application made by the same consumer (or following the consumer's withdrawal), and, if a fee already has been assessed, the new creditor or third party does not collect or impose any additional fee until the consumer receives an early mortgage loan disclosure from the new creditor. 19(a)(1)(iii) Exception to fee restriction. 1. Requirements. bona fide 19( a 1. Business day definition. See 2. Consummation after both waiting periods expire. 19( a i 1. Timing. 19( a ii 1. Conditions for redisclosure. i. On Thursday, June 11, the annual percentage rate will be 7.10%. The creditor is not required to make corrected disclosures under § 226.19(a)(2). ii. On Thursday, June 11, the annual percentage rate will be 7.15%. The creditor must make corrected disclosures so that the consumer receives them on or before Monday, June 8. 2. Content of new disclosures. see see 3. Timing. See 4. Basis for annual percentage rate comparison. i. On Thursday, June 11, the annual percentage rate will be 7.25%, which exceeds the most recently disclosed annual percentage rate by less than the applicable tolerance. The creditor is not required to make additional corrected disclosures or wait an additional three business days under § 226.19(a)(2). ii. On Thursday, June 11, the annual percentage rate will be 7.30%, which exceeds the most recently disclosed annual percentage rate by more than the applicable tolerance. The creditor must make corrected disclosures such that the consumer receives them on or before Monday, June 8. 19(a)(3) Consumer's waiver of waiting period before consummation. 1. Modification or waiver. bona fide bona fide 2. Examples of waivers within the seven-business-day waiting period. i. If the annual percentage rate on the early disclosures is inaccurate under § 226.22, the creditor must provide a corrected disclosure to the consumer before consummation, which triggers the three-business-day waiting period in § 226.19(a)(2)(ii). After the consumer receives the corrected disclosure, the consumer must execute a waiver of the three-business-day waiting period in order to consummate the transaction on Friday, June 5. ii. If a change occurs that does not render the annual percentage rate on the early disclosures inaccurate under § 226.22, the creditor must disclose the changed terms before consummation, consistent with § 226.17(f). Disclosure of the changed terms does not trigger an additional waiting period, and the transaction may be consummated on June 5 without the consumer giving the creditor an additional modification or waiver. 3. Examples of waivers made after the seven-business-day waiting period. i. If the annual percentage rate on the early disclosures is inaccurate under § 226.22, the creditor must provide a corrected disclosure to the consumer before consummation, which triggers the three-business-day waiting period in § 226.19(a)(2). After the consumer receives the corrected disclosure, the consumer must execute a waiver of the three-business-day waiting period in order to consummate the transaction on Friday, June 19. ii. If a change occurs that does not render the annual percentage rate on the early disclosures inaccurate under § 226.22, the creditor must disclose the changed terms before consummation, consistent with § 226.17(f). Disclosure of the changed terms does not trigger an additional waiting period, and the transaction may be consummated on Friday, June 19 without the consumer giving the creditor an additional modification or waiver. 19(a)(4) Notice. 1. Inclusion in other disclosures. See See 19(a)(5)(ii) Time of disclosures for timeshare plans. 1. Timing. See See 2. Use of estimates. See 3. Written application. 4. Denied or withdrawn applications. 5. Itemization of amount financed. 19(a)(5)(iii) Redisclosure for timeshare plans. 1. Consummation or settlement. 2. Content of new disclosures. 19(b) Certain variable-rate transactions. 1. Coverage. 2. Timing. i. Intermediary agent or broker. ii. Telephone request. iii. Mail solicitations. iv. Conversion. v. Form of electronic disclosures provided on or with electronic applications. A. The disclosures could automatically appear on the screen when the application appears; B. The disclosures could be located on the same web page as the application (whether or not they appear on the initial screen), if the application contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable; C. Creditors could provide a link to the electronic disclosures on or with the application as long as consumers cannot bypass the disclosures before submitting the application. The link would take the consumer to the disclosures, but the consumer need not be required to scroll completely through the disclosures; or D. The disclosures could be located on the same web page as the application without necessarily appearing on the initial screen, immediately preceding the button that the consumer will click to submit the application. Whatever method is used, a creditor need not confirm that the consumer has read the disclosures. 3. Intermediary agent or broker. • The number of applications submitted by the broker to the creditor as compared to the total number of applications received by the creditor. The greater the percentage of total loan applications submitted by the broker in any given period of time, the less likely it is that the broker would be considered an “intermediary agent or broker” of the creditor during the next period. • The number of applications submitted by the broker to the creditor as compared to the total number of applications received by the broker. (This factor is applicable only if the creditor has such information.) The greater the percentage of total loan applications received by the broker that is submitted to a creditor in any given period of time, the less likely it is that the broker would be considered an “intermediary agent or broker” of the creditor during the next period. • The amount of work (such as document preparation) the creditor expects to be done by the broker on an application based on the creditor's prior dealings with the broker and on the creditor's requirements for accepting applications, taking into consideration the customary practice of brokers in a particular area. The more work that the creditor expects the broker to do on an application, in excess of what is usually expected of a broker in that area, the less likely it is that the broker would be considered an “intermediary agent or broker” of the creditor. An example of an “intermediary agent or broker” is a broker who, customarily within a brief period of time after receiving an application, inquires about the credit terms of several creditors with whom the broker does business and submits the application to one of them. The broker is responsible for only a small percentage of the applications received by that creditor. During the time the broker has the application, it might request a credit report and an appraisal (or even prepare an entire loan package if customary in that particular area). 4. Other variable-rate regulations. et seq. 5. Examples of variable-rate transactions. (i) The following transactions, if they have a term greater than one year and are secured by the consumer's principal dwelling, constitute variable-rate transactions subject to the disclosure requirements of § 226.19(b). (A) Renewable balloon-payment instruments where the creditor is both unconditionally obligated to renew the balloon-payment loan at the consumer's option (or is obligated to renew subject to conditions within the consumer's control) and has the option of increasing the interest rate at the time of renewal. (See comment 17(c)(1)-11 for a discussion of conditions within a consumer's control in connection with renewable balloon-payment loans.) (B) Preferred-rate loans where the terms of the legal obligation provide that the initial underlying rate is fixed but will increase upon the occurrence of some event, such as an employee leaving the employ of the creditor, and the note reflects the preferred rate. The disclosures under §§ 226.19(b)(1) and 226.19(b)(2)(v), (viii), (ix), and (xii) are not applicable to such loans. (C) “Price-level-adjusted mortgages” or other indexed mortgages that have a fixed rate of interest but provide for periodic adjustments to payments and the loan balance to reflect changes in an index measuring prices or inflation. The disclosures under § 226.19(b)(1) are not applicable to such loans, nor are the following provisions to the extent they relate to the determination of the interest rate by the addition of a margin, changes in the interest rate, or interest rate discounts: Section 226.19(b)(2) (i), (iii), (iv), (v), (vi), (vii), (viii), and (ix). (See comments 20(c)-2 and 30-1 regarding the inapplicability of variable-rate adjustment notices and interest rate limitations to price-level-adjusted or similar mortgages.) (ii) Graduated-payment mortgages and step-rate transactions without a variable-rate feature are not considered variable-rate transactions. Paragraph 19(b)(1). 1. Substitute. Consumer Handbook on Adjustable Rate Mortgages Consumer Handbook. Consumer Handbook. 2. Applicability. Consumer Handbook Paragraph 19(b)(2). 1. Disclosure for each variable-rate program. 2. Variable-rate loan program defined. A. The index or other formula used to calculate interest rate adjustments. B. The rules relating to changes in the index value, interest rate, payments, and loan balance. C. The presence or absence of, and the amount of, rate or payment caps. D. The presence of a demand feature. E. The possibility of negative amortization. F. The possibility of interest rate carryover. G. The frequency of interest rate and payment adjustments. H. The presence of a discount feature. I. In addition, if a loan feature must be taken into account in preparing the disclosures required by § 226.19(b)(2)(viii), variable-rate loans that differ as to that feature constitute separate programs under § 226.19(b)(2). ii. If, however, a representative value may be given for a loan feature or the feature need not be disclosed under § 226.19(b)(2), variable-rate loans that differ as to such features do not constitute separate loan programs. For example, separate programs would not exist based on differences in the following loan features: A. The amount of a discount. B. The amount of a margin. 3. Form of program disclosures. Consumer Handbook 4. As applicable. payment 5. Revisions. Paragraph 19(b)(2)(i). 1. Change in interest rate, payment, or term. Paragraph 19(b)(2)(ii). 1. Identification of index or formula. Wall Street Journal.” 2. Changes at creditor's discretion. Paragraph 19(b)(2)(iii). 1. Determination of interest rate and payment. Paragraph 19(b)(2)(iv). 1. Current margin value and interest rate. Paragraph 19(b)(2)(v). 1. Discounted and premium interest rate. Paragraph 19(b)(2)(vi). 1. Frequency. Paragraph 19(b)(2)(vii). 1. Rate and payment caps. 2. Negative amortization and interest rate carryover. 3. Conversion option. 4. Preferred-rate loans. Paragraph 19(b)(2)(viii). 1. Historical example and initial and maximum interest rates and payments. Paragraph 19(b)(2)(viii)(A). 1. Index movement. 2. Selection of index values. 3. Selection of margin. 4. Amount of discount or premium. 5. Term of the loan. 6. Rate caps. 7. Frequency of adjustments. Paragraph 19(b)(2)(viii)(B). 1. Initial and maximum interest rates and payments. 2. Term of the loan. If a historical example is provided under § 226.19(b)(2)(viii)(A), the terms to maturity or payment amortization used in the historical example must be used in calculating the initial and maximum payment. In addition, creditors must state the term or payment amortization used in making the disclosures under this section. 3. Rate caps. 4. Frequency of adjustments. 5. Periodic payment statement. Paragraph 19(b)(2)(ix). 1. Calculation of payments. Paragraph 19(b)(2)(x). 1. Demand feature. Paragraph 19(b)(2)(xi). 1. Adjustment notices. Paragraph 19(b)(2)(xii). 1. Multiple loan programs. 19(c) Electronic disclosures. 1. Form of disclosures. i. If a consumer accesses an ARM loan application electronically (other than as described under ii. below), such as online at a home computer, the creditor must provide the disclosures in electronic form (such as with the application form on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application. If the creditor instead mailed paper disclosures to the consumer, this requirement would not be met. ii. In contrast, if a consumer is physically present in the creditor's office, and accesses an ARM loan application electronically, such as via a terminal or kiosk (or if the consumer uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the creditor to provide applications to consumers), the creditor may provide disclosures in either electronic or paper form, provided the creditor complies with the timing, delivery, and retainability requirements of the regulation. References Statute: Other sections: Other regulations: Previous regulation: 1981 changes: Section 226.20 Subsequent Disclosure Requirements Paragraph 20(a) Refinancings. 1. Definition. • Changes in the terms of an existing obligation, such as the deferral of individual installments, will not constitute a refinancing unless accomplished by the cancellation of that obligation and the substitution of a new obligation. • A substitution of agreements that meets the refinancing definition will require new disclosures, even if the substitution does not substantially alter the prior credit terms. 2. Exceptions. 3. Variable-rate. i. If a variable-rate feature was properly disclosed under the regulation, a rate change in accord with those disclosures is not a refinancing. For example, no new disclosures are required when the variable-rate feature is invoked on a renewable balloon-payment mortgage that was previously disclosed as a variable-rate transaction. ii. Even if it is not accomplished by the cancellation of the old obligation and substitution of a new one, a new transaction subject to new disclosures results if the creditor either: A. Increases the rate based on a variable-rate feature that was not previously disclosed; or B. Adds a variable-rate feature to the obligation. A creditor does not add a variable-rate feature by changing the index of a variable-rate transaction to a comparable index, whether the change replaces the existing index or substitutes an index for one that no longer exists. iii. If either of the events in paragraph 20(a)3.ii.A. or ii.B. occurs in a transaction secured by a principal dwelling with a term longer than one year, the disclosures required under § 226.19(b) also must be given at that time. 4. Unearned finance charge. 5. Coverage. Paragraph 20(a)(1). 1. Renewal. • Accrued unpaid interest is added to the principal balance. • Changes are made in the terms of renewal resulting from the factors listed in § 226.17(c)(3). • The principal at renewal is reduced by a curtailment of the obligation. Paragraph 20(a)(2). 1. Annual percentage rate reduction. 2. Corresponding change. Paragraph 20(a)(3). 1. Court agreements. Paragraph 20(a)(4). 1. Workout agreements. Paragraph 20(a)(5). 1. Insurance renewal. Paragraph 20(b) Assumptions. 1. General definition. • A residential mortgage transaction. • An express acceptance of the subsequent consumer by the creditor. • A written agreement. The assumption of a nonexempt consumer credit obligation requires no disclosures unless all three elements are present. For example, an automobile dealer need not provide Truth in Lending disclosures to a customer who assumes an existing obligation secured by an automobile. However, a residential mortgage transaction with the elements described in § 226.20(b) is an assumption that calls for new disclosures; the disclosures must be given whether or not the assumption is accompanied by changes in the terms of the obligation. (See comment 2(a)(24)-5 for a discussion of assumptions that are not considered residential mortgage transactions.) 2. Existing residential mortgage transaction. • The original consumer obtained a mortgage to purchase a home for vacation purposes. The loan was not a residential mortgage transaction as to that consumer. The mortgage is assumed by a consumer who will use the home as a principal dwelling. As to that consumer, the loan is a residential mortgage transaction. For purposes of § 226.20(b), the assumed loan is an “existing residential mortgage transaction” requiring disclosures, if the other criteria for an assumption are met. 3. Express agreement. Expressly agrees • Approval of creditworthiness. • Notification of a change in records. • Mailing of a coupon book to the subsequent consumer. • Acceptance of payments from the new consumer. 4. Retention of original consumer. 5. Status of parties. 6. Disclosures. • The amount financed is the remaining principal balance plus any arrearages or other accrued charges from the original transaction. • If the finance charge is computed from time to time by application of a percentage rate to an unpaid balance, in determining the amount of the finance charge and the annual percentage rate to be disclosed, the creditor should disregard any prepaid finance charges paid by the original obligor, but must include in the finance charge any prepaid finance charge imposed in connection with the assumption. • If the creditor requires the assuming consumer to pay any charges as a condition of the assumption, those sums are prepaid finance charges as to that consumer, unless exempt from the finance charge under § 226.4. If a transaction involves add-on or discount finance charges, the creditor may make abbreviated disclosures, as outlined in § 226.20(b) (1) through (5). Creditors providing disclosures pursuant to this section for assumptions of variable-rate transactions secured by the consumer's principal dwelling with a term longer than one year need not provide new disclosures under § 226.18(f)(2)(ii) or § 226.19(b). In such transactions, a creditor may disclose the variable-rate feature solely in accordance with § 226.18(f)(1). 7. Abbreviated disclosures. annual percentage rate total of payments, annual percentage rate Paragraph 20(c) Variable-rate adjustments. 1. Timing of adjustment notices. 2. Exceptions. 3. Basis of disclosures. Paragraph 20(c)(1). 1. Current and prior interest rates. Paragraph 20(c)(2). 1. Current and prior index values. Paragraph 20(c)(3). 1. Unapplied index increases. Paragraph 20(c)(4). 1. Contractual effects of the adjustment. Paragraph 20(c)(5). 1. Fully-amortizing payment. References Statute: Other sections: Previous regulation: 1981 changes: The assumption provision retains the substance of § 226.8(k) and Interpretation § 226.807 of the previous regulation, but limits its scope to residential mortgage transactions. Section 226.21—Treatment of Credit Balances Paragraph 21(a). 1. Credit balance. 2. Total balance due. total balance due 3. Timing of refund. • Refunding any credit balance to the consumer immediately. • Refunding any credit balance prior to a written request from the consumer. • Making a good faith effort to refund any credit balance before 6 months have passed. If that attempt is unsuccessful, the creditor need not try again to refund the credit balance at the end of the 6-month period. Paragraph 21(b). 1. Written requests—standing orders. Paragraph 21(c). 1. Good faith effort to refund. 2. Good faith effort unsuccessful. References Statute: Other sections: Previous regulation: 1981 changes: Section 226.22—Determination of the Annual Percentage Rate 22(a) Accuracy of the annual percentage rate. Paragraph 22(a)(1). 1. Calculation method. 2. Actuarial method. 3. U.S. Rule. 4. Basis for calculations. 5. Good faith reliance on faulty calculation tools. Paragraph 22(a)(2). 1. Regular transactions. 1/8 1/8 1/4 Paragraph 22(a)(3). 1. Irregular transactions. 1/4 1/4 22(a)(4) Mortgage loans. 1. Example. 1/8 22(a)(5) Additional tolerance for mortgage loans. 1. Example. 1/4 22(b) Computation tools. Paragraph 22(b)(1). 1. Board tables. • Volume I may be used for single advance transactions with completely regular payment schedules or with payment schedules that are regular except for an odd first payment, odd first period or odd final payment. When used for a transaction with a large final balloon payment, Volume I may produce a rate that is considerably higher than the exact rate produced using a computer program based directly on appendix J. However, the Volume I rate—produced using certain adjustments in that volume—is considered to be in compliance. Paragraph 22(b)(2). 1. Other calculation tools. 1/8 1/4 22(c) Single add-on rate transactions. 1. General rule. • An add-on rate of 10 percent converted to an annual percentage rate produce the following actual annual percentage rates at various maturities: at 3 months, 14.94 percent; at 21 months, 18.18 percent; and at 60 months, 17.27 percent. The creditor must disclose an annual percentage rate of 18.18 percent (the highest annual percentage rate) for any transaction up to 5 years, even though that rate is precise only for a transaction of 21 months. 22(d) Certain transactions involving ranges of balances. 1. General rule. • If a finance charge of $9 applies to all balances between $91 and $100, an annual percentage rate of 10 percent (the rate on the median balance) may be disclosed as the annual percentage rate for all balances, even though a $9 finance charge applied to the lowest balance ($91) would actually produce an annual percentage rate of 10.7 percent. References Statute: Other sections: Previous regulation: Section 226.5(b) through (e). 1981 changes: 1/4 Section 226.23—Right of Rescission 1. Transactions not covered. 23(a) Consumer's right to rescind. Paragraph 23(a)(1). 1. Security interest arising from transaction. • A security interest that is acquired by a contractor who is also extending the credit in the transaction. • A mechanic's or materialman's lien that is retained by a subcontractor or supplier of the contractor-creditor, even when the latter has waived its own security interest in the consumer's home. The security interest is not part of the credit transaction and therefore the transaction is not subject to the right of rescission when, for example: • A mechanic's or materialman's lien is obtained by a contractor who is not a party to the credit transaction but is merely paid with the proceeds of the consumer's unsecured bank loan. • All security interests that may arise in connection with the credit transaction are validly waived. • The creditor obtains a lien and completion bond that in effect satisfies all liens against the consumer's principal dwelling as a result of the credit transaction. Although liens arising by operation of law are not considered security interests for purposes of disclosure under § 226.2, that section specifically includes them in the definition for purposes of the right of rescission. Thus, even though an interest in the consumer's principal dwelling is not a required disclosure under § 226.18(m), it may still give rise to the right of rescission. 2. Consumer. 3. Principal dwelling. 4. Special rule for principal dwelling. 5. Addition of a security interest. Paragraph 23(a)(2). 1. Consumer's exercise of right. Paragraph 23(a)(3). 1. Rescission period. • Consummation of the transaction. • Delivery of all material disclosures. • Delivery to the consumer of the required rescission notice. For example, if a transaction is consummated on Friday, June 1, and the disclosures and notice of the right to rescind were given on Thursday, May 31, the rescission period will expire at midnight of the third business day after June 1—that is, Tuesday, June 5. In another example, if the disclosures are given and the transaction consummated on Friday, June 1, and the rescission notice is given on Monday, June 4, the rescission period expires at midnight of the third business day after June 4—that is, Thursday, June 7. The consumer must place the rescission notice in the mail, file it for telegraphic transmission, or deliver it to the creditor's place of business within that period in order to exercise the right. 2. Material disclosures. 3. Unexpired right of rescission. • The expiration of three years after consummation of the transaction. • Transfer of all the consumer's interest in the property. • Sale of the consumer's interest in the property, including a transaction in which the consumer sells the dwelling and takes back a purchase money note and mortgage or retains legal title through a device such as an installment sale contract. Transfer of all the consumers' interest includes such transfers as bequests and gifts. A sale or transfer of the property need not be voluntary to terminate the right to rescind. For example, a foreclosure sale would terminate an unexpired right to rescind. As provided in section 125 of the Act, the three-year limit may be extended by an administrative proceeding to enforce the provisions of this section. A partial transfer of the consumer's interest, such as a transfer bestowing co-ownership on a spouse, does not terminate the right of rescission. Paragraph 23(a)(4). 1. Joint owners. 23(b) Notice of right to rescind. 1. Who receives notice. • Two copies of the rescission notice. • The material disclosures. In a transaction involving joint owners, both of whom are entitled to rescind, both must receive the notice of the right to rescind and disclosures. For example, if both spouses are entitled to rescind a transaction, each must receive two copies of the rescission notice (one copy to each if the notice is provided in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act) and one copy of the disclosures. 2. Format. 3. Content. • A description of the property subject to the security interest. • A statement that joint owners may have the right to rescind and that a rescission by one is effective for all. • The name and address of an agent of the creditor to receive notice of rescission. 4. Time of providing notice. 23(c) Delay of creditor's performance. 1. General rule. • Disburse loan proceeds to the consumer. • Begin performing services for the consumer. • Deliver materials to the consumer. 2. Escrow. 3. Actions during the delay period. • Prepare the loan check. • Perfect the security interest. • Prepare to discount or assign the contract to a third party. • Accrue finance charges during the delay period. 4. Delay beyond rescission period. • Waiting a reasonable time after expiration of the rescission period to allow for delivery of a mailed notice. • Obtaining a written statement from the consumer that the right has not been exercised. When more than one consumer has the right to rescind, the creditor cannot reasonably rely on the assurance of only one consumer, because other consumers may exercise the right. 23(d) Effects of rescission. Paragraph 23(d)(1). 1. Termination of security interest. Paragraph 23(d)(2). 1. Refunds to consumer. 2. Amounts not refundable to consumer. any amount 3. Reflection of security interest termination. Paragraph 23(d)(3). 1. Property exchange. must 2. Reasonable value. Paragraph 23(d)(4). 1. Modifications. 23(e) Consumer's waiver of right to rescind. 1. Need for waiver. 2. Procedure. 23(f) Exempt transactions. 1. Residential mortgage transaction. 2. Lien status. 3. Combined-purpose transaction. 4. New advances. 5. State creditors. 6. Multiple advances. 7. Spreader clauses. 8. Converting open-end to closed-end credit. 23(g) Tolerances for accuracy. 23(g)(2) One percent tolerance. 1. New advance. 23(h) Special Rules for Foreclosures. 1. Rescission. Paragraph 23(h)(1)(i). 1. Mortgage broker fees. 23(h)(2) Tolerance for disclosures. 1. General. References Statute: Other sections: Previous regulation: 1981 changes: Section 226.24—Advertising 1. Effective date. 24(a) Actually available terms. 1. General rule. 24(b) Clear and conspicuous standard. 1. Clear and conspicuous standard—general. see 2. Clear and conspicuous standard—rates and payments in advertisements for credit secured by a dwelling. 3. Clear and conspicuous standard—Internet advertisements for credit secured by a dwelling. See also 4. Clear and conspicuous standard—televised advertisements for credit secured by a dwelling. 5. Clear and conspicuous standard—oral advertisements for credit secured by a dwelling. 24(c) Advertisment of rate of finance charge. 1. Annual percentage rate. annual percentage rate, APR. 2. Simple or periodic rates. 3. Buydowns. 4. Discounted variable-rate transactions. i. A creditor or seller may promote the availability of the initial rate reduction in such transactions by advertising the reduced simple annual rate, provided the advertisement shows with equal prominence and in close proximity the limited term to which the reduced rate applies and the annual percentage rate that will apply after the term of the initial rate reduction expires. See ii. Limits or caps on periodic rate or payment adjustments need not be stated. To illustrate using the second example in comment 17(c)(1)-10, the fact that the rate is presumed to be 11 percent in the second year and 12 percent for the remaining 28 years need not be included in the advertisement. iii. The advertisement may also show the effect of the discount on the payment schedule for the discount period, but this will trigger the additional disclosures under § 226.24(d). 24(d) Advertisement of terms that require additional disclosures. 1. General rule. 24(d) Advertisement of terms that require additional disclosures. 1. General rule. Paragraph 24(d)(1). 1. Downpayment. downpayment • Only 5% down. • As low as $100 down. • Total move-in costs of $800. This provision applies only if a downpayment is actually required; statements such as no downpayment no trade-in required 2. Payment period. • 48-month payment terms. • 30-year mortgage. • Repayment in as many as 36 monthly installments. But it does not include such statements as “pay weekly,” “monthly payment terms arranged,” or “take years to repay,” since these statements do not indicate a time period over which a loan may be financed. 3. Payment amount. • “Payable in installments of $103”. • “$25 weekly”. • “$500,000 loan for just $1,650 per month”. • “$1,200 balance payable in 10 equal installments”. In the last example, the amount of each payment is readily determinable, even though not explicitly stated. But statements such as “monthly payments to suit your needs” or “regular monthly 4. Finance charge. • “$500 total cost of credit.” • “$2 monthly carrying charge.” • “$50,000 mortgages, 2 points to the borrower.” In the last example, the $1,000 prepaid finance charge can be readily determined from the information given. Statements of the annual percentage rate or statements that there is no particular charge for credit (such as “no closing costs”) are not triggering terms under this paragraph. Paragraph 24(d)(2). 1. Disclosure of downpayment. 2. Disclosure of repayment terms. see i. A creditor may use a unit-cost approach in making the required disclosure, such as “48 monthly payments of $27.83 per $1,000 borrowed.” ii. In an advertisement for credit secured by a dwelling, when any series of payments varies because of the inclusion of mortgage insurance premiums, a creditor may state the number and timing of payments, the fact that payments do not include amounts for mortgage insurance premiums, and that the actual payment obligation will be higher. iii. In an advertisement for credit secured by a dwelling, when one series of monthly payments will apply for a limited period of time followed by a series of higher monthly payments for the remaining term of the loan, the advertisement must state the number and time period of each series of payments, and the amounts of each of those payments. For this purpose, the creditor must assume that the consumer makes the lower series of payments for the maximum allowable period of time. 3. Balloon payment; disclosure of repayment terms. 4. Annual percentage rate. 5. Use of examples. 24(e) Catalogs or Other Multiple-page Advertisements; Electronic Advertisements 1. Definition. 2. General. 3. Representative examples. 4. Electronic advertisement. 24(f) Disclosure of rates and payments in advertisements for credit secured by a dwelling. 1. Applicability. See i. Fixed-rate conversion loans. ii. Preferred-rate loans. iii. Rate reductions. 2. Equal prominence, close proximity. 3. Clear and conspicuous standard. 4. Comparisons in advertisements. 5. Application to variable-rate transactions—disclosure of rates. 6. Reasonably current index and margin. i. For direct mail advertisements, it was in effect within 60 days before mailing; ii. For advertisements in electronic form it was in effect within 30 days before the advertisement is sent to a consumer's e-mail address, or in the case of an advertisement made on an Internet Web site, when viewed by the public; or iii. For printed advertisements made available to the general public, including ones contained in a catalog, magazine, or other generally available publication, it was in effect within 30 days before printing. 24(f)(3) Disclosure of payments. 1. Amounts and time periods of payments. 2. Application to variable-rate transactions—disclosure of payments. 24(g) Alternative disclosures—television or radio advertisements. 1. Multi-purpose telephone number. 2. Statement accompanying telephone number. 24(i) Prohibited acts or practices in advertisements for credit secured by a dwelling. 1. Comparisons in advertisements. 2. Misrepresentations about government endorsement. 3. Misleading claims of debt elimination. References Statute: Other sections: Previous regulation: 1981 changes: Unlike the previous regulation, if the advertised annual percentage rate is subject to increase, that fact must now be disclosed. Subpart D—Miscellaneous Section 226.25—Record Retention 25(a) General rule. 1. Evidence of required actions. 2. Methods of retaining evidence. 3. Certain variable-rate transactions. 4. Home equity plans. 5. Prohibited payments to loan originators. References Statute: Other sections: Previous regulation: 1981 changes: Section 226.26—Use of Annual Percentage Rate in Oral Disclosures 1. Application of rules. 26(a) Open-end credit. 1. Information that may be given. 26(b) Closed-end credit. 1. Information that may be given. References Statute: Other sections: Previous regulation: 1981 changes: Section 226.27—Language of Disclosures 1. Subsequent disclosures. 2. [Reserved] References Statute: Other sections: Previous regulation: 1981 changes: Section 226.28—Effect on State Laws 28(a) Inconsistent disclosure requirements 1. General. 2. Rules for chapters 1, 2, and 3. • A State law that requires use of the term finance charge, • A State law that requires a label such as nominal annual interest rate annual percentage rate. 3. Laws not contradictory to chapters 1, 2, and 3. • A State law that requires disclosure of the minimum periodic payment for open-end credit, even though not required by § 226.7. • A State law that requires contracts to contain warnings such as: “Read this contract before you sign. Do not sign if any spaces are left blank. You are entitled to a copy of this contract.” Similarly, a State law that requires itemization of the amount financed does not automatically contradict the permissive itemization under § 226.18(c). However, a State law requirement that the itemization appear with the disclosure of the amount financed in the segregated closed-end credit disclosures is inconsistent, and this location requirement would be preempted. 4. Creditor's options. • Under this first approach, as in all cases, the Federal disclosures must be clear and conspicuous, and the closed-end disclosures must be properly segregated in accordance with § 226.17(a)(1). • This ability to give State disclosures relieves any uncertainty that the creditor might have prior to Board determinations of inconsistency. As a second option, the creditor may apply the preemption standards to a State law, conclude that it is inconsistent, and choose not to give the state-required disclosures. However, nothing in § 226.28(a) provides the creditor with immunity for violations of State law if the creditor chooses not 5. Rules for correction of billing errors and regulation of credit reports. • A State law that has a narrower or broader definition of billing error. • A State law that requires the creditor to take different steps to resolve errors. • A State law that provides different timing rules for error resolution (subject to the exception discussed above). 6. Rules for other fair credit billing provisions. i. A state law that allows the card issuer to offset the consumer's credit-card indebtedness against funds held by the card issuer would be preempted, since § 226.12(d) prohibits such action. ii. A state law that requires periodic statements to be sent more than 14 days before the end of a free-ride period would not be preempted. iii. A state law that permits consumers to assert claims and defenses against the card issuer without regard to the $50 and 100-mile limitations of § 226.12(c)(3)(ii) would not be preempted. iv. In paragraphs ii. and iii. of this comment, compliance with state law would involve no violation of the Federal law. 7. Who may receive a chapter 4 determination. 8. Preemption determination—Arizona. • Section 44-287 B.5—Disclosure of final cash price balance. This provision is preempted in those transactions in which the amount of the final cash price balance is the same as the Federal amount financed, since in such transactions the State law requires the use of a term different from the Federal term to represent the same amount. • Section 44-287 B.6—Disclosure of finance charge. This provision is preempted in those transactions in which the amount of the finance charge is different from the amount of the Federal finance charge, since in such transactions the State law requires the use of the same term as the Federal law to represent a different amount. • Section 44-287 B.7—Disclosure of the time balance. The time balance disclosure provision is preempted in those transactions in which the amount is the same as the amount of the Federal total of payments, since in such transactions the State law requires the use of a term different from the Federal term to represent the same amount. 9. Preemption determination—Florida. • Sections 520.07(2)(f) and 520.34(2)(f)—Disclosure of amount financed. This disclosure is preempted in those transactions in which the amount is different from the Federal amount financed, since in such transactions the State law requires the use of the same term as the Federal law to represent a different amount. • Sections 520.07(2)(g), 520.34(2)(g), and 520.35(2)(d)—Disclosure of finance charge and a description of its components. The finance charge disclosure is preempted in those transactions in which the amount of the finance charge is different from the Federal amount, since in such transactions the State law requires the use of the same term as the Federal law to represent a different amount. The requirement to describe or itemize the components of the finance charge, which is also included in these provisions, is not preempted. • Sections 520.07(2)(h) and 520.34(2)(h)—Disclosure of total of payments. The total of payments disclosure is preempted in those transactions in which the amount differs from the amount of the Federal total of payments, since in such transactions the State law requires the use of the same term as the Federal law to represent a different amount than the Federal law. • Sections 520.07(2)(i) and 520.34(2)(i)—Disclosure of deferred payment price. This disclosure is preempted in those transactions in which the amount is the same as the Federal total sale price, since in such transactions the State law requires the use of a different term than the Federal law to represent the same amount as the Federal law. 10. Preemption determination—Missouri. • Sections 365.070-6(9) and 408.260-5(6)—Disclosure of principal balance. This disclosure is preempted in those transactions in which the amount of the principal balance is the same as the Federal amount financed, since in such transactions the State law requires the use of a term different from the Federal term to represent the same amount. • Sections 365.070-6(10) and 408.260-5(7)—Disclosure of time price differential and time charge, respectively. These disclosures are preempted in those transactions in which the amount is the same as the Federal finance charge, since in such transactions the State law requires the use of a term different from the Federal law to represent the same amount. • Sections 365.070-2 and 408.260-2—Use of the terms time price differential time charge • Sections 365.070-6(11) and 408.260-5(8)—Disclosure of time balance. The time balance disclosure is preempted in those transactions in which the amount is the same as the amount of the Federal total of payments, since in such transactions the State law requires the use of a different term than the Federal law to represent the same amount. • Sections 365.070-6(12) and 408.260-5(9)—Disclosure of time sale price. This disclosure is preempted in those transactions in which the amount is the same as the Federal total sale price, since in such transactions the State law requires the use of a different term from the Federal law to represent the same amount. 11. Preemption determination—Mississippi. • Section 63-19-31(2)(g)—Disclosure of finance charge. This disclosure is preempted in those cases in which the term finance charge 12. Preemption determination—South Carolina. • Section 37-10-102(c)—Disclosure of due-on-sale clause. This provision is preempted, but only to the extent that the creditor is required to include the disclosure with the segregated Federal disclosures. If the creditor may comply with the State law by placing the due-on-sale notice apart from the Federal disclosures, the state law is not preempted. 13. Preemption determination—Arizona. • Section 6-621A.2—Use of the term the total sum of total of payments. Note: The State disclosure notice that incorporated the above preempted term was amended on May 4, 1987, to provide that disclosures must now be made pursuant to the Federal disclosure provisions.) 14. Preemption determination—Indiana. • Section 23-2-5-8—Inclusion of the loan broker's fees and charges in the calculation of, among other items, the finance charge and annual percentage rate disclosed to potential borrowers. This disclosure is inconsistent with sections 106(a) and § 226.4(a) of the Federal statute and regulation, respectively, and is preempted in those instances where the use of the same term would disclose a different amount than that required to be disclosed under Federal law. 15. Preemption determination—Wisconsin. • Section 422.308(1)—the disclosure of the annual percentage rate in cases where the amount of the annual percentage rate disclosed to consumers under the state law differs from the amount that would be disclosed under federal law, since in those cases the state law requires the use of the same term as the federal law to represent a different amount than the federal law. • Section 766.565(5)—the provision permitting a creditor to include in an open-end home equity agreement authorization to declare the account balance due and payable upon receiving notice of termination from a non-obligor spouse, since such provision is inconsistent with the purpose of the federal law. 28(b) Equivalent disclosure requirements. 1. General. after 28(d) Special Rule for Credit and Charge Cards 1. General. 2. Limitations on field of preemption. 3. Laws not preempted. • A state law that requires card issuers to offer a grace period or that prohibits certain fees in credit and charge card transactions. • A state retail installment sales law or a state plain language law, except to the extent that it regulates the disclosure of credit information in applications, solicitations and renewals of accounts of the type subject to §§ 226.5a and 226.9(e). • A state law requiring notice of a consumer's rights under antidiscrimination or similar laws or a state law requiring notice about credit information available from state authorities. References Statute: Other sections: Previous regulation: 1981 changes: The revised regulation contains no counterpart to § 226.6(c) of the previous regulation concerning placement of inconsistent disclosures. It also reflects the statutory amendment providing that once the Board determines that a state-required disclosure is inconsistent with Federal law, the creditor may not make the state disclosure. Section 226.29—State Exemptions 29(a) General rule. 1. Classes eligible. 2. Substantial similarity. 3. Adequate enforcement. 4. Exemptions granted. • Maine. • Connecticut. • Massachusetts. • Oklahoma. • Wyoming. 29(b) Civil liability. 1. Not eligible for exemption. References Statute: Other sections: Previous regulation: 1981 changes: Section 226.30—Limitation on Rates 1. Scope of coverage. • Dwelling-secured credit obligations that require variable-rate disclosures under the regulation because the interest rate may increase during the term of the obligation. • Dwelling-secured open-end credit plans entered into before November 7, 1989 (the effective date of the home equity rules) that are not considered variable-rate obligations for purposes of disclosure under the regulation but where the creditor reserves the contractual right to increase the interest rate—periodic rate and corresponding annual percentage rate—during the term of the plan. In contrast, credit obligations in which there is no contractual right to increase the interest rate during the term of the obligation are not subject to this section. Examples include: • “Shared-equity” or “shared-appreciation” mortgage loans that have a fixed rate of interest and a shared-appreciation feature based on the consumer's equity in the mortgaged property. (The appreciation share is payable in a lump sum at a specified time.) • Dwelling-secured fixed-rate closed-end balloon-payment mortgage loans and dwelling-secured fixed-rate open-end plans with a stated term that the creditor may renew at maturity. (Contrast with the renewable balloon-payment mortgage instrument described in comment 17(c)(1)-11.) • Dwelling-secured fixed rate closed-end multiple advance transactions in which each advance is disclosed as a separate transaction. • “Price level adjusted mortgages” or other indexed mortgages that have a fixed rate of interest but provide for periodic adjustments to payments and the loan balance to reflect changes in an index measuring prices or inflation. The requirement of this section does not apply to credit obligations entered into prior to December 9, 1987. Consequently, new advances under open-end credit plans existing prior to December 9, 1987, are not subject to this section. 2. Refinanced obligations. 3. Assumptions. 4. Modifications of obligations. 5. Land trusts. 6. Relationship to other sections. • An adjustable interest rate business-purpose loan is not subject to this section even if the loan is secured by a dwelling because such credit extensions are not subject to the regulation. (See generally § 226.3(a).) • Creditors subject to this section are only those that fall within the definition of a creditor in § 226.2(a)(17). 7. Consumer credit contract. consummation 8. Manner of stating the maximum interest rate. i. For example, the following statements would be sufficiently specific A. The maximum interest rate will not exceed X%. B. The interest rate will never be higher than X percentage points above the initial rate of Y%. C. The interest rate will not exceed X%, or X percentage points above [a rate to be determined at some future point in time], whichever is less. D. The maximum interest rate will not exceed X%, or the state usury ceiling, whichever is less. ii. The following statements would not comply with this section A. The interest rate will never be higher than X percentage points over the prevailing market rate. B. The interest rate will never be higher than X percentage points above [a rate to be determined at some future point in time]. C. The interest rate will not exceed the state usury ceiling which is currently X%. iii. A creditor may state the maximum rate in terms of a maximum annual percentage rate that may be imposed. Under an open-end credit plan, this normally would be the corresponding annual percentage rate. ( See 9. Multiple interest rate ceilings. 10. Interest rate charged after default. 11. Increasing the maximum interest rate—general rule. 12. Increasing the maximum interest rate—assumption of an obligation. References Statute: Other sections: Previous regulation: 1987 changes: Subpart E—Special Rules for Certain Home Mortgage Transactions Section 226.31—General Rules 31(c) Timing of disclosure. 1. Furnishing disclosures. Paragraph 31(c)(1) Disclosures for certain closed-end home mortgages. 1. Pre-consummation waiting period. Paragraph 31(c)(1)(i) Change in terms. 1. Redisclosure required. 2. Sale of optional products at consummation. Paragraph 31(c)(1)(ii) Telephone disclosures. 1. Telephone disclosures. Paragraph 31(c)(1)(iii) Consumer's waiver of waiting period before consummation. 1. Modification or waiver. 31(c)(2) Disclosures for reverse mortgages. 1. Business days. 2. Open-end plans. 31(d) Basis of disclosures and use of estimates. 1. Redisclosure. 31(d)(3) Per-diem interest. 1. Per-diem interest. Section 226.32—Requirements for Certain Closed-End Home Mortgages 32(a) Coverage. Paragraph 32(a)(1)(i). 1. Application date. 2. When fifteenth not a business day. 3. Calculating annual percentage rates for variable-rate loans and discount loans. 4. Treasury securities. i. If the H-15 contains a yield for Treasury securities with constant maturities of 7 years and 10 years and no maturity in between, the annual percentage rate for an 8-year mortgage loan is compared with the yield of securities having a 7-year maturity, and the annual percentage rate for a 9-year mortgage loan is compared with the yield of securities having a 10-year maturity. ii. If a mortgage loan has a term of 15 years, and the H-15 contains a yield of 5.21 percent for constant maturities of 10 years, and also contains a yield of 6.33 percent for constant maturities of 20 years, then the creditor compares the annual percentage rate for a 15-year mortgage loan with the yield for constant maturities of 10 years. iii. If a mortgage loan has a term of 30 years, and the H-15 does not contain a yield for 30-year constant maturities, but contains a yield for 20-year constant maturities, and an average yield for securities with remaining terms to maturity of 25 years and over, then the annual percentage rate on the loan is compared with the yield for 20-year constant maturities. Paragraph 32(a)(1)(ii). 1. Total loan amount. i. If the consumer finances a $300 fee for a creditor-conducted appraisal and pays $400 in points at closing, the amount financed under § 226.18(b) is $9,900 ($10,000 plus the $300 appraisal fee that is paid to and financed by the creditor, less $400 in prepaid finance charges). The $300 appraisal fee paid to the creditor is added to other points and fees under § 226.32(b)(1)(iii). It is deducted from the amount financed ($9,900) to derive a total loan amount of $9,600. ii. If the consumer pays the $300 fee for the creditor-conducted appraisal in cash at closing, the $300 is included in the points and fees calculation because it is paid to the creditor. However, because the $300 is not financed by the creditor, the fee is not part of the amount financed under § 226.18(b). In this case, the amount financed is the same as the total loan amount: $9,600 ($10,000, less $400 in prepaid finance charges). iii. If the consumer finances a $300 fee for an appraisal conducted by someone other than the creditor or an affiliate, the $300 fee is not included with other points and fees under § 226.32(b)(1)(iii). The amount financed under § 226.18(b) is $9,900 ($10,000 plus the $300 fee for an independently-conducted appraisal that is financed by the creditor, less the $400 paid in cash and deducted as prepaid finance charges). iv. If the consumer finances a $300 fee for a creditor-conducted appraisal and a $500 single premium for optional credit life insurance, and pays $400 in points at closing, the amount financed under § 226.18(b) is $10,400 ($10,000, plus the $300 appraisal fee that is paid to and financed by the creditor, plus the $500 insurance premium that is financed by the creditor, less $400 in prepaid finance charges). The $300 appraisal fee paid to the creditor is added to other points and fees under § 226.32(b)(1)(iii), and the $500 insurance premium is added under 226.32(b)(1)(iv). The $300 and $500 costs are deducted from the amount financed ($10,400) to derive a total loan amount of $9,600. 2. Annual adjustment of $400 amount. i. For 1996, $412, reflecting a 3.00 percent increase in the CPI-U from June 1994 to June 1995, rounded to the nearest whole dollar. ii. For 1997, $424, reflecting a 2.9 percent increase in the CPI-U from June 1995 to June 1996, rounded to the nearest whole dollar. iii. For 1998, $435, reflecting a 2.5 percent increase in the CPI-U from June 1996 to June 1997, rounded to the nearest whole dollar. iv. For 1999, $441, reflecting a 1.4 percent increase in the CPI-U from June 1997 to June 1998, rounded to the nearest whole dollar. v. For 2000, $451, reflecting a 2.3 percent increase in the CPI-U from June 1998 to June 1999, rounded to the nearest whole dollar. vi. For 2001, $465, reflecting a 3.1 percent increase in the CPI-U from June 1999 to June 2000, rounded to the nearest whole dollar. vii. For 2002, $480, reflecting a 3.27 percent increase in the CPI-U from June 2000 to June 2001, rounded to the nearest whole dollar. viii. For 2003, $488, reflecting a 1.64 percent increase in the CPI-U from June 2001 to June 2002, rounded to the nearest whole dollar. ix. For 2004, $499, reflecting a 2.22 percent increase in the CPI-U from June 2002 to June 2003, rounded to the nearest whole dollar. x. For 2005, $510, reflecting a 2. 29 percent increase in the CPI-U from June 2003 to June 2004, rounded to the nearest whole dollar. xi. For 2006, $528, reflecting a 3.51 percent increase in the CPI-U from June 2004 to June 2005, rounded to the nearest whole dollar. xii. For 2007, $547, reflecting a 3.55 percent increase in the CPI-U from June 2005 to June 2006, rounded to the nearest whole dollar. xiii. For 2008, $561, reflecting a 2.56 percent increase in the CPI-U from June 2006 to June 2007, rounded to the nearest whole dollar. xiv. For 2009, $583, reflecting a 3.94 percent increase in the CPI-U from June 2007 to June 2008, rounded to the nearest whole dollar. xv. For 2010, $579, reflecting a 0.74 percent decrease in the CPI-U from June 2008 to June 2009, rounded to the nearest whole dollar. xvi. For 2011, $592, reflecting a 2.2 percent increase in the CPI-U from June 2009 to June 2010, rounded to the nearest whole dollar. xvii. For 2012, $611, reflecting a 3.2 percent increase in the CPI-U from June 2010 to June 2011, rounded to the nearest whole dollar. Paragraph 32(a)(2). 1. Exemption limited. See 32(b) Definitions Paragraph 32(b)(1)(i). 1. General. Paragraph 32(b)(1)(ii). 1. Mortgage broker fees. 2. Example. Paragraph 32(b)(1)(iv). 1. Premium amount. 32(c) Disclosures. 1. Format. Paragraph 32(c)(3) Regular payment; balloon payment. 1. General. i. If the loan has more than one payment level, the regular payment for each level must be disclosed. For example: A. In a 30-year graduated payment mortgage where there will be payments of $300 for the first 120 months, $400 for the next 120 months, and $500 for the last 120 months, each payment amount must be disclosed, along with the length of time that the payment will be in effect. B. If interest and principal are paid at different times, the regular amount for each must be disclosed. C. In discounted or premium variable-rate transactions where the creditor sets the initial interest rate and later rate adjustments are determined by an index or formula, the creditor must disclose both the initial payment based on the discount or premium and the payment that will be in effect thereafter. Additional explanatory material which does not detract from the required disclosures may accompany the disclosed amounts. For example, if a monthly payment is $250 for the first six months and then increases based on an index and margin, the creditor could use language such as the following: “Your regular monthly payment will be $250 for six months. After six months your regular monthly payment will be based on an index and margin, which currently would make your payment $350. Your actual payment at that time may be higher or lower.” Paragraph 32(c)(4) Variable-rate. 1. Calculating “worst-case” payment example. Paragraph 32(c)(5) Amount borrowed. 1. Optional insurance; debt-cancellation coverage. 32(d) Limitations. 32(d) Limitations 1. Additional prohibitions applicable under other sections. 2. Effective date. Paragraph 32(d)(1)(i) Balloon payment. 1. Regular periodic payments. Paragraph 32(d)(2) Negative amortization. 1. Negative amortization. Paragraph 32(d)(4) Increased interest rate. 1. Variable-rate transactions. Paragraph 32(d)(5) Rebates. 1. Calculation of refunds. Paragraph 32(d)(6) Prepayment penalties. 1. State law. 32(d)(7) Prepayment penalty exception. Paragraph 32(d)(7)(iii). 1. Calculating debt-to-income ratio. 2. Verification. 3. Interaction with Regulation B. Paragraph 32(d)(7)(iv). 1. Payment change. i. Initial payments for a variable-rate transaction consummated on January 1, 2010 are $1,000 per month. Under the loan agreement, the first possible date that a payment in a different amount may be due is January 1, 2014. A prepayment penalty is permitted with this mortgage transaction provided that the other § 226.32(d)(7) conditions are met, that is: provided that the prepayment penalty is permitted by other applicable law, the penalty expires on or before Dec. 31, 2011, the penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or its affiliate, and at consummation the consumer's total monthly debts do not exceed 50 percent of the consumer's monthly gross income, as verified. ii. Initial payments for a variable-rate transaction consummated on January 1, 2010 are $1,000 per month. Under the loan agreement, the first possible date that a payment in a different amount may be due is December 31, 2013. A prepayment penalty is prohibited with this mortgage transaction because the payment may change within the four-year period following consummation. iii. Initial payments for a graduated-payment transaction consummated on January 1, 2010 are $1,000 per month. Under the loan agreement, the first possible date that a payment in a different amount may be due is January 1, 2014. A prepayment penalty is permitted with this mortgage transaction provided that the other § 226.32(d)(7) conditions are met, that is: provided that the prepayment penalty is permitted by other applicable law, the penalty expires on or before December 31, 2011, the penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or its affiliate, and at consummation the consumer's total monthly debts do not exceed 50 percent of the consumer's monthly gross income, as verified. iv. Initial payments for a step-rate transaction consummated on January 1, 2010 are $1,000 per month. Under the loan agreement, the first possible date that a payment in a different amount may be due is December 31, 2013. A prepayment penalty is prohibited with this mortgage transaction because the payment may change within the four-year period following consummation. 2. Payment changes excluded. i. A change in the amount of a periodic payment that is allocated to principal or interest that does not change the total amount of the periodic payment. ii. The borrower's actual unanticipated late payment, delinquency, or default; and iii. The borrower's voluntary payment of additional amounts (for example when a consumer chooses to make a payment of interest and principal on a loan that only requires the consumer to pay interest). 32(d)(8) Due-on-demand clause. Paragraph 32(d)(8)(ii). 1. Failure to meet repayment terms. Paragraph 32(d)(8)(iii). 1. Impairment of security. 2. Examples. A. The consumer transfers title to the property or sells the property without the permission of the creditor. B. The consumer fails to maintain required insurance on the dwelling. C. The consumer fails to pay taxes on the property. D. The consumer permits the filing of a lien senior to that held by the creditor. E. The sole consumer obligated on the credit dies. F. The property is taken through eminent domain. G. A prior lienholder forecloses. ii. By contrast, the filing of a judgment against the consumer would permit termination and acceleration only if the amount of the judgment and collateral subject to the judgment is such that the creditor's security is adversely affected. If the consumer commits waste or otherwise destructively uses or fails to maintain the property such that the action adversely affects the security, the loan may be terminated and the balance accelerated. Illegal use of the property by the consumer would permit termination and acceleration if it subjects the property to seizure. If one of two consumers obligated on a loan dies, the creditor may terminate the loan and accelerate the balance if the security is adversely affected. If the consumer moves out of the dwelling that secures the loan and that action adversely affects the security, the creditor may terminate a loan and accelerate the balance. Paragraph 32(e)(1) Repayment ability. 1. Determining repayment ability. Paragraph 32(e)(2) Home-Improvement Contracts. Paragraph 32(e)(2)(i). 1. Joint payees. Paragraph 32(e)(3) Notice to Assignee. 1. Subsequent sellers or assignors. 2. Format. Section 226.33—Requirements for Reverse Mortgages 33(a) Definition. 1. Nonrecourse transaction. Paragraph 33(a)(2). 1. Default. 2. Definite term or maturity date. 33(c) Projected total cost of credit. Paragraph 33(c)(1) Costs to consumer. 1. Costs and charges to consumer—relation to finance charge. 2. Annuity costs. 3. Disposition costs excluded. n Paragraph 33(c)(2) Payments to consumer. 1. Payments upon a specified event. Paragraph 33(c)(3) Additional creditor compensation. 1. Shared appreciation or equity. Paragraph 33(c)(4) Limitations on consumer liability. 1. In general. i. A limit on the consumer's liability to a certain percentage of the projected value of the home. ii. A limit on the consumer's liability to the net proceeds from the sale of the property subject to the reverse mortgage. 2. Uniform assumption for “net proceeds” recourse limitations. n Section 226.34—Prohibited Acts or Practices in Connection with Credit Subject to § 226.32 34(a) Prohibited acts or practices for loans subject to § 226.32. Paragraph 34(a)(1) Home-improvement contracts. Paragraph 34(a)(1)(i). 1. Joint payees. Paragraph 34(a)(2) Notice to Assignee. 1. Subsequent sellers or assignors. 2. Format. 3. Assignee liability. Paragraph 34(a)(3) Refinancings within one-year period. 1. In the borrower's interest. i. A refinancing would be in the borrower's interest if needed to meet the borrower's “bona fide personal financial emergency” (see generally § 226.23(e) and § 226.31(c)(1)(iii)). ii. In connection with a refinancing that provides additional funds to the borrower, in determining whether a loan is in the borrower's interest consideration should be given to whether the loan fees and charges are commensurate with the amount of new funds advanced, and whether the real estate-related charges are bona fide and reasonable in amount (see generally § 226.4(c)(7)). 2. Application of the one-year refinancing prohibition to creditors and assignees. i. Creditor A is prohibited from refinancing the January 2003 loan (or any other loan subject to § 226.32 to the same borrower) into a loan subject to § 226.32, until January 15, 2004. Creditor B is restricted until January 15, 2004, or such date prior to January 15, 2004 that Creditor B ceases to hold or service the loan. During the prohibition period, Creditors A and B may make a subordinate lien loan that does not refinance a loan subject to § 226.32. Assume that on April 1, 2003, Creditor A makes but does not assign a second-lien loan subject to § 226.32. In that case, Creditor A would be prohibited from refinancing either the first-lien or second-lien loans (or any other loans to that borrower subject to § 226.32) into another loan subject to § 226.32 until April 1, 2004. ii. The loan made by Creditor A on January 15, 2003 (and assigned to Creditor B) may be refinanced by Creditor C at any time. If Creditor C refinances this loan on March 1, 2003 into a new loan subject to § 226.32, Creditor A is prohibited from refinancing the loan made by Creditor C (or any other loan subject to § 226.32 to the same borrower) into another loan subject to § 226.32 until January 15, 2004. Creditor C is similarly prohibited from refinancing any loan subject to § 226.32 to that borrower into another until March 1, 2004. (The limitations of § 226.34(a)(3) no longer apply to Creditor B after Creditor C refinanced the January 2003 loan and Creditor B ceased to hold or service the loan.) 34(a)(4) Repayment ability. 1. Application of repayment ability rule. See 2. General prohibition. 3. Other dwelling-secured obligations. 4. Discounted introductory rates and non-amortizing or negatively-amortizing payments. 5. Repayment ability as of consummation. 6. Income, assets, and employment. 7. Interaction with Regulation B. 34(a)(4)(i) Mortgage-related obligations. 1. Mortgage-related obligations. 34(a)(4)(ii) Verification of repayment ability. 1. Income and assets relied on. 2. Income and assets—co-applicant. 3. Expected income. Paragraph 34(a)(4)(ii)(A). 1. Internal Revenue Service (IRS) Form W-2. 2. Tax returns. 3. Other third-party documents that provide reasonably reliable evidence of consumer's income or assets. 4. Information specific to the consumer. 5. Duplicative collection of documentation. Paragraph 34(a)(4)(ii)(B). 1. No violation if income or assets relied on not materially greater than verifiable amounts. 2. Materially greater than. Paragraph 34(a)(4)(ii)(C). 1. In general. See 34(a)(4)(iii) Presumption of compliance. 1. In general. Paragraph 34(a)(4)(iii)(B). 1. Determination of payment schedule. i. Balloon-payment loan; fixed interest rate. ii. Fixed-rate loan with interest-only payment for five years. iii. Fixed-rate loan with interest-only payment for seven years. iv. Variable-rate loan with discount for five years. v. Variable-rate loan with discount for seven years. vi. Step-rate loan. Paragraph 34(a)(4)(iii)(C). 1. “Income” and “debt”. 34(a)(4)(iv) Exclusions from the presumption of compliance. 1. In general. 2. Renewable balloon loan. Paragraph 34(b) Prohibited acts or practices for dwelling-secured loans; open-end credit. 1. Amount of credit extended. Section 226.35—Prohibited Acts or Practices in Connection With Higher-priced Mortgage Loans 35(a) Higher-priced mortgage loans. Paragraph 35(a)(2). 1. Average prime offer rate. 2. Comparable transaction. 3. Rate set. 4. Board table. 35(b) Rules for higher-priced mortgage loans. 1. Effective date. Paragraph 35(b)(2)(ii)(C). 1. Payment change. 2. Negative amortization. i. Initial payments for a variable-rate transaction consummated on January 1, 2010 are $1,000 per month and the loan agreement permits negative amortization to occur. Under the loan agreement, the first date that a scheduled payment in a different amount may be due is January 1, 2014 and the creditor does not have the right to change scheduled payments prior to that date even if negative amortization occurs. A prepayment penalty is permitted with this mortgage transaction provided that the other § 226.35(b)(2) conditions are met, that is: provided that the prepayment penalty is permitted by other applicable law, the penalty expires on or before December 31, 2011, and the penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or its affiliate. ii. Initial payments for a variable-rate transaction consummated on January 1, 2010 are $1,000 per month and the loan agreement permits negative amortization to occur. Under the loan agreement, the first date that a scheduled payment in a different amount may be due is January 1, 2014, but the creditor has the right to change scheduled payments prior to that date if negative amortization occurs. A prepayment penalty is prohibited with this mortgage transaction because the payment may change within the four-year period following consummation. 35(b)(3) Escrows. Paragraph 35(b)(3)(i). 1. Section 226.35(b)(3) applies to principal dwellings, including structures that are classified as personal property under state law. For example, an escrow account must be established on a higher-priced mortgage loan secured by a first-lien on a mobile home, boat or a trailer used as the consumer's principal dwelling. See 2. Administration of escrow accounts. 3. Optional insurance items. Paragraph 35(b)(3)(ii)(B). 1. Limited exception. 35(b)(3)(v) “Jumbo” loans. 1. Special threshold for “jumbo” loans. 2. Escrow requirements only. Section 226.36—Prohibited Acts or Practices in Connection with Credit Secured by a Dwelling 1. Scope of coverage. See 2. Mandatory compliance date for §§ 226.36(d) and (e). 3. Effective date. 36(a) Loan originator and mortgage broker defined. 1. Meaning of loan originator. General. See ii. Table funding. bona fide bona fide iii. Servicing. 2. Meaning of mortgage broker. 3. Meaning of creditor. 4. Managers and administrative staff. 36(c) Servicing practices. Paragraph 36(c)(1)(i). 1. Crediting of payments. as of 2. Payments to be credited. 3. Date of receipt. Paragraph 36(c)(1)(ii). 1. Pyramiding of late fees. Paragraph 36(c)(1)(iii). 1. Reasonable time. 2. Person acting on behalf of the consumer. 3. Payment requirements. 4. Accuracy of payoff statements. Paragraph 36(c)(2). 1. Payment requirements. See 2. Payment requirements—limitations. 3. Implied guidelines for payments. 36(d) Prohibited payments to loan originators. 1. Persons covered. 2. Mortgage brokers. 36(d)(1) Payments based on transaction terms and conditions. 1. Compensation. General. A. An annual or other periodic bonus; or B. Awards of merchandise, services, trips, or similar prizes. ii. Name of fee. iii. Amounts for third-party charges. bona fide bona fide A. Assume a loan originator charges the consumer a $400 application fee that includes $50 for a credit report and $350 for an appraisal. Assume that $50 is the amount the creditor pays for the credit report. At the time the loan originator imposes the application fee on the consumer, the loan originator is uncertain of the cost of the appraisal because the originator may choose from appraisers that charge between $300 to $350 for appraisals. Later, the cost for the appraisal is determined to be $300 for this consumer's transaction. In this case, the $50 difference between the $400 application fee imposed on the consumer and the actual $350 cost for the credit report and appraisal is not deemed compensation for purposes of § 226.36(d) and (e), even though the $50 is retained by the loan originator. B. Using the same example in comment 36(d)(1)-1.iii.A above, the $50 difference would be compensation for purposes of § 226.36(d) and (e) if the appraisers from whom the originator chooses charge fees between $250 and $300. 2. Examples of compensation that is based on transaction terms or conditions. 1/2 3. Examples of compensation not based on transaction terms or conditions. i. The loan originator's overall loan volume ( i.e., ii. The long-term performance of the originator's loans. iii. An hourly rate of pay to compensate the originator for the actual number of hours worked. iv. Whether the consumer is an existing customer of the creditor or a new customer. v. A payment that is fixed in advance for every loan the originator arranges for the creditor ( e.g., vi. The percentage of applications submitted by the loan originator to the creditor that result in consummated transactions. vii. The quality of the loan originator's loan files ( e.g., viii. A legitimate business expense, such as fixed overhead costs. ix. Compensation that is based on the amount of credit extended, as permitted by § 226.36(d)(1)(ii). See 4. Creditor's flexibility in setting loan terms. 5. Effect of modification of loan terms. 6. Periodic changes in loan originator compensation and transactions' terms and conditions. 7. Compensation received directly from the consumer. bona fide See 8. Record retention. 9. Amount of credit extended. i. A creditor may offer a loan originator 1 percent of the amount of credit extended for all loans the originator arranges for the creditor, but not less than $1,000 or greater than $5,000 for each loan. ii. A creditor may not 36(d)(2) Payments by persons other than consumer. 1. Compensation in connection with a particular transaction. See 2. Compensation received directly from a consumer. 36(d)(3) Affiliates. 1. For purposes of § 226.36(d), affiliates are treated as a single “person.” The term “affiliate” is defined in § 226.32(b)(2). For example, assume a parent company has two mortgage lending subsidiaries. Under § 226.36(d)(1), subsidiary “A” could not pay a loan originator greater compensation for a loan with an interest rate of 8 percent than it would pay for a loan with an interest rate of 7 percent. If the loan originator may deliver loans to both subsidiaries, they must compensate the loan originator in the same manner. Accordingly, if the loan originator delivers the loan to subsidiary “B” and the interest rate is 8 percent, the originator must receive the same compensation that would have been paid by subsidiary A for a loan with a rate of either 7 or 8 percent. 36(e) Prohibition on steering. 1. Compensation. Paragraph 36(e)(1). 1. Steering. 2. Prohibited conduct. i. In determining whether a consummated transaction is in the consumer's interest, that transaction must be compared to other possible loan offers available through the originator, if any, and for which the consumer was likely to qualify, at the time that transaction was offered to the consumer. Possible loan offers are available through the loan originator if they could be obtained from a creditor with which the loan originator regularly does business. Section 226.36(e)(1) does not require a loan originator to establish a business relationship with any creditor with which the loan originator does not already do business. To be considered a possible loan offer available through the loan originator, an offer need not be extended by the creditor; it need only be an offer that the creditor likely would extend upon receiving an application from the applicant, based on the creditor's current credit standards and its current rate sheets or other similar means of communicating its current credit terms to the loan originator. An originator need not inform the consumer about a potential transaction if the originator makes a good faith determination that the consumer is not likely to qualify for it. ii. Section 226.36(e)(1) does not require a loan originator to direct a consumer to the transaction that will result in a creditor paying the least amount of compensation to the originator. However, if the loan originator reviews possible loan offers available from a significant number of the creditors with which the originator regularly does business, and the originator directs the consumer to the transaction that will result in the least amount of creditor-paid compensation for the loan originator, the requirements of § 226.36(e)(1) are deemed to be satisfied. In the case where a loan originator directs the consumer to the transaction that will result in a greater amount of creditor-paid compensation for the loan originator, § 226.36(e)(1) is not violated if the terms and conditions on that transaction compared to the other possible loan offers available through the originator, and for which the consumer likely qualifies, are the same. A loan originator who is an employee of the creditor on a transaction may not obtain compensation that is based on the transaction's terms or conditions pursuant to § 226.36(d)(1), and compliance with that provision by such a loan originator also satisfies the requirements of § 226.36(e)(1) for that transaction with the creditor. However, if a creditor's employee acts as a broker by forwarding a consumer's application to a creditor other than iii. See the commentary under § 226.36(e)(3) for additional guidance on what constitutes a “significant number of creditors with which a loan originator regularly does business” and guidance on the determination about transactions for which “the consumer likely qualifies.” 3. Examples. 36(e)(2) Permissible transactions. 1. Safe harbors. 2. Minimum number of loan options. 36(e)(3) Loan options presented. 1. Significant number of creditors. 2. Creditors with which loan originator regularly does business. i. There is a written agreement between the originator and the creditor governing the originator's submission of mortgage loan applications to the creditor; ii. The creditor has extended credit secured by a dwelling to one or more consumers during the current or previous calendar month based on an application submitted by the loan originator; or iii. The creditor has extended credit secured by a dwelling twenty-five or more times during the previous twelve calendar months based on applications submitted by the loan originator. For this purpose, the previous twelve calendar months begin with the calendar month that precedes the month in which the loan originator accepted the consumer's application. 3. Lowest interest rate. i. If the interest rate varies based on changes to an index, the originator shall use the fully-indexed rate that would be in effect at consummation without regard to any initial discount or premium. ii. For a step-rate loan, the originator shall use the highest rate that would apply during the first five years. 4. Transactions for which the consumer likely qualifies. Section 226.39—Mortgage transfer disclosures. 39(a) Scope. Paragraph 39(a)(1). 1. Covered persons. 2. Acquisition of legal title. i. Partial interest. ii. Joint acquisitions. See iii. Affiliates. 3. Exclusions. i. Beneficial interest. ii. Loan servicers. 4. Mergers, corporate acquisitions, or reorganizations. Paragraph 39(a)(2). 1. Mortgage transactions covered. 39(b) Disclosure required. 1. Generally. 39(b)(1) Form of disclosure. 1. Combining disclosures. et seq. 39(b)(4) Multiple transfers. 1. Single disclosure for multiple transfers. 2. Estimating the date. 3. Duty to comply. 39(b)(5) Multiple covered person. 1. Single disclosure required. See See 2. Single disclosure not required. 3. Timing requirements. 4. Duty to comply. See 39(c) Exceptions. Paragraph 39(c)(1). 1. Transfer of all interest. 2. Transfer of partial interests. See Paragraph 39(c)(2). 1. Repurchase agreements. 2. Intermediary parties. Paragraph 39(c)(3). 1. Acquisition of partial interests. 2. Examples. i. A covered person is not required to provide the disclosures under this section if it acquires a partial interest in the loan from the original creditor who remains authorized to receive the notice of the right to rescind and resolve issues concerning the consumer's payments after the transfer. ii. The original creditor transfers fifty percent of its interest in the loan to covered person A. Person A does not provide the disclosures under this section because the exception in § 226.39(c)(3) applies. The creditor then transfers the remaining fifty percent of its interest in the loan to covered person B and does not retain any interest in the loan. Person B must provide the disclosures under this section. iii. The original creditor transfers fifty percent of its interest in the loan to covered person A and also authorizes party X as its agent to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. Since there is a change in an agent or party authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments, person A is required to provide the disclosures under this section. Person A then transfers all of its interest in the loan to covered person B. Person B is not required to provide the disclosures under this section if the original creditor retains a partial interest in the loan and party X retains the same authority. iv. The original creditor transfers all of its interest in the loan to covered person A. Person A provides the disclosures under this section and notifies the consumer that party X is authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. Person A then transfers fifty percent of its interest in the loan to covered person B. Person B is not required to provide the disclosures under this section if person A retains a partial interest in the loan and party X retains the same authority. 39(d) Content of required disclosures. 1. Identifying the loan. i. The address of the mortgaged property along with the account number or loan number previously disclosed to the consumer, which may appear in a truncated format; ii. The account number alone, or other identifying number, if that number has been previously provided to the consumer, such as on a statement that the consumer receives monthly; or iii. The date on which the credit was extended and the original amount of the loan or credit line. Paragraph 39(d)(1). 1. Identification of covered person. 39(d)(1)(i) 1. Multiple transfers, single disclosure. See 39(d)(1)(ii) 1. Multiple covered persons, single disclosure. 2. Multiple covered persons, multiple disclosures. See Paragraph 39(d)(3). 1. Identifying agents. 2. Other contact information. Paragraph 39(d)(4). 1. Where recorded. 39(e) Optional disclosures. 1. Generally. See Section 226.42—Valuation Independence 42(a) Scope. 1. Open- and closed-end credit. 2. Consumer's principal dwelling. 42(b) Definitions. Paragraph 42(b)(1 1. Examples of covered persons. See 2. Examples of persons not covered. i. The consumer who obtains credit through a covered transaction. ii. A person secondarily liable for a covered transaction, such as a guarantor. iii. A person that resides in or will reside in the consumer's principal dwelling but will not be liable on the covered transaction, such as a non-obligor spouse. Paragraph 42(b)(2). 1. Principal dwelling. See Paragraph 42(b)(3). 1. Valuation. 2. Automated model or system. 3. Estimate. 42(c) Valuation for consumer's principal dwelling. 42(c)(1) Coercion. 1. State law. See 2. Purpose. See 3. Person that prepares valuations. 4. Indirect acts or practices. Paragraph 42(c)(1)(i). 1. Applicability of examples. See 2. Specific value or predetermined threshold. 42(c)(2) Mischaracterization of value. 42(c)(2)(i) Misrepresentation. 1. Opinion of value. 42(c)(2)(iii) Inducement of mischaracterization. 1. Inducement. 42(d) Prohibition on conflicts of interest. 42(d)(1)(i) In general. 1. Prohibited interest in the property. 2. Prohibited interest in the transaction. 42(d)(1)(ii) Employees and affiliates of creditors; providers of multiple settlement services. 1. Employees and affiliates of creditors. 2. Providers of multiple settlement services. 42(d)(2) Employees and affiliates of creditors with assets of more than $250 million for both of the past two calendar years. 1. Safe harbor. Paragraph 42(d)(2)(ii). 1. Prohibition on reporting to a person who is part of the creditor's loan production function. 2. Prohibition on reporting to a person whose compensation is based on the transaction closing. Paragraph 42(d)(2)(iii). 1. Direct or indirect involvement in selection of person who prepares a valuation. 42(d)(3) Employees and affiliates of creditors with assets of $250 million or less for either of the past two calendar years. 1. Safe harbor. 42(d)(4) Providers of multiple settlement services. Paragraph 42(d)(4)(i). 1. Safe harbor in transactions in which the creditor had assets of more than $250 million for both of the past two calendar years. 2. Reporting. Paragraph 42(d)(4)(ii). 1. Safe harbor in transactions in which the creditor had assets of $250 million or less for either of the past two calendar years. 42(d)(5) Definitions. Paragraph 42(d)(5)(i). 1. Loan production function. e.g., e.g., 42(e) When extension of credit prohibited. 1. Reasonable diligence. 42(f) Customary and reasonable compensation. 42(f)(1) Requirement to provide customary and reasonable compensation to fee appraisers. 1. Agents of the creditor. 2. Geographic market. very few or no many 3. Failure to perform contractual obligations. 4. Agreement that fee is “customary and reasonable.” 5. Volume-based discounts. 42(f)(2) Presumption of compliance. 1. In general. 42(f)(2)(i) Presumption of compliance. 1. Two-step process for determining customary and reasonable rates. 2. Identifying recent rates. 3. Accounting for factors. Paragraph 42(f)(2)(i)(A). 1. Type of property. Paragraph 42(f)(2)(i)(B). 1. Scope of work. Paragraph 42(f)(2)(i)(D). 1. Fee appraiser qualifications. 2. Membership in professional appraisal organization. See, e.g., Paragraph 42(f)(2)(i)(E). 1. Fee appraiser experience and professional record. Paragraph 42(f)(2)(i)(F). 1. Fee appraiser work quality. Paragraph 42(f)(2)(ii). 1. Restraining trade. 2. Acts of monopolization. 42(f)(3) Alternative presumption of compliance. 1. In general. 2. Geographic market. 3. Recent rates. 42(f)(4) Definitions. 42(f)(4)(i) Fee appraiser. 1. Organization. 42(g) Mandatory reporting. 42(g)(1) Reporting required. 1. Reasonable basis. 2. Material failure to comply. i. Mischaracterizing the value of the consumer's principal dwelling in violation of § 226.42(c)(2)(i). ii. Performing an assignment in a grossly negligent manner, in violation of a rule under USPAP. iii. Accepting an appraisal assignment on the condition that the appraiser will report a value equal to or greater than the purchase price for the consumer's principal dwelling, in violation of a rule under USPAP. 3. Other matters. i. An appraiser's disclosure of confidential information in violation of applicable state law. ii. An appraiser's failure to maintain errors and omissions insurance in violation of applicable state law. 4. Examples of covered persons. See 5. Examples of persons not covered. i. The consumer who obtains credit through a covered transaction. ii. A person secondarily liable for a covered transaction, such as a guarantor. iii. A person that resides in or will reside in the consumer's principal dwelling but will not be liable on the covered transaction, such as a non-obligor spouse. 6. Appraiser. See Section 226.43—Appraisals for Higher-Risk Mortgage Loans 43(a) Definitions. 43(a)(1) Certified or licensed appraiser. 1. USPAP. 2. Appraiser's certification. 3. FIRREA title XI and implementing regulations. 43(a)(3) Higher-priced mortgage loan. 1. Principal dwelling. See 2. Average prime offer rate. 3. Comparable transaction. 4. Rate set. 5. Threshold for “jumbo” loans. 43(b) Exemptions. 1. Compliance with title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Paragraph 43(b)(1) 1. Qualified mortgage criteria. i. The loan is—(1) subject to the ability-to-repay requirements of the Bureau of Consumer Financial Protection (Bureau) in 12 CFR 1026.43 as a “covered transaction” (defined in 12 CFR 1026.43(b)(1)) and (2) a qualified mortgage pursuant to the Bureau's rules or, for loans insured, guaranteed, or administered by the U.S. Department of Housing and Urban Development (HUD), U.S. Department of Veterans Affairs (VA), U.S. Department of Agriculture (USDA), or Rural Housing Service (RHS), a qualified mortgage pursuant to applicable rules prescribed by those agencies (but only once such rules are in effect; otherwise, the Bureau's definition of a qualified mortgage applies to those loans); or ii. The loan is—(1) not subject to the Bureau's ability-to-repay requirements in 12 CFR 1026.43 as a “covered transaction” (defined in 12 CFR 1026.43(b)(1)), but (2) meets the criteria for a qualified mortgage in the Bureau's rules or, for loans insured, guaranteed, or administered by HUD, VA, USDA, or RHS, meets the criteria for a qualified mortgage in the applicable rules prescribed by those agencies (but only once such rules are in effect; otherwise, the Bureau's criteria for a qualified mortgage applies to those loans). To explain further, loans enumerated in 12 CFR 1026.43(a) are not “covered transactions” under the Bureau's ability-to-repay requirements in 12 CFR 1026.43, and thus cannot be qualified mortgages (entitled to a rebuttable presumption or safe harbor of compliance with the ability-to-repay requirements of 12 CFR 1026.43, see, e.g., See See Paragraph 43(b)(2) 1. Threshold amount. 2. No increase in the CPI-W. i. Net increases. ii. Net decreases. 3. Threshold. i. From January 18, 2014, through December 31, 2014, the threshold amount is $25,000. ii. From January 1, 2015, through December 31, 2015, the threshold amount is $25,500. iii. From January 1, 2016, through December 31, 2016, the threshold amount is $25,500. iv. From January 1, 2017, through December 31, 2017, the threshold amount is $25,500. v. From January 1, 2018, through December 31, 2018, the threshold amount is $26,000. vi. From January 1, 2019, through December 31, 2019, the threshold amount is $26,700. vii. From January 1, 2020, through December 31, 2020, the threshold amount is $27,200. viii. From January 1, 2021, through December 31, 2021, the threshold amount is $27,200. ix. From January 1, 2022, through December 31, 2022, the threshold amount is $28,500. x. From January 1, 2023, through December 31, 2023, the threshold amount is $31,000. xi. From January 1, 2024, through December 31, 2024, the threshold amount is $32,400. xii. From January 1, 2025, through December 31, 2025, the threshold amount is $33,500. xiii. From January 1, 2026, through December 31, 2026, the threshold amount is $34,200. 4. Qualifying for exemption—in general. 5. Qualifying for exemption—subsequent changes. See Paragraph 43(b)(3) 1. Secured by a mobile home. Paragraph 43(b)(4) 1. Construction-to-permanent loans. See See 2. Financing initial construction. See Paragraph 43(b)(7)(i)(A) 1. Same credit risk holder. See 2. Same credit risk holder—illustrations. Illustrations of the credit risk holder of the existing obligation continuing to be the credit risk holder of the refinancing include, but are not limited to, the following: i. The existing obligation is held in the portfolio of a bank, thus the bank holds the credit risk. The bank arranges to refinance the loan and also will hold the refinancing in its portfolio. If the refinancing otherwise meets the requirements for an exemption under § 226.43(b)(7), the transaction will qualify for the exemption because the credit risk holder is the same for the existing obligation and the refinance transaction. In this case, the exemption would apply regardless of whether the bank arranged to refinance the loan directly or indirectly, such as through the servicer or subservicer on the existing obligation. ii. The existing obligation is held in the portfolio of a government-sponsored enterprise (GSE), thus the GSE holds the credit risk. The existing obligation is then refinanced by the servicer of the loan and immediately transferred to the GSE. The GSE pools the refinancing in a mortgage-backed security guaranteed by the GSE, thus the GSE holds the credit risk on the refinance loan. If the refinance transaction otherwise meets the requirements for an exemption under § 226.43(b)(7), the transaction will qualify for the exemption because the credit risk holder is the same for the existing obligation and the refinance transaction. In this case, the exemption would apply regardless of whether the existing obligation was refinanced by the servicer or subservicer on the existing obligation (acting as a “creditor” under § 1026.2(a)(17)) or by a different creditor. 3. Forward commitments. Paragraph 43(b)(7) Paragraph 43(b)(7)(ii) 1. Regular periodic payments. see Paragraph 43(b)(7)(iii) 1. Permissible use of proceeds. For applications received on or after July 18, 2015 Paragraph 43(b)(8) Paragraph 43(b)(8)(i) 1. Secured by new manufactured home and land—physical visit of the interior. Paragraph 43(b)(8)(ii) 1. Secured by a manufactured home and not land. Paragraph 43(b)(8)(ii)(B) 1. Independent. 2. Adjustments. Paragraph 43(b)(8)(ii)(C) 1. Interest in the property. 2. Interest in the transaction. 3. Training in valuing manufactured homes. 4. Manufactured home valuation—example. 43(c) Appraisals required. 43(c)(1) In general. 1. Written appraisal—electronic transmission. 43(c)(2) Safe harbor. 1. Safe harbor. 2. Appraiser's certification. See also Paragraph 43(c)(2)(iii). 1. Confirming elements in the appraisal. 43(d) Additional appraisal for certain higher-priced mortgage loans. 1. Acquisition. 43(d)(1) In general. 1. Appraisal from a previous transaction. 2. 90-day, 180-day calculation. 3. Date seller acquired the property. 4. Date of the consumer's agreement to acquire the property. 5. Price at which the seller acquired the property. 6. Price the consumer is obligated to pay to acquire the property. See also 43(d)(2) Different certified or licensed appraisers. 1. Independent appraisers. 43(d)(3) Relationship to general appraisal requirements. 1. Safe harbor. 43(d)(4) Required analysis in the additional appraisal. 1. Determining acquisition dates and prices used in the analysis of the additional appraisal. 43(d)(5) No charge for additional appraisal. 1. Fees and mark-ups. 43(d)(6) Creditor's determination of prior sale date and price. 43(d)(6)(i) In general. 1. Estimated sales price. 2. Reasonable diligence—oral statements insufficient. 3. Lack of information and conflicting information—two appraisals required. See also i. Assume a creditor orders and reviews the results of a title search, which shows that a prior sale occurred between 91 and 180 days ago, but not the price paid in that sale. Thus, based on the title search, the creditor would not be able to determine whether the price the consumer is obligated to pay under the consumer's acquisition agreement is more than 20 percent higher than the seller's acquisition price, pursuant to § 226.43(d)(1)(ii). Before extending a higher-priced mortgage loan subject to the appraisal requirements of § 226.43, the creditor must either: perform additional diligence to ascertain the seller's acquisition price and, based on this information, determine whether two written appraisals are required; or obtain two written appraisals in compliance with § 226.43(d). See also ii. Assume a creditor reviews the results of a title search indicating that the last recorded purchase was more than 180 days before the consumer's agreement to acquire the property. Assume also that the creditor subsequently receives a written appraisal indicating that the seller acquired the property between 91 and 180 days before the consumer's agreement to acquire the property. In this case, unless one of these sources is clearly wrong on its face, the creditor would not be able to determine whether the seller acquired the property within 180 days of the date of the consumer's agreement to acquire the property from the seller, pursuant to § 226.43(d)(1)(ii). Before extending a higher-priced mortgage loan subject to the appraisal requirements of § 226.43, the creditor must either: (1) Perform additional diligence to ascertain the seller's acquisition date and, based on this information, determine whether two written appraisals are required; or (2) obtain two written appraisals in compliance with § 226.43(d). See also 43(d)(6)(ii) Inability to determine prior sales date or price—modified requirements for additional appraisal. 1. Required analysis. 43(d)(7) Exemptions from the additional appraisal requirement. Paragraph 43(d)(7)(iii). 1. Non-profit entity. Paragraph 43(d)(7)(viii). 1. Bureau table of rural counties. See 43(e) Required disclosure. 43(e)(1) In general. 1. Multiple applicants. 2. Appraisal independence requirements not affected. 43(f) Copy of appraisals. 43(f)(1) In general. 1. Multiple applicants. 43(f)(2) Timing. 1. “Provide.” 2. No waiver. 43(f)(4) No charge for copy of appraisal. 1. Fees and mark-ups. Subpart F—Special Rules for Private Education Loans Section 226.46—Special Disclosure Requirements for Private Education Loans 46(a) Coverage 1. Coverage. 46(b) Definitions 46(b)(1) Covered Educational Institution 1. General. 2. Agent. 46(b)(2) Institution of higher education. 1. General. 46(b)(3) Postsecondary educational expenses. 1. General. 46(b)(4) Preferred lender arrangement. 1. General. 46(b)(5) Private education loan. 1. Extended expressly for postsecondary educational expenses. 2. Multiple-purpose loans. Definition. ii. Coverage. See iii. Examples. 3. Short-term loans. 4. Billing plans. 46(c) Form of Disclosures 1. Form of disclosures—relation to other sections. Paragraph 46(c)(3) 1. Application and solicitation disclosures—electronic disclosures. i. They automatically appear on the screen when the application or solicitation reply form appears; ii. They are located on the same Web “page” as the application or solicitation reply form without necessarily appearing on the initial screen, if the application or reply form contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable; or iii. They are posted on a Web site and the application or solicitation reply form is linked to the disclosures in a manner that prevents the consumer from by passing the disclosures before submitting the application or reply form. 46(d) Timing of Disclosures 1. Receipt of disclosures. See Paragraph 46(d)(1) 1. Invitations to apply. i. An application form in a direct mailing, electronic communication or a single application form as a “take-one” (in racks in public locations, for example); ii. An oral application in a telephone contact; or iii. An application in an in-person contact. Paragraph 46(d)(2) 1. Timing. et seq. 46(g) Effect of subsequent events 1. Approval disclosures. 2. Final disclosures. Section 226.47—Content of Disclosures 1. As applicable. 47(a) Application or Solicitation Disclosures Paragraph 47(a)(1)(i) 1. Rates actually offered. i. For disclosures in applications or solicitations sent by direct mail, the rates were in effect within 60 days before mailing; ii. For disclosures in applications or solicitations in electronic form, the rates were in effect within 30 days before the disclosures are sent to a consumer, or for disclosures made on an Internet Web site, within 30 days before being viewed by the public; iii. For disclosures in printed applications or solicitations made available to the general public, the rates were in effect within 30 days before printing; or iv. For disclosures provided orally in telephone applications or solicitations, the rates are currently available at the time the disclosures are provided. 2. Creditworthiness and other factors. 3. Rates applicable to the loan. Paragraph 47(a)(1)(iii) 1. Coverage. 2. Limitations. Paragraph 47(a)(1)(iv) 1. Co-signer or guarantor—changes in applicable interest rate. 47(a)(2) Fees and Default or Late Payment Costs 1. Fees or range of fees. 2. Fees required to obtain the private education loan. 47(a)(3) Repayment Terms 1. Loan term. 2. Payment deferral options—general. 3. Payment deferral options—in school deferment. 4. Combination with cost estimate disclosure. See 5. Bankruptcy limitations. 47(a)(4) Cost Estimates 1. Total cost of the loan. 2. Basis for estimates. ii. If a prepaid finance charge is determined as a percentage of the amount financed, for purposes of the example, the creditor should assume that the fee is determined as a percentage of the total loan amount, even if this is not the creditor's usual practice. For example, suppose the consumer requires a disbursement of $10,000 and the creditor charges a 3% origination fee. In order to calculate the total cost example, the creditor must determine the loan amount that will result in a $10,000 amount financed after the 3% fee is assessed. In this example, the resulting loan amount would be $10,309.28. Assessing the 3% origination fee on the loan amount of $10,309.28 results in an origination fee of $309.28, which is withheld from the loan funds disbursed to the consumer. The principal loan amount of $10,309.28 minus the prepaid finance charge of $309.28 results in an amount financed of $10,000. 3. Calculated for each option to defer interest payments. i.e., 4. Deferment period assumptions. i. For loan programs intended for educational expenses of undergraduate students, the creditor may assume that the consumer defers payments for a four-year matriculation period, plus the loan's maximum applicable grace period, if any. For all other loans, the creditor may assume that the consumer defers for a two-year matriculation period, plus the maximum applicable grace period, if any, or the maximum time the consumer may defer payments under the loan program, whichever is shorter. ii. Alternatively, if the creditor knows that the student will be enrolled in a program with a standard duration, the creditor may assume that the consumer defers payments for the full duration of the program (plus any grace period). For example, if a creditor makes loans intended for students enrolled in a four-year medical school degree program, the creditor may assume that the consumer defers payments for four years plus the loan's maximum applicable grace period, if any. However, the creditor may not modify the disclosure to correspond to a particular student's situation. For example, even if the creditor knows that a student will be a second-year medical school student, the creditor must assume a four-year deferral period. 47(a)(6)(ii) 1. Terms of Federal student loans. 47(a)(6)(iii) 1. Web site address. 47(b) Approval Disclosures 47(b)(1) Interest Rate 1. Variable rate disclosures. 2. Limitations on rate adjustments. 3. Rates applicable to the loan. Paragraph 47(b)(2) 1. Fees and default or late payment costs. 47(b)(3) Repayment Terms 1. Principal amount. See 2. Loan term. 3. Payment deferral options applicable to the consumer. 4. Payments required during enrollment. 5. Bankruptcy limitations. 6. An estimate of the total amount for repayment. i. The interest rate in effect on the date of approval. Compliance with the total of payments disclosure requirement of § 226.18(h) constitutes compliance with this requirement. ii. The maximum possible rate of interest applicable to the loan or, if the maximum rate cannot be determined, a rate of 25%. If the legal obligation between the parties specifies a maximum rate of interest, the creditor must calculate the total amount for repayment based on that rate. If the legal obligation does not specify a maximum rate but a usury or rate ceiling under State or Federal statutes or regulations applies, the creditor must use that rate. If a there is no maximum rate in the legal obligation or under a usury or rate ceiling, the creditor must base the disclosure on a rate of 25% and must disclose that there is no maximum rate and that the total amount for repayment disclosed under § 226.47(b)(3)(vii)(B) is an estimate and will be higher if the applicable interest rate increases. iii. If terms of the legal obligation provide a limitation on the amount that the interest rate may increase at any one time, the creditor may reflect the effect of the interest rate limitation in calculating the total cost example. For example, if the legal obligation provides that the interest rate may not increase by more than three percentage points each year, the creditor may assume that the rate increases by three percentage points each year until it reaches that maximum possible rate, or if a maximum rate cannot be determined, an interest rate of 25%. 7. The maximum monthly payment. 47(b)(4) Alternatives to Private Education Loans 1. General. 47(b)(5) Rights of the Consumer 1. Notice of acceptance period. See 47(c) Final Disclosures 1. Notice of right to cancel. See 2. More conspicuous. See Section 226.48—Limitations on Private Education Loans 1. Co-branding—definition of marketing. 2. Implied endorsement. 3. Disclosure. ii. A creditor is considered to have complied with § 226.48(b) if the creditor's marketing contains a clear and conspicuous statement, equally prominent and closely proximate to the reference to the covered educational institution, using the name of the creditor's loan or loan program, the name of the covered educational institution, and the name of the creditor, that the creditor's loans are not offered or made by the covered educational institution, but are made by the creditor. For example, “[Name of loan or loan program] is not being offered or made by [name of school], but by [name of creditor].” The statement is considered to be equally prominent and closely proximate if it is the same type size and is located immediately next to or directly above or below the reference to the educational institution, without any intervening text or graphical displays. Paragraph 48(c) 1. 30 day acceptance period. See 2. Method of acceptance. et seq. 3. Prohibition on changes to rates and terms. 4. Permissible changes to rates and terms—re-disclosure not required. 5. Permissible changes to rates and terms—school certification. 5. Permissible changes to rates and terms—re-disclosure required. Paragraph 48(d) 1. Right to cancel. See 2. Method of cancellation. et seq. 3. Cancellation without penalty. Paragraph 48(e) 1. General. 2. Electronic signature. Paragraph 48(f) 1. General. Subpart G—Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students § 226.51—Ability To Pay 51(a) General rule. 51(a)(1) Consideration of ability to pay. 1. Consideration of additional factors. 2. Ability to pay as of application or consideration of increase. 3. Credit line increase. 4. Income and assets. Sources of information. A. Information provided by the consumer in connection with the credit card account under an open-end (not home-secured) consumer credit plan; B. Information provided by the consumer in connection with any other financial relationship the card issuer or its affiliates have with the consumer (subject to any applicable information-sharing rules); C. Information obtained through third parties (subject to any applicable information-sharing rules); and D. Information obtained through any empirically derived, demonstrably and statistically sound model that reasonably estimates a consumer's income and assets. ii. Income and assets of persons liable for debts incurred on account. iii. Household income and assets. 5. Current obligations. 6. Joint applicants and joint accountholders. 51(a)(2) Minimum periodic payments. 1. Applicable minimum payment formula. 2. Interest rate for purchases. 3. Mandatory fees. 51(b) Rules affecting young consumers. 1. Age as of date of application or consideration of credit line increase. 2. Liability of cosigner, guarantor, or joint accountholder. 3. Authorized users exempt. 4. Electronic application. et seq. 51(b)(1) Applications from young consumers. 1. Relation to Regulation B. 2. Financial information. See 51(b)(2) Credit line increases for young consumers. 1. Relation to Regulation B. § 226.52—Limitations on Fees 52(a) Limitations prior to account opening and during first year after account opening. 52(a)(1) General rule. 1. Application. i. Assume that, under the terms of a credit card account, a consumer is required to pay $120 in fees for the issuance or availability of credit at account opening. The consumer is also required to pay a cash advance fee that is equal to five percent of the cash advance and a late payment fee of $15 if the required minimum periodic payment is not received by the payment due date (which is the twenty-fifth of the month). At account opening on January 1 of year one, the credit limit for the account is $500. Section 226.52(a)(1) permits the card issuer to charge to the account the $120 in fees for the issuance or availability of credit at account opening. On February 1 of year one, the consumer uses the account for a $100 cash advance. Section 226.52(a)(1) permits the card issuer to charge a $5 cash-advance fee to the account. On March 26 of year one, the card issuer has not received the consumer's required minimum periodic payment. Section 226.52(a)(2) permits the card issuer to charge a $15 late payment fee to the account. On July 15 of year one, the consumer uses the account for a $50 cash advance. Section 226.52(a)(1) does not permit the card issuer to charge a $2.50 cash advance fee to the account. Furthermore, § 225.52(a)(1) prohibits the card issuer from collecting the $2.50 cash advance fee from the consumer by other means. ii. Assume that, under the terms of a credit card account, a consumer is required to pay $125 in fees for the issuance or availability of credit during the first year after account opening. At account opening on January 1 of year one, the credit limit for the account is $500. Section 226.52(a)(1) permits the card issuer to charge the $125 in fees to the account. However, § 226.52(a)(1) prohibits the card issuer from requiring the consumer to make payments to the card issuer for additional non-exempt fees with respect to the account prior to account opening or during the first year after account opening. Section 226.52(a)(1) also prohibits the card issuer from requiring the consumer to open a separate credit account with the card issuer to fund the payment of additional non-exempt fees prior to the opening of the credit card account or during the first year after the credit card account is opened. iii. Assume that, on January 1 of year one, a consumer is required to pay a $100 fee in order to apply for a credit card account. On January 5, the card issuer approves the consumer's application, assigns the account a credit limit of $1,000, and provides the consumer with account-opening disclosures consistent with § 226.6. The date on which the account may first be used by the consumer to engage in transactions is January 5. The consumer is required to pay $150 in fees for the issuance or availability of credit, which § 226.52(a)(1) permits the card issuer to charge to the account on January 5. However, because the $100 application fee is subject to the 25 percent limit in § 226.52(a)(1), the card issuer is prohibited from requiring the consumer to pay any additional non-exempt fees with respect to the account until January 5 of year two. 2. Fees that exceed 25 percent limit. 3. Changes in credit limit during first year. Increases in credit limit. ii. Decreases in credit limit. A. Assume that, at account opening on January 1, the credit limit for a credit card account is $1,000 and the consumer is required to pay $250 in fees for the issuance or availability of credit. The billing cycles for the account begin on the first day of the month and end on the last day of the month. On July 30, the card issuer decreases the credit limit for the account to $500. Section 226.52(a)(1) requires the card issuer to waive or remove $175 in fees from the account or to credit the account for an amount equal to $175 within a reasonable amount of time but no later than August 31. B. Assume that, on June 25 of year one, a consumer is required to pay a $75 fee in order to apply for a credit card account. At account opening on July 1 of year one, the credit limit for the account is $500 and the consumer is required to pay $50 in fees for the issuance or availability of credit. The billing cycles for the account begin on the first day of the month and end on the last day of the month. On February 15 of year two, the card issuer decreases the credit limit for the account to $250. Section 226.52(a)(1) requires the card issuer to waive or remove fees from the account or to credit the account for an amount equal to $62.50 within a reasonable amount of time but no later than March 31 of year two. 4. Date on which account may first be used by consumer to engage in transactions. i. Methods of compliance. A. The date the account is first used by the consumer for a transaction (such as when an account is established in connection with financing the purchase of goods or services). B. The date the consumer complies with any reasonable activation procedures imposed by the card issuer for preventing fraud or unauthorized use of a new account (such as requiring the consumer to provide information that verifies his or her identity), provided that the account may be used for transactions on that date. C. The date that is seven days after the card issuer mails or delivers to the consumer account-opening disclosures that comply with § 226.6, provided that the consumer may use the account for transactions after complying with any reasonable activation procedures imposed by the card issuer for preventing fraud or unauthorized use of the new account (such as requiring the consumer to provide information that verifies his or her identity). If a card issuer has reasonable procedures designed to ensure that account-opening disclosures that comply with § 226.6 are mailed or delivered to consumers no later than a certain number of days after the card issuer establishes the account, the card issuer may add that number of days to the seven-day period for purposes of determining the date on which the account was opened. ii. Examples. A. Assume that, on July 1 of year one, a credit card account under an open-end (not home-secured) consumer credit plan is established in connection with financing the purchase of goods or services and a $500 transaction is charged to the account by the consumer. The card issuer may consider the account open on July 1 of year one for purposes of § 226.52(a)(1). Accordingly, § 226.52(a)(1) ceases to apply to the account on July 1 of year two. B. Assume that, on July 1 of year one, a card issuer approves a consumer's application for a credit card account under an open-end (not home-secured) consumer credit plan and establishes the account on its internal systems. On July 5, the card issuer mails or delivers to the consumer account-opening disclosures that comply with § 226.6. If the consumer may use the account for transactions on the date the consumer complies with any reasonable procedures imposed by the card issuer for preventing fraud or unauthorized use, the card issuer may consider the account open on July 12 of year one for purposes of § 226.52(a)(1). Accordingly, § 226.52(a)(1) ceases to apply to the account on July 12 of year two. C. Same facts as in paragraph B above except that the card issuer has adopted reasonable procedures designed to ensure that account-opening disclosures that comply with § 226.6 are mailed or delivered to consumers no later than three days after an account is established on its systems. If the consumer may use the account for transactions on the date the consumer complies with any reasonable procedures imposed by the card issuer for preventing fraud or unauthorized use, the card issuer may consider the account open on July 11 of year one for purposes of § 226.52(a)(1). Accordingly, § 226.52(a)(1) ceases to apply to the account on July 11 of year two. However, if the consumer uses the account for a transaction or complies with the card issuer's reasonable procedures for preventing fraud or unauthorized use on July 8 of year one, the card issuer may, at its option, consider the account open on that date for purposes of § 226.52(a)(1) and § 226.52(a)(1) therefore ceases to apply to the account on July 8 of year two. 52(a)(2) Fees not subject to limitations. 1. Covered fees. i. 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; ii. 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; iii. 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 fees for using the account for purchases); iv. 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)); v. Fixed finance charges; and vi. Minimum charges imposed if a charge would otherwise have been determined by applying a periodic interest rate to a balance except for the fact that such charge is smaller than the minimum. 2. Fees the consumer is not required to pay. 3. Security deposits. 52(a)(3) Rule of construction. 1. Fees or charges otherwise prohibited by law. 52(b) Limitations on penalty fees. 1. Fees for violating the account terms or other requirements. i. The following are examples of fees that are subject to the limitations in § 226.52(b) or are prohibited by § 226.52(b) A. Late payment fees and any other fees imposed by a card issuer if an account becomes delinquent or if a payment is not received by a particular date. B. Returned payment fees and any other fees imposed by a card issuer if a payment received via check, automated clearing house, or other payment method is returned. C. Any fee or charge for an over-the-limit transaction as defined in § 226.56(a), to the extent the imposition of such a fee or charge is permitted by § 226.56. D. Any fee imposed by a card issuer if payment on a check that accesses a credit card account is declined. E. Any fee or charge for a transaction that the card issuer declines to authorize. See F. Any fee imposed by a card issuer based on account inactivity (including the consumer's failure to use the account for a particular number or dollar amount of transactions or a particular type of transaction). See G. Any fee imposed by a card issuer based on the closure or termination of an account. See ii. The following are examples of fees to which § 226.52(b) does not apply A. Balance transfer fees. B. Cash advance fees. C. Foreign transaction fees. D. Annual fees and other fees for the issuance or availability of credit described in § 226.5a(b)(2), except to the extent that such fees are based on account inactivity. See E. 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, provided that such fees are not imposed as a result of a violation of the account terms or other requirements of an account. F. Fees for making an expedited payment (to the extent permitted by § 226.10(e)). G. Fees for optional services (such as travel insurance). H. Fees for reissuing a lost or stolen card. 2. Rounding to nearest whole dollar. 52(b)(1) General rule. 1. Relationship between § 226.52(b)(1)(i), (b)(1)(ii), and (b)(2). i. Relationship between § 226.52(b)(1)(i) and (b)(1)(ii). A. A card issuer that complies with the safe harbors in § 226.52(b)(1)(ii) is not required to determine that its fees represent a reasonable proportion of the total costs incurred by the card issuer as a result of a type of violation under § 226.52(b)(1)(i). B. A card issuer may impose a fee for one type of violation pursuant to § 226.52(b)(1)(i) and may impose a fee for a different type of violation pursuant to § 226.52(b)(1)(ii). For example, a card issuer may impose a late payment fee of $30 based on a cost determination pursuant to § 226.52(b)(1)(i) but impose returned payment and over-the-limit fees of $25 or $35 pursuant to the safe harbors in § 226.52(b)(1)(ii). C. A card issuer that previously based the amount of a penalty fee for a particular type of violation on a cost determination pursuant to § 226.52(b)(1)(i) may begin to impose a penalty fee for that type of violation that is consistent with § 226.52(b)(1)(ii) at any time (subject to the notice requirements in § 226.9), provided that the first fee imposed pursuant to § 226.52(b)(1)(ii) is consistent with § 226.52(b)(1)(ii)(A). For example, assume that a late payment occurs on January 15 and that, based on a cost determination pursuant to § 226.52(b)(1)(i), the card issuer imposes a $30 late payment fee. Another late payment occurs on July 15. The card issuer may impose another $30 late payment fee pursuant to § 226.52(b)(1)(i) or may impose a $25 late payment fee pursuant to § 226.52(b)(1)(ii)(A). However, the card issuer may not impose a $35 late payment fee pursuant to § 226.52(b)(1)(ii)(B). If the card issuer imposes a $25 fee pursuant to § 226.52(b)(1)(ii)(A) for the July 15 late payment and another late payment occurs on September 15, the card issuer may impose a $35 fee for the September 15 late payment pursuant to § 226.52(b)(1)(ii)(B). ii. Relationship between § 226.52(b)(1) and (b)(2). 52(b)(1)(i) Fees based on costs. 1. Costs incurred as a result of violations. i. The number of violations of a particular type experienced by the card issuer during a prior period of reasonable length (for example, a period of twelve months). ii. The costs incurred by the card issuer during that period as a result of those violations. iii. At the card issuer's option, the number of fees imposed by the card issuer as a result of those violations during that period that the card issuer reasonably estimates it will be unable to collect. See iv. At the card issuer's option, reasonable estimates for an upcoming period of changes in the number of violations of that type, the resulting costs, and the number of fees that the card issuer will be unable to collect. See 2. Amounts excluded from cost analysis. i. Losses and associated costs (including the cost of holding reserves against potential losses and the cost of funding delinquent accounts). ii. Costs associated with evaluating whether consumers who have not violated the terms or other requirements of an account are likely to do so in the future (such as the costs associated with underwriting new accounts). However, once a violation of the terms or other requirements of an account has occurred, the costs associated with preventing additional violations for a reasonable period of time are costs incurred by a card issuer as a result of violations of the terms or other requirements of an account for purposes of § 226.52(b)(1)(i). 3. Third party charges. 4. Amounts charged by other card issuers. 5. Uncollected fees. See 6. Late payment fees. Costs incurred as a result of late payments. ii. Examples. A. Late payment fee based on past delinquencies and costs. Assume that, during year one, a card issuer experienced 1 million delinquencies and incurred $26 million in costs as a result of those delinquencies. For purposes of § 226.52(b)(1)(i), a $26 late payment fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of late payments during year two. B. Adjustment based on fees card issuer is unable to collect. Same facts as above except that the card issuer imposed a late payment fee for each of the 1 million delinquencies experienced during year one but was unable to collect 25% of those fees (in other words, the card issuer was unable to collect 250,000 fees, leaving a total of 750,000 late payments for which the card issuer did collect or could have collected a fee). For purposes of § 226.52(b)(2)(i), a late payment fee of $35 would represent a reasonable proportion of the total costs incurred by the card issuer as a result of late payments during year two. C. Adjustment based on reasonable estimate of future changes. Same facts as paragraphs A. and B. above except the card issuer reasonably estimates that—based on past delinquency rates and other factors relevant to potential delinquency rates for year two—it will experience a 2% decrease in delinquencies during year two (in other words, 20,000 fewer delinquencies for a total of 980,000). The card issuer also reasonably estimates that it will be unable to collect the same percentage of fees (25%) during year two as during year one (in other words, the card issuer will be unable to collect 245,000 fees, leaving a total of 735,000 late payments for which the card issuer will be able to collect a fee). The card issuer also reasonably estimates that—based on past changes in costs incurred as a result of delinquencies and other factors relevant to potential costs for year two—it will experience a 5% increase in costs during year two (in other words, $1.3 million in additional costs for a total of $27.3 million). For purposes of § 226.52(b)(1)(i), a $37 late payment fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of late payments during year two. 7. Returned payment fees. Costs incurred as a result of returned payments. A. Costs associated with processing returned payments and reconciling the card issuer's systems and accounts to reflect returned payments; B. Costs associated with investigating potential fraud with respect to returned payments; and C. Costs associated with notifying the consumer of the returned payment and arranging for a new payment. ii. Examples. A. Returned payment fee based on past returns and costs. Assume that, during year one, a card issuer experienced 150,000 returned payments and incurred $3.1 million in costs as a result of those returned payments. For purposes of § 226.52(b)(1)(i), a $21 returned payment fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of returned payments during year two. B. Adjustment based on fees card issuer is unable to collect. Same facts as above except that the card issuer imposed a returned payment fee for each of the 150,000 returned payments experienced during year one but was unable to collect 15% of those fees (in other words, the card issuer was unable to collect 22,500 fees, leaving a total of 127,500 returned payments for which the card issuer did collect or could have collected a fee). For purposes of § 226.52(b)(2)(i), a returned payment fee of $24 would represent a reasonable proportion of the total costs incurred by the card issuer as a result of returned payments during year two. C. Adjustment based on reasonable estimate of future changes. Same facts as paragraphs A. and B. above except the card issuer reasonably estimates that—based on past returned payment rates and other factors relevant to potential returned payment rates for year two—it will experience a 2% increase in returned payments during year two (in other words, 3,000 additional returned payments for a total of 153,000). The card issuer also reasonably estimates that it will be unable to collect 25% of returned payment fees during year two (in other words, the card issuer will be unable to collect 38,250 fees, leaving a total of 114,750 returned payments for which the card issuer will be able to collect a fee). The card issuer also reasonably estimates that—based on past changes in costs incurred as a result of returned payments and other factors relevant to potential costs for year two—it will experience a 1% decrease in costs during year two (in other words, a $31,000 reduction in costs for a total of $3.069 million). For purposes of § 226.52(b)(1)(i), a $27 returned payment fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of returned payments during year two. 8. Over-the-limit fees. Costs incurred as a result of over-the-limit transactions. A. Costs associated with determining whether to authorize over-the-limit transactions; and B. Costs associated with notifying the consumer that the credit limit has been exceeded and arranging for payments to reduce the balance below the credit limit. ii. Costs not incurred as a result of over-the-limit transactions. iii. Examples. A. Over-the-limit fee based on past fees and costs. Assume that, during year one, a card issuer authorized 600,000 over-the-limit transactions and incurred $4.5 million in costs as a result of those over-the-limit transactions. However, because of the affirmative consent requirements in § 226.56, the card issuer was only permitted to impose 200,000 over-the-limit fees during year one. For purposes of § 226.52(b)(1)(i), a $23 over-the-limit fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of over-the-limit transactions during year two. B. Adjustment based on fees card issuer is unable to collect. Same facts as above except that the card issuer was unable to collect 30% of the 200,000 over-the-limit fees imposed during year one (in other words, the card issuer was unable to collect 60,000 fees, leaving a total of 140,000 over-the-limit transactions for which the card issuer did collect or could have collected a fee). For purposes of § 226.52(b)(2)(i), an over-the-limit fee of $32 would represent a reasonable proportion of the total costs incurred by the card issuer as a result of over-the-limit transactions during year two. C. Adjustment based on reasonable estimate of future changes. Same facts as paragraphs A. and B. above except the card issuer reasonably estimates that—based on past over-the-limit transaction rates, the percentages of over-the-limit transactions that resulted in an over-the-limit fee in the past (consistent with § 226.56), and factors relevant to potential changes in those rates and percentages for year two—it will authorize approximately the same number of over-the-limit transactions during year two (600,000) and impose approximately the same number of over-the-limit fees (200,000). The card issuer also reasonably estimates that it will be unable to collect the same percentage of fees (30%) during year two as during year one (in other words, the card issuer was unable to collect 60,000 fees, leaving a total of 140,000 over-the-limit transactions for which the card issuer will be able to collect a fee). The card issuer also reasonably estimates that—based on past changes in costs incurred as a result of over-the-limit transactions and other factors relevant to potential costs for year two—it will experience a 6% decrease in costs during year two (in other words, a $270,000 reduction in costs for a total of $4.23 million). For purposes of § 226.52(b)(1)(i), a $30 over-the-limit fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of over-the-limit transactions during year two. 9. Declined access check fees. Costs incurred as a result of declined access checks. A. Costs associated with determining whether to decline payment on access checks; B. Costs associated with processing declined access checks and reconciling the card issuer's systems and accounts to reflect declined access checks; C. Costs associated with investigating potential fraud with respect to declined access checks; and D. Costs associated with notifying the consumer and the merchant or other party that accepted the access check that payment on the check has been declined. ii. Example. 52(b)(1)(ii) Safe harbors. 1. Multiple violations of same type. i. Same billing cycle or next six billing cycles. A. Late payments. B. Returned payments. C. Transactions that exceed the credit limit. D. Declined access checks. ii. Relationship to §§ 226.52(b)(2)(ii) and 226.56(j)(1). See iii. Examples. A. Violations of same type (late payments). (1) The card issuer does not receive any payment during the March billing cycle. A required minimum periodic payment of $100 is due on April 25. On April 20, the card issuer receives a $50 payment. No further payment is received during the April billing cycle. Accordingly, consistent with § 226.52(b)(1)(ii)(B), the card issuer may impose a $35 late payment fee on April 26. Furthermore, the card issuer may impose a $35 late payment fee for any late payment that occurs during the May, June, July, August, September, or October billing cycles. (2) Same facts as in paragraph A. above. On March 30, the card issuer receives a $50 payment and the required minimum periodic payments for the April, May, June, July, August, and September billing cycles are received on or before the payment due date. A required minimum periodic payment of $60 is due on October 25. On October 26, a late payment has occurred because the required minimum periodic payment due on October 25 has not been received. However, because this late payment did not occur during the six billing cycles following the March billing cycle, § 226.52(b)(1)(ii) only permits the card issuer to impose a late payment fee of $25. B. Violations of different types (late payment and over the credit limit). C. Violations of different types (late payment and returned payment). 2. Adjustments based on Consumer Price Index. 3. Delinquent balance for charge card accounts. i. Assume that a charge card issuer requires payment of outstanding balances in full at the end of each billing cycle and that the billing cycles for the account begin on the first day of the month and end on the last day of the month. At the end of the June billing cycle, the account has a balance of $1,000. On July 5, the card issuer provides a periodic statement disclosing the $1,000 balance consistent with § 226.7. During the July billing cycle, the account is used for $300 in transactions, increasing the balance to $1,300. At the end of the July billing cycle, no payment has been received and the card issuer imposes a $25 late payment fee consistent with § 226.52(b)(1)(ii)(A). On August 5, the card issuer provides a periodic statement disclosing the $1,325 balance consistent with § 226.7. During the August billing cycle, the account is used for $200 in transactions, increasing the balance to $1,525. At the end of the August billing cycle, no payment has been received. Consistent with § 226.52(b)(1)(ii)(C), the card issuer may impose a late payment fee of $40, which is 3% of the $1,325 balance that was due at the end of the August billing cycle. Section 226.52(b)(1)(ii)(C) does not permit the card issuer to include the $200 in transactions that occurred during the August billing cycle. ii. Same facts as above except that, on August 25, a $100 payment is received. Consistent with § 226.52(b)(1)(ii)(C), the card issuer may impose a late payment fee of $37, which is 3% of the unpaid portion of the $1,325 balance that was due at the end of the August billing cycle ($1,225). iii. Same facts as in paragraph A. above except that, on August 25, a $200 payment is received. Consistent with § 226.52(b)(1)(ii)(C), the card issuer may impose a late payment fee of $34, which is 3% of the unpaid portion of the $1,325 balance that was due at the end of the August billing cycle ($1,125). In the alternative, the card issuer may impose a late payment fee of $35 consistent with § 226.52(b)(1)(ii)(B). However, § 226.52(b)(2)(ii) prohibits the card issuer from imposing both fees. 52(b)(2) Prohibited fees. 1. Relationship to § 226.52(b)(1). 52(b)(2)(i) Fees that exceed dollar amount associated with violation. 1. Late payment fees. i. Assume that a $15 required minimum periodic payment is due on September 25. The card issuer does not receive any payment on or before September 25. On September 26, the card issuer imposes a late payment fee. For purposes of § 226.52(b)(2)(i), the dollar amount associated with the late payment is the amount of the required minimum periodic payment due on September 25 ($15). Thus, under § 226.52(b)(2)(i)(A), the amount of that fee cannot exceed $15 (even if a higher fee would be permitted under § 226.52(b)(1)). ii. Same facts as above except that, on September 25, the card issuer receives a $10 payment. No further payments are received. On September 26, the card issuer imposes a late payment fee. For purposes of § 226.52(b)(2)(i), the dollar amount associated with the late payment is the full amount of the required minimum periodic payment due on September 25 ($15), rather than the unpaid portion of that payment ($5). Thus, under § 226.52(b)(2)(i)(A), the amount of the late payment fee cannot exceed $15 (even if a higher fee would be permitted under § 226.52(b)(1)). iii. Assume that a $15 required minimum periodic payment is due on October 28 and the billing cycle for the account closes on October 31. The card issuer does not receive any payment on or before November 3. On November 3, the card issuer determines that the required minimum periodic payment due on November 28 is $50. On November 5, the card issuer imposes a late payment fee. For purposes of § 226.52(b)(2)(i), the dollar amount associated with the late payment is the amount of the required minimum periodic payment due on October 28 ($15), rather than the amount of the required minimum periodic payment due on November 28 ($50). Thus, under § 226.52(b)(2)(i)(A), the amount of that fee cannot exceed $15 (even if a higher fee would be permitted under § 226.52(b)(1)). 2. Returned payment fees. i. Assume that the billing cycles for an account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. A minimum payment of $15 is due on March 25. The card issuer receives a check for $100 on March 23, which is returned to the card issuer for insufficient funds on March 26. For purposes of § 226.52(b)(2)(i), the dollar amount associated with the returned payment is the amount of the required minimum periodic payment due on March 25 ($15). Thus, § 226.52(b)(2)(i)(A) prohibits the card issuer from imposing a returned payment fee that exceeds $15 (even if a higher fee would be permitted under § 226.52(b)(1)). Furthermore, § 226.52(b)(2)(ii) prohibits the card issuer from assessing both a late payment fee and a returned payment fee in these circumstances. See ii. Same facts as above except that the card issuer receives the $100 check on March 31 and the check is returned for insufficient funds on April 2. The minimum payment due on April 25 is $30. For purposes of § 226.52(b)(2)(i), the dollar amount associated with the returned payment is the amount of the required minimum periodic payment due on March 25 ($15), rather than the amount of the required minimum periodic payment due on April 25 ($30). Thus, § 226.52(b)(2)(i)(A) prohibits the card issuer from imposing a returned payment fee that exceeds $15 (even if a higher fee would be permitted under § 226.52(b)(1)). Furthermore, § 226.52(b)(2)(ii) prohibits the card issuer from assessing both a late payment fee and a returned payment fee in these circumstances. See iii. Same facts as paragraph i. above except that, on March 28, the card issuer presents the $100 check for payment a second time. On April 1, the check is again returned for insufficient funds. Section 226.52(b)(2)(i)(B) prohibits the card issuer from imposing a returned payment fee based on the return of the payment on April 1. iv. Assume that the billing cycles for an account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. A minimum payment of $15 is due on August 25. The card issuer receives a check for $15 on August 23, which is not returned. The card issuer receives a check for $50 on September 5, which is returned to the card issuer for insufficient funds on September 7. Section 226.52(b)(2)(i)(B) does not prohibit the card issuer from imposing a returned payment fee in these circumstances. Instead, for purposes of § 226.52(b)(2)(i), the dollar amount associated with the returned payment is the amount of the required minimum periodic payment due on August 25 ($15). Thus, § 226.52(b)(2)(i)(A) prohibits the card issuer from imposing a returned payment fee that exceeds $15 (even if a higher fee would be permitted under § 226.52(b)(1)). 3. Over-the-limit fees. i. Assume that the billing cycles for a credit card account with a credit limit of $5,000 begin on the first day of the month and end on the last day of the month. Assume also that, consistent with § 226.56, the consumer has affirmatively consented to the payment of transactions that exceed the credit limit. On March 1, the account has a $4,950 balance. On March 6, a $60 transaction is charged to the account, increasing the balance to $5,010. On March 25, a $5 transaction is charged to the account, increasing the balance to $5,015. On the last day of the billing cycle (March 31), the card issuer imposes an over-the-limit fee. For purposes of § 226.52(b)(2)(i), the dollar amount associated with the extensions of credit in excess of the credit limit is the total amount of credit extended by the card issuer in excess of the credit limit during the March billing cycle ($15). Thus, § 226.52(b)(2)(i)(A) prohibits the card issuer from imposing an over-the-limit fee that exceeds $15 (even if a higher fee would be permitted under § 226.52(b)(1)). ii. Same facts as above except that, on March 26, the card issuer receives a payment of $20, reducing the balance below the credit limit to $4,995. Nevertheless, for purposes of § 226.52(b)(2)(i), the dollar amount associated with the extensions of credit in excess of the credit limit is the total amount of credit extended by the card issuer in excess of the credit limit during the March billing cycle ($15). Thus, consistent with § 226.52(b)(2)(i)(A), the card issuer may impose an over-the-limit fee of $15. 4. Declined access check fees. 5. Inactivity fees. 2 2 2 2 6. Closed account fees. 3 3 i. Imposing a one-time fee to consumers who close their accounts. ii. Imposing a periodic fee (such as an annual fee, a monthly maintenance fee, or a closed account fee) after an account is closed or terminated if that fee was not imposed prior to closure or termination. This prohibition applies even if the fee was disclosed prior to closure or termination. See also iii. Increasing a periodic fee (such as an annual fee or a monthly maintenance fee) after an account is closed or terminated. However, a card issuer is not prohibited from continuing to impose a periodic fee that was imposed before the account was closed or terminated. 52(b)(2)(ii) Multiple fees based on single event or transaction. 1. Single event or transaction. i. Assume that the required minimum periodic payment due on March 25 is $20. On March 26, the card issuer has not received any payment and imposes a late payment fee. Consistent with §§ 226.52(b)(1)(ii)(A) and (b)(2)(i), the card issuer may impose a $20 late payment fee on March 26. However, § 226.52(b)(2)(ii) prohibits the card issuer from imposing an additional late payment fee if the $20 minimum payment has not been received by a subsequent date (such as March 31). A. On April 3, the card issuer provides a periodic statement disclosing that a $70 required minimum periodic payment is due on April 25. This minimum payment includes the $20 minimum payment due on March 25 and the $20 late payment fee imposed on March 26. On April 20, the card issuer receives a $20 payment. No additional payments are received during the April billing cycle. Section 226.52(b)(2)(ii) does not prohibit the card issuer from imposing a late payment fee based on the consumer's failure to make the $70 required minimum periodic payment on or before April 25. Accordingly, consistent with § 226.52(b)(1)(ii)(B) and (b)(2)(i), the card issuer may impose a $35 late payment fee on April 26. B. On April 3, the card issuer provides a periodic statement disclosing that a $20 required minimum periodic payment is due on April 25. This minimum payment does not include the $20 minimum payment due on March 25 or the $20 late payment fee imposed on March 26. On April 20, the card issuer receives a $20 payment. No additional payments are received during the April billing cycle. Because the card issuer has received the required minimum periodic payment due on April 25 and because § 226.52(b)(2)(ii) prohibits the card issuer from imposing a second late payment fee based on the consumer's failure to make the $20 minimum payment due on March 25, the card issuer cannot impose a late payment fee in these circumstances. ii. Assume that the required minimum periodic payment due on March 25 is $30. A. On March 25, the card issuer receives a check for $50, but the check is returned for insufficient funds on March 27. Consistent with §§ 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a late payment fee of $25 or a returned payment fee of $25. However, § 226.52(b)(2)(ii) prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction. B. Same facts as paragraph ii.A. above except that that card issuer receives the $50 check on March 27 and the check is returned for insufficient funds on March 29. Consistent with §§ 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a late payment fee of $25 or a returned payment fee of $25. However, § 226.52(b)(2)(ii) prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction. If no payment is received on or before the next payment due date (April 25), § 226.52(b)(2)(ii) does not prohibit the card issuer from imposing a late payment fee. iii. Assume that the required minimum periodic payment due on July 25 is $30. On July 10, the card issuer receives a $50 payment, which is not returned. On July 20, the card issuer receives a $100 payment, which is returned for insufficient funds on July 24. Consistent with § 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a returned payment fee of $25. Nothing in § 226.52(b)(2)(ii) prohibits the imposition of this fee. iv. Assume that the credit limit for an account is $1,000 and that, consistent with § 226.56, the consumer has affirmatively consented to the payment of transactions that exceed the credit limit. On March 31, the balance on the account is $970 and the card issuer has not received the $35 required minimum periodic payment due on March 25. On that same date (March 31), a $70 transaction is charged to the account, which increases the balance to $1,040. Consistent with § 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a late payment fee of $25 and an over-the-limit fee of $25. Section 226.52(b)(2)(ii) does not prohibit the imposition of both fees because those fees are based on different events or transactions. No additional transactions are charged to the account during the March, April, or May billing cycles. If the account balance remains more than $35 above the credit limit on April 26, the card issuer may impose an over-the-limit fee of $35 pursuant to § 226.52(b)(1)(ii)(B), to the extent consistent with § 226.56(j)(1). Furthermore, if the account balance remains more than $35 above the credit limit on May 26, the card issuer may again impose an over-the-limit fee of $35 pursuant to § 226.52(b)(1)(ii)(B), to the extent consistent with § 226.56(j)(1). Thereafter, § 226.56(j)(1) does not permit the card issuer to impose additional over-the-limit fees unless another over-the-limit transaction occurs. However, if an over-the-limit transaction occurs during the six billing cycles following the May billing cycle, the card issuer may impose an over-the-limit fee of $35 pursuant to § 226.52(b)(1)(ii)(B). v. Assume that the credit limit for an account is $5,000 and that, consistent with § 226.56, the consumer has affirmatively consented to the payment of transactions that exceed the credit limit. On July 23, the balance on the account is $4,950. On July 24, the card issuer receives the $100 required minimum periodic payment due on July 25, reducing the balance to $4,850. On July 26, a $75 transaction is charged to the account, which increases the balance to $4,925. On July 27, the $100 payment is returned for insufficient funds, increasing the balance to $5,025. Consistent with §§ 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a returned payment fee of $25 or an over-the-limit fee of $25. However, § 226.52(b)(2)(ii) prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction. vi. Assume that the required minimum periodic payment due on March 25 is $50. On March 20, the card issuer receives a check for $50, but the check is returned for insufficient funds on March 22. Consistent with §§ 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a returned payment fee of $25. On March 25, the card issuer receives a second check for $50, but the check is returned for insufficient funds on March 27. Consistent with §§ 226.52(b)(1)(ii)(A), (b)(1)(ii)(B), and (b)(2)(i)(A), the card issuer may impose a late payment fee of $25 or a returned payment fee of $35. However, § 226.52(b)(2)(ii) prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction. vii. Assume that the required minimum periodic payment due on February 25 is $100. On February 25, the card issuer receives a check for $100. On March 3, the card issuer provides a periodic statement disclosing that a $120 required minimum periodic payment is due on March 25. On March 4, the $100 check is returned to the card issuer for insufficient funds. Consistent with §§ 226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a late payment fee of $25 or a returned payment fee of $25 with respect to the $100 payment. However, § 226.52(b)(2)(ii) prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction. On March 20, the card issuer receives a $120 check, which is not returned. No additional payments are received during the March billing cycle. Because the card issuer has received the required minimum periodic payment due on March 25 and because § 226.52(b)(2)(ii) prohibits the card issuer from imposing a second fee based on the $100 payment that was returned for insufficient funds, the card issuer cannot impose a late payment fee in these circumstances. Section 226.53—Allocation of Payments 1. Required minimum periodic payment. 2. Applicable rates and balances. i. Assume that the billing cycles for a credit card account start on the first day of the month and end on the last day of the month. On the date the March billing cycle ends (March 31), the account has a purchase balance of $500 at a promotional annual percentage rate of 5% and another purchase balance of $200 at a non-promotional annual percentage rate of 15%. On April 5, a $100 purchase to which the 15% rate applies is charged to the account. On April 15, the promotional rate expires and § 226.55(b)(1) permits the card issuer to increase the rate that applies to the $500 balance from 5% to 18%. On April 25, the card issuer credits to the account $400 paid by the consumer in excess of the required minimum periodic payment. If the card issuer's practice is to allocate payments based on the rates and balances on the last day of the prior billing cycle, the card issuer would allocate the $400 payment to pay in full the $200 balance to which the 15% rate applied on March 31 and then allocate the remaining $200 to the $500 balance to which the 5% rate applied on March 31. In the alternative, if the card issuer's practice is to allocate payments based on the rates and balances on the day a payment is credited to the account, the card issuer would allocate the $400 payment to the $500 balance to which the 18% rate applied on April 25. ii. Same facts as above except that, on April 25, the card issuer credits to the account $750 paid by the consumer in excess of the required minimum periodic payment. If the card issuer's practice is to allocate payments based on the rates and balances on the last day of the prior billing cycle, the card issuer would allocate the $750 payment to pay in full the $200 balance to which the 15% rate applied on March 31 and the $500 balance to which the 5% rate applied on March 31 and then allocate the remaining $50 to the $100 purchase made on April 5. In the alternative, if the card issuer's practice is to allocate payments based on the rates and balances on the day a payment is credited to the account, the card issuer would allocate the $750 payment to pay in full the $500 balance to which the 18% rate applied on April 25 and then allocate the remaining $250 to the $300 balance to which the 15% rate applied on April 25. 3. Claims or defenses under § 226.12(c) and billing error disputes under § 226.13. i. Assume that a credit card account has a $500 cash advance balance at an annual percentage rate of 25% and a $1,000 purchase balance at an annual percentage rate of 17%. Assume also that $200 of the cash advance balance is subject to a claim or defense under § 226.12(c) or a billing error dispute under § 226.13. If the consumer pays $900 in excess of the required minimum periodic payment, the card issuer must allocate $300 of the excess payment to pay in full the portion of the cash advance balance that is not subject to the claim, defense, or dispute and then allocate the remaining $600 to the $1,000 purchase balance. ii. Same facts as above except that the consumer pays $1,400 in excess of the required minimum periodic payment. The card issuer must allocate $1,300 of the excess payment to pay in full the $300 cash advance balance that is not subject to the claim, defense, or dispute and the $1,000 purchase balance. If there are no new transactions or other amounts to which the remaining $100 can be allocated, the card issuer may apply that amount to the $200 cash advance balance that is subject to the claim, defense, or dispute. However, if the card issuer subsequently determines that a billing error occurred as asserted by the consumer, the card issuer must credit the account for the disputed amount and any related finance or other charges and send a correction notice consistent with § 226.13(e). 4. Balances with the same rate. See See 5. Examples. i. Assume that a credit card account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $800 in excess of the required minimum periodic payment. Under § 226.53(a), the card issuer must allocate $500 to pay off the cash advance balance and then allocate the remaining $300 to the purchase balance. ii. Assume that a credit card account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $400 in excess of the required minimum periodic payment. Under § 226.53(a), the card issuer must allocate the entire $400 to the cash advance balance. iii. Assume that a credit card account has a cash advance balance of $100 at an annual percentage rate of 20%, a purchase balance of $300 at an annual percentage rate of 18%, and a $600 protected balance on which the 12% annual percentage rate cannot be increased pursuant to § 226.55. If the consumer pays $500 in excess of the required minimum periodic payment, § 226.53(a) requires the card issuer to allocate $100 to pay off the cash advance balance, $300 to pay off the purchase balance, and $100 to the protected balance. iv. Assume that a credit card account has a cash advance balance of $500 at an annual percentage rate of 20%, a purchase balance of $1,000 at an annual percentage rate of 15%, and a transferred balance of $2,000 that was previously at a discounted annual percentage rate of 5% but is now at an annual percentage rate of 15%. Assume also that the consumer pays $800 in excess of the required minimum periodic payment. Under § 226.53(a), the card issuer must allocate $500 to pay off the cash advance balance and allocate the remaining $300 among the purchase balance and the transferred balance in the manner the card issuer deems appropriate. v. Assume that on January 1 a consumer uses a credit card account to make a $1,200 purchase subject to a deferred interest program under which interest accrues at an annual percentage rate of 15% but the consumer will not be obligated to pay that interest if the balance is paid in full on or before June 30. The billing cycles for this account begin on the first day of the month and end on the last day of the month. Each month from January through June, the consumer uses the account to make $200 in purchases that are not subject to the deferred interest program but are subject to the 15% rate A. Each month from February through June, the consumer pays $400 in excess of the required minimum periodic payment on the payment due date, which is the twenty-fifth of the month. Any interest that accrues on the purchases not subject to the deferred interest program is paid by the required minimum periodic payment. The card issuer does not accept requests from consumers regarding the allocation of excess payments pursuant to § 226.53(b)(1)(ii). Thus, § 226.53(b)(1)(i) requires the card issuer to allocate the $400 excess payments received on February 25, March 25, and April 25 consistent with § 226.53(a). In other words, the card issuer must allocate those payments as follows: $200 to pay off the balance not subject to the deferred interest program (which is subject to the 15% rate) and the remaining $200 to the deferred interest balance (which is treated as a balance with a rate of zero). However, § 226.53(b)(1)(i) requires the card issuer to allocate the entire $400 excess payment received on May 25 to the deferred interest balance. Similarly, § 226.53(b)(1)(i) requires the card issuer to allocate the $400 excess payment received on June 25 as follows: $200 to the deferred interest balance (which pays that balance in full) and the remaining $200 to the balance not subject to the deferred interest program. B. Same facts as above, except that the card issuer does accept requests from consumers regarding the allocation of excess payments pursuant to § 226.53(b)(1)(ii). In addition, on April 25, the card issuer receives an excess payment of $800, which the consumer requests be allocated to pay off the $800 balance subject to the deferred interest program. Section 226.53(b)(1)(ii) permits the card issuer to allocate the $800 excess payment in the manner requested by the consumer. 53(b) Special rules. 1. Deferred interest and similar programs. 2. Expiration of deferred interest or similar program during billing cycle. 3. Consumer requests. Generally. ii. Examples of consumer requests that satisfy § 226.53(b)(1)(ii) or (b)(2). A. The consumer contacts the card issuer orally, electronically, or in writing 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 or the period of time that a balance on the account is secured. B. The consumer completes and submits to the card issuer 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 during the period of time that the deferred interest or similar program applies to a balance on the account or the period of time that a balance on the account is secured. C. The consumer contacts the card issuer orally, electronically, or in writing and specifically requests that a payment that the card issuer has previously allocated consistent with § 226.53(a) or (b)(1)(i), as applicable, instead be allocated in a different manner. iii. Examples of consumer requests that do not satisfy § 226.53(b)(1)(ii) or (b)(2). A. The terms and conditions of the account agreement contain preprinted language stating that by applying to open an account, by using that account for transactions subject to a deferred interest or similar program, or by using the account to purchase property in which the card issuer holds a security interest the consumer requests that payments be allocated in a particular manner. B. 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. C. 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. D. The card issuer requires a consumer to accept a particular payment allocation method as a condition of using a deferred interest or similar program, purchasing property in which the card issuer holds a security interest, making a payment, or receiving account services or features. Section 226.54—Limitations on the Imposition of Finance Charges 54(a) Limitations on imposing finance charges as a result of the loss of a grace period. 54(a)(1) General rule. 1. Eligibility for grace period. i. Assume that the billing cycles for a credit card account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. Assume also that, for purchases made during the current billing cycle (for purposes of this example, the June billing cycle), the grace period applies from the date of the purchase until the payment due date in the following billing cycle (July 25), subject to two conditions. First, the purchase balance at the end of the preceding billing cycle (the May billing cycle) must have been paid in full by the payment due date in the current billing cycle (June 25). Second, the purchase balance at the end of the current billing cycle (the June billing cycle) must be paid in full by the following payment due date (July 25). Finally, assume that the consumer was eligible for a grace period at the start of the June billing cycle (in other words, assume that the purchase balance for the April billing cycle was paid in full by May 25). A. If the consumer pays the purchase balance for the May billing cycle in full by June 25, then at the end of the June billing cycle the consumer is eligible for a grace period with respect to purchases made during that billing cycle. Therefore, § 226.54 limits the imposition of finance charges with respect to purchases made during the June billing cycle if the consumer does not pay the purchase balance for the June billing cycle in full by July 25. Specifically, § 226.54(a)(1)(i) prohibits the card issuer from imposing finance charges based on the purchase balance at the end of the June billing cycle for days that precede the July billing cycle. Furthermore, § 226.54(a)(1)(ii) prohibits the card issuer from imposing finance charges based on any portion of the balance at the end of the June billing cycle that was paid on or before July 25. B. If the consumer does not pay the purchase balance for the May billing cycle in full by June 25, then the consumer is not eligible for a grace period with respect to purchases made during the June billing cycle at the end of that cycle. Therefore, § 226.54 does not limit the imposition of finance charges with respect to purchases made during the June billing cycle regardless of whether the consumer pays the purchase balance for the June billing cycle in full by July 25. ii. Same facts as above except that the card issuer places only one condition on the provision of a grace period for purchases made during the current billing cycle (the June billing cycle): that the purchase balance at the end of the current billing cycle (the June billing cycle) be paid in full by the following payment due date (July 25). In these circumstances, § 226.54 applies to the same extent as discussed in paragraphs i.A. and i.B. above regardless of whether the purchase balance for the April billing cycle was paid in full by May 25. 2. Definition of grace period. i. Deferred interest and similar programs. ii. Waivers or rebates of interest. A. Assume that the billing cycles for a credit card account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. On March 31, the balance on the account is $1,000 and the consumer is not eligible for a grace period with respect to that balance because the balance at the end of the prior billing cycle was not paid in full on March 25. On April 15, the consumer uses the account for a $500 purchase. On April 25, the card issuer receives a payment of $1,000. On May 3, the card issuer mails or delivers a periodic statement reflecting trailing or residual interest that accrued on the $1,000 balance from April 1 through April 24 as well as interest that accrued on the $500 purchase from April 15 through April 30. On May 10, the consumer requests that the trailing or residual interest charges be waived and the card issuer complies. By waiving these interest charges, the card issuer has not provided a grace period with respect to the $1,000 balance or the $500 purchase. B. Same facts as in paragraph ii.A. above except that the terms of the account state that trailing or residual interest will be waived in these circumstances or it is the card issuer's practice to waive trailing or residual interest in these circumstances. By waiving these interest charges, the card issuer has not provided a grace period with respect to the $1,000 balance or the $500 purchase. C. Assume that the billing cycles for a credit card account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. Assume also that, for purchases made during the current billing cycle (for purposes of this example, the June billing cycle), the terms of the account provide that interest accrued on those purchases from the date of the purchase until the payment due date in the following billing cycle (July 25) will be waived or rebated, subject to two conditions. First, the purchase balance at the end of the preceding billing cycle (the May billing cycle) must have been paid in full by the payment due date in the current billing cycle (June 25). Second, the purchase balance at the end of the current billing cycle (the June billing cycle) must be paid in full by the following payment due date (July 25). Under these circumstances, the card issuer is providing a grace period on purchases for purposes of § 226.54. Therefore, assuming that the consumer was eligible for this grace period at the start of the June billing cycle (in other words, assuming that the purchase balance for the April billing cycle was paid in full by May 25) and assuming that the consumer pays the purchase balance for the May billing cycle in full by June 25, § 226.54 applies to the imposition of finance charges with respect to purchases made during the June billing cycle. Specifically, § 226.54(a)(1)(i) prohibits the card issuer from imposing finance charges based on the purchase balance at the end of the June billing cycle for days that precede the July billing cycle. Furthermore, § 226.54(a)(1)(ii) prohibits the card issuer from imposing finance charges based on any portion of the balance at the end of the June billing cycle that was paid on or before July 25. 3. Relationship to payment allocation requirements in § 226.53. 4. Prohibition on two-cycle balance computation method. 5. Prohibition on imposing finance charges on amounts paid within grace period. 6. Examples. i. On April 10, a $150 purchase is charged to the account. On April 25, the card issuer receives $500 in excess of the required minimum periodic payment. Section 226.54(a)(1)(i) prohibits the card issuer from reaching back and charging interest on any of the March transactions from the date of the transaction through the end of the March billing cycle (March 31). In these circumstances, the card issuer may comply with § 226.54(a)(1)(ii) by applying the $500 excess payment to the $600 purchase balance and then charging interest only on the portion of the $600 purchase balance that remains unpaid ($100) from the start of the April billing cycle (April 1) through the end of the April billing cycle (April 30). In addition, the card issuer may charge interest on the $150 purchase from the date of the transaction (April 10) through the end of the April billing cycle (April 31). ii. Same facts as in paragraph 6. above except that, on March 18, a $250 cash advance is charged to the account at an annual percentage rate of 25%. The card issuer's grace period does not apply to cash advances, but the card issuer does provide a grace period on the March purchases because the purchase balance for the February billing cycle is paid in full on March 25. On April 25, the card issuer receives $600 in excess of the required minimum periodic payment. As required by § 226.53, the card issuer allocates the $600 excess payment first to the balance with the highest annual percentage rate (the $250 cash advance balance). Although § 226.54(a)(1)(i) prohibits the card issuer from charging interest on the March purchases based on days in the March billing cycle, the card issuer may charge interest on the $250 cash advance from the date of the transaction (March 18) through April 24. In these circumstances, the card issuer may comply with § 226.54(a)(1)(ii) by applying the remainder of the excess payment ($350) to the $600 purchase balance and then charging interest only on the portion of the $600 purchase balance that remains unpaid ($250) from the start of the April billing cycle (April 1) through the end of the April billing cycle (April 30). iii. Same facts as in paragraph 6. above except that the consumer does not pay the balance for the February billing cycle in full on March 25 and therefore is not eligible for a grace period on the March purchases. Under these circumstances, § 226.54 does not apply and the card issuer may charge interest from the date of each transaction through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle (April 25). Section 226.55—Limitations on Increasing Annual Percentage Rates, Fees, and Charges 55(a) General rule. 1. Increase in rate, fee, or charge. i. Account-opening disclosure of non-variable rate for six months, then variable rate. A. Change-in-terms rate increase for new transactions after first year. B. Account becomes more than 60 days delinquent during first year. ii. Account-opening disclosure of non-variable rate for six months, then increased non-variable rate for six months, then variable rate; change-in-terms rate increase for new transactions after first year. iii. Change-in-terms rate increase for new transactions after first year; penalty rate increase after first year. A. Account does not become more than 60 days delinquent. B. Account becomes more than 60 days delinquent after provision of § 226.9(g) notice. 2. Relationship to grace period. 55(b) Exceptions. 1. Exceptions not mutually exclusive. 55(b) Exceptions. 1. Exceptions not mutually exclusive. 2. Relationship between exceptions in § 226.55(b) and notice requirements in § 226.9. i. 14-day rule in § 226.55(b)(3)(ii). ii. Mid-cycle increases; application of balance computation methods. iii. Mid-cycle increases; delayed implementation of increase. 3. Application of a lower rate, fee, or charge. i. Application of lower rate during first year. A. Temporary rate returns to standard rate at expiration. B. Penalty rate increase. ii. Application of lower rate at end of first year. A. Notice of extension of existing temporary rate provided consistent with § 226.55(b)(1)(i). B. Notice of new temporary rate provided consistent with § 226.55(b)(1)(i). C. No notice provided. iii. Application of lower rate after first year. A. Effect of 14-day period. B. Penalty rate increase. C. Application of lower temporary rate during specified period. 4. Date on which transaction occurred. 5. Category of transactions. 55(b)(1) Temporary rate, fee, or charge exception. 1. Relationship to § 226.9(c)(2)(v)(B). 2. Period of six months or longer. i. Assume that on January 1 a card issuer offers a consumer a 5% annual percentage rate on purchases made during the months of January through June. A 15% rate will apply thereafter. On February 15, a $500 purchase is charged to the account. On June 15, a $200 purchase is charged to the account. On July 1, the card issuer may begin accruing interest at the 15% rate on the $500 purchase and the $200 purchase (pursuant to § 226.55(b)(1)). ii. Same facts as above except that on January 1 the card issuer offered the 5% rate on purchases beginning in the month of February. Section 226.55(b)(1) would not permit the card issuer to begin accruing interest at the 15% rate on the $500 purchase and the $200 purchase until August 1. iii. Assume that on October 31 of year one the annual percentage rate for purchases is 17%. On November 1, the card issuer offers the consumer a 0% rate for six months on purchases made during the months of November and December. The 17% rate will apply thereafter. On November 15, a $500 purchase is charged to the account. On December 15, a $300 purchase is charged to the account. On January 15 of year two, a $150 purchase is charged to the account. Section 226.55(b)(1) would not permit the card issuer to begin accruing interest at the 17% rate on the $500 purchase and the $300 purchase until May 1 of year two. However, the card issuer may accrue interest at the 17% rate on the $150 purchase beginning on January 15 of year two. iv. Assume that on June 1 of year one a card issuer offers a consumer a 0% annual percentage rate for six months on the purchase of an appliance. An 18% rate will apply thereafter. On September 1, a $5,000 transaction is charged to the account for the purchase of an appliance. Section 226.55(b)(1) would not permit the card issuer to begin accruing interest at the 18% rate on the $5,000 transaction until March 1 of year two. v. Assume that on May 31 of year one the annual percentage rate for purchases is 15%. On June 1, the card issuer offers the consumer a 5% rate for six months on a balance transfer of at least $1,000. The 15% rate will apply thereafter. On June 15, a $3,000 balance is transferred to the account. On July 15, a $200 purchase is charged to the account. Section 226.55(b)(1) would not permit the card issuer to begin accruing interest at the 15% rate on the $3,000 transferred balance until December 15. However, the card issuer may accrue interest at the 15% rate on the $200 purchase beginning on July 15. vi. Same facts as in paragraph v. above except that the card issuer offers the 5% rate for six months on all balance transfers of at least $1,000 during the month of June and a $2,000 balance is transferred to the account on June 30 (in addition to the $3,000 balance transfer on June 15). Because the 5% rate is not limited to a particular transaction, § 226.55(b)(1) permits the card issuer to begin accruing interest on the $3,000 and $2,000 transferred balances on December 1. vii. Assume that a card issuer discloses at account opening on January 1 of year one that the annual fee for the account is $0 until January 1 of year two, when the fee will increase to $50. On January 1 of year two, the card issuer may impose the $50 annual fee. However, the issuer must also comply with the notice requirements in § 226.9(e). viii. Assume that a card issuer discloses at account opening on January 1 of year one that the monthly maintenance fee for the account is $0 until July 1 of year one, when the fee will increase to $10. Beginning on July 1 of year one, the card issuer may impose the $10 monthly maintenance fee (to the extent consistent with § 226.52(a)). 3. Deferred interest and similar promotional programs. Application of § 226.55. ii. Examples. A. Deferred interest offer at account opening. B. Deferred interest offer after account opening. C. Application of § 226.55(b)(4) to deferred interest programs. 4. Contingent or discretionary increases. i. Assume that a card issuer discloses at account opening on January 1 of year one that a non-variable annual percentage rate of 15% applies to purchases but that all rates on an account may be increased to a non-variable penalty rate of 30% if a consumer's required minimum periodic payment is received after the payment due date, which is the fifteenth of the month. On March 1, the account has a $2,000 purchase balance. The payment due on March 15 is not received until March 20. Section 226.55 does not permit the card issuer to apply the 30% penalty rate to the $2,000 purchase balance. However, pursuant to § 226.55(b)(3), the card issuer could provide a § 226.9(c) or (g) notice on or before November 16 informing the consumer that, on January 1 of year two, the 30% rate (or a different rate) will apply to new transactions. ii. Assume that a card issuer discloses at account opening on January 1 of year one that a non-variable annual percentage rate of 5% applies to transferred balances but that this rate will increase to a non-variable rate of 18% if the consumer does not use the account for at least $200 in purchases each billing cycle. On July 1, the consumer transfers a balance of $4,000 to the account. During the October billing cycle, the consumer uses the account for $150 in purchases. Section 226.55 does not permit the card issuer to apply the 18% rate to the $4,000 transferred balance or the $150 in purchases. However, pursuant to § 226.55(b)(3), the card issuer could provide a § 226.9(c) or (g) notice on or before November 16 informing the consumer that, on January 1 of year two, the 18% rate (or a different rate) will apply to new transactions. iii. Assume that a card issuer discloses at account opening on January 1 of year one that the annual fee for the account is $10 but may be increased to $50 if a consumer's required minimum periodic payment is received after the payment due date, which is the fifteenth of the month. The payment due on July 15 is not received until July 23. Section 226.55 does not permit the card issuer to impose the $50 annual fee at this time. Furthermore, § 226.55(b)(3) does not permit the card issuer to increase the $10 annual fee during the first year after account opening. However, § 226.55(b)(3) does permit the card issuer to impose the $50 fee (or a different fee) on January 1 of year two if, on or before November 16 of year one, the issuer informs the consumer of the increased fee consistent with § 226.9(c) and the consumer does not reject that increase pursuant to § 226.9(h). iv. Assume that a card issuer discloses at account opening on January 1 of year one that the annual fee for a credit card account under an open-end (not home-secured) consumer credit plan is $0 but may be increased to $100 if the consumer's balance in a deposit account provided by the card issuer or its affiliate or subsidiary falls below $5,000. On June 1 of year one, the balance on the deposit account is $4,500. Section 226.55 does not permit the card issuer to impose the $100 annual fee at this time. Furthermore, § 226.55(b)(3) does not permit the card issuer to increase the $0 annual fee during the first year after account opening. However, § 226.55(b)(3) does permit the card issuer to impose the $100 fee (or a different fee) on January 1 of year two if, on or before November 16 of year one, the issuer informs the consumer of the increased fee consistent with § 226.9(c) and the consumer does not reject that increase pursuant to § 226.9(h). 5. Application of increased fees and charges. See 55(b)(2) Variable rate exception. 1. Increases due to increase in index. 2. Index not under card issuer's control. i. The index is the card issuer's 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, ii. The variable rate 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. A card issuer is permitted, however, to establish a fixed maximum rate that does not permit the variable rate to increase consistent with increases in an index. For example, assume that, under the terms of an account, a variable rate will be adjusted monthly by adding a margin of 5 percentage points to a publicly-available index. When the account is opened, the index is 10% and therefore the variable rate is 15%. If the terms of the account provide that the variable rate will not decrease below 15% even if the index decreases below 10%, the card issuer cannot increase that rate pursuant to § 226.55(b)(2). However, § 226.55(b)(2) does not prohibit the card issuer from providing in the terms of the account that the variable rate will not increase above a certain amount (such as 20%). iii. The variable rate can be calculated based on any index value during a period of time (such as the 90 days preceding the last day of a billing cycle). A card issuer is permitted, however, to provide in the terms of the account that the variable rate will be calculated based on the average index value during a specified period. In the alternative, the card issuer is permitted to provide in the terms of the account that the variable rate will be calculated based on the index value on a specific day (such as the last day of a billing cycle). For example, assume that the terms of an account provide that a variable rate will be adjusted at the beginning of each quarter by adding a margin of 7 percentage points to a publicly-available index. At account opening at the beginning of the first quarter, the variable rate is 17% (based on an index value of 10%). During the first quarter, the index varies between 9.8% and 10.5% with an average value of 10.1%. On the last day of the first quarter, the index value is 10.2%. At the beginning of the second quarter, § 226.55(b)(2) does not permit the card issuer to increase the variable rate to 17.5% based on the first quarter's maximum index value of 10.5%. However, if the terms of the account provide that the variable rate will be calculated based on the average index value during the prior quarter, § 226.55(b)(2) permits the card issuer to increase the variable rate to 17.1% (based on the average index value of 10.1% during the first quarter). In the alternative, if the terms of the account provide that the variable rate will be calculated based on the index value on the last day of the prior quarter, § 226.55(b)(2) permits the card issuer to increase the variable rate to 17.2% (based on the index value of 10.2% on the last day of the first quarter). 3. Publicly available. 4. Changing a non-variable rate to a variable rate. 5. Changing a variable rate to a non-variable rate. 6. Substitution of index. 55(b)(3) Advance notice exception. 1. Relationship to § 226.9(h). 2. Notice provided pursuant to § 226.9(b) and (c). 3. Account opening. i. Multiple accounts with same card issuer. ii. Substitution, replacement or consolidation. A. Generally. (1) A retail credit card account is replaced with a cobranded general purpose credit card account that can be used at a wider number of merchants; (2) A credit card account is replaced with another credit card account offering different features; (3) A credit card account is consolidated or combined with one or more other credit card accounts into a single credit card account; or (4) A credit card account acquired through merger or acquisition is replaced with a credit card account issued by the acquiring card issuer. B. Limitation. 4. Examples. i. Change-in-terms rate increase; temporary rate increase; 14-day period. ii. Checks that access an account. iii. Hold on available credit; 14-day period. A. The consumer checks out of the hotel on October 2. The actual cost of the stay is $1,100 because of additional incidental costs. On October 2, the hotel charges the $1,100 transaction to the account. For purposes of § 226.55(b)(3), the transaction occurred on October 2. Therefore, on October 30, § 226.55(b)(3) permits the card issuer to apply the 20% rate to new purchases and to the $1,100 transaction. However, § 226.55(b)(3)(ii) does not permit the card issuer to apply the 20% rate to any remaining portion of the $2,000 purchase balance. B. Same facts as above except that the consumer checks out of the hotel on September 29. The actual cost of the stay is $250, but the hotel does not charge this amount to the account until November 1. For purposes of § 226.55(b)(3), the card issuer may treat the transaction as occurring more than 14 days after provision of the § 226.9(c) notice ( i.e., 5. Application of increased fees and charges. See 6. Delayed implementation of increase. See 7. Date on which account may first be used by consumer to engage in transactions. See 55(b)(4) Delinquency exception. 1. Receipt of required minimum periodic payment within 60 days of due date. 2. Relationship to § 226.9(g)(3)(i)(B). 3. Reduction in rate pursuant to § 226.55(b)(4)(ii). i. Six consecutive payments immediately following effective date of increase. ii. Rate, fee, or charge that does not exceed rate, fee, or charge that applied before increase. iii. Delayed implementation of reduction. iv. Examples. A. Assume that the billing cycles for an account begin on the first day of the month and end on the last day of the month and that the required minimum periodic payments are due on the fifteenth day of the month. Assume also that the account has a $5,000 purchase balance to which a non-variable annual percentage rate of 15% applies. On May 16 of year one, the card issuer has not received the required minimum periodic payments due on the fifteenth day of March, April, or May and sends a § 226.9(c) or (g) notice stating that the annual percentage rate applicable to the $5,000 balance and to new transactions will increase to 28% effective July 1. On July 1, § 226.55(b)(4) permits the card issuer to apply the 28% rate to the $5,000 balance and to new transactions. The card issuer receives the required minimum periodic payments due on the fifteenth day of July, August, September, October, November, and December. On January 1 of year two, § 226.55(b)(4)(ii) requires the card issuer to reduce the rate that applies to any remaining portion of the $5,000 balance to 15%. The card issuer is not required to reduce the rate that applies to any transactions that occurred on or after May 31 (which is the fifteenth day after provision of the § 226.9(c) or (g) notice). B. Same facts as paragraph iv.A. above except that the 15% rate that applied to the $5,000 balance prior to the § 226.55(b)(4) increase was scheduled to increase to 20% on August 1 of year one (pursuant to § 226.55(b)(1)). On January 1 of year two, § 226.55(b)(4)(ii) requires the card issuer to reduce the rate that applies to any remaining portion of the $5,000 balance to 20%. C. Same facts as paragraph iv.A. above except that the 15% rate that applied to the $5,000 balance prior to the § 226.55(b)(4) increase was scheduled to increase to 20% on March 1 of year two (pursuant to § 226.55(b)(1)). On January 1 of year two, § 226.55(b)(4)(ii) requires the card issuer to reduce the rate that applies to any remaining portion of the $5,000 balance to 15%. D. Same facts as paragraph iv.A. above except that the 15% rate that applied to the $5,000 balance prior to the § 226.55(b)(4) increase was a variable rate that was determined by adding a margin of 10 percentage points to a publicly-available index not under the card issuer's control (consistent with § 226.55(b)(2)). On January 1 of year two, § 226.55(b)(4)(ii) requires the card issuer to reduce the rate that applies to any remaining portion of the $5,000 balance to the variable rate determined using the 10-point margin. E. For an example of the application of § 226.55(b)(4)(ii) to deferred interest or similar programs, see comment 55(b)(1)-3.ii.C. 55(b)(5) Workout and temporary hardship arrangement exception. 1. Scope of exception. 2. Relationship to § 226.9(c)(2)(v)(D). 3. Rate, fee, or charge that does not exceed rate, fee, or charge that applied before workout or temporary hardship arrangement. 4. Examples. i. Assume that an account is subject to a $50 annual fee and that, consistent with § 226.55(b)(4), the margin used to determine a variable annual percentage rate that applies to a $5,000 balance is increased from 5 percentage points to 15 percentage points. Assume also that the card issuer and the consumer subsequently agree to a workout arrangement that reduces the annual fee to $0 and reduces the margin back to 5 points on the condition that the consumer pay a specified amount by the payment due date each month. If the consumer does not pay the agreed-upon amount by the payment due date, § 226.55(b)(5) permits the card issuer to increase the annual fee to $50 and increase the margin for the variable rate that applies to the $5,000 balance up to 15 percentage points. ii. Assume that a consumer fails to make four consecutive monthly minimum payments totaling $480 on a consumer credit card account with a balance of $6,000 and that, consistent with § 226.55(b)(4), the annual percentage rate that applies to that balance is increased from a non-variable rate of 15% to a non-variable penalty rate of 30%. Assume also that the card issuer and the consumer subsequently agree to a temporary hardship arrangement that reduces all rates on the account to 0% on the condition that the consumer pay an amount by the payment due date each month that is sufficient to cure the $480 delinquency within six months. If the consumer pays the agreed-upon amount by the payment due date during the six-month period and cures the delinquency, § 226.55(b)(5) permits the card issuer to increase the rate that applies to any remaining portion of the $6,000 balance to 15% or any other rate up to the 30% penalty rate. 55(b)(6) Servicemembers Civil Relief Act exception. 1. Rate that does not exceed rate that applied before decrease. 2. Example. 55(c) Treatment of protected balances. 55(c)(1) Definition of protected balance. 1. Example of protected balance. 2. First year after account opening. 3. Increased fees and charges. See see also 3 See 4. Changing balance computation method. 55(c)(2) Repayment of protected balance. 1. No less beneficial to the consumer. i. If at account opening the cardholder agreement stated that the required minimum periodic payment would be either the total of fees and interest charges plus 1% of the total amount owed or $20 (whichever is greater), the card issuer may require the consumer to make a minimum payment of $20 even if doing so would pay off the balance in less than five years or constitute more than 2% of the balance plus fees and interest charges. ii. A card issuer could increase the percentage of the balance included in the required minimum periodic payment from 2% to 5% so long as doing so would not result in amortization of the balance in less than five years. iii. A card issuer could require the consumer to make a required minimum periodic payment that amortizes the balance in four years so long as doing so would not more than double the percentage of the balance included in the minimum payment prior to the date on which the increased annual percentage rate, fee, or charge became effective. 55(c)(2)(ii) Five-year amortization period. 1. Amortization period starting from effective date of increase. 2. Amortization when applicable rate is variable. 55(c)(2)(iii) Doubling repayment rate. 1. Portion of required minimum periodic payment on other balances. 2. Example. 55(d) Continuing application. 1. Closed accounts. 2. Acquired accounts. 3. Balance transfers. i. Between accounts issued by the same creditor. A. A retail credit card account with a balance is replaced or substituted with a cobranded general purpose credit card account that can be used with a broader merchant base; B. A credit card account with a balance is replaced or substituted with another credit card account offering different features; C. A credit card account with a balance is consolidated or combined with one or more other credit card accounts into a single credit card account; and D. A credit card account is replaced or substituted with a line of credit that can be accessed solely by an account number. ii. Between accounts issued by different creditors. 55(e) Promotional waivers or rebates of interest, fees, and other charges. 1. Generally. i. A card issuer applies an annual percentage rate of 15% to balance transfers but promotes a program under which all of the interest accrued on transferred balances will be waived or rebated for one year. If, prior to the commencement of the one-year period, the card issuer discloses the length of the period and the annual percentage rate that will apply to transferred balances after expiration of that period consistent with § 226.55(b)(1)(i), § 226.55(b)(1) permits the card issuer to begin imposing interest charges on transferred balances after one year. Furthermore, if, during the one-year period, a required minimum periodic payment is not received within 60 days of the payment due date, § 226.55(b)(4) permits the card issuer to begin imposing interest charges on transferred balances (after providing a notice consistent with § 226.9(g) and § 226.55(b)(4)(i)). However, if a required minimum periodic payment is not more than 60 days delinquent or if the consumer otherwise violates the terms or other requirements of the account, § 226.55 does not permit the card issuer to begin imposing interest charges on transferred balances until the expiration of the one-year period. ii. A card issuer imposes a monthly maintenance fee of $10 but promotes a program under which the fee will be waived or rebated for the six months following account opening. If, prior to account opening, the card issuer discloses the length of the period and the monthly maintenance fee that will be imposed after expiration of that period consistent with § 226.55(b)(1)(i), § 226.55(b)(1) permits the card issuer to begin imposing the monthly maintenance fee six months after account opening. Furthermore, if, during the six-month period, a required minimum periodic payment is not received within 60 days of the payment due date, § 226.55(b)(4) permits the card issuer to begin imposing the monthly maintenance fee (after providing a notice consistent with § 226.9(c) and § 226.55(b)(4)(i)). However, if a required minimum periodic payment is not more than 60 days delinquent or if the consumer otherwise violates the terms or other requirements of the account, § 226.55 does not permit the card issuer to begin imposing the monthly maintenance fee until the expiration of the six-month period. 2. Promotion of waiver or rebate. See i. Examples of promotional communications. A. A card issuer discloses the waiver or rebate in a newspaper, magazine, leaflet, promotional flyer, catalog, sign, or point-of-sale display, unless the disclosure relates to interest, fees, or charges that have already been waived. B. A card issuer discloses the waiver or rebate on radio or television or through electronic advertisements (such as on the Internet), unless the disclosure relates to interest, fees, or charges that have already been waived or rebated. C. A card issuer discloses a waiver or rebate to individual consumers, such as by telephone, letter, or electronic communication, through direct mail literature, or on or with account statements, unless the disclosure relates to an inquiry or dispute about a specific charge or to interest, fees, or charges that have already been waived or rebated. ii. Examples of non-promotional communications. A. After a card issuer has waived or rebated interest, fees, or other charges subject to § 226.55 with respect to an account, the issuer discloses the waiver or rebate to the accountholder on the periodic statement or by telephone, letter, or electronic communication. However, if the card issuer also discloses prospective waivers or rebates in the same communication, the issuer is promoting a waiver or rebate for purposes of § 226.55(e). B. A card issuer communicates with a consumer about a waiver or rebate of interest, fees, or other charges subject to § 226.55 in relation to an inquiry or dispute about a specific charge, including a dispute under §§ 226.12 or 226.13. C. A card issuer waives or rebates interest, fees, or other charges subject to § 226.55 in order to comply with a legal requirement (such as the limitations in § 226.52(a)). D. A card issuer discloses a grace period, as defined in § 226.5(b)(2)(ii)( 3 E. A card issuer provides a period after the payment due date during which interest, fees, or other charges subject to § 226.55 are waived or rebated even if a payment has not been received. F. A card issuer provides benefits (such as rewards points or cash back on purchases or finance charges) that can be applied to the account as credits, provided that the benefits are not promoted as reducing interest, fees, or other charges subject to § 226.55. 3. Relationship of § 226.55(e) to grace period. 3 Section 226.56—Requirements for Over-the-Limit Transactions 56(b) Opt-in requirement. 1. Policy and practice of declining over-the-limit transactions. 2. Over-the-limit transactions not required to be authorized or paid. 3. Examples of reasonable opportunity to provide affirmative consent. i. On the application. ii. By mail. iii. By telephone. iv. By electronic means. 4. Separate consent required. 5. Written confirmation. 56(b)(2) Completion of over-the-limit transactions without consumer consent. 1. Examples of over-the-limit transactions paid without consumer consent. i. Transactions not submitted for authorization. ii. Settlement amount exceeds authorization amount. iii. Intervening charges. 2. Permissible fees or charges when a consumer has not consented. 56(c) Method of election. 1. Card issuer-determined methods. 2. Electronic requests. 56(d) Timing and placement of notices. 1. Contemporaneous notice for oral or electronic consent. 56(e) Content. 1. Amount of over-the-limit fee. 2. Notice content. 56(f) Joint relationships. 1. Authorized users. 56(g) Continuing right to opt in or revoke opt-in. 1. Fees or charges for over-the-limit transactions incurred prior to revocation. 56(h) Duration of opt-in. 1. Card issuer ability to stop paying over-the-limit transactions after consumer consent. 56(j) Prohibited practices. 1. Periodic fees or charges. 2. Examples of limits on fees or charges imposed per billing cycle. i. Assume that a consumer has opted into a card issuer's payment of over-the-limit transactions. The consumer exceeds the credit limit during the December billing cycle and does not make sufficient payment to bring the account balance back under the limit for four consecutive cycles. The consumer does not engage in any additional transactions during this period. In this case, § 226.56(j)(1) would permit the card issuer to charge a maximum of three over-the-limit fees for the December over-the-limit transaction. ii. Assume the same facts as above except that the consumer makes sufficient payment to reduce his account balance by the payment due date during the February billing cycle. The card issuer may charge over-the-limit fees for the December and January billing cycles. However, because the consumer's account balance was below the credit limit by the payment due date for the February billing cycle, the card issuer may not charge an over-the-limit fee for the February billing cycle. iii. Assume the same facts as in paragraph i., except that the consumer engages in another over-the-limit transaction during the February billing cycle. Because the consumer has obtained an additional extension of credit which causes the consumer to exceed his credit limit, the card issuer may charge over-the-limit fees for the December transaction on the January, February and March billing statements, and additional over-the-limit fees for the February transaction on the April and May billing statements. The card issuer may not charge an over-the-limit fee for each of the December and the February transactions on the March billing statement because it is prohibited from imposing more than one over-the-limit fee during a billing cycle. 3. Replenishment of credit line. 4. Examples of conditioning. i. Amount of credit limit. ii. Access to credit. 5. Over-the-limit fees caused by accrued fees or interest. i. Assume that a consumer has opted in to a card issuer's payment of over-the-limit transactions. The consumer's account has a credit limit of $500. The billing cycles for the account begin on the first day of the month and end on the last day of the month. The account is not eligible for a grace period as defined in § 226.5(b)(2)(ii)(B)( 3 ii. Same facts as above except that, on December 31, the only balance on the account is a purchase balance of $400. On that same date, $50 in fees imposed as part of the plan under § 226.6(b)(3)(i), including interest charges, are imposed on the account, increasing the total balance at the end of the December billing cycle to $450. The consumer makes a $25 payment by the January payment due date and the remaining $25 in fees imposed as part of the plan in December is added to the outstanding balance. On January 25, an $80 purchase is charged to the account. At the close of the cycle on January 31, an additional $20 in fees imposed as part of the plan are imposed on the account, increasing the total balance to $525. Because § 226.56(j)(4) does not require the issuer to consider fees imposed as part of the plan for the prior cycle in determining whether an over-the-limit fee may be properly assessed for the current cycle, the issuer need not take into account the remaining $25 in fees and interest charges from the December cycle in determining whether fees imposed as part of the plan caused the consumer to exceed the credit limit during the January cycle. Thus, under these circumstances, § 226.56(j)(4) does not prohibit the card issuer from imposing an over-the-limit fee or charge for the January billing cycle because the $20 in fees imposed as part of the plan for the January billing cycle did not cause the consumer to exceed the credit limit during that cycle. 6. Additional restrictions on over-the-limit fees. Section 226.57—Reporting and Marketing Rules for College Student Open-End Credit 57(a) Definitions. 57(a)(1) College student credit card. 1. Definition. 57(a)(5) College credit card agreement. 1. Definition. 57(b) Public disclosure of agreements. 1. Public disclosure. 2. Redaction prohibited. 57(c) Prohibited inducements. 1. Tangible item clarified. 2. Inducement clarified. 3. Near campus clarified. 4. Mailings included. 5. Related event clarified. 6. Reasonable procedures for determining if applicant is a student. 57(d) Annual report to the Board. 57(d)(2) Contents of report. 1. Memorandum of understanding. Section 226.58—Internet Posting of Credit Card Agreements 58(b) Definitions. 58(b)(1) Agreement. 1. Inclusion of pricing information. 2. Provisions contained in separate documents included. 58(b)(2) Amends. 1. Substantive changes. 2. Non-substantive changes. 58(b)(4) Card issuer. 1. Card issuer clarified. 2. Use of third-party service providers. 3. Partner institution Web sites. In addition, § 226.58(d)(1) provides that, with respect to an agreement offered solely for accounts under one or more private label credit card plans, an issuer may comply with § 226.58(d) by posting the agreement on the publicly available Web site of at least one of the merchants at which credit cards issued under each private label credit card plan with 10,000 or more open accounts may be used. This rule is not conditioned on cardholders' ability to access account-specific information through the merchant's Web site. 58(b)(5) Offers. 1. Cards offered to limited groups. 2. Individualized agreements. 58(b)(6) Open account. 1. Open account clarified. 58(b)(8) Private label credit card account and private label credit card plan. 1. Private label credit card account. 2. Co-branded credit cards. 3. Affiliated group of merchants. 4. Private label credit card plan. 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 card 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 card issuer still has only two separate private label credit card plans, as defined by § 226.58(b)(8). 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)(8), even though the accounts are subject to different terms. 58(c) Submission of agreements to Board. 58(c)(1) Quarterly submissions. 1. Quarterly submission requirement. 2. No quarterly submission required. 3. Quarterly submission of complete set of updated agreements. 58(c)(3) Amended agreements. 1. No requirement to resubmit agreements not amended. 2. Submission of amended agreements. 3. Agreements amended but no longer offered to the public. 4. Change-in-terms notices not permissible. 58(c)(4) Withdrawal of agreements. 1. Notice of withdrawal of agreement. 58(c)(5) De minimis exception. 1. Relationship to other exceptions. 2. De minimis exception. 3. Date for determining whether card issuer qualifies clarified. 4. Date for determining whether card issuer ceases to qualify clarified. 5. Option to withdraw agreements clarified. 58(c)(6) Private label credit card exception. 1. Private label credit card exception. In contrast, assume the same card 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 card 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., 2. Card issuers with small private label and other credit card plans. 3. De minimis exception distinguished. i.e., 4. Agreement otherwise offered to the public. 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, a card 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 card 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., i.e., 5. Agreement used for multiple small private label plans. i.e., 6. Multiple agreements used for one private label credit card plan. 58(c)(8) Form and content of agreements submitted to the Board. 1. “As of” date clarified. 2. Pricing agreement addendum. 3. Pricing agreement variations do not constitute separate agreements. 4. Optional variable terms addendum. 5. Integrated agreement requirement. 58(d) Posting of agreements offered to the public. 1. Requirement applies only to agreements submitted to the Board. 2. Card issuers that do not otherwise maintain Web sites. If an issuer provides cardholders with access to specific information about their individual accounts, such as balance information or copies of statements, through a third-party Web site, the issuer is considered to maintain that Web site for purposes of § 226.58. Such a third-party Web site is deemed to be maintained by the issuer for purposes of § 226.58(d) even where, for example, an unaffiliated entity designs the Web site and owns and maintains the information technology infrastructure that supports the Web site, cardholders with credit cards from multiple issuers can access individual account information through the same Web site, and the Web site is not labeled, branded, or otherwise held out to the public as belonging to the issuer. Therefore, issuers that provide cardholders with access to account-specific information through a third-party Web site can comply with § 226.58(d) by ensuring that the agreements the issuer submits to the Board are posted on the third-party Web site in accordance with § 226.58(d). (In contrast, the § 226.58(d)(1) rule regarding agreements for private label credit cards is not conditioned on cardholders' ability to access account-specific information through the merchant's Web site.) 3. Private label credit card plans. The card issuer is required to submit the agreement to the Board under § 226.58(c)(1). (The card issuer has more than 10,000 open accounts, so the § 226.58(c)(5) de minimis exception does not apply. The agreement is offered solely for two different private label credit card plans ( i.e., Because the card issuer is required to submit the agreement to the Board under § 226.58(c)(1), the card issuer is required to post and maintain the agreement on the card issuer's publicly available Web site under § 226.58(d). However, because the agreement is offered solely for accounts under one or more private label credit card plans, the card issuer may comply with § 226.58(d) in either of two ways. First, the card issuer may comply by posting and maintaining the agreement on the card issuer's own publicly available Web site. Alternatively, the card issuer may comply by posting and maintaining the agreement on the publicly available Web site of Merchant A and each In contrast, assume that a card issuer has 100,000 open private label credit card accounts. Of these, 5,000 open accounts have credit cards usable only at Merchant A and 95,000 open accounts have credit cards usable only at Merchant B and Merchant B's affiliates, Merchants C and D. The card issuer offers to the public a single credit card agreement that is offered for both of these types of accounts and is not offered for any other type of account. The card issuer is required to submit the agreement to the Board under § 226.58(c)(1). (The card issuer has more than 10,000 open accounts, so the § 226.58(c)(5) de minimis exception does not apply. The agreement is offered solely for two different private label credit card plans ( i.e., Because the card issuer is required to submit the agreement to the Board under § 226.58(c)(1), the card issuer is required to post and maintain the agreement on the card issuer's publicly available Web site under § 226.58(d). However, because the agreement is offered solely for accounts under one or more private label credit card plans, the card issuer may comply with § 226.58(d) in either of two ways. First, the card issuer may comply by posting and maintaining the agreement on the card issuer's own publicly available Web site. Alternatively, the card issuer may comply by posting and maintaining the agreement on the publicly available Web site of at least one of Merchants B, C and D. The card issuer is not required to post and maintain the agreement on the publicly available Web site of Merchant A because the card issuer's private label credit card plan consisting of accounts with cards usable only at Merchant A has fewer than 10,000 open accounts. 58(e) Agreements for all open accounts. 1. Requirement applies to all open accounts. 2. Readily available telephone line. 3. Issuers without interactive Web sites. 4. Deadline for providing requested agreements clarified. Section 226.59-Reevaluation of Rate Increases. 59(a) General rule. 59(a)(1) Evaluation of increased rate. 1. Types of rate increases covered. 2. Rate increases actually imposed. 3. Change in type of rate. Generally. See ii. Change from non-variable rate to variable rate. iii. Change from variable rate to non-variable rate. 4. Rate increases prior to effective date of rule. 5. Amount of rate decrease. General. ii. Change in type of rate. 59(a)(2) Rate reductions. 59(a)(2)(ii) Applicability of rate reduction. 1. Applicability of reduced rate to new transactions. 59(c) Timing. 1. In general. 2. Example. 3. Rate increases prior to effective date of rule. 59(d) Factors. 1. Change in factors. 2. Comparison of existing account to factors used for similar new accounts. 3. Similar new credit card accounts. 4. No similar new credit card accounts. 5. Consideration of consumer's conduct on existing account. 6. Multiple rate increases between January 1, 2009 and February 21, 2010. General. ii. Example. 59(f) Termination of obligation to review factors. 1. Revocation of temporary rates. In general. ii. Examples. A. Upon providing 45 days' advance notice and to the extent permitted under § 226.55, the card issuer increases the rate applicable to new purchases to 15%, effective on September 1, 2012. The card issuer must review that rate increase under § 226.59(a) at least once each six months during the period from September 1, 2012 to August 1, 2013, unless and until the card issuer reduces the rate to 10%. The card issuer performs reviews of the rate increase on January 1, 2013 and July 1, 2013. Based on those reviews, the rate applicable to purchases remains at 15%. Beginning on August 1, 2013, the card issuer is not required to continue periodically reviewing the rate increase, because if the temporary rate had expired in accordance with its previously disclosed terms, the 15% rate would have applied to purchase balances as of August 1, 2013 even if the rate increase had not occurred on September 1, 2012. B. Same facts as above except that the review conducted on July 1, 2013 indicates that a reduction to the original temporary rate of 10% is appropriate. Section 226.59(a)(2)(i) requires that the rate be reduced no later than 45 days after completion of the review, or no later than August 15, 2013. Because the temporary rate would have expired prior to the date on which the rate decrease is required to take effect, the card issuer may, at its option, reduce the rate to 10% for any portion of the period from July 1, 2013, to August 1, 2013, or may continue to impose the 15% rate for that entire period. The card issuer is not required to conduct further reviews of the 15% rate on purchases. C. Same facts as above except that on September 1, 2012 the card issuer increases the rate applicable to new purchases to the penalty rate on the consumer's account, which is 25%. The card issuer conducts reviews of the increased rate in accordance with § 226.59 on January 1, 2013 and July 1, 2013. Based on those reviews, the rate applicable to purchases remains at 25%. The card issuer's obligation to review the rate increase continues to apply after August 1, 2013, because the 25% penalty rate exceeds the 15% rate that would have applied if the temporary rate expired in accordance with its previously disclosed terms. The card issuer's obligation to review the rate terminates if and when the annual percentage rate applicable to purchases is reduced to the 15% rate. 2. Example—relationship to § 226.59(a). 59(g) Acquired accounts. 59(g)(1) General. 1. Relationship to § 226.59(d)(2) for rate increases imposed between January 1, 2009 and February 21, 2010. 59(g)(2) Review of acquired portfolio. 1. Example—general. 2. Example—penalty rates. Appendix A—Effect on State Laws 1. Who may make requests. References Statute: Other sections: Previous regulation: 1981 changes: Appendix B—State Exemptions 1. General. References Statute: Other sections: Previous regulation: 1981 changes: Appendix C—Issuance of Staff Interpretations 1. General. References Statute: Other sections: Previous regulation: 1981 changes: Appendix D—Multiple-Advance Construction Loans 1. General rule. 2. Variable-rate multiple-advance loans. 3. Calculation of the total of payments. 4. Annual percentage rate. 5. Interest reserves. • If a creditor permits a consumer to make interest payments as they become due, the interest reserve should be disregarded in the disclosures and calculations under appendix D. • If a creditor requires the establishment of an interest reserve and automatically deducts interest payments from the reserve amount rather than allow the consumer to make interest payments as they become due, the fact that interest will accrue on those interest payments as well as the other loan proceeds must be reflected in the calculations and disclosures. To reflect the effects of such compounding, a creditor should first calculate interest on the commitment amount (exclusive of the interest reserve) and then add the figure obtained by assuming that one-half of that interest is outstanding at the contract interest rate for the entire construction period. For example, using the example shown under paragraph A, part I of appendix D, the estimated interest would be $1,117.68 ($1093.75 plus an additional $23.93 calculated by assuming half of $1093.75 is outstanding at the contract interest rate for the entire construction period), and the estimated annual percentage rate would be 21.18%. 6. Relation to § 226.18(s). i. If a creditor uses Appendix D and elects pursuant to § 226.17(c)(6)(ii) to disclose the construction and permanent phases as separate transactions, the construction phase must be disclosed according to the rules in § 226.18(s). Under § 226.18(s), the creditor must disclose the applicable interest rates and corresponding periodic payments during the construction phase in an interest rate and payment summary table. The provision in Appendix D, Part I.A.3, which allows the creditor to omit the number and amounts of any interest payments “in disclosing the payment schedule under § 226.18(g)” does not apply because the transaction is governed by § 226.18(s) rather than § 226.18(g). Also, because the construction phase is being disclosed as a separate transaction and its terms do not repay all principal, the creditor must disclose a balloon payment, pursuant to § 226.18(s)(5). ii. On the other hand, if the creditor elects to disclose the construction and permanent phases as a single transaction, the construction phase must be disclosed pursuant to Appendix D, Part II.C, which provides that the creditor shall disclose the repayment schedule without reflecting the number or amounts of payments of interest only that are made during the construction phase. Appendix D also provides, however, that creditors must disclose (outside of the table) the fact that interest payments must be made and the timing of such payments. The rate and payment summary table disclosed under § 226.18(s) must reflect only the permanent phase of the transaction. Therefore, in determining the rates and payments that must be disclosed in the columns of the table, creditors should apply the requirements of § 226.18(s) to the permanent phase only. For example, under § 226.18(s)(2)(i)(A) or § 226.18(s)(2)(i)(B)( 1 References Statute: Other sections: Previous regulation: 1981 Changes: Appendix E—Rules for Card Issuers That Bill on a Transaction-by-Transaction Basis Statute: Previous regulation: Other sections: 1981 changes: Appendix F—Optional Annual Percentage Rate Computations for Creditors Offering Open-End Plans Subject to the Requirements of § 226.5b 1. Daily rate with specific transaction charge. Appendices G and H—Open-End and Closed-End Model Forms and Clauses 1. Permissible changes. i. Using the first person, instead of the second person, in referring to the borrower. ii. Using “borrower” and “creditor” instead of pronouns. iii. Rearranging the sequences of the disclosures. iv. Not using bold type for headings. v. Incorporating certain state “plain English” requirements. vi. Deleting inapplicable disclosures by whiting out, blocking out, filling in “N/A” (not applicable) or “0,” crossing out, leaving blanks, checking a box for applicable items, or circling applicable items. (This should permit use of multipurpose standard forms.) vii. Using a vertical, rather than a horizontal, format for the boxes in the closed-end disclosures. 2. Debt-cancellation coverage. Appendixes G and H—Open-End and Closed-End Model Forms and Clauses 1. Permissible changes. i. Using the first person, instead of the second person, in referring to the borrower. ii. Using “borrower” and “creditor” instead of pronouns. iii. Rearranging the sequences of the disclosures. iv. Not using bold type for headings. v. Incorporating certain state “plain English” requirements. vi. Deleting inapplicable disclosures by whiting out, blocking out, filling in “N/A” (not applicable) or “0,” crossing out, leaving blanks, checking a box for applicable items, or circling applicable items. (This should permit use of multipurpose standard forms.) vii. Using a vertical, rather than a horizontal, format for the boxes in the closed-end disclosures. 2. Debt cancellation coverage. Appendix G—Open-End Model Forms and Clauses 1. Models G-1 and G-1(A). 2. Models G-2 and G-2(A). 3. Models G-3, G-3(A), G-4 and G-4(A). i. These set out models for the long-form billing-error rights statement (for use with the account-opening disclosures and as an annual disclosure or, at the creditor's option, with each periodic statement) and the alternative billing-error rights statement (for use with each periodic statement), respectively. For home-equity plans subject to the requirements of § 226.5b, at the creditor's option, a creditor either may use G-3 or G-3(A), and for creditors that use the short form, G-4 or G-4(A). For open-end (not home-secured) plans that not subject to the requirements of § 226.5b, creditors properly use G-3(A) and G-4(A). Creditors must provide the billing-error rights statements in a form substantially similar to the models in order to comply with the regulation. The model billing-rights statements may be modified in any of the ways set forth in the first paragraph to the commentary on appendices G and H. The models may, furthermore, be modified by deleting inapplicable information, such as: A. The paragraph concerning stopping a debit in relation to a disputed amount, if the creditor does not have the ability to debit automatically the consumer's savings or checking account for payment. B. The rights stated in the special rule for credit card purchases and any limitations on those rights. ii. The model billing rights statements also contain optional language that creditors may use. For example, the creditor may: A. Include a statement to the effect that notice of a billing error must be submitted on something other than the payment ticket or other material accompanying the periodic disclosures. B. Insert its address or refer to the address that appears elsewhere on the bill. C. Include instructions for consumers, at the consumer's option, to communicate with the creditor electronically or in writing. iii. Additional information may be included on the statements as long as it does not detract from the required disclosures. For instance, information concerning the reporting of errors in connection with a checking account may be included on a combined statement as long as the disclosures required by the regulation remain clear and conspicuous. 4. Models G-5 through G-9. 5. Model G-10(A), samples G-10(B) and G-10(C), model G-10(D), sample G-10(E), model G-17(A), and samples G-17(B), 17(C) and 17(D). ii. Except as otherwise permitted, disclosures must be substantially similar in sequence and format to Models G-10(A), G-10(D) and G-17(A). While proper use of the model forms will be deemed in compliance with the regulation, card issuers and other creditors offering open-end (not home-secured) plans are permitted to disclose the annual percentage rates for purchases, cash advances, or balance transfers in the same row in the table for any transaction types for which the issuer or creditor charges the same annual percentage rate. Similarly, card issuer and other creditors offering open-end (not home-secured) plans are permitted to disclose fees of the same amount in the same row if the fees are in the same category. Fees in different categories may not be disclosed in the same row. For example, a transaction fee and a penalty fee that are of the same amount may not be disclosed in the same row. Card issuers and other creditors offering open-end (not home-secured) plans are also permitted to use headings other than those in the forms if they are clear and concise and are substantially similar to the headings contained in model forms, with the following exceptions. The heading “penalty APR” must be used when describing rates that may increase due to default or delinquency or as a penalty, and in relation to required insurance, or debt cancellation or suspension coverage, the term “required” and the name of the product must be used. (See also §§ 226.5a(b)(5) and 226.6(b)(2)(v) for guidance on headings that must be used to describe the grace period, or lack of grace period, in the disclosures required under § 226.5a for applications and solicitations for credit cards other than charge cards, and the disclosures required under § 226.6(b)(2) for account-opening disclosures, respectively.) iii. Models G-10(A) and G-17(A) contain two alternative headings (“Minimum Interest Charge” and “Minimum Charge”) for disclosing a minimum interest or fixed finance charge under §§ 226.5a(b)(3) and 226.6(b)(2)(iii). If a creditor imposes a minimum charge in lieu of interest in those months where a consumer would otherwise incur an interest charge but that interest charge is less than the minimum charge, the creditor should disclose this charge under the heading “Minimum Interest Charge” or a substantially similar heading. Other minimum or fixed finance charges should be disclosed under the heading “Minimum Charge” or a substantially similar heading. iv. Models G-10(A), G-10(D) and G-17(A) contain two alternative headings (“Annual Fees” and “Set-up and Maintenance Fees”) for disclosing fees for issuance or availability of credit under § 226.5a(b)(2) or § 226.6(b)(2)(ii). If the only fee for issuance or availability of credit disclosed under § 226.5a(b)(2) or § 226.6(b)(2)(ii) is an annual fee, a creditor should use the heading “Annual Fee” or a substantially similar heading to disclose this fee. If a creditor imposes fees for issuance or availability of credit disclosed under § 226.5a(b)(2) or § 226.6(b)(2)(ii) other than, or in addition to, an annual fee, the creditor should use the heading “Set-up and Maintenance Fees” or a substantially similar heading to disclose fees for issuance or availability of credit, including the annual fee. v. Although creditors are not required to use a certain paper size in disclosing the §§ 226.5a or 226.6(b)(1) and (2) disclosures, samples G-10(B), G-10(C), G-17(B), G-17(C) and G-17(D) are designed to be printed on an 8 1/2 1/2 A. A readable font style and font size (10-point Arial font style, except for the purchase annual percentage rate which is shown in 16-point type). B. Sufficient spacing between lines of the text. C. Adequate spacing between paragraphs when several pieces of information were included in the same row of the table, as appropriate. For example, in the samples in the row of the tables with the heading “APR for Balance Transfers,” the forms disclose two components: the applicable balance transfer rate and a cross reference to the balance transfer fee. The samples show these two components on separate lines with adequate space between each component. On the other hand, in the samples, in the disclosure of the late payment fee, the forms disclose two components: the late payment fee, and the cross reference to the penalty rate. Because the disclosure of both these components is short, these components are disclosed on the same line in the tables. D. Standard spacing between words and characters. In other words, the text was not compressed to appear smaller than 10-point type. E. Sufficient white space around the text of the information in each row, by providing sufficient margins above, below and to the sides of the text. F. Sufficient contrast between the text and the background. Generally, black text was used on white paper. vi. While the Board is not requiring issuers to use the above formatting techniques in presenting information in the table (except for the 10-point and 16-point font requirement), the Board encourages issuers to consider these techniques when deciding how to disclose information in the table, to ensure that the information is presented in a readable format. vii. Creditors are allowed to use color, shading and similar graphic techniques with respect to the table, so long as the table remains substantially similar to the model and sample forms in appendix G. 6. Model G-11. 7. Models G-13(A) and G-13(B). 8. Samples G-18(A)-(D). 9. Samples G-18(D). 10. Forms G-18(F)-(G). i. Creditors are not required to use a certain paper size in disclosing the § 226.7 disclosures. However, Forms G-18(F) and G-18(G) are designed to be printed on an 8 × 14 inch sheet of paper. ii. The due date for a payment, if a late payment fee or penalty rate may be imposed, must appear on the front of the first page of the statement. See Sample G-18(D) that illustrates how a creditor may comply with proximity requirements for other disclosures. The payment information disclosures appear in the upper right-hand corner on Samples G-18(F) and G-18(G), but may be located elsewhere, as long as they appear on the front of the first page of the periodic statement. The summary of account activity presented on Samples G-18(F) and G-18(G) is not itself a required disclosure, although the previous balance and the new balance, presented in the summary, must be disclosed in a clear and conspicuous manner on periodic statements. iii. Additional information not required by Regulation Z may be presented on the statement. The information need not be located in any particular place or be segregated from disclosures required by Regulation Z, although the effect of proximity requirements for required disclosures, such as the due date, may cause the additional information to be segregated from those disclosures required to be disclosed in close proximity to one another. Any additional information must be presented consistent with the creditor's obligation to provide required disclosures in a clear and conspicuous manner. iv. Model Forms G-18(F) and G-18(G) demonstrate two examples of ways in which transactions could be presented on the periodic statement. Model Form G-18(G) presents transactions grouped by type and Model Form G-18(F) presents transactions in a list in chronological order. Neither of these approaches to presenting transactions is required; a creditor may present transactions differently, such as in a list grouped by authorized user or other means. 11. Model Form G-19. 12. Sample G-24. Appendix H—Closed-End Model Forms and Clauses 1. Models H-1 and H-2. The creditor may also delete or, on multi-purpose forms, indicate inapplicable disclosures, such as: • The itemization of the amount financed option. (See Samples H-12 through H-15.) • The credit life and disability insurance disclosures. (See Samples H-11 and H-12.) • The property insurance disclosures. (See Samples H-10 through H-12, and H-14.) • The “filing fees” and “non-filing insurance” disclosures. (See Samples H-11 and H-12.) • The prepayment penalty or rebate disclosures. (See Samples H-12 and H-14.) • The total sale price. (See Samples H-11 through H-15.) Other permissible changes include: • Adding the creditor's address or telephone number. (See the commentary to § 226.18(a).) • Combining required terms where several numerical disclosures are the same, for instance, if the “total of payments” equals the “total sale price.” (See the commentary to § 226.18.) • Rearranging the sequence or location of the disclosures—for instance, by placing the descriptive phrases outside the boxes containing the corresponding disclosures, or by grouping the descriptors together as a glossary of terms in a separate section of the segregated disclosures; by placing the payment schedule at the top of the form; or by changing the order of the disclosures in the boxes, including the annual percentage rate and finance charge boxes. • Using brackets, instead of checkboxes, to indicate inapplicable disclosures. • Using a line for the consumer to initial, rather than a checkbox, to indicate an election to receive an itemization of the amount financed. • Deleting captions for disclosures. • Using a symbol, such as an asterisk, for estimated disclosures, instead of an “e.” • Adding a signature line to the insurance disclosures to reflect joint policies. • Separately itemizing the filing fees. • Revising the late charge disclosure in accordance with the commentary to § 226.18(l). 2. Model H-3. 3. Models H-4 through H-7. 4. Model H-4(A). 5. Model H-4(B). 6. Model H-4(C). 7. Models H-4(D) through H-4(J). i. Model H-4(D) illustrates the adjustment notice required under § 226.20(c), and provides examples of payment change notices and annual notices of interest rate changes. ii. Model H-4(E) illustrates the interest rate and payment summary table required under § 226.18(s) for a fixed-rate mortgage transaction. iii. Model H-4(F) illustrates the interest rate and payment summary table required under § 226.18(s) for an adjustable-rate or a step-rate mortgage transaction. iv. Model H-4(G) illustrates the interest rate and payment summary table required under § 226.18(s) for a mortgage transaction with negative amortization. v. Model H-4(H) illustrates the interest rate and payment summary table required under § 226.18(s) for a fixed-rate, interest-only mortgage transaction. vi. Model H-4(I) illustrates the introductory rate disclosure required by § 226.18(s)(2)(iii) for an adjustable-rate mortgage transaction with an introductory rate. vii. Model H-4(J) illustrates the balloon payment disclosure required by § 226.18(s)(5) for a mortgage transaction with a balloon payment term. viii. Model H-4(K) illustrates the no-guarantee-to-refinance statement required by § 226.18(t) for a mortgage transaction. 8. Model H-5. 9. Model H-6. 10. Model H-7. 11. Models H-8 and H-9. 12. Sample forms. 13. Sample H-10. 14. Sample H-11. 15. Sample H-12. 16. Samples H-13 through H-15. 17. Sample H-13. 18. Sample H-14. 19. Sample H-15. 1/2 1/4 20. Sample H-16. 21. HRSA-500-1 9-82. 22. HRSA-500-2 9-82. 23. HRSA-502-1 9-82. 24. HRSA-502-2 9-82. 25. Models H-18, H-19, H-20. i. These model forms illustrate disclosures required under § 226.47 on or with an application or solicitation, at approval, and after acceptance of a private education loan. Although use of the model forms is not required, creditors using them properly will be deemed to be in compliance with the regulation with regard to private education loan disclosures. Creditors may make certain types of changes to private education loan model forms H-18 (application and solicitation), H-19 (approval), and H-20 (final) and still be deemed to be in compliance with the regulation, provided that the required disclosures are made clearly and conspicuously. The model forms aggregate disclosures into groups under specific headings. Changes may not include rearranging the sequence of disclosures, for instance, by rearranging which disclosures are provided under each heading or by rearranging the sequence of the headings and grouping of disclosures. Changes to the model forms may not be so extensive as to affect the substance or clarity of the forms. Creditors making revisions with that effect will lose their protection from civil liability. The creditor may delete inapplicable disclosures, such as: • The Federal student financial assistance alternatives disclosures • The self-certification disclosure Other permissible changes include, for example: • Adding the creditor's address, telephone number, or Web site • Adding loan identification information, such as a loan identification number • Adding the date on which the form was printed or produced • Placing the notice of the right to cancel in the top left or top right of the disclosure to accommodate a window envelope • Combining required terms where several numerical disclosures are the same. For instance, if the itemization of the amount financed is provided, the amount financed need not be separately disclosed • Combining the disclosure of loan term and payment deferral options required in § 226.47(a)(3) with the disclosure of cost estimates required in § 226.47(a)(4) in the same chart or table ( See • Using the first person, instead of the second person, in referring to the borrower • Using “borrower” and “creditor” instead of pronouns • Incorporating certain state “plain English” requirements • Deleting inapplicable disclosures by whiting out, blocking out, filling in “N/A” (not applicable) or “0,” crossing out, leaving blanks, checking a box for applicable items, or circling applicable items ii. Although creditors are not required to use a certain paper size in disclosing the §§ 226.47(a), (b) and (c) disclosures, samples H-21, H-22, and H-23 are designed to be printed on two 8 1/2 1/2 A. A readable font style and font size (10-point Helvetica font style for body text). B. Sufficient spacing between lines of the text. C. Standard spacing between words and characters. In other words, the body text was not compressed to appear smaller than the 10-point type size. D. Sufficient white space around the text of the information in each row, by providing sufficient margins above, below and to the sides of the text. E. Sufficient contrast between the text and the background. Generally, black text was used on white paper. iii. While the Board is not requiring issuers to use the above formatting techniques in presenting information in the disclosure, the Board encourages issuers to consider these techniques when deciding how to disclose information in the disclosure to ensure that the information is presented in a readable format. iv. Creditors are allowed to use color, shading and similar graphic techniques in the disclosures, so long as the disclosures remain substantially similar to the model and sample forms in appendix H. 26. Sample H-21. 27. Sample H-22. 28. Sample H-22. Appendix I—Federal Enforcement Agencies Statute: Other sections: Previous regulation: 1981 changes: Appendix J—Annual Percentage Rate Computations for Closed-End Credit Transactions 1. Use of appendix J. 2. Relation to Board tables. References Statute: Other sections: Previous regulation: 1981 changes: Appendix K—Total Annual Loan Cost Rate Computations for Reverse Mortgage Transactions 1. General. (b) Instructions and equations for the total annual loan cost rate. (b)(5) Number of unit-periods between two given dates. 1. Assumption as to when transaction begins. (b)(9) Assumption for discretionary cash advances. 1. Amount of credit. (b)(10) Assumption for variable-rate reverse mortgage transactions. 1. Initial discount or premium rate. (d) Reverse mortgage model form and sample form. (d)(2) Sample form. 1. General. Appendix L—Assumed Loan Periods for Computations of Total Annual Loan Cost Rates 1. General. Appendix O—Illustrative Written Source Documents for Higher-Priced Mortgage Loan Appraisal Rules 1. Title commitment report. [46 FR 50288, Oct. 9, 1981] Editorial Note: For Federal Register www.govinfo.gov.

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