PART 1026—TRUTH IN LENDING (REGULATION Z) Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 3354, 5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq. Source: 76 FR 79772, Dec. 22, 2011, unless otherwise noted. Subpart A—General § 1026.1 Authority, purpose, coverage, organization, enforcement, and liability. (a) Authority. et seq. et seq. 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; (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 § 1026.40 apply to persons who are not creditors but who provide applications for home-equity plans to consumers. (4) Furthermore, certain requirements of § 1026.57 apply to institutions of higher education. (5) Except in transactions subject to § 1026.19(e) and (f), no person is required to provide the disclosures required by sections 128(a)(16) through (19), 128(b)(4), 129C(f)(1), 129C(g)(2) and (3), 129D(h), or 129D(j)(1)(A) of the Truth in Lending Act, section 4(c) of the Real Estate Settlement Procedures Act, or the disclosure required prior to settlement by section 129C(h) of the Truth in Lending Act. Except in transactions subject to § 1026.20(e), no person is required to provide the disclosure required by section 129D(j)(1)(B) of the Truth in Lending Act. Except in transactions subject to § 1026.39(d)(5), no person becoming a creditor with respect to an existing residential mortgage loan is required to provide the disclosure required by section 129C(h) of the Truth in Lending Act. (6) The requirements of § 1026.42(i) apply to certain persons regardless of whether they are creditors and even if the mortgage, as defined in § 1026.42(i)(2)(v), is primarily for business, commercial, agricultural, or organizational purposes. (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 § 1026.60 and § 1026.40, 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 percentage 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 1026.32 requires certain disclosures and provides limitations for closed-end credit transactions and open-end credit plans that have rates or fees above specified amounts or certain prepayment penalties. Section 1026.33 requires special disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 1026.34 prohibits specific acts and practices in connection with high-cost mortgages, as defined in § 1026.32(a). Section 1026.35 prohibits specific acts and practices in connection with closed-end higher-priced mortgage loans, as defined in § 1026.35(a). Section 1026.36 prohibits specific acts and practices in connection with an extension of credit secured by a dwelling. Sections 1026.37 and 1026.38 set forth special disclosure requirements for certain closed-end transactions secured by real property or a cooperative unit, as required by § 1026.19(e) and (f). (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 § 1026.57(c), which applies to all open-end credit plans). Section 1026.51 contains rules on evaluation of a consumer's ability to make the required payments under the terms of an account. Section 1026.52 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 1026.53 contains rules on allocation of payments in excess of the minimum payment. Section 1026.54 sets forth certain limitations on the imposition of finance charges as the result of a loss of a grace period. Section 1026.55 contains limitations on increases in annual percentage rates, fees, and charges for credit card accounts. Section 1026.56 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 1026.57 sets forth rules for reporting and marketing of college student open-end credit. Section 1026.58 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 official interpretations, special rules for certain kinds of credit plans, 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. [76 FR 79772, Dec. 22, 2011, as amended at 77 FR 70114, Nov. 23, 2012; 78 FR 6962, Jan. 31, 2013; 78 FR 80106, Dec. 31, 2013; 80 FR 32687, June 9, 2015; 82 FR 37768, Aug. 11, 2017; 89 FR 64577, Aug. 7, 2024] § 1026.2 Definitions and rules of construction. (a) Definitions. (1) Act et seq. (2) Advertisement (3)(i) Application (ii) For transactions subject to § 1026.19(e), (f), or (g) of this part, an application consists of the submission of the consumer's name, the consumer's income, the consumer's social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought. (4) Billing cycle cycle (5) Bureau (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 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 § 1026.40 that is accessed by a credit card; or (B) A covered overdraft credit account as defined in § 1026.62 offered by a creditor other than a very large financial institution as defined in § 1026.62 that is accessed by a debit card or account number. (iii) Charge card (iv) Debit card debit 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 that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract. (ii) For purposes of §§ 1026.4(c)(8) (Discounts), 1026.9(d) (Finance charge imposed at time of transaction), and 1026.12(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 §§ 1026.60 and 1026.9(e) and (f), the finance charge disclosures contained in § 1026.6(a)(1) and (b)(3)(i) and § 1026.7(a)(4) through (7) and (b)(4) through (6) and the right of rescission set forth in § 1026.15) 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 § 1026.32) 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 § 1026.32 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 (27)(i) Successor in interest (A) A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety; (B) A transfer to a relative resulting from the death of the consumer; (C) A transfer where the spouse or children of the consumer become an owner of the property; (D) A transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the consumer becomes an owner of the property; or (E) A transfer into an inter vivos (ii) Confirmed successor in interest (28) The Board-selected benchmark replacement for consumer loans (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 part, the words used have the meanings given to them by state law or contract. (4) Where the word amount [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 80106, Dec. 31, 2013; 81 FR 72388, Oct. 19, 2016; 81 FR 84369, Nov. 22, 2016; 88 FR 30622, May 11, 2023; 89 FR 64577, Aug. 7, 2024; 89 FR 106837, Dec. 30, 2024] § 1026.3 Exempt transactions. The following transactions are not subject to this part or, if the exemption is limited to specified provisions of this part, are not subject to those provisions: (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 § 1026.46(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 (g) Employer-sponsored retirement plans. et seq. (h) Partial exemption for certain mortgage loans. (1) The transaction is secured by a subordinate lien; (2) The transaction is for the purpose of: (i) Downpayment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies; (ii) Property rehabilitation assistance; (iii) Energy efficiency assistance; or (iv) Foreclosure avoidance or prevention; (3) The credit contract does not require the payment of interest; (4) The credit contract provides that repayment of the amount of credit extended is: (i) Forgiven either incrementally or in whole, at a date certain, and subject only to specified ownership and occupancy conditions, such as a requirement that the consumer maintain the property as the consumer's principal dwelling for five years; (ii) Deferred for a minimum of 20 years after consummation of the transaction; (iii) Deferred until sale of the property securing the transaction; or (iv) Deferred until the property securing the transaction is no longer the principal dwelling of the consumer; (5)(i) The costs payable by the consumer in connection with the transaction at consummation are limited to: (A) Recording fees; (B) Transfer taxes; (C) A bona fide and reasonable application fee; and (D) A bona fide and reasonable fee for housing counseling services; and (ii) The total of costs payable by the consumer under paragraph (h)(5)(i)(C) and (D) of this section is less than 1 percent of the amount of credit extended; and (6) The following disclosures are provided: (i) Disclosures described in § 1026.18 that comply with this part; or (ii) Alternatively, disclosures described in § 1026.19(e) and (f) that comply with this part. (i) The exemptions in this section are not applicable to § 1026.42(i) (Quality Control Standards for Automated Valuation Models). [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 80107, Dec. 31, 2013; 82 FR 37768, Aug. 11, 2017; 89 FR 64577, Aug. 7, 2024] § 1026.4 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 (except a prepaid account as defined in § 1026.61 or a covered asset account as that term is defined in § 1026.62) 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. (11) With regard to a covered separate credit feature and an asset feature on a prepaid account that are both accessible by a hybrid prepaid-credit card as defined in § 1026.61: (i) Any fee or charge described in paragraphs (b)(1) through (10) of this section imposed on the covered separate credit feature, whether it is structured as a credit subaccount of the prepaid account or a separate credit account. (ii) Any fee or charge imposed on the asset feature of the prepaid account to the extent that the amount of the fee or charge exceeds comparable fees or charges imposed on prepaid accounts in the same prepaid account program that do not have a covered separate credit feature accessible by a hybrid prepaid-credit card. (12) With regard to a covered asset account as that term is defined in § 1026.62(b)(2): (i) Any service, transaction, activity, or carrying charge imposed on the separate credit account required by § 1026.62(c); and (ii) Any service, transaction, activity, or carrying charge imposed on the covered asset account to the extent that the charge exceeds a comparable charge imposed on a checking or other transaction account that does not have overdraft credit. (iii) For purposes of paragraph (b)(12)(ii) of this section, a charge or combination of charges, including a per transaction fee, imposed on a covered asset account when overdraft credit is extended is not comparable to the following fees or charges imposed on a checking or other transaction account that does not have overdraft credit: (A) A charge for authorizing or paying a transaction that overdraws the checking or other transaction account. (B) A charge for declining to authorize or pay a transaction. (C) A charge for returning a transaction unpaid. (D) A charge for transferring funds into the checking or other transaction account from any credit account. (E) A charge for transferring funds into the checking or other transaction account from any other asset account. (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. This paragraph (c)(3) does not apply to credit offered in connection with a prepaid account as defined in § 1026.61. This paragraph (c)(3) also does not apply to above breakeven overdraft credit as defined in § 1026.62. (4) Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis. This paragraph does not apply to a fee to participate in a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61, regardless of whether this fee is imposed on the credit feature or on the asset feature of the prepaid account. (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 § 1026.17(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. (i) The insurance coverage may be obtained from a person of the consumer's choice, and this fact is disclosed. (A creditor may reserve the right to refuse to accept, for reasonable cause, an insurer offered by the consumer.) (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 § 1026.17(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 § 1026.17(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. [76 FR 79772, Dec. 22, 2011, as amended at 81 FR 84369, Nov. 22, 2016; 89 FR 106837, Dec. 30, 2024] Subpart B—Open-End Credit § 1026.5 General disclosure requirements. (a) Form of disclosures General. (ii) The creditor shall make the disclosures required by this subpart in writing, in a form that the consumer may keep, except that: (A) The following disclosures need not be written: Disclosures under § 1026.6(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 § 1026.6(b)(2) and related disclosures of charges under § 1026.9(c)(2)(iii)(B); disclosures under § 1026.9(c)(2)(vi); disclosures under § 1026.9(d) when a finance charge is imposed at the time of the transaction; and disclosures under § 1026.56(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 § 1026.60; home-equity disclosures under § 1026.40(d); the alternative summary billing-rights statement under § 1026.9(a)(2); the credit and charge card renewal disclosures required under § 1026.9(e); and the payment requirements under § 1026.10(b), except as provided in § 1026.7(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 § 1026.40, the terms finance charge annual percentage rate, (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 § 1026.40(a). (iii) Certain account-opening disclosures must be provided in a tabular format in accordance with the requirements of § 1026.6(b)(1). (iv) Certain disclosures provided on periodic statements must be grouped together in accordance with the requirements of § 1026.7(b)(6) and (b)(13). (v) Certain disclosures provided on periodic statements must be given in accordance with the requirements of § 1026.7(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 § 1026.9(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 § 1026.9(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 § 1026.9(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 § 1026.6; 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. (ii) Timing requirements 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 (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. § 1026.6 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, and the corresponding annual percentage rate. If a creditor offers a variable-rate plan, the creditor shall also disclose: The circumstances under which the rate(s) may increase; any limitations on the increase; and the effect(s) of an increase. When different periodic rates apply to different types of transactions, the types of transactions to which the periodic rates shall apply shall also be disclosed. A creditor is not required to adjust the range of balances disclosure to reflect the balance below which only a minimum charge applies. (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, including a description of how any finance charge other than the periodic rate will be determined. (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 § 1026.40(d)(4)(i), such as terminating the plan or changing the terms. (ii) The payment information described in § 1026.40(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 § 1026.40(d)(9). (iv) A statement of any transaction requirements as described in § 1026.40(d)(10). (v) A statement regarding the tax implications as described in § 1026.40(d)(11). (vi) A statement that the annual percentage rate imposed under the plan does not include costs other than interest as described in § 1026.40(d)(6) and (d)(12)(ii). (vii) The variable-rate disclosures described in § 1026.40(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and (d)(12)(xii), as well as the disclosure described in § 1026.40(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 § 1026.4(a) and § 1026.4(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 § 1026.4(e) disclosed as specified. (D) With regard to a covered separate credit feature and an asset feature on a prepaid account that are both accessible by a hybrid prepaid-credit card as defined in § 1026.61, any fee or charge imposed on the asset feature of the prepaid account to the extent that the amount of the fee or charge does not exceed comparable fees or charges imposed on prepaid accounts in the same prepaid account program that do not have a covered separate credit feature accessible by a hybrid prepaid-credit card. (E) With regard to a non-covered separate credit feature accessible by a prepaid card as defined in § 1026.61, any fee or charge imposed on the asset feature of the prepaid account. (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 § 1026.6(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. [76 FR 79772, Dec. 22, 2011, as amended at 81 FR 84369, Nov. 22, 2016] § 1026.7 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. (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, other than covered separate credit features that are charge card accounts accessible by hybrid prepaid-credit cards as defined in § 1026.61; 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 2 ( 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. (iii) Format requirements. (iv) Provision of information about credit counseling services Required information. (B) Updating required information. (v) Exemptions. (A) Charge card accounts that require payment of outstanding balances in full at the end of each billing cycle; (B) A billing cycle immediately following two consecutive billing cycles in which the consumer paid the entire balance in full, had a zero outstanding balance or had a credit balance; and (C) A billing cycle where paying the minimum payment due for that billing cycle will pay the entire outstanding balance on the account for that billing cycle. (13) Format requirements. (14) Deferred interest or similar transactions. [76 FR 79772, Dec. 22, 2011, as amended at 81 FR 84369, Nov. 22, 2016] § 1026.8 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: (a) Sale credit. (i) A brief identification of the property or services purchased, for creditors and sellers that are the same or related; or (ii) The seller's name; and the city and state or foreign country where the transaction took place. The creditor may omit the address or provide any suitable designation that helps the consumer to identify the transaction when the transaction took place at a location that is not fixed; took place in the consumer's home; or was a mail, Internet, or telephone order. (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. (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 § 1026.2(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. § 1026.9 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 § 1026.6(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 § 1026.16(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 § 1026.6(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) Change in terms 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 § 1026.6(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. ( 1 ( 2 ( 3 (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 ( 2 Notice included with periodic statement. 1 1 2 7 8 ( 3 Notice provided separately from periodic statement. 1 1 1 2 7 8 (v) Notice not required. (A) When the change involves charges for documentary evidence; a reduction of any component of a finance or other charge (except that on or after October 1, 2022, this provision on when the change involves a reduction of any component of a finance or other charge does not apply to any change in the margin when a LIBOR index is replaced, as permitted by § 1026.55(b)(7)(i) or (ii)); 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 § 1026.6(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: ( 1 ( 2 (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 §§ 1026.60, 1026.6 and 1026.7. (e) Disclosures upon renewal of credit or charge card Notice prior to renewal. (i) The disclosures contained in § 1026.60(b)(1) through (b)(7) that would apply if the account were renewed; and (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 § 1026.55(c)(2). (3) Exception. [76 FR 79772, Dec. 22, 2011, as amended at 86 FR 69781, Dec. 8, 2021] § 1026.10 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. § 1026.11 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. § 1026.12 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. (b) Liability of cardholder for unauthorized use Definition of unauthorized use. (ii) Limitation on amount. (2) Conditions of liability. (i) The credit card is an accepted credit card; (ii) The card issuer has provided adequate notice of the cardholder's maximum potential liability and of means by which the card issuer may be notified of loss or theft of the card. The notice shall state that the cardholder's liability shall not exceed $50 (or any lesser amount) and that the cardholder may give oral or written notification, and shall describe a means of notification (for example, a telephone number, an address, or both); and (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 General rule. (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. (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 General rule. (2) Rights of the card issuer. (3) Periodic deductions. (ii) With respect to a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61, for purposes of this paragraph (d)(3), “periodically” means no more frequently than once per calendar month, such as on a monthly due date disclosed on the applicable periodic statement in accordance with the requirements of § 1026.7(b)(11)(i)(A) or on an earlier date in each calendar month in accordance with a written authorization signed by the consumer. (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. [76 FR 79772, Dec. 22, 2011, as amended at 81 FR 84369, Nov. 22, 2016] § 1026.13 Billing error resolution. (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 §§ 1026.7(a)(2) or (b)(2), as applicable, and 1026.8. (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. (1) Is received by a creditor at the address disclosed under § 1026.7(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. (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. (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 § 1026.6(a)(1) or (b)(2)(v), as applicable, and § 1026.7(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 § 1026.6(a)(1) or (b)(2)(v), as applicable, and § 1026.7(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. (1) Except with respect to a prepaid account as defined in § 1026.61, an extension of credit that is incident to an electronic fund transfer occurs under an agreement between the consumer and a financial institution to extend credit when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account; or (2) With regard to a covered separate credit feature and an asset feature of a prepaid account where both are accessible by a hybrid prepaid-credit card as defined in § 1026.61, an extension of credit that is incident to an electronic fund transfer occurs when the hybrid prepaid-credit card accesses both funds in the asset feature of the prepaid account and a credit extension from the credit feature with respect to a particular transaction. [76 FR 79772, Dec. 22, 2011, as amended at 81 FR 84369, Nov. 22, 2016] § 1026.14 Determination of annual percentage rate. (a) General rule. 1/8 (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 Bureau 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 credit plans secured by a consumer's dwelling. (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. (3) Transaction charge imposed. (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. § 1026.15 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, whichever occurs last. If the required notice and material disclosures are not delivered, the right to rescind shall expire 3 years after the occurrence giving rise to the right of rescission, or upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the Act. The term 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. (f) Exempt transactions. (1) A residential mortgage transaction. (2) A credit plan in which a state agency is a creditor. § 1026.16 Advertising. (a) Actually available terms. (b) Advertisement of terms that require additional disclosures. (i) Any minimum, fixed, transaction, activity or similar charge that is a finance charge under § 1026.4 that could be imposed. (ii) Any periodic rate that may be applied expressed as an annual percentage rate as determined under § 1026.14(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 § 1026.6 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 § 1026.14(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. (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 § 1026.40 or § 1026.16(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 § 1026.60(c)(2), § 1026.60(d)(3), § 1026.60(e)(4), or § 1026.16(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. Subpart C—Closed-End Credit § 1026.17 General disclosure requirements. (a) Form of disclosures. (1) The creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep. 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) Except for private education loan disclosures made in compliance with § 1026.47, the terms “finance charge” and “annual percentage rate,” when required to be disclosed under § 1026.18(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 § 1026.18(a). For private education loan disclosures made in compliance with § 1026.47, the term “annual percentage rate,” and the corresponding percentage rate must be less conspicuous than the term “finance charge” and corresponding amount under § 1026.18(d), the interest rate under §§ 1026.47(b)(1)(i) and (c)(1), and the notice of the right to cancel under § 1026.47(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. (1) Any changed term unless the term was based on an estimate in accordance with § 1026.17(c)(2) and was labeled 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. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 11004, Feb. 14, 2013; 78 FR 80107, Dec. 31, 2013] § 1026.18 Content of disclosures. For each transaction other than a mortgage transaction subject to § 1026.19(e) and (f), 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. (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. The following payees may be described using generic or other general terms and need not be further identified: public officials or government agencies, credit reporting agencies, appraisers, and insurance companies. (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. (3) Good faith estimates of settlement costs provided for transactions subject to the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq. (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, (f) Variable rate. (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. (3) Information provided in accordance with §§ 1026.18(f)(2) and 1026.19(b) may be substituted for the disclosures required by paragraph (f)(1) of this section. (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, (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 or in part. (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. (1) An escrow account for items such as taxes, insurance or repairs; (2) A deposit that earns not less than 5 percent per year; or (3) Payments under a Morris Plan. (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 or any functional equivalent, 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 § 1026.33, 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. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 80108, Dec. 31, 2013] § 1026.19 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 § 1026.22, 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. (b) Certain variable-rate transactions. (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. (d) Information provided in accordance with variable-rate regulations of other Federal agencies may be substituted for the disclosures required by paragraph (b) of this section. (e) Mortgage loans—early disclosures Provision of disclosures Creditor. (ii) Mortgage broker. (B) If a mortgage broker provides any disclosure under § 1026.19(e), the mortgage broker shall also comply with the requirements of § 1026.25(c). (iii) Timing. (B) Except as set forth in paragraph (e)(1)(iii)(C) of this section, the creditor shall deliver or place in the mail the disclosures required under paragraph (e)(1)(i) of this section not later than the seventh business day before consummation of the transaction. (C) For a transaction secured by a consumer's interest in a timeshare plan described in 11 U.S.C. 101(53D), paragraph (e)(1)(iii)(B) of this section does not apply. (iv) Receipt of early disclosures. (v) Consumer's waiver of waiting period before consummation. (vi) Shopping for settlement service providers Shopping permitted. (B) Disclosure of services. (C) Written list of providers. (2) Predisclosure activity Imposition of fees on consumer Fee restriction. (B) Exception to fee restriction. (ii) Written information provided to consumer. (iii) Verification of information. (3) Good faith determination for estimates of closing costs General rule. (ii) Limited increases permitted for certain charges. (A) The aggregate amount of charges for third-party services and recording fees paid by or imposed on the consumer does not exceed the aggregate amount of such charges disclosed under paragraph (e)(1)(i) of this section by more than 10 percent; (B) The charge for the third-party service is not paid to the creditor or an affiliate of the creditor; and (C) The creditor permits the consumer to shop for the third-party service, consistent with paragraph (e)(1)(vi) of this section. (iii) Variations permitted for certain charges. (A) Prepaid interest; (B) Property insurance premiums; (C) Amounts placed into an escrow, impound, reserve, or similar account; (D) Charges paid to third-party service providers selected by the consumer consistent with paragraph (e)(1)(vi)(A) of this section that are not on the list provided under paragraph (e)(1)(vi)(C) of this section; and (E) Property taxes and other charges paid for third-party services not required by the creditor. (iv) Revised estimates. (A) Changed circumstance affecting settlement charges. ( 1 ( 2 ( 3 (B) Changed circumstance affecting eligibility. (C) Revisions requested by the consumer. (D) Interest rate dependent charges. (E) Expiration. (F) Delayed settlement date on a construction loan. (4) Provision and receipt of revised disclosures General rule. (ii) Relationship between revised Loan Estimates and Closing Disclosures. (f) Mortgage loans—final disclosures Provision of disclosures Scope. (ii) Timing In general. (B) Timeshares. (iii) Receipt of disclosures. (iv) Consumer's waiver of waiting period before consummation. (v) Settlement agent. (2) Subsequent changes Changes before consummation not requiring a new waiting period. (ii) Changes before consummation requiring a new waiting period. (A) The annual percentage rate disclosed under § 1026.38(o)(4) becomes inaccurate, as defined in § 1026.22. (B) The loan product is changed, causing the information disclosed under § 1026.38(a)(5)(iii) to become inaccurate. (C) A prepayment penalty is added, causing the statement regarding a prepayment penalty required under § 1026.38(b) to become inaccurate. (iii) Changes due to events occurring after consummation. (iv) Changes due to clerical errors. (v) Refunds related to the good faith analysis. (3) Charges disclosed Actual charge. (ii) Average charge. (A) The average charge is no more than the average amount paid for that service by or on behalf of all consumers and sellers for a class of transactions; (B) The creditor or settlement service provider defines the class of transactions based on an appropriate period of time, geographic area, and type of loan; (C) The creditor or settlement service provider uses the same average charge for every transaction within the defined class; and (D) The creditor or settlement service provider does not use an average charge: ( 1 ( 2 ( 3 (4) Transactions involving a seller Provision to seller. (ii) Timing. (iii) Charges disclosed. (iv) Creditor's copy. (5) No fee. (g) Special information booklet at time of application Creditor to provide special information booklet. (i) The creditor shall deliver or place in the mail the special information booklet not later than three business days after the consumer's application is received. However, if the creditor denies the consumer's application before the end of the three-business-day period, the creditor need not provide the booklet. If a consumer uses a mortgage broker, the mortgage broker shall provide the special information booklet and the creditor need not do so. (ii) In the case of a home equity line of credit subject to § 1026.40, a creditor or mortgage broker that provides the consumer with a copy of the brochure entitled “When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit,” or any successor brochure issued by the Bureau, is deemed to be in compliance with this section. (iii) The creditor or mortgage broker need not provide the booklet to the consumer for a transaction, the purpose of which is not the purchase of a one-to-four family residential property, including, but not limited to, the following: (A) Refinancing transactions; (B) Closed-end loans secured by a subordinate lien; and (C) Reverse mortgages. (2) Permissible changes. (i) In the “Complaints” section of the booklet, “the Bureau of Consumer Financial Protection” may be substituted for “HUD's Office of RESPA” and “the RESPA office.” (ii) In the “Avoiding Foreclosure” section of the booklet, it is permissible to inform homeowners that they may find information on and assistance in avoiding foreclosures at http://www.consumerfinance.gov http://www.hud.gov/foreclosure/ (iii) In the “No Discrimination” section of the appendix to the booklet, “the Bureau of Consumer Financial Protection” may be substituted for the reference to the “Board of Governors of the Federal Reserve System.” In the Contact Information section of the appendix to the booklet, the following contact information for the Bureau may be added: “Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552; www.consumerfinance.gov/learnmore (iv) The cover of the booklet may be in any form and may contain any drawings, pictures or artwork, provided that the title appearing on the cover shall not be changed. Names, addresses, and telephone numbers of the creditor or others and similar information may appear on the cover, but no discussion of the matters covered in the booklet shall appear on the cover. References to HUD on the cover of the booklet may be changed to references to the Bureau. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 80108, Dec. 31, 2013; 80 FR 8776, Feb. 19, 2015; 82 FR 37768, Aug. 11, 2017; 83 FR 19174, May 2, 2018] § 1026.20 Disclosure requirements regarding post-consummation events. (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 § 1026.4(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 § 1026.18(k), (l), (m), and (n). (4) The annual percentage rate originally imposed on the obligation. (5) The payment schedule under § 1026.18(g) and the total of payments under § 1026.18(h) based on the remaining obligation. (c) Rate adjustments with a corresponding change in payment. (1) Coverage In general. (ii) Exemptions. (A) ARMs with terms of one year or less; (B) The first interest rate adjustment to an ARM if the first payment at the adjusted level is due within 210 days after consummation and the new interest rate disclosed at consummation pursuant to § 1026.20(d) was not an estimate; or (C) The creditor, assignee or servicer of an adjustable-rate mortgage when the servicer on the loan is subject to the Fair Debt Collections Practices Act (FDCPA) (15 U.S.C. 1692 et seq. (2) Timing and content. (i) A statement providing: (A) An explanation that under the terms of the consumer's adjustable-rate mortgage, the specific time period in which the current interest rate has been in effect is ending and the interest rate and mortgage payment will change; (B) The effective date of the interest rate adjustment and when additional future interest rate adjustments are scheduled to occur; and (C) Any other changes to loan terms, features, or options taking effect on the same date as the interest rate adjustment, such as the expiration of interest-only or payment-option features. (ii) A table containing the following information: (A) The current and new interest rates; (B) The current and new payments and the date the first new payment is due; and (C) For interest-only or negatively-amortizing payments, the amount of the current and new payment allocated to principal, interest, and taxes and insurance in escrow, as applicable. The current payment allocation disclosed shall be the payment allocation for the last payment prior to the date of the disclosure. The new payment allocation disclosed shall be the expected payment allocation for the first payment for which the new interest rate will apply. (iii) An explanation of how the interest rate is determined, including: (A) The specific index or formula used in making interest rate adjustments and a source of information about the index or formula; and (B) The type and amount of any adjustment to the index, including any margin and an explanation that the margin is the addition of a certain number of percentage points to the index, and any application of previously foregone interest rate increases from past interest rate adjustments. (iv) Any limits on the interest rate or payment increases at each interest rate adjustment and over the life of the loan, as applicable, including the extent to which such limits result in the creditor, assignee, or servicer foregoing any increase in the interest rate and the earliest date that such foregone interest rate increases may apply to future interest rate adjustments, subject to those limits. (v) An explanation of how the new payment is determined, including: (A) The index or formula used; (B) Any adjustment to the index or formula, such as the addition of a margin or the application of any previously foregone interest rate increases from past interest rate adjustments; (C) The loan balance expected on the date of the interest rate adjustment; and (D) The length of the remaining loan term expected on the date of the interest rate adjustment and any change in the term of the loan caused by the adjustment. (vi) If applicable, a statement that the new payment will not be allocated to pay loan principal and will not reduce the loan balance. If the new payment will result in negative amortization, a statement that the new payment will not be allocated to pay loan principal and will pay only part of the loan interest, thereby adding to the balance of the loan. If the new payment will result in negative amortization as a result of the interest rate adjustment, the statement shall set forth the payment required to amortize fully the remaining balance at the new interest rate over the remainder of the loan term. (vii) The circumstances under which any prepayment penalty, as defined in § 1026.32(b)(6)(i), may be imposed, such as when paying the loan in full or selling or refinancing the principal dwelling; the time period during which such a penalty may be imposed; and a statement that the consumer may contact the servicer for additional information, including the maximum amount of the penalty. (3) Format. (ii) The disclosures required by paragraph (c)(2)(ii) of this section shall be in the form of a table located within the table described in paragraph (c)(3)(i) of this section. These disclosures shall appear in the same order as, and with headings and format substantially similar to, the table inside the larger table in forms H-4(D)(1) and (2) in appendix H to this part. (d) Initial rate adjustment. (1) Coverage In general. (ii) Exemptions. (2) Content. (i) The date of the disclosure. (ii) A statement providing: (A) An explanation that under the terms of the consumer's adjustable-rate mortgage, the specific time period in which the current interest rate has been in effect is ending and that any change in the interest rate may result in a change in the mortgage payment; (B) The effective date of the interest rate adjustment and when additional future interest rate adjustments are scheduled to occur; and (C) Any other changes to loan terms, features, or options taking effect on the same date as the interest rate adjustment, such as the expiration of interest-only or payment-option features. (iii) A table containing the following information: (A) The current and new interest rates; (B) The current and new payments and the date the first new payment is due; and (C) For interest-only or negatively-amortizing payments, the amount of the current and new payment allocated to principal, interest, and taxes and insurance in escrow, as applicable. The current payment allocation disclosed shall be the payment allocation for the last payment prior to the date of the disclosure. The new payment allocation disclosed shall be the expected payment allocation for the first payment for which the new interest rate will apply. (iv) An explanation of how the interest rate is determined, including: (A) The specific index or formula used in making interest rate adjustments and a source of information about the index or formula; and (B) The type and amount of any adjustment to the index, including any margin and an explanation that the margin is the addition of a certain number of percentage points to the index. (v) Any limits on the interest rate or payment increases at each interest rate adjustment and over the life of the loan, as applicable, including the extent to which such limits result in the creditor, assignee, or servicer foregoing any increase in the interest rate and the earliest date that such foregone interest rate increases may apply to future interest rate adjustments, subject to those limits. (vi) An explanation of how the new payment is determined, including: (A) The index or formula used; (B) Any adjustment to the index or formula, such as the addition of a margin; (C) The loan balance expected on the date of the interest rate adjustment; (D) The length of the remaining loan term expected on the date of the interest rate adjustment and any change in the term of the loan caused by the adjustment; and (E) If the new interest rate or new payment provided is an estimate, a statement that another disclosure containing the actual new interest rate and new payment will be provided to the consumer between two and four months before the first payment at the adjusted level is due for interest rate adjustments that result in a corresponding payment change. (vii) If applicable, a statement that the new payment will not be allocated to pay loan principal and will not reduce the loan balance. If the new payment will result in negative amortization, a statement that the new payment will not be allocated to pay loan principal and will pay only part of the loan interest, thereby adding to the balance of the loan. If the new payment will result in negative amortization as a result of the interest rate adjustment, the statement shall set forth the payment required to amortize fully the remaining balance at the new interest rate over the remainder of the loan term. (viii) The circumstances under which any prepayment penalty, as defined in § 1026.32(b)(6)(i), may be imposed, such as when paying the loan in full or selling or refinancing the principal dwelling; the time period during which such a penalty may be imposed; and a statement that the consumer may contact the servicer for additional information, including the maximum amount of the penalty. (ix) The telephone number of the creditor, assignee, or servicer for consumers to call if they anticipate not being able to make their new payments. (x) The following alternatives to paying at the new rate that consumers may be able to pursue and a brief explanation of each alternative, expressed in simple and clear terms: (A) Refinancing the loan with the current or another creditor or assignee; (B) Selling the property and using the proceeds to pay the loan in full; (C) Modifying the terms of the loan with the creditor, assignee, or servicer; and (D) Arranging payment forbearance with the creditor, assignee, or servicer. (xi) The Web site to access either the Bureau list or the HUD list of homeownership counselors and counseling organizations, the HUD toll-free telephone number to access the HUD list of homeownership counselors and counseling organizations, and the Bureau Web site to access contact information for State housing finance authorities (as defined in § 1301 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989). (3) Format. (ii) The disclosures required by paragraph (d)(2)(i) of this section shall appear outside of and above the table required in paragraph (d)(3)(i) of this section; and (iii) The disclosures required by paragraph (d)(2)(iii) of this section shall be in the form of a table located within the table described in paragraph (d)(3)(i) of this section. These disclosures shall appear in the same order as, and with headings and format substantially similar to, the table inside the larger table in forms H-4(D)(3) and (4) in appendix H to this part. (e) Escrow account cancellation notice for certain mortgage transactions Scope. (2) Content requirements. (i) A statement informing the consumer of the date on which the consumer will no longer have an escrow account; a statement that an escrow account may also be called an impound or trust account; a statement of the reason why the escrow account will be closed; a statement that without an escrow account, the consumer must pay all property costs, such as taxes and homeowner's insurance, directly, possibly in one or two large payments a year; and a table, titled “Cost to you,” that contains an itemization of the amount of any fee the creditor or servicer imposes on the consumer in connection with the closure of the consumer's escrow account, labeled “Escrow Closing Fee,” and a statement that the fee is for closing the escrow account. (ii) Under the reference “In the future”: (A) A statement of the consequences if the consumer fails to pay property costs, including the actions that a State or local government may take if property taxes are not paid and the actions the creditor or servicer may take if the consumer does not pay some or all property costs, such as adding amounts to the loan balance, adding an escrow account to the loan, or purchasing a property insurance policy on the consumer's behalf that may be more expensive and provide fewer benefits than a policy that the consumer could obtain directly; (B) A statement with a telephone number that the consumer can use to request additional information about the cancellation of the escrow account; (C) A statement of whether the creditor or servicer offers the option of keeping the escrow account open and, as applicable, a telephone number the consumer can use to request that the account be kept open; and (D) A statement of whether there is a cut-off date by which the consumer can request that the account be kept open. (3) Optional information. (4) Form of disclosures. (5) Timing Cancellation upon consumer's request. (ii) Cancellations other than upon the consumer's request. (iii) Receipt of disclosure. (f) Successor in interest. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 11004, Feb. 14, 2013; 78 FR 63005, Oct. 23, 2013; 78 FR 80111, Dec. 31, 2013; 81 FR 72388, Oct. 19, 2016] § 1026.21 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. § 1026.22 Determination of annual percentage rate. (a) Accuracy of annual percentage rate. (i) The error resulted from a corresponding error in a calculation tool used in good faith by the creditor; and (ii) Upon discovery of the error, the creditor promptly discontinues use of that calculation tool for disclosure purposes and notifies the Bureau in writing of the error in the calculation tool. (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 (4) Mortgage loans. (i) The rate results from the disclosed finance charge; and (ii)(A) The disclosed finance charge would be considered accurate under § 1026.18(d)(1) or § 1026.38(o)(2), as applicable; or (B) For purposes of rescission, if the disclosed finance charge would be considered accurate under § 1026.23(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 to this part, 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. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 80112, Dec. 31, 2013; 80 FR 80229, Dec. 24, 2015] § 1026.23 Right of rescission. (a) Consumer's right to rescind. (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)(i) 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, whichever occurs last. If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the Act. (ii) For purposes of this paragraph (a)(3), the term “material disclosures” means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in §§ 1026.32(c) and (d) and 1026.43(g). (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. (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 § 1026.17(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 § 1026.20(a)(5). (g) Tolerances for accuracy One-half of 1 percent tolerance. (i) The finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge: (A) Is understated by no more than 1/2 (B) Is greater than the amount required to be disclosed. (ii) The total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of this section if the disclosed total of payments: (A) Is understated by no more than 1/2 (B) Is greater than the amount required to be disclosed. (2) One percent tolerance. (i) The finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge: (A) Is understated by no more than 1 percent of the face amount of the note or $100, whichever is greater; or (B) Is greater than the amount required to be disclosed. (ii) The total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of this section if the disclosed total of payments: (A) Is understated by no more than 1 percent of the face amount of the note or $100, whichever is greater; or (B) 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) The finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge: (A) Is understated by no more than $35; or (B) Is greater than the amount required to be disclosed. (ii) The total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of this section if the disclosed total of payments: (A) Is understated by no more than $35; or (B) Is greater than the amount required to be disclosed. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 30745, May 23, 2013; 78 FR 60440, Oct. 1, 2013; 82 FR 37769, Aug. 11, 2017] § 1026.24 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. (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 §§ 1026.17(c) and 1026.22. (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., a stepped-rate mortgage transaction with an initial lower payment), each use of the word “fixed” to refer to the payment is accompanied by an equally prominent and closely proximate statement of the time period for which the payment is fixed, and the fact that the payment will increase after that period; or (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. Subpart D—Miscellaneous § 1026.25 Record retention. (a) General rule. (b) Inspection of records. (c) Records related to certain requirements for mortgage loans Records related to requirements for loans secured by real property or a cooperative unit General rule. (ii) Closing disclosures. (B) If a creditor sells, transfers, or otherwise disposes of its interest in a mortgage loan subject to § 1026.19(f) and does not service the mortgage loan, the creditor shall provide a copy of the disclosures required under § 1026.19(f)(1)(i) or (f)(4)(i) to the owner or servicer of the mortgage as a part of the transfer of the loan file. Such owner or servicer shall retain such disclosures for the remainder of the five-year period described under paragraph (c)(1)(ii)(A) of this section. (C) The Bureau shall have the right to require provision of copies of records related to the disclosures required under § 1026.19(f)(1)(i) and (f)(4)(i). (2) Records related to requirements for loan originator compensation. (i) A creditor shall maintain records sufficient to evidence all compensation it pays to a loan originator, as defined in § 1026.36(a)(1), and the compensation agreement that governs those payments for three years after the date of payment. (ii) A loan originator organization, as defined in § 1026.36(a)(1)(iii), shall maintain records sufficient to evidence all compensation it receives from a creditor, a consumer, or another person; all compensation it pays to any individual loan originator, as defined in § 1026.36(a)(1)(ii); and the compensation agreement that governs each such receipt or payment, for three years after the date of each such receipt or payment. (3) Records related to minimum standards for transactions secured by a dwelling. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 6583, Jan. 30, 2013; 78 FR 11410, Feb. 15, 2013; 78 FR 60382, Oct. 1, 2013; 78 FR 80112, Dec. 31, 2013; 82 FR 37769, Aug. 11, 2017] § 1026.26 Use of annual percentage rate in oral disclosures. (a) Open-end credit. (b) Closed-end credit. § 1026.27 Language of disclosures. Disclosures required by this part 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 §§ 1026.16 and 1026.24. § 1026.28 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 part 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 part 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 part and are preempted if the creditor cannot comply with state law without violating Federal law. (iii) A state may request the Bureau 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. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 80112, Dec. 31, 2013] § 1026.29 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 the Act. (c) Applications. § 1026.30 Limitation on rates. A creditor shall include in any consumer credit contract secured by a dwelling and subject to the Act and this part the maximum interest rate that may be imposed during the term of the obligation when: (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. Subpart E—Special Rules for Certain Home Mortgage Transactions § 1026.31 General rules. (a) Relation to other subparts in this part. (b) Form of disclosures. et seq. (c) Timing of disclosure Disclosures for high-cost 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 or account opening, as applicable. (iii) Consumer's waiver of waiting period before consummation or account opening. (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. For purposes of section 1026.32, the annual percentage rate shall be considered accurate, and may be used in determining whether a transaction is covered by section 1026.32, if it is accurate according to the requirements and within the tolerances under section 1026.22 for closed-end credit transactions or 1026.6(a) for open-end credit plans. The finance charge tolerances for rescission under section 1026.23(g) or (h) shall not apply for this purpose. (h) Corrections and unintentional violations. (1)(i) Within 30 days of consummation or account opening and prior to the institution of any action, the consumer is notified of or discovers the violation; (ii) Appropriate restitution is made within a reasonable time; and (iii) Within a reasonable time, whatever adjustments are necessary are made to the loan or credit plan to either, at the choice of the consumer: (A) Make the loan or credit plan satisfy the requirements of 15 U.S.C. 1631-1651; or (B) Change the terms of the loan or credit plan in a manner beneficial to the consumer so that the loan or credit plan will no longer be a high-cost mortgage. (2)(i) Within 60 days of the creditor's discovery or receipt of notification of an unintentional violation or bona fide error and prior to the institution of any action, the consumer is notified of the compliance failure; (ii) Appropriate restitution is made within a reasonable time; and (iii) Within a reasonable time, whatever adjustments are necessary are made to the loan or credit plan to either, at the choice of the consumer: (A) Make the loan or credit plan satisfy the requirements of 15 U.S.C. 1631-1651; or (B) Change the terms of the loan or credit plan in a manner beneficial to the consumer so that the loan or credit plan will no longer be a high-cost mortgage. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 6962, Jan. 31, 2013; 78 FR 60440, Oct. 1, 2013] § 1026.32 Requirements for high-cost mortgages. (a) Coverage. high-cost mortgage, (i) The annual percentage rate applicable to the transaction, as determined in accordance with paragraph (a)(3) of this section, will exceed the average prime offer rate, as defined in § 1026.35(a)(2), for a comparable transaction by more than: (A) 6.5 percentage points for a first-lien transaction, other than as described in paragraph (a)(1)(i)(B) of this section; (B) 8.5 percentage points for a first-lien transaction if the dwelling is personal property and the loan amount is less than $50,000; or (C) 8.5 percentage points for a subordinate-lien transaction; or (ii) The transaction's total points and fees, as defined in paragraphs (b)(1) and (2) of this section, will exceed: (A) 5 percent of the total loan amount for a transaction with a loan amount of $20,000 or more; the $20,000 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; or (B) The lesser of 8 percent of the total loan amount or $1,000 for a transaction with a loan amount of less than $20,000; the $1,000 and $20,000 figures 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; or (iii) Under the terms of the loan contract or open-end credit agreement, the creditor can charge a prepayment penalty, as defined in paragraph (b)(6) of this section, more than 36 months after consummation or account opening, or prepayment penalties that can exceed, in total, more than 2 percent of the amount prepaid. (2) Exemptions. (i) A reverse mortgage transaction subject to § 1026.33; (ii) A transaction to finance the initial construction of a dwelling; (iii) A transaction originated by a Housing Finance Agency, where the Housing Finance Agency is the creditor for the transaction; or (iv) A transaction originated pursuant to the United States Department of Agriculture's Rural Development Section 502 Direct Loan Program. (3) Determination of annual percentage rate. (i) For a transaction in which the annual percentage rate will not vary during the term of the loan or credit plan, the interest rate in effect as of the date the interest rate for the transaction is set; (ii) For a transaction in which the interest rate may vary during the term of the loan or credit plan in accordance with an index, the interest rate that results from adding the maximum margin permitted at any time during the term of the loan or credit plan to the value of the index rate in effect as of the date the interest rate for the transaction is set, or the introductory interest rate, whichever is greater; and (iii) For a transaction in which the interest rate may or will vary during the term of the loan or credit plan, other than a transaction described in paragraph (a)(3)(ii) of this section, the maximum interest rate that may be imposed during the term of the loan or credit plan. (b) Definitions. (1) In connection with a closed-end credit transaction, points and fees (i) All items included in the finance charge under § 1026.4(a) and (b), except that the following items are excluded: (A) Interest or the time-price differential; (B) Any premium or other charge imposed in connection with any Federal or State agency program for any guaranty or insurance that protects the creditor against the consumer's default or other credit loss; (C) For any guaranty or insurance that protects the creditor against the consumer's default or other credit loss and that is not in connection with any Federal or State agency program: ( 1 ( 2 (D) Any bona fide third-party charge not retained by the creditor, loan originator, or an affiliate of either, unless the charge is required to be included in points and fees under paragraph (b)(1)(i)(C), (iii), or (iv) of this section; (E) Up to two bona fide discount points paid by the consumer in connection with the transaction, if the interest rate without any discount does not exceed: ( 1 ( 2 et seq. (F) If no discount points have been excluded under paragraph (b)(1)(i)(E) of this section, then up to one bona fide discount point paid by the consumer in connection with the transaction, if the interest rate without any discount does not exceed: ( 1 ( 2 et seq. (ii) All compensation paid directly or indirectly by a consumer or creditor to a loan originator, as defined in § 1026.36(a)(1), that can be attributed to that transaction at the time the interest rate is set unless: (A) That compensation is paid by a consumer to a mortgage broker, as defined in § 1026.36(a)(2), and already has been included in points and fees under paragraph (b)(1)(i) of this section; (B) That compensation is paid by a mortgage broker, as defined in § 1026.36(a)(2), to a loan originator that is an employee of the mortgage broker; (C) That compensation is paid by a creditor to a loan originator that is an employee of the creditor; or (D) That compensation is paid by a retailer of manufactured homes to its employee. (iii) All items listed in § 1026.4(c)(7) (other than amounts held for future payment of taxes), unless: (A) The charge is reasonable; (B) The creditor receives no direct or indirect compensation in connection with the charge; and (C) The charge is not paid to an affiliate of the creditor; (iv) Premiums or other charges payable at or before consummation for any credit life, credit disability, credit unemployment, or credit property insurance, or any other life, accident, health, or loss-of-income insurance for which the creditor is a beneficiary, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract; (v) The maximum prepayment penalty, as defined in paragraph (b)(6)(i) of this section, that may be charged or collected under the terms of the mortgage loan; and (vi) The total prepayment penalty, as defined in paragraph (b)(6)(i) or (ii) of this section, as applicable, incurred by the consumer if the consumer refinances the existing mortgage loan, or terminates an existing open-end credit plan in connection with obtaining a new mortgage loan, with the current holder of the existing loan or plan, a servicer acting on behalf of the current holder, or an affiliate of either. (2) In connection with an open-end credit plan, points and fees (i) All items included in the finance charge under § 1026.4(a) and (b), except that the following items are excluded: (A) Interest or the time-price differential; (B) Any premium or other charge imposed in connection with any Federal or State agency program for any guaranty or insurance that protects the creditor against the consumer's default or other credit loss; (C) For any guaranty or insurance that protects the creditor against the consumer's default or other credit loss and that is not in connection with any Federal or State agency program: ( 1 ( 2 (D) Any bona fide third-party charge not retained by the creditor, loan originator, or an affiliate of either, unless the charge is required to be included in points and fees under paragraphs (b)(2)(i)(C), (b)(2)(iii) or (b)(2)(iv) of this section; (E) Up to two bona fide discount points payable by the consumer in connection with the transaction, provided that the conditions specified in paragraph (b)(1)(i)(E) of this section are met; and (F) Up to one bona fide discount point payable by the consumer in connection with the transaction, provided that no discount points have been excluded under paragraph (b)(2)(i)(E) of this section and the conditions specified in paragraph (b)(1)(i)(F) of this section are met; (ii) All compensation paid directly or indirectly by a consumer or creditor to a loan originator, as defined in § 1026.36(a)(1), that can be attributed to that transaction at the time the interest rate is set unless: (A) That compensation is paid by a consumer to a mortgage broker, as defined in § 1026.36(a)(2), and already has been included in points and fees under paragraph (b)(2)(i) of this section; (B) That compensation is paid by a mortgage broker, as defined in § 1026.36(a)(2), to a loan originator that is an employee of the mortgage broker; (C) That compensation is paid by a creditor to a loan originator that is an employee of the creditor; or (D) That compensation is paid by a retailer of manufactured homes to its employee. (iii) All items listed in § 1026.4(c)(7) (other than amounts held for future payment of taxes) unless: (A) The charge is reasonable; (B) The creditor receives no direct or indirect compensation in connection with the charge; and (C) The charge is not paid to an affiliate of the creditor; (iv) Premiums or other charges payable at or before account opening for any credit life, credit disability, credit unemployment, or credit property insurance, or any other life, accident, health, or loss-of-income insurance for which the creditor is a beneficiary, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract; (v) The maximum prepayment penalty, as defined in paragraph (b)(6)(ii) of this section, that may be charged or collected under the terms of the open-end credit plan; (vi) The total prepayment penalty, as defined in paragraph (b)(6)(i) or (ii) of this section, as applicable, incurred by the consumer if the consumer refinances an existing closed-end credit transaction with an open-end credit plan, or terminates an existing open-end credit plan in connection with obtaining a new open-end credit plan, with the current holder of the existing transaction or plan, a servicer acting on behalf of the current holder, or an affiliate of either; (vii) Any fees charged for participation in an open-end credit plan, payable at or before account opening, as described in § 1026.4(c)(4); and (viii) Any transaction fee, including any minimum fee or per-transaction fee, that will be charged for a draw on the credit line, where the creditor must assume that the consumer will make at least one draw during the term of the plan. (3) Bona fide discount point Closed-end credit. bona fide discount point (ii) Open-end credit. bona fide discount point (4) Total loan amount Closed-end credit. (ii) Open-end credit. (5) Affiliate et seq. (6) Prepayment penalty Closed-end credit transactions. prepayment penalty (ii) Open-end credit. prepayment penalty (c) Disclosures. (1) Notices. (2) Annual percentage rate. (3) Regular payment; minimum periodic payment example; balloon payment. (ii) For an open-end credit plan: (A) An example showing the first minimum periodic payment for the draw period, the first minimum periodic payment for any repayment period, and the balance outstanding at the beginning of any repayment period. The example must be based on the following assumptions: ( 1 ( 2 ( 3 (B) If the credit contract provides for a balloon payment under the plan as permitted under paragraph (d)(1) of this section, a disclosure of that fact and an example showing the amount of the balloon payment based on the assumptions described in paragraph (c)(3)(ii)(A) of this section. (C) A statement that the example payments show the first minimum periodic payments at the current annual percentage rate if the consumer borrows the maximum credit available when the account is opened and does not obtain any additional extensions of credit, or a substantially similar statement. (D) A statement that the example payments are not the consumer's actual payments and that the actual minimum periodic payments will depend on the amount the consumer borrows, the interest rate applicable to that period, and whether the consumer pays more than the required minimum periodic payment, or a substantially similar statement. (4) Variable-rate. (5) Amount borrowed; credit limit. (ii) For an open-end credit plan, the credit limit for the plan when the account is opened. (d) Limitations. (1)(i) Balloon payment. (ii) Exceptions. (A) A mortgage transaction with a payment schedule that is adjusted to the seasonal or irregular income of the consumer; (B) A loan with maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition or construction of a dwelling intended to become the consumer's principal dwelling; or (C) A loan that meets the criteria set forth in §§ 1026.43(f)(1)(i) through (vi) and 1026.43(f)(2), or the conditions set forth in § 1026.43(e)(6). (iii) Open-end credit plans. (2) Negative amortization. (3) Advance payments. (4) Increased interest rate. (5) Rebates. (6) Prepayment penalties. (7) [Reserved] (8) Acceleration of debt. (i) There is fraud or material misrepresentation by the consumer in connection with the loan or open-end credit agreement; (ii) The consumer fails to meet the repayment terms of the agreement for any outstanding balance that results in a default in payment under the loan; 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. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 6583, Jan. 30, 2013; 78 FR 6962, Jan. 31, 2013; 78 FR 35502, June 12, 2013; 78 FR 60440, Oct. 1, 2013] § 1026.33 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. § 1026.34 Prohibited acts or practices in connection with high-cost mortgages. (a) Prohibited acts or practices for high-cost mortgages 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 for high-cost mortgages. (i) Mortgage-related obligations. (ii) Basis for determination 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) A creditor must verify the consumer's current obligations, including any mortgage-related obligations that are required by another credit obligation undertaken prior to or at account opening, and are secured by the same dwelling that secures the high-cost mortgage transaction. (iii) Presumption of compliance. (A) Determines the consumer's repayment ability as provided in paragraph (a)(4)(ii); (B) Determines the consumer's repayment ability taking into account current obligations and mortgage-related obligations as defined in paragraph (a)(4)(i) of this section, and using the largest required minimum periodic payment based on the following assumptions: ( 1 ( 2 ( 3 (C) Assesses the consumer's repayment ability taking into account at least one of the following: The ratio of total current obligations, including any mortgage-related obligations that are required by another credit obligation undertaken prior to or at account opening, and are secured by the same dwelling that secures the high-cost mortgage transaction, to income, or the income the consumer will have after paying current obligations. (iv) Exclusions from presumption of compliance. (5) Pre-loan counseling Certification of counseling required. (ii) Timing of counseling. (A) The consumer receives either the disclosure required by section 5(c) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2604(c)) or the disclosures required by § 1026.40; or (B) The consumer receives the disclosures required by § 1026.32(c), for transactions in which neither of the disclosures listed in paragraph (a)(5)(ii)(A) of this section are provided. (iii) Affiliation prohibited. (iv) Content of certification. (A) The name(s) of the consumer(s) who obtained counseling; (B) The date(s) of counseling; (C) The name and address of the counselor; (D) A statement that the consumer(s) received counseling on the advisability of the high-cost mortgage based on the terms provided in either the disclosure required by section 5(c) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2604(c)) or the disclosures required by § 1026.40. (E) For transactions for which neither of the disclosures listed in paragraph (a)(5)(ii)(A) of this section are provided, a statement that the consumer(s) received counseling on the advisability of the high-cost mortgage based on the terms provided in the disclosures required by § 1026.32(c); and (F) A statement that the counselor has verified that the consumer(s) received the disclosures required by either § 1026.32(c) or the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq. (v) Counseling fees. (vi) Steering prohibited. (6) Recommended default. (7) Modification and deferral fees. (8) Late fees General. (ii) Timing. (iii) Multiple late charges assessed on payment subsequently paid. (iv) Failure to make required payment. (9) Payoff statements Fee prohibition. (ii) Processing fee. (iii) Processing fee disclosure. (iv) Fees permitted after multiple requests. (v) Timing of delivery of payoff statements. (10) Financing of points and fees. (b) Prohibited acts or practices for dwelling-secured loans; structuring loans to evade high-cost mortgage requirements. [78 FR 6964, Jan. 31, 2013, as amended at 78 FR 30745, May 23, 2013; 78 FR 63005, Oct. 23, 2013] § 1026.35 Requirements for higher-priced mortgage loans. (a) Definitions. (1) “Higher-priced mortgage loan” means a closed-end consumer credit transaction secured by the consumer's principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set: (i) By 1.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that does not exceed the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; (ii) By 2.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that exceeds the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; or (iii) By 3.5 or more percentage points for loans secured by a subordinate lien. (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 Bureau 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 Bureau uses to derive these rates. (3) “Insured credit union” has the meaning given in Section 101 of the Federal Credit Union Act (12 U.S.C. 1752). (4) “Insured depository institution” has the meaning given in Section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813). (b) Escrow accounts Requirement to escrow for property taxes and insurance. (2) Exemptions. (i) An escrow account need not be established for: (A) A transaction secured by shares in a cooperative; (B) A transaction to finance the initial construction of a dwelling; (C) A temporary or “bridge” loan with a loan 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; or (D) A reverse mortgage transaction subject to § 1026.33. (E) A PACE transaction, as defined in § 1026.43(b)(15). (ii) Insurance premiums described in paragraph (b)(1) of this section need not be included in escrow accounts for loans secured by dwellings in condominiums, planned unit developments, or other common interest communities in which dwelling ownership requires participation in a governing association, where the governing association has an obligation to the dwelling owners to maintain a master policy insuring all dwellings. (iii) Except as provided in paragraph (b)(2)(v) of this section, an escrow account need not be established for a transaction if, at the time of consummation: (A) During the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years, the creditor extended a covered transaction, as defined by § 1026.43(b)(1), secured by a first lien on a property that is located in an area that is either “rural” or “underserved,” as set forth in paragraph (b)(2)(iv) of this section; (B) During the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years, the creditor and its affiliates together extended no more than 2,000 covered transactions, as defined by § 1026.43(b)(1), secured by first liens, that were sold, assigned, or otherwise transferred to another person, or that were subject at the time of consummation to a commitment to be acquired by another person; (C) As of the preceding December 31st, or, if the application for the transaction was received before April 1 of the current calendar year, as of either of the two preceding December 31sts, the creditor and its affiliates that regularly extended covered transactions, as defined by § 1026.43(b)(1), secured by first liens, together, had total assets of less than $2,000,000,000; this asset threshold shall adjust automatically each year, based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars (see comment 35(b)(2)(iii)-1.iii for the applicable threshold); and (D) Neither the creditor nor its affiliate maintains an escrow account of the type described in paragraph (b)(1) of this section for any extension of consumer credit secured by real property or a dwelling that the creditor or its affiliate currently services, other than: ( 1 ( 2 (iv) For purposes of paragraph (b)(2)(iii)(A) of this section: (A) An area is “rural” during a calendar year if it is: ( 1 ( 2 (B) An area is “underserved” during a calendar year if, according to Home Mortgage Disclosure Act (HMDA) data for the preceding calendar year, it is a county in which no more than two creditors extended covered transactions, as defined in § 1026.43(b)(1), secured by first liens on properties in the county five or more times. (C) A property shall be deemed to be in an area that is rural or underserved in a particular calendar year if the property is: ( 1 1 ( 2 ( 3 (v) Notwithstanding paragraphs (b)(2)(iii) and (vi) of this section, an escrow account must be established pursuant to paragraph (b)(1) of this section for any first-lien higher-priced mortgage loan that, at consummation, is subject to a commitment to be acquired by a person that does not satisfy the conditions in paragraph (b)(2)(iii) or (vi) of this section, unless otherwise exempted by this paragraph (b)(2). (vi) Except as provided in paragraph (b)(2)(v) of this section, an escrow account need not be established for a transaction made by a creditor that is an insured depository institution or insured credit union if, at the time of consummation: (A) As of the preceding December 31st, or, if the application for the transaction was received before April 1 of the current calendar year, as of either of the two preceding December 31sts, the insured depository institution or insured credit union had assets of $10,000,000,000 or less, adjusted annually for inflation using the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November (see comment 35(b)(2)(vi)(A)-1 for the applicable threshold); (B) During the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years, the creditor and its affiliates, as defined in § 1026.32(b)(5), together extended no more than 1,000 covered transactions secured by a first lien on a principal dwelling; and (C) The transaction satisfies the criteria in paragraphs (b)(2)(iii)(A) and (D) of this section. (3) Cancellation General. (A) Termination of the underlying debt obligation; or (B) Receipt no earlier than five years after consummation of a consumer's request to cancel the escrow account. (ii) Delayed cancellation. (A) The unpaid principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation; and (B) The consumer currently is not delinquent or in default on the underlying debt obligation. (c) Appraisals Definitions. (i) Certified or licensed appraiser et seq. (ii) Credit risk (iii) Manufactured home (iv) Manufacturer's invoice (v) National Registry (vi) New manufactured home (vii) State agency (2) Exemptions. (i) A loan that satisfies the criteria of a qualified mortgage as defined pursuant to 15 U.S.C. 1639c; (ii) 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 (c)(2)(ii); (iii) A transaction secured by a mobile home, boat, or trailer. (iv) A transaction to finance the initial construction of a dwelling. (v) 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. (vi) A reverse-mortgage transaction subject to 12 CFR 1026.33(a). (vii) An extension of credit that is a refinancing secured by a first lien, with refinancing defined as in § 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: (A) Either— ( 1 ( 2 (B) The regular periodic payments under the refinance loan do not— ( 1 ( 2 ( 3 (C) The proceeds from the refinancing are used solely to satisfy the existing obligation and amounts attributed solely to the costs of the refinancing; and (viii) A transaction secured by: (A) A new manufactured home and land, but the exemption shall only apply to the requirement in paragraph (c)(3)(i) of this section that the appraiser conduct a physical visit of the interior of the new manufactured home; or (B) 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— ( 1 ( 2 ( 3 (3) Appraisals required In general. (ii) Safe harbor. (A) 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. (B) 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; (C) Confirms that the elements set forth in appendix N to this part are addressed in the written appraisal; and (D) Has no actual knowledge contrary to the facts or certifications contained in the written appraisal. (4) Additional appraisal for certain higher-priced mortgage loans In general. (A) 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 (B) 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. (ii) Different certified or licensed appraisers. (iii) Relationship to general appraisal requirements. (iv) Required analysis in the additional appraisal. (A) 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; (B) 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 (C) 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. (v) No charge for the additional appraisal. (vi) Creditor's determination of prior sale date and price Reasonable diligence. (B) Inability to determine prior sale date or price—modified requirements for additional appraisal. (vii) Exemptions from the additional appraisal requirement. (A) From a local, State or Federal government agency; (B) 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; (C) 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; (D) 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; (E) From an employer or relocation agency in connection with the relocation of an employee; (F) 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; (G) 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. (H) Located in a rural county, as defined in 12 CFR 1026.35(b)(2)(iv)(A). (5) Required disclosure In general. (ii) Timing of disclosure. (6) Copy of appraisals In general. (ii) Timing. (A) No later than three business days prior to consummation of the loan; or (B) 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. (iii) Form of copy. et seq. (iv) No charge for copy of appraisal. (7) Relation to other rules. (d) Evasion; open-end credit. [78 FR 4753, Jan. 22, 2013, as amended at 78 FR 10442, Feb. 13, 2013; 78 FR 30745, May 23, 2013; 78 FR 44718, July 24, 2013; 78 FR 60441, Oct. 1, 2013; 78 FR 78585, 78586, Dec. 26, 2013; 80 FR 59967, Oct. 2, 2015; 81 FR 16082, Mar. 25, 2016; 86 FR 9852, Feb. 17, 2021; 90 FR 2501, Jan. 10, 2025] § 1026.36 Prohibited acts or practices and certain requirements for credit secured by a dwelling. (a) Definitions Loan originator. bona fide (A) A person who does not take a consumer credit application or offer or negotiate credit terms available from a creditor, but who performs purely administrative or clerical tasks on behalf of a person who does engage in such activities. (B) An employee of a manufactured home retailer who does not take a consumer credit application, offer or negotiate credit terms available from a creditor, or advise a consumer on credit terms (including rates, fees, and other costs) available from a creditor. (C) A person that performs only real estate brokerage activities and is licensed or registered in accordance with applicable State law, unless such person is compensated by a creditor or loan originator or by any agent of such creditor or loan originator for a particular consumer credit transaction subject to this section. (D) A seller financer that meets the criteria in paragraph (a)(4) or (a)(5) of this section, as applicable. (E) A servicer or servicer's employees, agents, and contractors who offer or negotiate terms for purposes of renegotiating, modifying, replacing, or subordinating principal of existing mortgages where consumers are behind in their payments, in default, or have a reasonable likelihood of defaulting or falling behind. This exception does not apply, however, to a servicer or servicer's employees, agents, and contractors who offer or negotiate a transaction that constitutes a refinancing under § 1026.20(a) or obligates a different consumer on the existing debt. (ii) An “individual loan originator” is a natural person who meets the definition of “loan originator” in paragraph (a)(1)(i) of this section. (iii) A “loan originator organization” is any loan originator, as defined in paragraph (a)(1)(i) of this section, that is not an individual loan originator. (2) Mortgage broker. (3) Compensation. (4) Seller financers; three properties. (i) The person provides seller financing for the sale of three or fewer properties in any 12-month period to purchasers of such properties, each of which is owned by the person and serves as security for the financing. (ii) The person has not constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business of the person. (iii) The person provides seller financing that meets the following requirements: (A) The financing is fully amortizing. (B) The financing is one that the person determines in good faith the consumer has a reasonable ability to repay. (C) The financing has a fixed rate or an adjustable rate that is adjustable after five or more years, subject to reasonable annual and lifetime limitations on interest rate increases. If the financing agreement has an adjustable rate, the rate is determined by the addition of a margin to an index rate and is subject to reasonable rate adjustment limitations. The index the adjustable rate is based on is a widely available index such as indices for U.S. Treasury securities or SOFR. (5) Seller financers; one property. (i) The natural person, estate, or trust provides seller financing for the sale of only one property in any 12-month period to purchasers of such property, which is owned by the natural person, estate, or trust and serves as security for the financing. (ii) The natural person, estate, or trust has not constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business of the person. (iii) The natural person, estate, or trust provides seller financing that meets the following requirements: (A) The financing has a repayment schedule that does not result in negative amortization. (B) The financing has a fixed rate or an adjustable rate that is adjustable after five or more years, subject to reasonable annual and lifetime limitations on interest rate increases. If the financing agreement has an adjustable rate, the rate is determined by the addition of a margin to an index rate and is subject to reasonable rate adjustment limitations. The index the adjustable rate is based on is a widely available index such as indices for U.S. Treasury securities or SOFR. (6) Credit terms. (b) Scope. (c) Servicing practices. (1) Payment processing. (i) Periodic payments. (ii) Partial payments. (A) Disclose to the consumer the total amount of funds held in such suspense or unapplied funds account on the periodic statement as required by § 1026.41(d)(3), if a periodic statement is required; and (B) On accumulation of sufficient funds to cover a periodic payment in any suspense or unapplied funds account, treat such funds as a periodic payment received in accordance with paragraph (c)(1)(i) of this section. (iii) Non-conforming payments. (2) No pyramiding of late fees. (i) Such a fee or charge is attributable solely to failure of the consumer to pay a late fee or delinquency charge on an earlier payment; and (ii) The payment is otherwise a periodic payment received on the due date, or within any applicable courtesy period. (3) Payoff statements. (d) Prohibited payments to loan originators Payments based on a term of a transaction. (ii) For purposes of this paragraph (d)(1) only, a “term of a transaction” is any right or obligation of the parties to a credit transaction. The amount of credit extended is not a term of a transaction or a proxy for a term of a transaction, provided that 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) An individual loan originator may receive, and a person may pay to an individual loan originator, compensation in the form of a contribution to a defined contribution plan that is a designated tax-advantaged plan or a benefit under a defined benefit plan that is a designated tax-advantaged plan. In the case of a contribution to a defined contribution plan, the contribution shall not be directly or indirectly based on the terms of that individual loan originator's transactions. As used in this paragraph (d)(1)(iii), “designated tax-advantaged plan” means any plan that meets the requirements of Internal Revenue Code section 401(a), 26 U.S.C. 401(a); employee annuity plan described in Internal Revenue Code section 403(a), 26 U.S.C. 403(a); simple retirement account, as defined in Internal Revenue Code section 408(p), 26 U.S.C. 408(p); simplified employee pension described in Internal Revenue Code section 408(k), 26 U.S.C. 408(k); annuity contract described in Internal Revenue Code section 403(b), 26 U.S.C. 403(b); or eligible deferred compensation plan, as defined in Internal Revenue Code section 457(b), 26 U.S.C. 457(b). (iv) An individual loan originator may receive, and a person may pay to an individual loan originator, compensation under a non-deferred profits-based compensation plan ( i.e., (A) The compensation paid to an individual loan originator pursuant to this paragraph (d)(1)(iv) is not directly or indirectly based on the terms of that individual loan originator's transactions that are subject to this paragraph (d); and (B) At least one of the following conditions is satisfied: ( 1 ( 2 (2) Payments by persons other than consumer Dual compensation. ( 1 ( 2 (B) Compensation received directly from a consumer includes payments to a loan originator made pursuant to an agreement between the consumer and a person other than the creditor or its affiliates, under which such other person agrees to provide funds toward the consumer's costs of the transaction (including loan originator compensation). (C) If a loan originator organization receives compensation directly from a consumer in connection with a transaction, the loan originator organization may pay compensation to an individual loan originator, and the individual loan originator may receive compensation from the loan originator organization, subject to paragraph (d)(1) of this section. (ii) Exemption. (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 of discount points, origination points or origination fees (or, if two or more loans have the same total dollar amount of discount points, origination points or origination fees, the loan with the lowest interest rate that has the lowest total dollar amount of discount points, origination points or origination fees). (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) Loan originator qualification requirements. et seq. (1) Comply with all applicable State law requirements for legal existence and foreign qualification; (2) Ensure that each individual loan originator who works for the loan originator organization is licensed or registered to the extent the individual is required to be licensed or registered under the SAFE Act, its implementing regulations, and State SAFE Act implementing law before the individual acts as a loan originator in a consumer credit transaction secured by a dwelling; and (3) For each of its individual loan originator employees who is not required to be licensed and is not licensed as a loan originator pursuant to § 1008.103 of this chapter or State SAFE Act implementing law: (i) Obtain for any individual whom the loan originator organization hired on or after January 1, 2014 (or whom the loan originator organization hired before this date but for whom there were no applicable statutory or regulatory background standards in effect at the time of hire or before January 1, 2014, used to screen the individual) and for any individual regardless of when hired who, based on reliable information known to the loan originator organization, likely does not meet the standards under § 1026.36(f)(3)(ii), before the individual acts as a loan originator in a consumer credit transaction secured by a dwelling: (A) A criminal background check through the Nationwide Mortgage Licensing System and Registry (NMLSR) or, in the case of an individual loan originator who is not a registered loan originator under the NMLSR, a criminal background check from a law enforcement agency or commercial service; (B) A credit report from a consumer reporting agency described in section 603(p) of the Fair Credit Reporting Act (15 U.S.C. 1681a(p)) secured, where applicable, in compliance with the requirements of section 604(b) of the Fair Credit Reporting Act, 15 U.S.C. 1681b(b); and (C) Information from the NMLSR about any administrative, civil, or criminal findings by any government jurisdiction or, in the case of an individual loan originator who is not a registered loan originator under the NMLSR, such information from the individual loan originator; (ii) Determine on the basis of the information obtained pursuant to paragraph (f)(3)(i) of this section and any other information reasonably available to the loan originator organization, for any individual whom the loan originator organization hired on or after January 1, 2014 (or whom the loan originator organization hired before this date but for whom there were no applicable statutory or regulatory background standards in effect at the time of hire or before January 1, 2014, used to screen the individual) and for any individual regardless of when hired who, based on reliable information known to the loan originator organization, likely does not meet the standards under this paragraph (f)(3)(ii), before the individual acts as a loan originator in a consumer credit transaction secured by a dwelling, that the individual loan originator: (A)( 1 nolo contendere ( 2 ( i ( ii ( iii nolo contendere (B) Has demonstrated financial responsibility, character, and general fitness such as to warrant a determination that the individual loan originator will operate honestly, fairly, and efficiently; and (iii) Provide periodic training covering Federal and State law requirements that apply to the individual loan originator's loan origination activities. (g) Name and NMLSR ID on loan documents. (i) Its name and NMLSR ID, if the NMLSR has provided it an NMLSR ID; and (ii) The name of the individual loan originator (as the name appears in the NMLSR) with primary responsibility for the origination and, if the NMLSR has provided such person an NMLSR ID, that NMLSR ID. (2) The loan documents that must include the names and NMLSR IDs pursuant to paragraph (g)(1) of this section are: (i) The credit application; (ii) The disclosures required by § 1026.19 (e) and (f); (iii) The note or loan contract; and (iv) The security instrument. (3) For purposes of this section, NMLSR ID means a number assigned by the Nationwide Mortgage Licensing System and Registry to facilitate electronic tracking and uniform identification of loan originators and public access to the employment history of, and the publicly adjudicated disciplinary and enforcement actions against, loan originators. (h) Prohibition on mandatory arbitration clauses and waivers of certain consumer rights Arbitration. (2) No waivers of Federal statutory causes of action. (i) Prohibition on financing credit insurance. (2) For purposes of this paragraph (i): (i) “Credit insurance”: (A) Means credit life, credit disability, credit unemployment, or credit property insurance, or any other accident, loss-of-income, life, or health insurance, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract, but (B) Excludes credit unemployment insurance for which the unemployment insurance premiums are reasonable, the creditor receives no direct or indirect compensation in connection with the unemployment insurance premiums, and the unemployment insurance premiums are paid pursuant to a separate insurance contract and are not paid to an affiliate of the creditor; (ii) A creditor finances premiums or fees for credit insurance if it provides a consumer the right to defer payment of a credit insurance premium or fee owed by the consumer beyond the monthly period in which the premium or fee is due; and (iii) Credit insurance premiums or fees are calculated on a monthly basis if they are determined mathematically by multiplying a rate by the actual monthly outstanding balance. (j) Policies and procedures to ensure and monitor compliance. (2) For purposes of this paragraph (j), “depository institution” has the meaning in section 1503(3) of the SAFE Act, 12 U.S.C. 5102(3). For purposes of this paragraph (j), “subsidiary” has the meaning in section 3 of the Federal Deposit Insurance Act, 12 U.S.C. 1813. (k) Negative amortization counseling. Counseling required. (2) Definitions. (i) A “first-time borrower” means a consumer who has not previously received a closed-end credit transaction or open-end credit plan secured by a dwelling. (ii) “Negative amortization” means a payment schedule with regular periodic payments that cause the principal balance to increase. (3) Steering prohibited. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 6966, Jan. 31, 2013; 78 FR 11006, Feb. 14, 2013; 78 FR 11410, Feb. 15, 2013; 78 FR 60441, Oct. 1, 2013; 80 FR 8776, Feb. 19, 2015; 81 FR 72388, Oct. 19, 2016; 86 FR 69781, Dec. 8, 2021] § 1026.37 Content of disclosures for certain mortgage transactions (Loan Estimate). For each transaction subject to § 1026.19(e), the creditor shall disclose the information in this section: (a) General information Form title. (2) Form purpose. (3) Creditor. (4) Date issued. (5) Applicants. (6) Property. (7) Sale price. (ii) For transactions that do not involve a seller, the estimated value of the property identified in paragraph (a)(6), labeled “Prop. Value.” (8) Loan term. (9) Purpose. (i) Purchase. (ii) Refinance. (iii) Construction. (iv) Home equity loan. (10) Product. (i) The description of the loan product shall include one of the following terms: (A) Adjustable rate. (B) Step rate. (C) Fixed rate. (ii) The description of the loan product shall include the features that may change the periodic payment using the following terms, subject to paragraph (a)(10)(iii) of this section, as applicable: (A) Negative amortization. (B) Interest only. (C) Step payment. (D) Balloon payment. (E) Seasonal payment. (iii) The disclosure of a loan feature under paragraph (a)(10)(ii) of this section shall precede the disclosure of the loan product under paragraph (a)(10)(i) of this section. If a transaction has more than one of the loan features described in paragraph (a)(10)(ii) of this section, the creditor shall disclose only the first applicable feature in the order the features are listed in paragraph (a)(10)(ii) of this section. (iv) The disclosures required by paragraphs (a)(10)(i)(A) and (B), and (a)(10)(ii)(A) through (D) of this section must each be preceded by the duration of any introductory rate or payment period, and the first adjustment period, as applicable. (11) Loan type. (i) Conventional. (ii) FHA. (iii) VA. (iv) Other. (12) Loan identification number (Loan ID #). (13) Rate lock. (i) For transactions in which the interest rate is locked for a specific period of time, the creditor must provide the date and time (including the applicable time zone) when that period ends. (ii) The “Rate Lock” statement required by this paragraph (a)(13) shall be accompanied by a statement that the interest rate, any points, and any lender credits may change unless the interest rate has been locked, and the date and time (including the applicable time zone) at which estimated closing costs expire. (b) Loan terms. (1) Loan amount. (2) Interest rate. (3) Principal and interest payment. (4) Prepayment penalty. (5) Balloon payment. (6) Adjustments after consummation. (i) Adjustment in loan amount. (ii) Adjustment in interest rate. (iii) Increase in periodic payment. (7) Details about prepayment penalty and balloon payment. (i) The maximum amount of the prepayment penalty that may be imposed and the date when the period during which the penalty may be imposed terminates; and (ii) The maximum amount of the balloon payment and the due date of such payment. (8) Timing. (ii) The dates required to be disclosed by paragraphs (b)(6)(i), (b)(6)(iii) and (b)(7)(ii) of this section shall be disclosed as the year in which the event occurs, counting from the due date of the initial periodic payment. (iii) The date required to be disclosed by paragraph (b)(7)(i) of this section shall be disclosed as the year in which the event occurs, counting from the date of consummation. (c) Projected payments. (1) Periodic payment or range of payments. (A) The periodic principal and interest payment or range of such payments may change; (B) A scheduled balloon payment, as defined in paragraph (b)(5) of this section; (C) The creditor must automatically terminate mortgage insurance or any functional equivalent under applicable law; and (D) The anniversary of the due date of the initial periodic payment or range of payments that immediately follows the occurrence of multiple events described in paragraph (c)(1)(i)(A) of this section during a single year. (ii) The table required by this paragraph (c) shall not disclose more than four separate periodic payments or ranges of payments. For all events requiring disclosure of additional separate periodic payments or ranges of payments described in paragraph (c)(1)(i)(A) through (D) of this section occurring after the third separate periodic payment or range of payments disclosed, the separate periodic payments or ranges of payments shall be disclosed as a single range of payments, subject to the following exceptions: (A) A balloon payment that is scheduled as a final payment under the terms of the legal obligation shall always be disclosed as a separate periodic payment or range of payments, in which case all events requiring disclosure of additional separate periodic payments or ranges of payments described in paragraph (c)(1)(i)(A) through (D) of this section occurring after the second separate periodic payment or range of payments disclosed, other than the balloon payment that is scheduled as a final payment, shall be disclosed as a single range of payments. (B) The automatic termination of mortgage insurance or any functional equivalent under applicable law shall require disclosure of an additional separate periodic payment or range of payments only if the total number of separate periodic payments or ranges of payments otherwise disclosed pursuant to this paragraph (c)(1) does not exceed three. (iii) When a range of payments is required to be disclosed under this paragraph (c)(1), the creditor must disclose the minimum and maximum amount for both the principal and interest payment under paragraph (c)(2)(i) of this section and the total periodic payment under paragraph (c)(2)(iv) of this section. A range of payments is required to be disclosed under this paragraph (c)(1) when: (A) Multiple events described in paragraph (c)(1)(i) of this section are combined in a single range of payments pursuant to paragraph (c)(1)(ii) of this section; (B) Multiple events described in paragraph (c)(1)(i)(A) of this section occur during a single year or an event described in paragraph (c)(1)(i)(A) of this section occurs during the same year as the initial periodic payment or range of payments, in which case the creditor discloses the range of payments that would apply during the year in which the events occur; or (C) The periodic principal and interest payment may adjust based on index rates at the time an interest rate adjustment may occur. (2) Itemization. (i) The amount payable for principal and interest, labeled “Principal & Interest,” including the term “only interest” if the payment or range of payments includes any interest only payment: (A) In the case of a loan that has an adjustable interest rate, the maximum principal and interest payment amounts are determined by assuming that the interest rate in effect throughout the loan term is the maximum possible interest rate, and the minimum amounts are determined by assuming that the interest rate in effect throughout the loan term is the minimum possible interest rate; (B) In the case of a loan that has an adjustable interest rate and also contains a negative amortization feature, the maximum principal and interest payment amounts after the end of the period of the loan's term during which the loan's principal balance may increase due to the addition of accrued interest are determined by assuming the maximum principal amount permitted under the terms of the legal obligation at the end of such period, and the minimum amounts are determined pursuant to paragraph (c)(2)(i)(A) of this section; (ii) The maximum amount payable for mortgage insurance premiums corresponding to the principal and interest payment disclosed pursuant to paragraph (c)(2)(i) of this section, labeled “Mortgage Insurance”; (iii) The amount payable into an escrow account to pay some or all of the charges described in paragraph (c)(4)(ii), as applicable, labeled “Escrow,” together with a statement that the amount disclosed can increase over time; and (iv) The total periodic payment, calculated as the sum of the amounts disclosed pursuant to paragraphs (c)(2)(i) through (iii) of this section, labeled “Total Monthly Payment.” (3) Subheadings. (ii) Except as provided in paragraph (c)(3)(iii) of this section, each separate periodic payment or range of payments to be disclosed under this paragraph (c) must be disclosed under a subheading that states the years of the loan during which that payment or range of payments will apply. The subheadings must be stated in a sequence of whole years from the due date of the initial periodic payment. (iii) A balloon payment that is scheduled as a final payment under the terms of the legal obligation must be disclosed under the subheading “Final Payment.” (4) Taxes, insurance, and assessments. (i) The label “Taxes, Insurance & Assessments”; (ii) The sum of the charges identified in § 1026.43(b)(8), other than amounts identified in § 1026.4(b)(5), expressed as a monthly amount, even if no escrow account for the payment of some or any of such charges will be established; (iii) A statement that the amount disclosed pursuant to paragraph (c)(4)(ii) of this section can increase over time; (iv) A statement of whether the amount disclosed pursuant to paragraph (c)(4)(ii) of this section includes payments for property taxes, amounts identified in § 1026.4(b)(8), and other amounts described in paragraph (c)(4)(ii) of this section, along with a description of any such other amounts, and an indication of whether such amounts will be paid by the creditor using escrow account funds; (v) A statement that the consumer must pay separately any amounts described in paragraph (c)(4)(ii) of this section that are not paid by the creditor using escrow account funds; and (vi) A reference to the information disclosed pursuant to paragraph (g)(3) of this section. (5) Calculation of taxes and insurance. (i) The taxable assessed value of the real property or cooperative unit securing the transaction after consummation, including the value of any improvements on the property or to be constructed on the property, if known, whether or not such construction will be financed from the proceeds of the transaction, for property taxes; and (ii) The replacement costs of the property during the initial year after the transaction, for amounts identified in § 1026.4(b)(8). (d) Costs at closing Costs at closing table. (i) Labeled “Closing Costs,” the dollar amount disclosed pursuant to paragraph (g)(6) of this section, together with: (A) A statement that the amount disclosed pursuant to paragraph (d)(1)(i) of this section includes the amounts disclosed pursuant to paragraphs (f)(4), (g)(5), and (g)(6)(ii); (B) The dollar amount disclosed pursuant to paragraph (f)(4) of this section, labeled “Loan Costs”; (C) The dollar amount disclosed pursuant to paragraph (g)(5) of this section, labeled “Other Costs”: (D) The dollar amount disclosed pursuant to paragraph (g)(6)(ii) of this section, labeled “Lender Credits”; and (E) A statement referring the consumer to the tables disclosed pursuant to paragraphs (f) and (g) of this section for details. (ii) Labeled “Cash to Close,” the dollar amount calculated in accordance with paragraph (h)(1)(viii) of this section, together with: (A) A statement that the amount includes the amount disclosed pursuant to paragraph (d)(1)(i) of this section, and (B) A statement referring the consumer to the location of the table required pursuant to paragraph (h) of this section for details. (2) Optional alternative table for transactions without a seller or for simultaneous subordinate financing. (i) The amount calculated in accordance with paragraph (h)(2)(iv) of this section; (ii) A statement of whether the disclosed estimated amount is due from or to the consumer; and (iii) A statement referring the consumer to the alternative table disclosed pursuant to paragraph (h)(2) of this section for details. (e) Web site reference. www.consumerfinance.gov/mortgage-estimate (f) Closing cost details; loan costs. (1) Origination charges. (i) The points paid to the creditor to reduce the interest rate shall be itemized separately, as both a percentage of the amount of credit extended and a dollar amount, and using the label “____% of Loan Amount (Points).” If points to reduce the interest rate are not paid, the disclosure required by this paragraph (f)(1)(i) must be blank. (ii) The number of items disclosed under this paragraph (f)(1), including the points disclosed under paragraph (f)(1)(i) of this section, shall not exceed 13. (2) Services you cannot shop for. (i) For any item that is a component of title insurance or is for conducting the closing, the introductory description “Title —” shall appear at the beginning of the label for that item. (ii) The number of items disclosed under this paragraph (f)(2) shall not exceed 13. (3) Services you can shop for. (i) For any item that is a component of title insurance or is for conducting the closing, the introductory description “Title —” shall appear at the beginning of the label for that item. (ii) The number of items disclosed under this paragraph (f)(3) shall not exceed 14. (4) Total loan costs. (5) Item descriptions and ordering. (i) The item prescribed in paragraph (f)(1)(i) of this section for points shall be the first item listed in the disclosure pursuant to paragraph (f)(1) of this section. (ii) All other items must be listed in alphabetical order by their labels under the applicable subheading. (6) Use of addenda. (ii) An addendum to a form of disclosures prescribed by this section may be used for items described in paragraph (f)(3) of this section. If the creditor is not able to itemize all of the charges required to be disclosed in the number of lines provided by paragraph (f)(3)(ii), the remaining charges shall be disclosed as follows: (A) Label the last line permitted under paragraph (f)(3)(ii) with an appropriate reference to an addendum and list the remaining items on the addendum in accordance with the requirements in paragraphs (f)(3) and (5) of this section; or (B) Disclose the remaining charges as an aggregate amount in the last line permitted under paragraph (f)(3)(ii), labeled “Additional Charges.” (g) Closing cost details; other costs. (1) Taxes and other government fees. (i) On the first line, the sum of all recording fees and other government fees and taxes, except for transfer taxes paid by the consumer and disclosed pursuant to paragraph (g)(1)(ii) of this section, labeled “Recording Fees and Other Taxes.” (ii) On the second line, the sum of all transfer taxes paid by the consumer, labeled “Transfer Taxes.” (iii) If an amount required to be disclosed by this paragraph (g)(1) is not charged to the consumer, the amount disclosed on the applicable line required by this paragraph (g)(1) must be blank. (2) Prepaids. (i) On the first line, the number of months for which homeowner's insurance premiums are to be paid by the consumer at consummation and the total dollar amount to be paid by the consumer at consummation for such premiums, labeled “Homeowner's Insurance Premium ( ____ months).” (ii) On the second line, the number of months for which mortgage insurance premiums are to be paid by the consumer at consummation and the total dollar amount to be paid by the consumer at consummation for such premiums, labeled “Mortgage Insurance Premium ( ____ months).” (iii) On the third line, the amount of prepaid interest to be paid per day, the number of days for which prepaid interest will be collected, the interest rate, and the total dollar amount to be paid by the consumer at consummation for such interest, labeled “Prepaid Interest ( ______ per day for ____ days @____ %).” (iv) On the fourth line, the number of months for which property taxes are to be paid by the consumer at consummation and the total dollar amount to be paid by the consumer at consummation for such taxes, labeled “Property Taxes ( ____ months).” (v) If an amount is not charged to the consumer for any item for which this paragraph (g)(2) prescribes a label, each of the amounts required to be disclosed on that line must be blank. (vi) A maximum of three additional items may be disclosed under this paragraph (g)(2), and each additional item must be identified and include the applicable time period covered by the amount to be paid by the consumer at consummation and the total amount to be paid. (3) Initial escrow payment at closing. (i) On the first line, the amount escrowed per month, the number of months covered by an escrowed amount collected at consummation, and the total amount to be paid into the escrow account by the consumer at consummation for homeowner's insurance premiums, labeled “Homeowner's Insurance ____ per month for ____ mo.” (ii) On the second line, the amount escrowed per month, the number of months covered by an escrowed amount collected at consummation, and the total amount to be paid into the escrow account by the consumer at consummation for mortgage insurance premiums, labeled “Mortgage Insurance ____ per month for ____ mo.” (iii) On the third line, the amount escrowed per month, the number of months covered by an escrowed amount collected at consummation, and the total amount to be paid into the escrow account by the consumer at consummation for property taxes, labeled “Property Taxes ____ per month for ____ mo.” (iv) If an amount is not charged to the consumer for any item for which this paragraph (g)(3) prescribes a label, each of the amounts required to be disclosed on that line must be blank. (v) A maximum of five items may be disclosed pursuant to this paragraph (g)(3) in addition to the items described in paragraph (g)(3)(i) through (iii) of this section, and each such additional item must be identified with a descriptive label and include the applicable amount per month, the number of months collected at consummation, and the total amount to be paid. (4) Other. (i) For any item that is a component of title insurance, the introductory description “Title —” shall appear at the beginning of the label for that item. (ii) The parenthetical description “(optional)” shall appear at the end of the label for items disclosing any premiums paid for separate insurance, warranty, guarantee, or event-coverage products. (iii) The number of items disclosed under this paragraph (g)(4) shall not exceed five. (5) Total other costs. (6) Total closing costs. (i) The sum of the amounts disclosed as loan costs and other costs under paragraphs (f)(4) and (g)(5) of this section, labeled “D + I”; and (ii) The amount of any lender credits, disclosed as a negative number with the label “Lender Credits” provided that, if no such amount is disclosed, the amount must be blank. (7) Item descriptions and ordering. (i) The items prescribed in paragraphs (g)(1)(i) and (ii), (g)(2)(i) through (iv), and (g)(3)(i) through (iii) of this section must be listed in the order prescribed as the initial items under the applicable subheading, with any additional items to follow. (ii) All additional items must be listed in alphabetical order under the applicable subheading. (8) Use of addenda. (h) Calculating cash to close For all transactions. (i) Total closing costs. (ii) Closing costs to be financed. (iii) Down payment and other funds from borrower. (A)( 1 2 ( 2 (B) In all transactions not subject to paragraph (h)(1)(iii)(A) of this section, the amount of estimated funds from the consumer as determined in accordance with paragraph (h)(1)(v) of this section; (iv) Deposit. (B) In all transactions other than purchase transactions as defined in paragraph (a)(9)(i) of this section, the amount of $0, labeled “Deposit”; (v) Funds for borrower. 2 (A) If the calculation under this paragraph (h)(1)(v) yields an amount that is a positive number, such amount is disclosed under paragraph (h)(1)(iii)(A)( 2 (B) If the calculation under this paragraph (h)(1)(v) yields an amount that is a negative number, such amount is disclosed under this paragraph (h)(1)(v) as a negative number, and $0 is disclosed under paragraph (h)(1)(iii)(A)( 2 (C) If the calculation under this paragraph (h)(1)(v) yields $0, then $0 is disclosed under paragraph (h)(1)(iii)(A)( 2 (vi) Seller credits. (vii) Adjustments and other credits. 1 (viii) Estimated Cash to Close. (2) Optional alternative calculating cash to close table for transactions without a seller or for simultaneous subordinate financing. (i) Loan amount. (ii) Total closing costs. (iii) Payoffs and payments. (iv) Cash to or from consumer. (v) Closing costs financed. (i) Adjustable payment table. (1) Interest only payments. (2) Optional payments. (3) Step payments. (4) Seasonal payments. (5) Principal and interest payments. (i) The number of the payment of the first periodic principal and interest payment that may change under the terms of the legal obligation disclosed under this paragraph (i), counting from the first periodic payment due after consummation, and the amount or range of the periodic principal and interest payment for such payment, labeled “First Change/Amount”; (ii) The frequency of subsequent changes to the periodic principal and interest payment, labeled “Subsequent Changes”; and (iii) The maximum periodic principal and interest payment that may occur during the term of the transaction, and the first periodic principal and interest payment that can reach such maximum, counting from the first periodic payment due after consummation, labeled “Maximum Payment.” (j) Adjustable interest rate table. (1) Index and margin. (2) Increases in interest rate. (3) Initial interest rate. (4) Minimum and maximum interest rate. (5) Frequency of adjustments. (i) The month when the interest rate after consummation may first change, calculated from the date interest for the first scheduled periodic payment begins to accrue, labeled “First Change”; and (ii) The frequency of interest rate adjustments after the initial adjustment to the interest rate, labeled, “Subsequent Changes.” (6) Limits on interest rate changes. (i) The maximum possible change for the first adjustment of the interest rate after consummation, labeled “First Change”; and (ii) The maximum possible change for subsequent adjustments of the interest rate after consummation, labeled “Subsequent Changes.” (k) Contact information. (1) The name and Nationwide Mortgage Licensing System and Registry identification number (NMLSR ID) (labeled “NMLS ID/License ID”) for the creditor (labeled “Lender”) and the mortgage broker (labeled “Mortgage Broker”), if any. In the event the creditor or the mortgage broker has not been assigned an NMLSR ID, the license number or other unique identifier issued by the applicable jurisdiction or regulating body with which the creditor or mortgage broker is licensed and/or registered shall be disclosed, with the abbreviation for the State of the applicable jurisdiction or regulatory body stated before the word “License” in the label, if any; (2) The name and NMLSR ID of the individual loan officer (labeled “Loan Officer” and “NMLS ID/License ID,” respectively) of the creditor and the mortgage broker, if any, who is the primary contact for the consumer. In the event the individual loan officer has not been assigned an NMLSR ID, the license number or other unique identifier issued by the applicable jurisdiction or regulating body with which the loan officer is licensed and/or registered shall be disclosed with the abbreviation for the State of the applicable jurisdiction or regulatory body stated before the word “License” in the label, if any; and (3) The email address and telephone number of the loan officer (labeled “Email” and “Phone,” respectively). (l) Comparisons. (1) In five years. (i) The total principal, interest, mortgage insurance, and loan costs scheduled to be paid through the end of the 60th month after the due date of the first periodic payment, expressed as a dollar amount, along with the statement “Total you will have paid in principal, interest, mortgage insurance, and loan costs”; and (ii) The principal scheduled to be paid through the end of the 60th month after the due date of the first periodic payment, expressed as a dollar amount, along with the statement “Principal you will have paid off.” (2) Annual percentage rate. (3) Total interest percentage. (m) Other considerations. (1) Appraisal. (i) The creditor may order an appraisal to determine the value of the property identified in paragraph (a)(6) of this section and may charge the consumer for that appraisal; (ii) The creditor will promptly provide the consumer a copy of any appraisal, even if the transaction is not consummated; and (iii) The consumer may choose to pay for an additional appraisal of the property for the consumer's use. (2) Assumption. (3) Homeowner's insurance. (4) Late payment. (5) Refinance. (6) Servicing. (7) Liability after foreclosure. (8) Construction loans. (n) Signature statement. (2) If the creditor does not include a line for the consumer's signature, the creditor must disclose the following statement under the heading “Other Considerations” required by paragraph (m) of this section, labeled “Loan Acceptance”: “You do not have to accept this loan because you have received this form or signed a loan application.” (o) Form of disclosures General requirements. (ii) Except as provided in paragraph (o)(5) of this section, the disclosures shall contain only the information required by paragraphs (a) through (n) of this section and shall be made in the same order, and positioned relative to the master headings, headings, subheadings, labels, and similar designations in the same manner, as shown in form H-24, set forth in appendix H to this part. (2) Headings and labels. (3) Form. (i) For a transaction subject to § 1026.19(e) that is a federally related mortgage loan, as defined in Regulation X, 12 CFR 1024.2, the disclosures must be made using form H-24, set forth in appendix H to this part. (ii) For any other transaction subject to this section, the disclosures must be made with headings, content, and format substantially similar to form H-24, set forth in appendix H to this part. (iii) The disclosures required by this section 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 (15 U.S.C. 7001 et seq. (4) Rounding Nearest dollar. (B) The dollar amount required to be disclosed by paragraph (b)(1) of this section shall not be rounded, and if the amount is a whole number then the amount disclosed shall be truncated at the decimal point. (C) The dollar amounts required to be disclosed by paragraph (c)(2)(iv) of this section shall be rounded to the nearest whole dollar, if any of the component amounts are required by paragraph (o)(4)(i)(A) of this section to be rounded to the nearest whole dollar. (ii) Percentages. (5) Exceptions Unit-period. (ii) Translation. (iii) Logo or slogan. (iv) Business card. (v) Administrative information. (p) PACE transactions. (1) Itemization. (ii) The creditor shall not disclose the information in paragraph (c)(2)(iii) of this section. (2) Taxes, insurance, and assessments. (i) In lieu of the information required by paragraph (c)(4)(iv) of this section, a statement of whether the amount disclosed pursuant to paragraph (c)(4)(ii) of this section includes payments for the PACE transaction, labeled “PACE Payment”; payments for other property taxes, labeled “Property Taxes (not including PACE loan)”; amounts identified in § 1026.4(b)(8); and other amounts described in paragraph (c)(4)(ii) of this section, along with a description of any such other amounts. (ii) In lieu of the information required by paragraph (c)(4)(v) and (vi) of this section, a statement that the PACE transaction, described as a “PACE loan,” will be part of the property tax payment, a statement that, if the consumer has a pre-existing mortgage with an escrow account, the PACE loan will increase the consumer's escrow payment, and a statement directing the consumer to contact the consumer's mortgage servicer for what the consumer will owe and when. (3) Contact information. (4) Assumption. (5) Late Payment. (i) A statement detailing any charge specific to the transaction that may be imposed for a late payment, stated as a dollar amount or percentage charge of the late payment amount, and the number of days that a payment must be late to trigger the late payment fee, labeled “Late payment,” and (ii) For any charge that is not specific to the transaction: (A) A statement that, if the consumer's property tax payment is late, the consumer may be subject to penalties and late fees established by the consumer's property tax collector, and directing the consumer to contact the consumer's property tax collector for more information, or (B) A statement describing any charges that may result from property tax delinquency that are not specific to the PACE transaction. The statement may include dollar amounts or percentage charges and the number of days that a payment must be late to trigger the late payment fee. (6) Servicing. (7) Exceptions Unit-period. (ii) PACE nomenclature. [78 FR 80113, Dec. 31, 2013, as amended at 80 FR 8776, Feb. 19, 2015; 82 FR 37769, Aug. 11, 2017; 90 FR 2502, Jan. 10, 2025] § 1026.38 Content of disclosures for certain mortgage transactions (Closing Disclosure). For each transaction subject to § 1026.19(f), the creditor shall disclose the information in this section: (a) General information Form title. (2) Form purpose. (3) Closing information. (i) Date issued. (ii) Closing date. (iii) Disbursement date. (iv) Settlement agent. (v) File number. (vi) Property. (vii) Sale price. (B) In credit transactions where there is no seller, the appraised value of the property identified in paragraph (a)(3)(vi) of this section, labeled “Appraised Prop. Value.” (4) Transaction information. (i) Borrower. (ii) Seller. (iii) Lender. (5) Loan information. (i) Loan term. (ii) Purpose. (iii) Product. (iv) Loan type. (v) Loan identification number. (vi) Mortgage insurance case number. (b) Loan terms. (c) Projected payments. (1) Projected payments or range of payments. (i) For transactions subject to RESPA, is determined under the escrow account analysis described in Regulation X, 12 CFR 1024.17; (ii) For transactions not subject to RESPA, may be determined under the escrow account analysis described in Regulation X, 12 CFR 1024.17 or in the manner set forth in § 1026.37(c)(5). (2) Estimated taxes, insurance, and assessments. (d) Costs at closing Costs at closing table. (i) Labeled “Closing Costs,” the sum of the dollar amounts disclosed pursuant to paragraphs (f)(4), (g)(5), and (h)(3) of this section, together with: (A) A statement that the amount disclosed pursuant to paragraph (d)(1)(i) of this section includes the amounts disclosed pursuant to paragraphs (f)(4), (g)(5), and (h)(3) of this section; (B) The dollar amount disclosed pursuant to paragraph (f)(4) of this section, labeled “Loan Costs”; (C) The dollar amount disclosed pursuant to paragraph (g)(5) of this section, labeled “Other Costs”; (D) The dollar amount disclosed pursuant to paragraph (h)(3) of this section, labeled “Lender Credits”; and (E) A statement referring the consumer to the tables disclosed pursuant to paragraphs (f) and (g) of this section for details. (ii) Labeled “Cash to Close,” the sum of the dollar amounts calculated in accordance with paragraph (i)(9)(ii) of this section, together with: (A) A statement that the amount disclosed pursuant to paragraph (d)(1)(ii) of this section includes the amount disclosed pursuant to paragraph (d)(1)(i) of this section; and (B) A statement referring the consumer to the table required pursuant to paragraph (i) of this section for details. (2) Alternative table for transactions without a seller or for simultaneous subordinate financing. (i) The amount calculated in accordance with paragraph (e)(5)(ii) of this section; (ii) A statement of whether the disclosed amount is due from or to the consumer; and (iii) A statement referring the consumer to the table required pursuant to paragraph (e) of this section for details. (e) Alternative calculating cash to close table for transactions without a seller or for simultaneous subordinate financing. (1) Loan amount. (i) Under the subheading “Loan Estimate,” the loan amount disclosed on the Loan Estimate under § 1026.37(b)(1); (ii) Under the subheading “Final,” the loan amount disclosed under paragraph (b) of this section; (iii) Disclosed more prominently than the other disclosures under paragraph (e)(1)(i) and (ii) of this section, under the subheading “Did this change?”: (A) If the amount disclosed under paragraph (e)(1)(ii) of this section is different than the amount disclosed under paragraph (e)(1)(i) of this section (unless the difference is due to rounding), a statement of that fact along with a statement of whether this amount increased or decreased; or (B) If the amount disclosed under paragraph (e)(1)(i) of this section is equal to the amount disclosed under paragraph (e)(1)(ii) of this section a statement of that fact. (2) Total closing costs. (i) Under the subheading “Loan Estimate,” the amount disclosed on the Loan Estimate under § 1026.37(h)(2)(ii); (ii) Under the subheading “Final,” the amount disclosed under paragraph (h)(1) of this section, disclosed as a negative number if the amount disclosed under paragraph (h)(1) of this section is a positive number and disclosed as a positive number if the amount disclosed under paragraph (h)(1) of this section is a negative number; and (iii) Disclosed more prominently than the other disclosures under this paragraph (e)(2)(i) and (ii) of this section, under the subheading “Did this change?”: (A) If the amount disclosed under paragraph (e)(2)(ii) of this section is different than the amount disclosed under paragraph (e)(2)(i) of this section (unless the difference is due to rounding): ( 1 ( 2 ( 3 (B) If the amount disclosed under paragraph (e)(2)(i) of this section is equal to the amount disclosed under paragraph (e)(2)(ii) of this section, a statement of that fact. (3) Closing costs paid before closing. (i) Under the subheading “Loan Estimate,” the amount of $0; (ii) Under the subheading “Final,” any amount designated as borrower-paid before closing under paragraph (h)(2) of this section, disclosed as a positive number; and (iii) Disclosed more prominently than the other disclosures under this paragraph (e)(3)(i) and (ii) of this section, under the subheading “Did this change?”: (A) If the amount disclosed under paragraph (e)(3)(ii) of this section is different than the amount disclosed under paragraph (e)(3)(i) of this section (unless the difference is due to rounding), a statement of that fact, along with a statement that the consumer paid such amounts prior to consummation of the transaction; or (B) If the amount disclosed under paragraph (e)(3)(ii) of this section is equal to the amount disclosed under paragraph (e)(3)(i) of this section, a statement of that fact. (4) Payoffs and payments. (i) Under the subheading “Loan Estimate,” the total payoffs and payments disclosed on the Loan Estimate under § 1026.37(h)(2)(iii); (ii) Under the subheading “Final,” the total amount of payoffs and payments made to third parties disclosed under paragraph (t)(5)(vii)(B) of this section, to the extent known, disclosed as a negative number if the total amount disclosed under paragraph (t)(5)(vii)(B) of this section is a positive number and disclosed as a positive number if the total amount disclosed under paragraph (t)(5)(vii)(B) of this section is a negative number; (iii) Disclosed more prominently than the other disclosures under this paragraph (e)(4)(i) and (ii), under the subheading “Did this change?”: (A) If the amount disclosed under paragraph (e)(4)(ii) of this section is different than the amount disclosed under paragraph (e)(4)(i) of this section (unless the difference is due to rounding), a statement of that fact along with a reference to the table disclosed under paragraph (t)(5)(vii)(B) of this section; or (B) If the amount disclosed under paragraph (e)(4)(ii) of this section is equal to the amount disclosed under paragraph (e)(4)(i) of this section, a statement of that fact. (5) Cash to or from consumer. (i) Under the subheading “Loan Estimate,” the estimated cash to close on the Loan Estimate together with the statement of whether the estimated amount is due from or to the consumer as disclosed under § 1026.37(h)(2)(iv); (ii) Under the subheading “Final,” the amount due from or to the consumer, calculated by the sum of the amounts disclosed under paragraphs (e)(1)(ii), (e)(2)(ii), (e)(3)(ii), and (e)(4)(ii) of this section, disclosed as a positive number, together with a statement of whether the disclosed amount is due from or to the consumer. (6) Closing costs financed. (f) Closing cost details; loan costs. (1) Origination charges. (2) Services borrower did not shop for. (3) Services borrower did shop for. (4) Total loan costs. (5) Subtotal of loan costs. (g) Closing cost details; other costs. (1) Taxes and other government fees. (i) On the first line: (A) Before the columns described in paragraph (g) of this section, the total amount of fees for recording deeds and, separately, the total amount of fees for recording security instruments; and (B) In the applicable column as described in paragraph (g) of this section, the total amounts paid for recording fees (including, but not limited to, the amounts in paragraph (g)(1)(i)(A) of this section); and (ii) On subsequent lines, in the applicable column as described in paragraph (g) of this section, an itemization of transfer taxes, with the name of the government entity assessing the transfer tax. (2) Prepaids. (3) Initial escrow payment at closing. (4) Other. (i) For any cost that is a component of title insurance services, the introductory description “Title —” shall appear at the beginning of the label for that actual cost. (ii) The parenthetical description “(optional)” shall appear at the end of the label for costs designated borrower-paid at or before closing for any premiums paid for separate insurance, warranty, guarantee, or event-coverage products. (5) Total other costs. (6) Subtotal of costs. (h) Closing cost totals. (2) The sum of the amounts disclosed in paragraphs (f)(5) and (g)(6) of this section, designated borrower-paid at or before closing, and the sum of the costs designated seller-paid at or before closing or paid by others disclosed pursuant to paragraphs (f) and (g) of this section, labeled “Closing Costs Subtotals.” (3) The amount of lender credits as a negative number, labeled “Lender Credits” and designated borrower-paid at closing, and if a refund is provided pursuant to § 1026.19(f)(2)(v), a statement that this amount includes a credit for an amount that exceeds the limitations on increases in closing costs under § 1026.19(e)(3), and the amount of such credit under § 1026.19(f)(2)(v). (4) The services and costs disclosed pursuant to paragraphs (f) and (g) of this section on the Closing Disclosure shall be labeled using terminology that describes the item disclosed, in a manner that is consistent with the descriptions or prescribed labels, as applicable, used for such items on the Loan Estimate pursuant to § 1026.37. The creditor must also list the items on the Closing Disclosure in the same sequential order as on the Loan Estimate pursuant to § 1026.37. (i) Calculating cash to close. (1) Total closing costs. (ii) Under the subheading “Final,” the amount disclosed under paragraph (h)(1) of this section. (iii) Under the subheading “Did this change?,” disclosed more prominently than the other disclosures under this paragraph (i)(1): (A) If the amount disclosed under paragraph (i)(1)(ii) of this section is different than the amount disclosed under paragraph (i)(1)(i) of this section (unless the difference is due to rounding): ( 1 ( 2 ( 3 (B) If the amount disclosed under paragraph (i)(1)(ii) of this section is equal to the amount disclosed under paragraph (i)(1)(i) of this section, a statement of that fact. (2) Closing costs paid before closing. (ii) Under the subheading “Final,” the amount of “Total Closing Costs” disclosed under paragraph (h)(2) of this section and designated as borrower-paid before closing, stated as a negative number. (iii) Under the subheading “Did this change?,” disclosed more prominently than the other disclosures under this paragraph (i)(2): (A) If the amount disclosed under paragraph (i)(2)(ii) of this section is different than the amount disclosed under paragraph (i)(2)(i) of this section (unless the difference is due to rounding), a statement of that fact, along with a statement that the consumer paid such amounts prior to consummation of the transaction; or (B) If the amount disclosed under paragraph (i)(2)(ii) of this section is equal to the amount disclosed under paragraph (i)(2)(i) of this section, a statement of that fact. (3) Closing costs financed. (ii) Under the subheading “Final,” the actual amount of the closing costs that are to be paid out of loan proceeds, if any, stated as a negative number. (iii) Under the subheading “Did this change?,” disclosed more prominently than the other disclosures under this paragraph (i)(3): (A) If the amount disclosed under paragraph (i)(3)(ii) of this section is different than the amount disclosed under paragraph (i)(3)(i) of this section (unless the difference is due to rounding), a statement of that fact, along with a statement that the consumer included the closing costs in the loan amount, which increased the loan amount; or (B) If the amount disclosed under paragraph (i)(3)(ii) of this section is equal to the amount disclosed under paragraph (i)(3)(i) of this section, a statement of that fact. (4) Down payment/funds from borrower. (ii) Under the subheading “Final”: (A)( 1 2 ( 2 (B) In all transactions not subject to paragraph (i)(4)(ii)(A) of this section, the amount of funds from the consumer as determined in accordance with paragraph (i)(6)(iv) of this section, labeled “Down Payment/Funds from Borrower.” (iii) Under the subheading “Did this change?,” disclosed more prominently than the other disclosures under this paragraph (i)(4): (A) If the amount disclosed under paragraph (i)(4)(ii) of this section is different than the amount disclosed under paragraph (i)(4)(i) of this section (unless the difference is due to rounding), a statement of that fact, along with a statement that the consumer increased or decreased this payment and that the consumer should see the details disclosed under paragraph (j)(1) or (j)(2) of this section, as applicable; or (B) If the amount disclosed under paragraph (i)(4)(ii) of this section is equal to the amount disclosed under paragraph (i)(4)(i) of this section, a statement of that fact. (5) Deposit. (ii) Under the subheading “Final,” the amount disclosed under paragraph (j)(2)(ii) of this section, stated as a negative number. (iii) Under the subheading “Did this change?,” disclosed more prominently than the other disclosures under this paragraph (i)(5): (A) If the amount disclosed under paragraph (i)(5)(ii) of this section is different than the amount disclosed under paragraph (i)(5)(i) of this section (unless the difference is due to rounding), a statement of that fact, along with a statement that the consumer increased or decreased this payment, as applicable, and that the consumer should see the details disclosed under paragraph (j)(2)(ii) of this section; or (B) If the amount disclosed under paragraph (i)(5)(ii) of this section is equal to the amount disclosed under paragraph (i)(5)(i) of this section, a statement of that fact. (6) Funds for borrower. (ii) Under the subheading “Final,” the “Funds for Borrower,” labeled using that term, as determined in accordance with paragraph (i)(6)(iv) of this section. (iii) Under the subheading “Did this change?,” disclosed more prominently than the other disclosures under this paragraph (i)(6): (A) If the amount disclosed under paragraph (i)(6)(ii) of this section is different than the amount disclosed under paragraph (i)(6)(i) of this section (unless the difference is due to rounding), a statement of that fact, along with a statement that the consumer's available funds from the loan amount have increased or decreased, as applicable; or (B) If the amount disclosed under paragraph (i)(6)(ii) of this section is equal to the amount disclosed under paragraph (i)(6)(i) of this section, a statement of that fact. (iv) The “Down Payment/Funds from Borrower” to be disclosed under paragraph (i)(4)(ii)(A)( 2 (A) If the calculation under this paragraph (i)(6)(iv) yields an amount that is a positive number, such amount shall be disclosed under paragraph (i)(4)(ii)(A)( 2 (B) If the calculation under this paragraph (i)(6)(iv) yields an amount that is a negative number, such amount shall be disclosed under paragraph (i)(6)(ii) of this section, stated as a negative number, and $0 shall be disclosed under paragraph (i)(4)(ii)(A)( 2 (C) If the calculation under this paragraph (i)(6)(iv) yields $0, $0 shall be disclosed under paragraph (i)(4)(ii)(A)( 2 (7) Seller credits. (ii) Under the subheading “Final,” the amount disclosed under paragraph (j)(2)(v) of this section, stated as a negative number. (iii) Under the subheading “Did this change?,” disclosed more prominently than the other disclosures under this paragraph (i)(7): (A) If the amount disclosed under paragraph (i)(7)(ii) of this section is different than the amount disclosed under paragraph (i)(7)(i) of this section (unless the difference is due to rounding), a statement of that fact, along with a statement that the consumer should see the details disclosed: ( 1 ( 2 (B) If the amount disclosed under paragraph (i)(7)(ii) of this section is equal to the amount disclosed under paragraph (i)(7)(i) of this section, a statement of that fact. (8) Adjustments and other credits. (ii) Under the subheading “Final,” the amount equal to the total of the amounts disclosed under paragraphs (j)(1)(iii) and (v) of this section, to the extent amounts in paragraphs (j)(1)(iii) and (v) were not included in the calculation required by paragraph (i)(4) or (6) of this section, and paragraphs (j)(1)(vi) through (x) of this section, reduced by the total of the amounts disclosed under paragraphs (j)(2)(vi) through (xi) of this section. (iii) Under the subheading “Did this change?,” disclosed more prominently than the other disclosures under this paragraph (i)(8): (A) If the amount disclosed under paragraph (i)(8)(ii) of this section is different than the amount disclosed under paragraph (i)(8)(i) of this section (unless the difference is due to rounding), a statement of that fact, along with a statement that the consumer should see the details disclosed under paragraphs (j)(1)(iii) and (v) through (x) and (j)(2)(vi) through (xi) of this section, as applicable; or (B) If the amount disclosed under paragraph (i)(8)(ii) of this section is equal to the amount disclosed under paragraph (i)(8)(i) of this section, a statement of that fact. (9) Cash to close. (ii) Under the subheading “Final,” the sum of the amounts disclosed under paragraphs (i)(1) through (i)(8) of this section under the subheading “Final,” and disclosed more prominently than the other disclosures under this paragraph (i). (j) Summary of borrower's transaction. (1) Itemization of amounts due from borrower. (ii) The amount of the contract sales price of the property being sold in a purchase real estate transaction, excluding the price of any tangible personal property if the consumer and seller have agreed to a separate price for such items, labeled “Sale Price of Property”; (iii) The amount of the sales price of any tangible personal property excluded from the contract sales price pursuant to paragraph (j)(1)(ii) of this section, labeled “Sale Price of Any Personal Property Included in Sale”; (iv) The total amount of closing costs disclosed that are designated borrower-paid at closing, as the sum of the amounts calculated pursuant to paragraphs (h)(2) and (3) of this section, labeled “Closing Costs Paid at Closing”; (v) A description and the amount of any additional items that the seller has paid prior to the real estate closing, but reimbursed by the consumer at the real estate closing, and a description and the amount of any other items owed by the consumer at the real estate closing not otherwise disclosed pursuant to paragraph (f), (g), or (j) of this section; (vi) The description “Adjustments for Items Paid by Seller in Advance”; (vii) The prorated amount of any prepaid taxes due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount, labeled “City/Town Taxes”; (viii) The prorated amount of any prepaid taxes due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount, labeled “County Taxes”; (ix) The prorated amount of any prepaid assessments due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount, labeled “Assessments”; and (x) A description and the amount of any additional items paid by the seller prior to the real estate closing that are due from the consumer at the real estate closing. (2) Itemization of amounts already paid by or on behalf of borrower. (ii) Any amount that is paid to the seller or held in trust or escrow by an attorney or other party under the terms of the agreement for the sale of the property, labeled “Deposit”; (iii) The amount of the consumer's new loan amount or first user loan as disclosed pursuant to paragraph (b) of this section, labeled “Loan Amount”; (iv) The amount of any existing loans that the consumer is assuming, or any loans subject to which the consumer is taking title to the property, labeled “Existing Loan(s) Assumed or Taken Subject to”; (v) The total amount of money that the seller will provide at the real estate closing as a lump sum not otherwise itemized to pay for loan costs as determined by paragraph (f) of this section and other costs as determined by paragraph (g) of this section and any other obligations of the seller to be paid directly to the consumer, labeled “Seller Credit”; (vi) Descriptions and amounts of other items paid by or on behalf of the consumer and not otherwise disclosed under paragraphs (f), (g), (h), and (j)(2) of this section, labeled “Other Credits,” and descriptions and the amounts of any additional amounts owed the consumer but payable to the seller before the real estate closing, under the heading “Adjustments”; (vii) The description “Adjustments for Items Unpaid by Seller”; (viii) The prorated amount of any unpaid taxes due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding to that amount, labeled ”City/Town Taxes”; (ix) The prorated amount of any unpaid taxes due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding to that amount, labeled “County Taxes”; (x) The prorated amount of any unpaid assessments due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding to that amount, labeled “Assessments”; and (xi) A description and the amount of any additional items which have not yet been paid and which the consumer is expected to pay after the real estate closing, but which are attributable in part to a period of time prior to the real estate closing. (3) Calculation of borrower's transaction. (i) The amount disclosed pursuant to paragraph (j)(1)(i) of this section, labeled “Total Due from Borrower at Closing”; (ii) The amount disclosed pursuant to paragraph (j)(2)(i) of this section, if any, disclosed as a negative number, labeled “Total Paid Already by or on Behalf of Borrower at Closing”; and (iii) A statement that the disclosed amount is due from or to the consumer, and the amount due from or to the consumer at the real estate closing, calculated by the sum of the amounts disclosed under paragraphs (j)(3)(i) and (ii) of this section, labeled “Cash to Close.” (4) Items paid outside of closing funds. (ii) For purposes of this paragraph (j), “closing funds” means funds collected and disbursed at real estate closing. (k) Summary of seller's transaction. (1) Itemization of amounts due to seller. (ii) The amount of the contract sales price of the property being sold, excluding the price of any tangible personal property if the consumer and seller have agreed to a separate price for such items, labeled “Sale Price of Property”; (iii) The amount of the sales price of any tangible personal property excluded from the contract sales price pursuant to paragraph (k)(1)(ii) of this section, labeled “Sale Price of Any Personal Property Included in Sale”; (iv) A description and the amount of other items paid to the seller by the consumer pursuant to the contract of sale or other agreement, such as charges that were not disclosed pursuant to § 1026.37 on the Loan Estimate or items paid by the seller prior to the real estate closing but reimbursed by the consumer at the real estate closing; (v) The description “Adjustments for Items Paid by Seller in Advance”; (vi) The prorated amount of any prepaid taxes due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount, labeled “City/Town Taxes”; (vii) The prorated amount of any prepaid taxes due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount, labeled “County Taxes”; (viii) The prorated amount of any prepaid assessments due from the consumer to reimburse the seller at the real estate closing, and the time period corresponding to that amount, labeled “Assessments”; and (ix) A description and the amount of additional items paid by the seller prior to the real estate closing that are reimbursed by the consumer at the real estate closing. (2) Itemization of amounts due from seller. (ii) The amount of any excess deposit disbursed to the seller prior to the real estate closing, labeled “Excess Deposit”; (iii) The amount of closing costs designated seller-paid at closing disclosed pursuant to paragraph (h)(2) of this section, labeled “Closing Costs Paid at Closing”; (iv) The amount of any existing loans that the consumer is assuming, or any loans subject to which the consumer is taking title to the property, labeled “Existing Loan(s) Assumed or Taken Subject to”; (v) The amount of any loan secured by a first lien on the property that will be paid off as part of the real estate closing, labeled “Payoff of First Mortgage Loan”; (vi) The amount of any loan secured by a second lien on the property that will be paid off as part of the real estate closing, labeled “Payoff of Second Mortgage Loan”; (vii) The total amount of money that the seller will provide at the real estate closing as a lump sum not otherwise itemized to pay for loan costs as determined by paragraph (f) of this section and other costs as determined by paragraph (g) of this section and any other obligations of the seller to be paid directly to the consumer, labeled “Seller Credit”; (viii) A description and amount of any and all other obligations required to be paid by the seller at the real estate closing, including any lien-related payoffs, fees, or obligations; (ix) The description “Adjustments for Items Unpaid by Seller”; (x) The prorated amount of any unpaid taxes due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding to that amount, labeled “City/Town Taxes”; (xi) The prorated amount of any unpaid taxes due from the seller to the consumer at the real estate closing, and the time period corresponding to that amount, labeled “County Taxes”; (xii) The prorated amount of any unpaid assessments due from the seller to reimburse the consumer at the real estate closing, and the time period corresponding to that amount, labeled “Assessments”; and (xiii) A description and the amount of any additional items which have not yet been paid and which the consumer is expected to pay after the real estate closing, but which are attributable in part to a period of time prior to the real estate closing. (3) Calculation of seller's transaction. (i) The amount described in paragraph (k)(1)(i) of this section, labeled “Total Due to Seller at Closing”; (ii) The amount described in paragraph (k)(2)(i) of this section, disclosed as a negative number, labeled “Total Due from Seller at Closing”; and (iii) A statement that the disclosed amount is due from or to the seller, and the amount due from or to the seller at closing, calculated by the sum of the amounts disclosed pursuant to paragraphs (k)(3)(i) and (ii) of this section, labeled “Cash.” (4) Items paid outside of closing funds. (ii) For purposes of this paragraph (k), “closing funds” are defined as funds collected and disbursed at real estate closing. (l) Loan disclosures. (1) Assumption. (2) Demand feature. (3) Late payment. (4) Negative amortization. (i) If the regular periodic payments do not cover all of the interest due, the creditor must provide a statement that the principal balance will increase, such balance will likely become larger than the original loan amount, and increases in such balance lower the consumer's equity in the property. (ii) If the consumer may make regular periodic payments that do not cover all of the interest due, the creditor must provide a statement that, if the consumer chooses a monthly payment option that does not cover all of the interest due, the principal balance may become larger than the original loan amount and the increases in the principal balance lower the consumer's equity in the property. (5) Partial payment policy. (i) If periodic payments that are less than the full amount due are accepted, a statement that the creditor, using the term “lender,” may accept partial payments and apply such payments to the consumer's loan; (ii) If periodic payments that are less than the full amount due are accepted but not applied to a consumer's loan until the consumer pays the remainder of the full amount due, a statement that the creditor, using the term “lender,” may hold partial payments in a separate account until the consumer pays the remainder of the payment and then apply the full periodic payment to the consumer's loan; (iii) If periodic payments that are less than the full amount due are not accepted, a statement that the creditor, using the term “lender,” does not accept any partial payments; and (iv) A statement that, if the loan is sold, the new creditor, using the term “lender,” may have a different policy. (6) Security interest. (7) Escrow account. (i) Under the reference “For now,” a statement that an escrow account may also be called an impound or trust account, a statement of whether the creditor has established or will establish (at or before consummation) an escrow account in connection with the transaction, and the information required under paragraphs (l)(7)(i)(A) and (B) of this section: (A) A statement that the creditor may be liable for penalties and interest if it fails to make a payment for any cost for which the escrow account is established, a statement that the consumer would have to pay such costs directly in the absence of the escrow account, and a table, titled “Escrow,” that contains, if an escrow account is or will be established, an itemization of the amounts listed in paragraphs (l)(7)(i)(A)( 1 4 ( 1 4 ( 2 ( 3 ( 4 ( 5 1 4 (B) A statement of whether the consumer will not have an escrow account, the reason why an escrow account will not be established, a statement that the consumer must pay all property costs, such as taxes and homeowner's insurance, directly, a statement that the consumer may contact the creditor to inquire about the availability of an escrow account, and a table, titled “No Escrow,” that contains, if an escrow account will not be established, an itemization of the following: ( 1 ( 2 (ii) Under the reference “In the future”: (A) A statement that the consumer's property costs may change and that, as a result, the consumer's escrow payment may change; (B) A statement that the consumer may be able to cancel any escrow account that has been established, but that the consumer is responsible for directly paying all property costs in the absence of an escrow account; and (C) A description of the consequences if the consumer fails to pay property costs, including the actions that a State or local government may take if property taxes are not paid and the actions the creditor may take if the consumer does not pay some or all property costs, such as adding amounts to the loan balance, adding an escrow account to the loan, or purchasing a property insurance policy on the consumer's behalf that may be more expensive and provide fewer benefits than what the consumer could obtain directly. (m) Adjustable payment table. (n) Adjustable interest rate table. (o) Loan calculations. (1) Total of payments. (i) Is understated by no more than $100; or (ii) Is greater than the amount required to be disclosed. (2) Finance charge. (i) Is understated by no more than $100; or (ii) Is greater than the amount required to be disclosed. (3) Amount financed. (4) Annual percentage rate. (5) Total interest percentage. (p) Other disclosures. (1) Appraisal. (i) If there was an appraisal of the property in connection with the loan, the creditor is required to provide the consumer with a copy at no additional cost to the consumer at least three days prior to consummation; and (ii) If the consumer has not yet received a copy of the appraisal, the consumer should contact the creditor using the information disclosed pursuant to paragraph (r) of this section. (2) Contract details. (3) Liability after foreclosure. (4) Refinanc (5) Tax deductions. (q) Questions notice. (1) A statement directing the consumer to use the contact information disclosed under paragraph (r) of this section if the consumer has any questions about the disclosures required pursuant to § 1026.19(f); (2) A reference to the Bureau's Web site to obtain more information or to submit a complaint; and the link or uniform resource locator address to the Web site: www.consumerfinance.gov/mortgage-closing (3) A prominent question mark. (r) Contact information. (1) Name of the person, labeled “Name”; (2) Address, using that label; (3) Nationwide Mortgage Licensing System & Registry (NMLSR ID) identification number, labeled “NMLS ID,” or, if none, license number or other unique identifier issued by the applicable jurisdiction or regulating body with which the person is licensed and/or registered, labeled “License ID,” with the abbreviation for the State of the applicable jurisdiction or regulatory body stated before the word “License” in the label, for the persons identified in paragraph (r)(1) of this section; (4) Name of the natural person who is the primary contact for the consumer with the person identified in paragraph (r)(1) of this section, labeled “Contact”; (5) NMLSR ID, labeled “Contact NMLS ID,” or, if none, license number or other unique identifier issued by the applicable jurisdiction or regulating body with which the person is licensed and/or registered, labeled “Contact License ID,” with the abbreviation for the State of the applicable jurisdiction or regulatory body stated before the word “License” in the label, for the natural person identified in paragraph (r)(4) of this section, (6) Email address for the person identified in paragraph (r)(4) of this section, labeled “Email”; and (7) Telephone number for the person identified in paragraph (r)(4) of this section, labeled “Phone.” (s) Signature statement. (2) If the creditor does not provide a line for the consumer's signature, the statement required to be disclosed under § 1026.37(n)(2) under the heading “Other Disclosures” required by paragraph (p) of this section. (t) Form of disclosures General requirements. (ii) Except as provided in paragraph (t)(5), the disclosures shall contain only the information required by paragraphs (a) through (s) of this section and shall be made in the same order, and positioned relative to the master headings, headings, subheadings, labels, and similar designations in the same manner, as shown in form H-25, set forth in appendix H to this part. (2) Headings and labels. (3) Form. (i) For a transaction subject to § 1026.19(f) that is a federally related mortgage loan, as defined in Regulation X, 12 CFR 1024.2, the disclosures must be made using form H-25, set forth in appendix H to this part. (ii) For any other transaction subject to this section, the disclosures must be made with headings, content, and format substantially similar to form H-25, set forth in appendix H to this part. (iii) The disclosures required by this section 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 (15 U.S.C. 7001 et seq. (4) Rounding Nearest dollar. (A) The dollar amounts required to be disclosed by paragraph (b) of this section that are required to be rounded by § 1026.37(o)(4)(i)(A) when disclosed under § 1026.37(b)(6) and (7); (B) The dollar amounts required to be disclosed by paragraph (c) of this section that are required to be rounded by § 1026.37(o)(4)(i)(A) when disclosed under § 1026.37(c)(1)(iii); (C) The dollar amounts required to be disclosed by paragraphs (e) and (i) of this section under the subheading “Loan Estimate”; (D) The dollar amounts required to be disclosed by paragraph (m) of this section; and (E) The dollar amounts required to be disclosed by paragraph (c) of this section that are required to be rounded by § 1026.37(o)(4)(i)(C) when disclosed under § 1026.37(c)(2)(iv). (ii) Percentages. (iii) Loan amount. (5) Exceptions Unit-period. (ii) Lender credits. (iii) Administrative information. (iv) Closing cost details Additional line numbers. (B) Two pages. (v) Separation of consumer and seller information. (A) The information required to be disclosed by paragraphs (j) and (k) of this section may be disclosed on separate pages to the consumer and the seller, respectively, with the information required by the other paragraph left blank. The information disclosed to the consumer pursuant to paragraph (j) of this section must be disclosed on the same page as the information required by paragraph (i) of this section. (B) The information required to be disclosed by paragraphs (f) and (g) of this section with respect to costs paid by the consumer may be left blank on the disclosure provided to the seller. (C) The information required by paragraphs (a)(2), (a)(4)(iii), (a)(5), (b) through (d), (i), (l) through (p), (r) with respect to the creditor and mortgage broker, and (s)(2) of this section may be left blank on the disclosure provided to the seller. (vi) Modified version of the form for a seller or third-party. (vii) Transaction without a seller or simultaneous subordinate financing transaction. (A) The information required by paragraph (a)(4)(ii), and paragraphs (f), (g), and (h) of this section with respect to costs paid by the seller, may be deleted. (B) A table under the master heading “Closing Cost Details” required by paragraph (f) of this section may be added with the heading “Payoffs and Payments” that itemizes the amounts of payments made at closing to other parties from the credit extended to the consumer or funds provided by the consumer in connection with the transaction, including designees of the consumer; the payees and a description of the purpose of such disbursements under the subheading “To”; and the total amount of such payments labeled “Total Payoffs and Payments.” (C) The tables required to be disclosed by paragraphs (j) and (k) of this section may be deleted. (viii) Translation. (ix) Customary recitals and information. (u) PACE transactions. (1) Transaction information. (2) Projected payments. (3) Assumption. (4) Late payment. (5) Partial payment policy. (6) Escrow account. (7) Liability after foreclosure or tax sale. (8) Contact information. (9) Exceptions Unit-period. (ii) PACE nomenclature. (B) In disclosing the information required under paragraph (p)(2) of this section, the creditor shall use the term “PACE contract documents” to refer to the appropriate loan document and security instrument. [78 FR 80120, Dec. 31, 2013, as amended at 80 FR 8776, Feb. 19, 2015; 80 FR 43920, July 24, 2015; 82 FR 37770, Aug. 11, 2017; 90 FR 2502, Jan. 10, 2025] § 1026.39 Mortgage transfer disclosures. (a) Scope. (1) A “ covered person” (2) A “ mortgage loan” (i) An open-end consumer credit transaction that is secured by the principal dwelling of a consumer; and (ii) A closed-end consumer credit transaction secured by a dwelling or real property. (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. (5) Partial payment policy. (i) If periodic payments that are less than the full amount due are accepted, a statement that the covered person, using the term “lender,” may accept partial payments and apply such payments to the consumer's loan; (ii) If periodic payments that are less than the full amount due are accepted but not applied to a consumer's loan until the consumer pays the remainder of the full amount due, a statement that the covered person, using the term “lender,” may hold partial payments in a separate account until the consumer pays the remainder of the payment and then apply the full periodic payment to the consumer's loan; (iii) If periodic payments that are less than the full amount due are not accepted, a statement that the covered person, using the term “lender,” does not accept any partial payments; and (iv) A statement that, if the loan is sold, the new covered person, using the term “lender,” may have a different policy. (e) Optional disclosures. (f) Successor in interest. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 80130, Dec. 31, 2013; 81 FR 72388, Oct. 19, 2016] § 1026.40 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 § 1026.14(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. (c) Duties of third parties. (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. A balloon payment results if paying the minimum periodic payments does not fully amortize the outstanding balance by a specified date or time, and the consumer must repay the entire outstanding balance at such time. (iii) An example, based on a $10,000 outstanding balance and a recent annual percentage rate, showing the minimum periodic payment, any balloon payment, and the time it would take to repay the $10,000 outstanding balance if the consumer made only those payments and obtained no additional extensions of credit. For fixed-rate plans, a recent annual percentage rate is a rate that has been in effect under the plan within the twelve months preceding the date the disclosures are provided to the consumer. For variable-rate plans, a recent annual percentage rate is the most recent rate provided in the historical example described in paragraph (d)(12)(xi) of this section or a rate that has been in effect under the plan since the date of the most recent rate in the table. (6) Annual percentage rate. (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)(A) Change the index and margin used under the plan if the original index is no longer available, the replacement index has historical fluctuations substantially similar to that of the original index, and the replacement index and replacement margin would have resulted in an annual percentage rate substantially similar to the rate in effect at the time the original index became unavailable. If the replacement index is newly established and therefore does not have any rate history, it may be used if it and the replacement margin will produce an annual percentage rate substantially similar to the rate in effect when the original index became unavailable; or (B) If a variable rate on the plan is calculated using a LIBOR index, change the LIBOR index and the margin for calculating the variable rate on or after April 1, 2022, to a replacement index and a replacement margin, as long as historical fluctuations in the LIBOR index and replacement index were substantially similar, and as long as the replacement index value in effect on October 18, 2021, and replacement margin will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. If the replacement index is newly established and therefore does not have any rate history, it may be used if the replacement index value in effect on October 18, 2021, and the replacement margin will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. If the replacement index is not published on October 18, 2021, the creditor generally must use the next calendar day for which both the LIBOR index and the replacement index are published as the date for selecting indices values in determining whether the annual percentage rate based on the replacement index is substantially similar to the rate based on the LIBOR index. The one exception is that if the replacement index is the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the creditor must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, must use the index value on the first date that index is published, in determining whether the annual percentage rate based on the replacement index is substantially similar to the rate based on the LIBOR index. (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 § 1026.33, 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. [76 FR 79772, Dec. 22, 2011, as amended at 86 FR 69781, Dec. 8, 2021; 88 FR 30622, May 11, 2023] § 1026.41 Periodic statements for residential mortgage loans. (a) In general Scope. mortgage loan (2) Periodic statements. servicer (b) Timing of the periodic statement. (c) Form of the periodic statement. (d) Content and layout of the periodic statement. (1) Amount due. (i) The payment due date; (ii) The amount of any late payment fee, and the date on which that fee will be imposed if payment has not been received; and (iii) The amount due, shown more prominently than other disclosures on the page and, if the transaction has multiple payment options, the amount due under each of the payment options. (2) Explanation of amount due. (i) The monthly payment amount, including a breakdown showing how much, if any, will be applied to principal, interest, and escrow and, if a mortgage loan has multiple payment options, a breakdown of each of the payment options along with information on whether the principal balance will increase, decrease, or stay the same for each option listed; (ii) The total sum of any fees or charges imposed since the last statement; and (iii) Any payment amount past due. (3) Past payment breakdown. (i) The total of all payments received since the last statement, including a breakdown showing the amount, if any, that was applied to principal, interest, escrow, fees and charges, and the amount, if any, sent to any suspense or unapplied funds account; and (ii) The total of all payments received since the beginning of the current calendar year, including a breakdown of that total showing the amount, if any, that was applied to principal, interest, escrow, fees and charges, and the amount, if any, currently held in any suspense or unapplied funds account. (4) Transaction activity. transaction activity (5) Partial payment information. (6) Contact information. (7) Account information. (i) The amount of the outstanding principal balance; (ii) The current interest rate in effect for the mortgage loan; (iii) The date after which the interest rate may next change; (iv) The existence of any prepayment penalty, as defined in § 1026.32(b)(6)(i), that may be charged; (v) The Web site to access either the Bureau list or the HUD list of homeownership counselors and counseling organizations and the HUD toll-free telephone number to access contact information for homeownership counselors or counseling organizations; and (8) Delinquency information. (i) The length of the consumer's delinquency; (ii) A notification of possible risks, such as foreclosure, and expenses, that may be incurred if the delinquency is not cured; (iii) An account history showing, for the previous six months or the period since the last time the account was current, whichever is shorter, the amount remaining past due from each billing cycle or, if any such payment was fully paid, the date on which it was credited as fully paid; (iv) A notice indicating any loss mitigation program to which the consumer has agreed, if applicable; (v) A notice of whether the servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, if applicable; (vi) The total payment amount needed to bring the account current; and (vii) A reference to the homeownership counselor information disclosed pursuant to paragraph (d)(7)(v) of this section. (e) Exemptions Reverse mortgages. (2) Timeshare plans. (3) Coupon books. (i) Provides the consumer with a coupon book that includes on each coupon the information listed in paragraph (d)(1) of this section; (ii) Provides the consumer with a coupon book that includes anywhere in the coupon book: (A) The account information listed in paragraph (d)(7) of this section; (B) The contact information for the servicer, listed in paragraph (d)(6) of this section; and (C) Information on how the consumer can obtain the information listed in paragraph (e)(3)(iii) of this section; (iii) Makes available upon request to the consumer by telephone, in writing, in person, or electronically, if the consumer consents, the information listed in paragraph (d)(2) through (5) of this section; and (iv) Provides the consumer the information listed in paragraph (d)(8) of this section in writing, for any billing cycle during which the consumer is more than 45 days delinquent. (4) Small servicers Exemption. (ii) Small servicer defined. (A) Services, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee; (B) Is a Housing Finance Agency, as defined in 24 CFR 266.5; or (C) Is a nonprofit entity that services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, for all of which the servicer or an associated nonprofit entity is the creditor. For purposes of this paragraph (e)(4)(ii)(C), the following definitions apply: ( 1 ( 2 (iii) Small servicer determination. (A) Mortgage loans voluntarily serviced by the servicer for a non-affiliate of the servicer and for which the servicer does not receive any compensation or fees. (B) Reverse mortgage transactions. (C) Mortgage loans secured by consumers' interests in timeshare plans. (D) Transactions serviced by the servicer for a seller financer that meets all of the criteria identified in § 1026.36(a)(5). (5) Certain consumers in bankruptcy Exemption. (A) Any consumer on the mortgage loan is a debtor in bankruptcy under title 11 of the United States Code or has discharged personal liability for the mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228, or 1328; and (B) With regard to any consumer on the mortgage loan: ( 1 ( 2 ( 3 ( 4 (ii) Reaffirmation or consumer request to receive statement or coupon book. (iii) Exclusive address. 1 1 1 (iv) Timing of compliance following transition Triggering events for transitioning to modified and unmodified periodic statements. ( 1 ( 2 ( 3 (B) Single-statement exemption. (6) Charged-off loans. (A) Has charged off the loan in accordance with loan-loss provisions and will not charge any additional fees or interest on the account; and (B) Provides, within 30 days of charge-off or the most recent periodic statement, a periodic statement, clearly and conspicuously labeled “Suspension of Statements & Notice of Charge Off—Retain This Copy for Your Records.” The periodic statement must clearly and conspicuously explain that, as applicable, the mortgage loan has been charged off and the servicer will not charge any additional fees or interest on the account; the servicer will no longer provide the consumer a periodic statement for each billing cycle; the lien on the property remains in place and the consumer remains liable for the mortgage loan obligation and any obligations arising from or related to the property, which may include property taxes; the consumer may be required to pay the balance on the account in the future, for example, upon sale of the property; the balance on the account is not being canceled or forgiven; and the loan may be purchased, assigned, or transferred. (ii) Resuming compliance. (B) Prohibition on retroactive fees. (7) PACE transactions. (f) Modified periodic statements and coupon books for certain consumers in bankruptcy. (1) Requirements not applicable. (2) Bankruptcy notices. (i) A statement identifying the consumer's status as a debtor in bankruptcy or the discharged status of the mortgage loan; and (ii) A statement that the periodic statement is for informational purposes only. (3) Chapter 12 and chapter 13 consumers. (i) Requirements not applicable. (ii) Amount due. (iii) Explanation of amount due. (A) The monthly post-petition payment amount, including a breakdown showing how much, if any, will be applied to principal, interest, and escrow; (B) The total sum of any post-petition fees or charges imposed since the last statement; and (C) Any post-petition payment amount past due. (iv) Transaction activity. (v) Pre-petition arrearage. (A) The total of all pre-petition payments received since the last statement; (B) The total of all pre-petition payments received since the beginning of the consumer's bankruptcy case; and (C) The current balance of the consumer's pre-petition arrearage. (vi) Additional disclosures. (A) A statement that the amount due includes only post-petition payments and does not include other payments that may be due under the terms of the consumer's bankruptcy plan; (B) If the consumer's bankruptcy plan requires the consumer to make the post-petition mortgage payments directly to a bankruptcy trustee, a statement that the consumer should send the payment to the trustee and not to the servicer; (C) A statement that the information disclosed on the periodic statement may not include payments the consumer has made to the trustee and may not be consistent with the trustee's records; (D) A statement that encourages the consumer to contact the consumer's attorney or the trustee with questions regarding the application of payments; and (E) If the consumer is more than 45 days delinquent on post-petition payments, a statement that the servicer has not received all the payments that became due since the consumer filed for bankruptcy. (4) Multiple obligors. (5) Coupon books. (g) Successor in interest. [78 FR 11007, Feb. 14, 2013, as amended at 78 FR 44718, July 24, 2013; 78 FR 63005, Oct. 23, 2013; 79 FR 65322, Nov. 3, 2014; 81 FR 72388, Oct. 19, 2016; 83 FR 10559, Mar. 12, 2018; 90 FR 2503, Jan. 10, 2025] § 1026.42 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 § 1026.2(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. 3353). (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. (h) The Bureau issued a joint rule to implement the appraisal management company minimum requirements in the Financial Institutions Reform, Recovery, and Enforcement Act, as amended by section 1473 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. See (i) Quality Control Standards for Automated Valuation Models Scope. (i) Monitoring of the quality or performance of mortgages or mortgage-backed securities; (ii) Reviews of the quality of already completed determinations of the value of collateral; or (iii) The development of an appraisal by a certified or licensed appraiser as defined in § 1026.35(c)(1)(i). (2) Definitions. (i) Automated valuation model (ii) Control systems (iii) Covered securitization determination (A) Whether to waive an appraisal requirement for a mortgage origination in connection with its potential sale or transfer to a secondary market issuer; or (B) Structuring, preparing disclosures for, or marketing initial offerings of mortgage-backed securitizations. (iv) Credit decision (v) Mortgage (vi) Mortgage originator (A) Any person who, for direct or indirect compensation or gain, or in the expectation of direct or indirect compensation or gain— ( 1 ( 2 ( 3 (B) Includes any person who represents to the public, through advertising or other means of communicating or providing information (including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items), that such person can or will provide any of the services or perform any of the activities described in paragraph (A) of this definition; (C) Does not include any person who is not otherwise described in paragraph (A) or (B) of this definition and who performs purely administrative or clerical tasks on behalf of a person who is described in any such paragraph; (D) Does not include a retailer of manufactured or modular homes or an employee of the retailer if the retailer or employee, as applicable— ( 1 ( 2 ( 3 (E) Does not include a person or entity that only performs real estate brokerage activities and is licensed or registered in accordance with applicable State law, unless such person or entity is compensated by a lender, a mortgage broker, or other mortgage originator or by any agent of such lender, mortgage broker, or other mortgage originator; (F) Does not include a person that meets the criteria for seller financers provided in § 1026.36(a)(4) and (5); and (G) Does not include a servicer or servicer employees, agents and contractors, including but not limited to those who offer or negotiate terms of a mortgage for purposes of renegotiating, modifying, replacing and subordinating principal of existing mortgages where borrowers are behind in their payments, in default or have a reasonable likelihood of being in default or falling behind. (vii) Secondary market issuer (3) Quality control standards. (i) Ensure a high level of confidence in the estimates produced; (ii) Protect against the manipulation of data; (iii) Seek to avoid conflicts of interest; (iv) Require random sample testing and reviews; and (v) Comply with applicable nondiscrimination laws. [76 FR 79772, Dec. 22, 2011, as amended at 80 FR 32687, June 9, 2015; 89 FR 64577, Aug. 7, 2024] § 1026.43 Minimum standards for transactions secured by a dwelling. (a) Scope. (1) A home equity line of credit subject to § 1026.40; (2) A mortgage transaction secured by a consumer's interest in a timeshare plan, as defined in 11 U.S.C. 101(53(D)); or (3) For purposes of paragraphs (c) through (f) of this section: (i) A reverse mortgage subject to § 1026.33; (ii) A temporary or “bridge” loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months or a loan to finance the initial construction of a dwelling; (iii) A construction phase of 12 months or less of a construction-to-permanent loan; (iv) An extension of credit made pursuant to a program administered by a Housing Finance Agency, as defined under 24 CFR 266.5; (v) An extension of credit made by: (A) A creditor designated as a Community Development Financial Institution, as defined under 12 CFR 1805.104(h); (B) A creditor designated as a Downpayment Assistance through Secondary Financing Provider, pursuant to 24 CFR 200.194(a), operating in accordance with regulations prescribed by the U.S. Department of Housing and Urban Development applicable to such persons; (C) A creditor designated as a Community Housing Development Organization provided that the creditor has entered into a commitment with a participating jurisdiction and is undertaking a project under the HOME program, pursuant to the provisions of 24 CFR 92.300(a), and as the terms community housing development organization, commitment, participating jurisdiction, and project are defined under 24 CFR 92.2; or (D) A creditor with a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3); 26 CFR 1.501(c)(3)-1), provided that: ( 1 ( 2 ( 3 2 ( 4 (vi) An extension of credit made pursuant to a program authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5211; 5219); (vii) Consumer credit transactions that meet the following criteria are not considered in determining whether a creditor exceeds the credit extension limitation in paragraph (a)(3)(v)(D)( 1 (A) The transaction is secured by a subordinate lien; (B) The transaction is for the purpose of: ( 1 ( 2 ( 3 ( 4 (C) The credit contract does not require payment of interest; (D) The credit contract provides that repayment of the amount of the credit extended is: ( 1 ( 2 ( 3 ( 4 (E) The total of costs payable by the consumer in connection with the transaction at consummation is less than 1 percent of the amount of credit extended and includes no charges other than: ( 1 ( 2 ( 3 (F) The creditor complies with all other applicable requirements of this part in connection with the transaction. (b) Definitions. (1) Covered transaction (2) Fully amortizing payment (3) Fully indexed rate (4) Higher-priced covered transaction (5) Loan amount (6) Loan term (7) Maximum loan amount (i) The consumer makes only the minimum periodic payments for the maximum possible time, until the consumer must begin making fully amortizing payments; and (ii) The maximum interest rate is reached at the earliest possible time. (8) Mortgage-related obligations (9) Points and fees (10) Prepayment penalty (11) Recast (i) For an adjustable-rate mortgage, as defined in § 1026.18(s)(7)(i), the expiration of the period during which payments based on the introductory fixed interest rate are permitted under the terms of the legal obligation; (ii) For an interest-only loan, as defined in § 1026.18(s)(7)(iv), the expiration of the period during which interest-only payments are permitted under the terms of the legal obligation; and (iii) For a negative amortization loan, as defined in § 1026.18(s)(7)(v), the expiration of the period during which negatively amortizing payments are permitted under the terms of the legal obligation. (12) Simultaneous loan (13) Third-party record (i) A document or other record prepared or reviewed by an appropriate person other than the consumer, the creditor, or the mortgage broker, as defined in § 1026.36(a)(2), or an agent of the creditor or mortgage broker; (ii) A copy of a tax return filed with the Internal Revenue Service or a State taxing authority; (iii) A record the creditor maintains for an account of the consumer held by the creditor; or (iv) If the consumer is an employee of the creditor or the mortgage broker, a document or other record maintained by the creditor or mortgage broker regarding the consumer's employment status or employment income. (14) PACE company (15) PACE transaction (c) Repayment ability General requirement. (2) Basis for determination. (i) The consumer's current or reasonably expected income or assets, other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan; (ii) If the creditor relies on income from the consumer's employment in determining repayment ability, the consumer's current employment status; (iii) The consumer's monthly payment on the covered transaction, calculated in accordance with paragraph (c)(5) of this section; (iv) The consumer's monthly payment on any simultaneous loan that the creditor knows or has reason to know will be made, calculated in accordance with paragraph (c)(6) of this section; (v) The consumer's monthly payment for mortgage-related obligations; (vi) The consumer's current debt obligations, alimony, and child support; (vii) The consumer's monthly debt-to-income ratio or residual income in accordance with paragraph (c)(7) of this section; and (viii) The consumer's credit history. (3) Verification using third-party records. (i) For purposes of paragraph (c)(2)(i) of this section, a creditor must verify a consumer's income or assets that the creditor relies on in accordance with § 1026.43(c)(4); (ii) For purposes of paragraph (c)(2)(ii) of this section, a creditor may verify a consumer's employment status orally if the creditor prepares a record of the information obtained orally; and (iii) For purposes of paragraph (c)(2)(vi) of this section, if a creditor relies on a consumer's credit report to verify a consumer's current debt obligations and a consumer's application states a current debt obligation not shown in the consumer's credit report, the creditor need not independently verify such an obligation. (4) Verification of income or assets. (i) Copies of tax returns the consumer filed with the IRS or a State taxing authority; (ii) IRS Form W-2s or similar IRS forms used for reporting wages or tax withholding; (iii) Payroll statements, including military Leave and Earnings Statements; (iv) Financial institution records; (v) Records from the consumer's employer or a third party that obtained information from the employer; (vi) Records from a Federal, State, or local government agency stating the consumer's income from benefits or entitlements; (vii) Receipts from the consumer's use of check cashing services; and (viii) Receipts from the consumer's use of a funds transfer service. (5) Payment calculation General rule. (A) The fully indexed rate or any introductory interest rate, whichever is greater; and (B) Monthly, fully amortizing payments that are substantially equal. (ii) Special rules for loans with a balloon payment, interest-only loans, and negative amortization loans. (A) A loan with a balloon payment, as defined in § 1026.18(s)(5)(i), using: ( 1 ( 2 (B) An interest-only loan, as defined in § 1026.18(s)(7)(iv), using: ( 1 ( 2 (C) A negative amortization loan, as defined in § 1026.18(s)(7)(v), using: ( 1 ( 2 (6) Payment calculation for simultaneous loans. (i) A covered transaction, by following paragraph (c)(5)of this section; or (ii) A home equity line of credit subject to § 1026.40, by using the periodic payment required under the terms of the plan and the amount of credit to be drawn at or before consummation of the covered transaction. (7) Monthly debt-to-income ratio or residual income Definitions. (A) Total monthly debt obligations. total monthly debt obligations (B) Total monthly income. total monthly income (ii) Calculations Monthly debt-to-income ratio. (B) Monthly residual income. (d) Refinancing of non-standard mortgages Definitions. (i) Non-standard mortgage. non-standard mortgage (A) An adjustable-rate mortgage, as defined in § 1026.18(s)(7)(i), with an introductory fixed interest rate for a period of one year or longer; (B) An interest-only loan, as defined in § 1026.18(s)(7)(iv); or (C) A negative amortization loan, as defined in § 1026.18(s)(7)(v). (ii) Standard mortgage. standard mortgage (A) That provides for regular periodic payments that do not: ( 1 ( 2 ( 3 (B) For which the total points and fees payable in connection with the transaction do not exceed the amounts specified in paragraph (e)(3) of this section; (C) For which the term does not exceed 40 years; (D) For which the interest rate is fixed for at least the first five years after consummation; and (E) For which the proceeds from the loan are used solely for the following purposes: ( 1 ( 2 et seq. (iii) Refinancing. refinancing (2) Scope. (i) The creditor for the standard mortgage is the current holder of the existing non-standard mortgage or the servicer acting on behalf of the current holder; (ii) The monthly payment for the standard mortgage is materially lower than the monthly payment for the non-standard mortgage, as calculated under paragraph (d)(5) of this section. (iii) The creditor receives the consumer's written application for the standard mortgage no later than two months after the non-standard mortgage has recast. (iv) The consumer has made no more than one payment more than 30 days late on the non-standard mortgage during the 12 months immediately preceding the creditor's receipt of the consumer's written application for the standard mortgage. (v) The consumer has made no payments more than 30 days late during the six months immediately preceding the creditor's receipt of the consumer's written application for the standard mortgage; and (vi) If the non-standard mortgage was consummated on or after January 10, 2014, the non-standard mortgage was made in accordance with paragraph (c) or (e) of this section, as applicable. (3) Exemption from repayment ability requirements. (i) The conditions in paragraph (d)(2) of this section are met; and (ii) The creditor has considered whether the standard mortgage likely will prevent a default by the consumer on the non-standard mortgage once the loan is recast. (4) Offer of rate discounts and other favorable terms. (5) Payment calculations. (i) Non-standard mortgage. (A) The fully indexed rate as of a reasonable period of time before or after the date on which the creditor receives the consumer's written application for the standard mortgage; (B) The term of the loan remaining as of the date on which the recast occurs, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date; and (C) A remaining loan amount that is: ( 1 ( 2 ( 3 (ii) Standard mortgage. (e) Qualified mortgages Safe harbor and presumption of compliance Safe harbor for loans that are not higher-priced covered transactions and for seasoned loans. (A) The loan is a qualified mortgage as defined in paragraph (e)(2), (4), (5), (6), or (f) of this section that is not a higher-priced covered transaction, as defined in paragraph (b)(4) of this section; or (B) The loan is a qualified mortgage as defined in paragraph (e)(7) of this section, regardless of whether the loan is a higher-priced covered transaction. (ii) Presumption of compliance for higher-priced covered transactions. (B) To rebut the presumption of compliance described in paragraph (e)(1)(ii)(A) of this section, it must be proven that, despite meeting the prerequisites of paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, the creditor did not make a reasonable and good faith determination of the consumer's repayment ability at the time of consummation, by showing that the consumer's income, debt obligations, alimony, child support, and the consumer's monthly payment (including mortgage-related obligations) on the covered transaction and on any simultaneous loans of which the creditor was aware at consummation would leave the consumer with insufficient residual income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan with which to meet living expenses, including any recurring and material non-debt obligations of which the creditor was aware at the time of consummation. (2) Qualified mortgage defined—general. (i) That provides for regular periodic payments that are substantially equal, except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage, that do not: (A) Result in an increase of the principal balance; (B) Allow the consumer to defer repayment of principal, except as provided in paragraph (f) of this section; or (C) Result in a balloon payment, as defined in § 1026.18(s)(5)(i), except as provided in paragraph (f) of this section; (ii) For which the loan term does not exceed 30 years; (iii) For which the total points and fees payable in connection with the loan do not exceed the amounts specified in paragraph (e)(3) of this section; (iv) For which the creditor underwrites the loan, taking into account the monthly payment for mortgage-related obligations, using: (A) The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due; and (B) Periodic payments of principal and interest that will repay either: ( 1 ( 2 (v) For which the creditor, at or before consummation: (A) Considers the consumer's current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, debt obligations, alimony, child support, and monthly debt-to-income ratio or residual income, using the amounts determined from paragraph (e)(2)(v)(B) of this section. For purposes of this paragraph (e)(2)(v)(A), the consumer's monthly debt-to-income ratio or residual income is determined in accordance with paragraph (c)(7) of this section, except that the consumer's monthly payment on the covered transaction, including the monthly payment for mortgage-related obligations, is calculated in accordance with paragraph (e)(2)(iv) of this section. (B)( 1 ( 2 (vi) For which the annual percentage rate does not exceed the average prime offer rate for a comparable transaction as of the date the interest rate is set by the amounts specified in paragraphs (e)(2)(vi)(A) through (F) of this section. The amounts specified here shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index for All Urban Consumers (CPI-U) that was reported on the preceding June 1. For purposes of this paragraph (e)(2)(vi), the creditor must determine the annual percentage rate for a loan for which the interest rate may or will change within the first five years after the date on which the first regular periodic payment will be due by treating the maximum interest rate that may apply during that five-year period as the interest rate for the full term of the loan. See the official commentary to this paragraph (e)(2)(vi) for the current dollar amounts. (A) For a first-lien covered transaction with a loan amount greater than or equal to $110,260 (indexed for inflation), 2.25 or more percentage points; (B) For a first-lien covered transaction with a loan amount greater than or equal to $66,156 (indexed for inflation) but less than $110,260 (indexed for inflation), 3.5 or more percentage points; (C) For a first-lien covered transaction with a loan amount less than $66,156 (indexed for inflation), 6.5 or more percentage points; (D) For a first-lien covered transaction secured by a manufactured home with a loan amount less than $110,260 (indexed for inflation), 6.5 or more percentage points; (E) For a subordinate-lien covered transaction with a loan amount greater than or equal to $66,156 (indexed for inflation), 3.5 or more percentage points; (F) For a subordinate-lien covered transaction with a loan amount less than $66,156 (indexed for inflation), 6.5 or more percentage points. (3) Limits on points and fees for qualified mortgages. (A) For a loan amount greater than or equal to $100,000 (indexed for inflation): 3 percent of the total loan amount; (B) For a loan amount greater than or equal to $60,000 (indexed for inflation) but less than $100,000 (indexed for inflation): $3,000 (indexed for inflation); (C) For a loan amount greater than or equal to $20,000 (indexed for inflation) but less than $60,000 (indexed for inflation): 5 percent of the total loan amount; (D) For a loan amount greater than or equal to $12,500 (indexed for inflation) but less than $20,000 (indexed for inflation): $1,000 (indexed for inflation); (E) For a loan amount less than $12,500 (indexed for inflation): 8 percent of the total loan amount. (ii) The dollar amounts, including the loan amounts, in paragraph (e)(3)(i) of this section shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index for All Urban Consumers (CPI-U) that was reported on the preceding June 1. See the official commentary to this paragraph (e)(3)(ii) for the current dollar amounts. (iii) For covered transactions consummated on or before January 10, 2021, if the creditor or assignee determines after consummation that the transaction's total points and fees exceed the applicable limit under paragraph (e)(3)(i) of this section, the loan is not precluded from being a qualified mortgage, provided: (A) The loan otherwise meets the requirements of paragraphs (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, as applicable; (B) The creditor or assignee pays to the consumer the amount described in paragraph (e)(3)(iv) of this section within 210 days after consummation and prior to the occurrence of any of the following events: ( 1 ( 2 ( 3 (C) The creditor or assignee, as applicable, maintains and follows policies and procedures for post-consummation review of points and fees and for making payments to consumers in accordance with paragraphs (e)(3)(iii)(B) and (e)(3)(iv) of this section. (iv) For purposes of paragraph (e)(3)(iii) of this section, the creditor or assignee must pay to the consumer an amount that is not less than the sum of the following: (A) The dollar amount by which the transaction's total points and fees exceeds the applicable limit under paragraph (e)(3)(i) of this section; and (B) Interest on the dollar amount described in paragraph (e)(3)(iv)(A) of this section, calculated using the contract interest rate applicable during the period from consummation until the payment described in this paragraph (e)(3)(iv) is made to the consumer. (4) Qualified mortgage defined other agencies. (5) Qualified mortgage defined—small creditor portfolio loans. (A) That satisfies the requirements of paragraph (e)(2) of this section other than the requirements of paragraphs (e)(2)(v) and (vi) of this section; (B) For which the creditor: ( 1 ( 2 ( 3 (C) That is not subject, at consummation, to a commitment to be acquired by another person, other than a person that satisfies the requirements of paragraph (e)(5)(i)(D) of this section; and (D) For which the creditor satisfies the requirements stated in § 1026.35(b)(2)(iii)(B) and (C). (ii) A qualified mortgage extended pursuant to paragraph (e)(5)(i) of this section immediately loses its status as a qualified mortgage under paragraph (e)(5)(i) if legal title to the qualified mortgage is sold, assigned, or otherwise transferred to another person except when: (A) The qualified mortgage is sold, assigned, or otherwise transferred to another person three years or more after consummation of the qualified mortgage; (B) The qualified mortgage is sold, assigned, or otherwise transferred to a creditor that satisfies the requirements of paragraph (e)(5)(i)(D) of this section; (C) The qualified mortgage is sold, assigned, or otherwise transferred to another person pursuant to a capital restoration plan or other action under 12 U.S.C. 1831o, actions or instructions of any person acting as conservator, receiver, or bankruptcy trustee, an order of a State or Federal government agency with jurisdiction to examine the creditor pursuant to State or Federal law, or an agreement between the creditor and such an agency; or (D) The qualified mortgage is sold, assigned, or otherwise transferred pursuant to a merger of the creditor with another person or acquisition of the creditor by another person or of another person by the creditor. (6) Qualified mortgage defined—temporary balloon-payment qualified mortgage rules. (A) That satisfies the requirements of paragraph (f) of this section other than the requirements of paragraph (f)(1)(vi); and (B) For which the creditor satisfies the requirements stated in § 1026.35(b)(2)(iii)(B) and (C). (ii) The provisions of this paragraph (e)(6) apply only to covered transactions for which the application was received before April 1, 2016. (7) Qualified mortgage defined—seasoned loans General. (A) Is a fixed-rate mortgage as defined in § 1026.18(s)(7)(iii) with fully amortizing payments as defined in paragraph (b)(2) of this section; (B) Satisfies the requirements in paragraphs (e)(2)(i) through (v) of this section; (C) Has met the requirements in paragraph (e)(7)(ii) of this section at the end of the seasoning period as defined in paragraph (e)(7)(iv)(C) of this section; (D) Satisfies the requirements in paragraph (e)(7)(iii) of this section; and (E) Is not a high-cost mortgage as defined in § 1026.32(a). (ii) Performance requirements. (iii) Portfolio requirements. (A) The covered transaction is not subject, at consummation, to a commitment to be acquired by another person, except for a sale, assignment, or transfer permitted by paragraph (e)(7)(iii)(B)( 3 (B) Legal title to the covered transaction is not sold, assigned, or otherwise transferred to another person before the end of the seasoning period, except that: ( 1 ( 2 ( 3 (iv) Definitions. (A) Delinquency ( 1 ( 2 ( 3 ( i ( ii ( iii ( 4 ( i ( ii ( 5 3 ii ( i ( ii (B) Qualifying change ( 1 ( 2 ( 3 ( 4 (C) Seasoning period ( 1 ( 2 (D) Temporary payment accommodation in connection with a disaster or pandemic-related national emergency et seq. et seq. (f) Balloon-payment qualified mortgages made by certain creditors Exemption. (i) The loan satisfies the requirements for a qualified mortgage in paragraphs (e)(2)(i)(A) and (e)(2)(ii) and (iii) of this section; (ii) The creditor determines at or before consummation that the consumer can make all of the scheduled payments under the terms of the legal obligation, as described in paragraph (f)(1)(iv) of this section, together with the consumer's monthly payments for all mortgage-related obligations and excluding the balloon payment, from the consumer's current or reasonably expected income or assets other than the dwelling that secures the loan; (iii) The creditor: (A) Considers and verifies at or before consummation the consumer's current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, in accordance with paragraphs (c)(2)(i) and (c)(4) of this section; (B) Considers and verifies at or before consummation the consumer's current debt obligations, alimony, and child support in accordance with paragraphs (c)(2)(vi) and (c)(3) of this section; (C) Considers at or before consummation the consumer's monthly debt-to-income ratio or residual income and verifies the debt obligations and income used to determine that ratio in accordance with paragraph (c)(7) of this section, except that the calculation of the payment on the covered transaction for purposes of determining the consumer's total monthly debt obligations in (c)(7)(i)(A) shall be determined in accordance with paragraph (f)(1)(iv)(A) of this section, together with the consumer's monthly payments for all mortgage-related obligations and excluding the balloon payment; (iv) The legal obligation provides for: (A) Scheduled payments that are substantially equal, calculated using an amortization period that does not exceed 30 years; (B) An interest rate that does not increase over the term of the loan; and (C) A loan term of five years or longer. (v) The loan is not subject, at consummation, to a commitment to be acquired by another person, other than a person that satisfies the requirements of paragraph (f)(1)(vi) of this section; and (vi) The creditor satisfies the requirements stated in § 1026.35(b)(2)(iii)(A), (B), and (C). (2) Post-consummation transfer of balloon-payment qualified mortgage. (i) The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person three years or more after consummation of the balloon-payment qualified mortgage; (ii) The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to a creditor that satisfies the requirements of paragraph (f)(1)(vi) of this section; (iii) The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person pursuant to a capital restoration plan or other action under 12 U.S.C. 1831o, actions or instructions of any person acting as conservator, receiver or bankruptcy trustee, an order of a State or Federal governmental agency with jurisdiction to examine the creditor pursuant to State or Federal law, or an agreement between the creditor and such an agency; or (iv) The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred pursuant to a merger of the creditor with another person or acquisition of the creditor by another person or of another person by the creditor. (g) Prepayment penalties When permitted. (i) The prepayment penalty is otherwise permitted by law; and (ii) The transaction: (A) Has an annual percentage rate that cannot increase after consummation; (B) Is a qualified mortgage under paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section; and (C) Is not a higher-priced mortgage loan, as defined in § 1026.35(a). (2) Limits on prepayment penalties. (i) Must not apply after the three-year period following consummation; and (ii) Must not exceed the following percentages of the amount of the outstanding loan balance prepaid: (A) 2 percent, if incurred during the first two years following consummation; and (B) 1 percent, if incurred during the third year following consummation. (3) Alternative offer required. (i) Has an annual percentage rate that cannot increase after consummation and has the same type of interest rate as the covered transaction with a prepayment penalty; for purposes of this paragraph (g), the term “type of interest rate” refers to whether a transaction: (A) Is a fixed-rate mortgage, as defined in § 1026.18(s)(7)(iii); or (B) Is a step-rate mortgage, as defined in § 1026.18(s)(7)(ii); (ii) Has the same loan term as the loan term for the covered transaction with a prepayment penalty; (iii) Satisfies the periodic payment conditions under paragraph (e)(2)(i) of this section; (iv) Satisfies the points and fees conditions under paragraph (e)(2)(iii) of this section, based on the information known to the creditor at the time the transaction is offered; and (v) Is a transaction for which the creditor has a good faith belief that the consumer likely qualifies, based on the information known to the creditor at the time the creditor offers the covered transaction without a prepayment penalty. (4) Offer through a mortgage broker. (i) Present the mortgage broker an alternative covered transaction without a prepayment penalty that satisfies the requirements of paragraph (g)(3) of this section; and (ii) Establish by agreement that the mortgage broker must present the consumer an alternative covered transaction without a prepayment penalty that satisfies the requirements of paragraph (g)(3) of this section, offered by: (A) The creditor; or (B) Another creditor, if the transaction offered by the other creditor has a lower interest rate or a lower total dollar amount of discount points and origination points or fees. (5) Creditor that is a loan originator. (i) The assignee; or (ii) Another person, if the transaction offered by the other person has a lower interest rate or a lower total dollar amount of origination discount points and points or fees. (6) Applicability. (i) A covered transaction is consummated without a prepayment penalty; or (ii) The creditor and consumer do not consummate a covered transaction. (h) Evasion; open-end credit. (i) PACE transactions. (i) The cushion of one-sixth ( 1/6 (ii) If the timing for when the servicer is expected to learn of the PACE transaction is likely to result in a shortage or deficiency in the consumer's escrow account, the expected effect of any such shortage or deficiency on the monthly payment that the consumer will be required to pay into the consumer's escrow account. (2) Notwithstanding paragraphs (e)(2), (e)(5), (e)(7), or (f) of this section, a PACE transaction is not a qualified mortgage as defined in this section. (3) For a PACE transaction, the requirements of this section apply to both the creditor and any PACE company that is substantially involved in making the credit decision. A PACE company is substantially involved in making the credit decision if it, as to a particular consumer, makes the credit decision, makes a recommendation as to whether to extend credit, or applies criteria used in making the credit decision. In the case of any failure by any such PACE company to comply with any requirement imposed under this section, section 130 of the Truth in Lending Act, 15 U.S.C. 1640, shall be applied with respect to any such failure by substituting “PACE company” for “creditor” each place such term appears in each such subsection. [78 FR 6584, Jan. 30, 2013, as amended at 78 FR 35502, June 12, 2013; 78 FR 44718, July 24, 2013; 78 FR 60442, Oct. 1, 2013; 78 FR 63005, Oct. 23, 2013; 79 FR 65323, Nov. 3, 2014; 80 FR 59968, Oct. 2, 2015; 85 FR 67958, Oct. 26, 2020; 85 FR 86394, 86452, Dec. 29, 2020; 86 FR 8283, Feb. 5, 2021; 86 FR 60360, Nov. 2, 2021; 90 FR 2503, Jan. 10, 2025] §§ 1026.44-1026.45 [Reserved] Subpart F—Special Rules for Private Education Loans § 1026.46 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 or 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 § 1026.18(a), insurance or debt cancellation under § 1026.18(n), and certain security interest charges under § 1026.18(o). (iii) The term “finance charge” and corresponding amount, when required to be disclosed under § 1026.18(d), and the interest rate required to be disclosed under §§ 1026.47(b)(1)(i) and (c)(1), shall be more conspicuous than any other disclosure, except the creditor's identity under § 1026.18(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 § 1026.47(a) in a telephone application or solicitation. Alternatively, if the creditor does not disclose orally the information in § 1026.47(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 § 1026.47(b) no later than three business days after the consumer requests the credit, the creditor need not also provide the § 1026.47(a) disclosures. (iii) Notwithstanding paragraph (d)(1)(i) of this section, 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 § 1026.47(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. § 1026.47 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 § 1026.18(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 § 1026.48(d) expires, and (ii) Loan proceeds will not be disbursed until after the cancellation period under § 1026.48(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 § 1026.46(c)(2)(iii). § 1026.48 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 § 1026.47(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 § 1026.47(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 § 1026.47(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 § 1026.48(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 § 1026.51 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; 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. (A) At the time of the contemplated increase, the consumer has an independent ability to make the required minimum periodic payments on the increased limit consistent with paragraph (b)(1)(i) of this section; or (B) A cosigner, guarantor, or joint applicant who is at least 21 years old agrees in writing to assume liability for any debt incurred on the account, consistent with paragraph (b)(1)(ii) of this section. (ii) If a credit card account has been opened pursuant to paragraph (b)(1)(ii) of this section, no increase in the credit limit may be made on such account before the consumer attains the age of 21 unless the cosigner, guarantor, or joint accountholder who assumed liability at account opening agrees in writing to assume liability on the increase. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 25837, May 3, 2013] § 1026.52 Limitations on fees. (a) Limitations 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) $32; (B) $43 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, notwithstanding the limitation on the amount of a late payment fee in paragraph (b)(1)(ii) of this section. (D) The amounts in paragraphs (b)(1)(ii)(A) and (B) of this section will be adjusted annually by the Bureau to reflect changes in the Consumer Price Index. (E) A smaller card issuer, as defined in paragraph (b)(3) of this section, may impose a fee for a late payment on an account if the dollar amount of the fee does not exceed the amount in paragraph (b)(1)(ii)(A) or (B) of this section, as applicable, notwithstanding the limitation on the amount of a late payment fee in this paragraph (b)(1)(ii). (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. (3) Smaller card issuer. affiliate et seq. (ii) If a card issuer together with its affiliates had fewer than one million open credit card accounts for the entire preceding calendar year but meets or exceeds that number of open credit card accounts in the current calendar year, the card issuer will no longer be a smaller card issuer for purposes of paragraph (b)(1)(ii)(E) of this section as of 60 days after meeting or exceeding that number of open credit card accounts. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 18797, Mar. 28, 2013; 78 FR 76035, Dec. 16, 2013; 79 FR 48017, Aug. 15, 2014; 80 FR 56898, Sept. 21, 2015; 81 FR 41421, June 27, 2016; 81 FR 84370, Nov. 22, 2016; 83 FR 43505, Aug. 27, 2018; 84 FR 37567, Aug. 1, 2019; 86 FR 60360, Nov. 2, 2021; 89 FR 19202, Mar. 15, 2024] § 1026.53 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. § 1026.54 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 § 1026.12 or § 1026.13; or (2) Adjustments to finance charges as a result of the return of a payment. § 1026.55 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 § 1026.9(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 § 1026.9(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 § 1026.9(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 § 1026.6(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 § 1026.9(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 § 1026.9(c) or (g) notice. (5) Workout and temporary hardship arrangement exception. (i) Prior to commencement of the arrangement (except as provided in § 1026.9(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. (7) Index replacement and margin change exception. (i) The card issuer changes the index and margin used to determine the annual percentage rate if the original index becomes unavailable, as long as historical fluctuations in the original and replacement indices were substantially similar, and as long as the replacement index and replacement margin will produce a rate substantially similar to the rate that was in effect at the time the original index became unavailable. If the replacement index is newly established and therefore does not have any rate history, it may be used if it and the replacement margin will produce a rate substantially similar to the rate in effect when the original index became unavailable; or (ii) If a variable rate on the plan is calculated using a LIBOR index, the card issuer changes the LIBOR index and the margin for calculating the variable rate on or after April 1, 2022, to a replacement index and a replacement margin, as long as historical fluctuations in the LIBOR index and replacement index were substantially similar, and as long as the replacement index value in effect on October 18, 2021, and replacement margin will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. If the replacement index is newly established and therefore does not have any rate history, it may be used if the replacement index value in effect on October 18, 2021, and the replacement margin will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. If the replacement index is not published on October 18, 2021, the card issuer generally must use the next calendar day for which both the LIBOR index and the replacement index are published as the date for selecting indices values in determining whether the annual percentage rate based on the replacement index is substantially similar to the rate based on the LIBOR index. The one exception is that if the replacement index is the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, must use the index value on the first date that index is published, in determining whether the annual percentage rate based on the replacement index is substantially similar to the rate based on the LIBOR index. (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 § 1026.40). (e) Promotional waivers or rebates of interest, fees, and other charges. [76 FR 79772, Dec. 22, 2011, as amended at 86 FR 69782, Dec. 8, 2021; 88 FR 30622, May 11, 2023] § 1026.56 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. § 1026.57 Reporting and marketing rules for college student open-end credit. (a) Definitions 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 Bureau 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. § 1026.58 Internet posting of credit card agreements. (a) Applicability. (b) Definitions Agreement. (2) Amends. (3) Business day. (4) Card issuer. (5) Offers. (6) Open accounts. (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 Bureau 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 Bureau; (iii) Any credit card agreement previously submitted to the Bureau 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 § 1026.58(c)(3); and (iv) Notification regarding any credit card agreement previously submitted to the Bureau that the issuer is withdrawing, as described in § 1026.58(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 Bureau 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 Bureau until the issuer notifies the Bureau that the card issuer is withdrawing all agreements it previously submitted to the Bureau. (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 Bureau 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 Bureau with respect to that agreement until the issuer notifies the Bureau 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 Bureau 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 Bureau with respect to that agreement until the issuer notifies the Bureau that the agreement is being withdrawn. (8) Form and content of agreements submitted to the Bureau 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 § 1026.58, and therefore are not required to be included in submissions to the Bureau: ( 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 § 1026.58(d), agreements posted pursuant to § 1026.58(d) must conform to the form and content requirements for agreements submitted to the Bureau specified in § 1026.58(c)(8). (3) Agreements posted pursuant to § 1026.58(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 § 1026.58(d) at least as frequently as the quarterly schedule required for submission of agreements to the Bureau under § 1026.58(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 § 1026.58(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 § 1026.58(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 § 1026.58(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: (A) The date on which the agreement is posted on the card issuer's Web site under § 1026.58(e)(1)(i); or (B) The date the cardholder's request is received under § 1026.58(e)(1)(ii) or (e)(2). (v) Agreements provided upon cardholder request pursuant to § 1026.58(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. (g) Temporary suspension of agreement submission requirement Quarterly submissions. (2) Posting of agreements offered to the public. [76 FR 79772, Dec. 22, 2011, as amended at 80 FR 21158, Apr. 17, 2015; 89 FR 19202, Mar. 15, 2024] § 1026.59 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 due to delinquency. (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. (3) Effective April 1, 2022, in the case where the rate applicable immediately prior to the increase was a variable rate with a formula based on a LIBOR index, the card issuer reduces the annual percentage rate to a rate determined by a replacement formula that is derived from a replacement index value on October 18, 2021, plus replacement margin that is equal to the LIBOR index value on October 18, 2021, plus the margin used to calculate the rate immediately prior to the increase (previous formula). A card issuer must satisfy the conditions set forth in § 1026.55(b)(7)(ii) for selecting a replacement index. If the replacement index is not published on October 18, 2021, the card issuer generally must use the values of the indices on the next calendar day for which both the LIBOR index and the replacement index are published as the index values to use to determine the replacement formula. The one exception is that if the replacement index is the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, must use the index value on the first date that index is published, as the index values to use to determine the replacement formula. (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 §§ 1026.9 and 1026.55 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. (3) Transition from LIBOR. [76 FR 79772, Dec. 22, 2011, as amended at 86 FR 69782, Dec. 8, 2021; 88 FR 30623, May 11, 2023] § 1026.60 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 § 1026.40; (ii) Covered overdraft credit as defined in § 1026.62 tied to asset accounts accessed by check-guarantee cards or by debit cards other than hybrid debit-credit cards as defined in § 1026.62; (iii) Lines of credit accessed by check-guarantee cards or by debit cards, other than covered overdraft credit accessed by hybrid debit-credit cards, that can be used only at automated teller machines; (iv) Lines of credit accessed solely by account numbers except for a covered separate credit feature solely accessible by an account number that is a hybrid prepaid-credit card as defined in § 1026.61 or covered overdraft credit accessible by an account number that is a hybrid debit-credit card; (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 email 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 email 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 § 1026.5(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. [76 FR 79772, Dec. 22, 2011, as amended at 81 FR 84370, Nov. 22, 2016; 89 FR 106837, Dec. 30, 2024] § 1026.61 Hybrid prepaid-credit cards. (a) Hybrid prepaid-credit card In general. (ii) For purposes of this regulation, except as provided in paragraph (a)(4) of this section, a prepaid card is a hybrid prepaid-credit card with respect to a separate credit feature as described in paragraph (a)(2)(i) of this section when it can access credit from that credit feature, or with respect to a credit feature structured as a negative balance on the asset feature of the prepaid account as described in paragraph (a)(3) of this section when it can access credit from that credit feature. A hybrid prepaid-credit card is a credit card for purposes of this regulation with respect to those credit features. (iii) With respect to a credit feature structured as a negative balance on the asset feature of the prepaid account as described in paragraph (a)(3) of this section, a prepaid card is not a hybrid prepaid-credit card or a credit card for purposes of this regulation if the conditions set forth in paragraph (a)(4) of this section are met. (2) Prepaid card can access credit from a covered separate credit feature Covered separate credit feature. ( 1 ( 2 (B) A separate credit feature that meets the conditions set forth in paragraph (a)(2)(i)(A) of this section is a covered separate credit feature accessible by a hybrid prepaid-credit card even with respect to credit that is drawn or transferred, or authorized to be drawn or transferred, from the credit feature outside the course of a transaction conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. (ii) Non-covered separate credit feature. (3) Prepaid card can access credit extended through a negative balance on the asset feature of the prepaid account In general. (ii) Negative asset balances. (4) Exception for credit extended through a negative balance. (i) The prepaid card cannot access credit from a covered separate credit feature as described in paragraph (a)(2)(i) of this section that is offered by a prepaid account issuer or its affiliate; and (ii) The prepaid card only can access credit extended through a negative balance on the asset feature of the prepaid account where both paragraphs (a)(4)(ii)(A) and (B) of this section are satisfied. (A) The prepaid account issuer has an established policy and practice of either declining to authorize any transaction for which it reasonably believes the consumer has insufficient or unavailable funds in the asset feature of the prepaid account at the time the transaction is authorized to cover the amount of the transaction, or declining to authorize any such transactions except in one or more of the following circumstances: ( 1 ( 2 (B) The following fees or charges are not imposed on the asset feature of the prepaid account: ( 1 ( 2 ( 3 (C) A prepaid account issuer may still satisfy the exception in paragraph (a)(4) of this section even if it debits fees or charges from the asset feature when there are insufficient or unavailable funds in the asset feature to cover those fees or charges at the time they are imposed, so long as those fees or charges are not the type of fees or charges enumerated in paragraph (a)(4)(ii)(B) of this section. (5) Definitions. (i) Affiliate et seq. (ii) Asset feature (iii) Business partner (A) Arrangement defined. (B) Arrangement by agreement. (C) Marketing arrangement. ( 1 2 ( 2 1 (D) Exception for certain credit card account arrangements. ( 1 ( 2 ( 3 2 ( 4 2 ( 5 2 (iv) Credit feature (v) Prepaid account (vi) Prepaid account issuer (vii) Prepaid card (viii) Separate credit feature (b) Structure of credit features accessible by hybrid prepaid-credit cards. (c) Timing requirement for credit card solicitation or application with respect to hybrid prepaid-credit cards. (i) Open a covered separate credit feature that could be accessible by the hybrid prepaid-credit card; (ii) Make a solicitation or provide an application to open a covered separate credit feature that could be accessible by the hybrid prepaid-credit card; or (iii) Allow an existing credit feature that was opened prior to the consumer obtaining the prepaid account to become a covered separate credit feature accessible by the hybrid prepaid-credit card. (2) For purposes of paragraph (c) of this section, the term solicitation [81 FR 84370, Nov. 22, 2016, as amended at 83 FR 6439, Feb. 13, 2018] § 1026.62 Overdraft credit. (a) In general (2) Overdraft credit (b) Definitions. (1) Above breakeven overdraft credit (2) Covered asset account (3) Covered overdraft credit (4) Covered overdraft credit account (5) Hybrid debit-credit card (6) Non-covered overdraft credit (7) Overdraft credit (8) Very large financial institution (c) Structure of covered overdraft credit. (d) Charges exceeding the average of its costs and charge-off losses for providing non-covered overdraft credit General rule. (i) The pro rata share of the very large financial institution's total direct costs and charge-off losses for providing non-covered overdraft credit in the previous year, calculated in accordance with this paragraph; or (ii) $5. (2) Cost and loss calculation. (3) For purposes of paragraph (d)(2) of this section, a cost or charge-off loss is specifically traceable if it has a direct relationship to the provision of non-covered overdraft services and the very large financial institution can provide evidence to demonstrate that direct relationship. (4) For purposes of paragraph (d)(1) of this section, a charge or combination of charges includes all revenue received in connection with an overdraft transaction, including, but not limited to, any extended or sustained overdraft fees, any interest charges on outstanding overdraft balances, and any other payments the very large financial institution receives in connection with an overdraft transaction. (5) When calculating the pro rata share of its total direct costs and charge-off losses for providing non-covered overdraft credit in the previous year, a very large financial institution must include all non-covered overdraft transactions from the previous year in its calculation. (6) For purposes of paragraph (d)(1)(i) of this section, the term “previous year” means a period that encompasses, at the very large financial institution's option, any of the following periods: (i) The prior calendar year, (ii) Any 365-day period that begins within the prior calendar year, (iii) The prior four financial quarters, or (iv) The very large financial institution's prior accounting year. [89 FR 106837, Dec. 30, 2024] Appendix A to Part 1026—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 Executive Secretary, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552. The request shall be made pursuant to the procedures herein. 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 Bureau in its determination. Public Notice of Determination Notice that the Bureau intends to make a determination (either on request or on its own motion) will be published in the Federal Register, Subject to the Bureau's rules on Disclosure of Records and Information (12 CFR Part 1070), 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 Bureau 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 [76 FR 79772, Dec. 22, 2011, as amended at 88 FR 16543, Mar. 20, 2023] Appendix B to Part 1026—State Exemptions Application Any state may apply to the Bureau for a determination that a class of transactions subject to state law is exempt from the requirements of the Act and this part. An application shall be in writing and addressed to the Executive Secretary, Bureau of Consumer Financial Protection, 1700 G Street, NW., Washington, DC 20552, and shall be signed by the appropriate state official. The application shall be made pursuant to the procedures herein. 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 Bureau's rules on Disclosure of Records and Information (12 CFR Part 1070), all applications made, including any documents and other material submitted in support of the applications, will be made available for public inspection and copying. Favorable Determination If the Bureau 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 Bureau within 30 days of any change in its relevant law or regulations. The official shall file with the Bureau such periodic reports as the Bureau may require. The Bureau 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 Bureau makes an initial determination that an exemption should not be granted, the Bureau will afford the applicant a reasonable opportunity to demonstrate further that an exemption is proper. If the Bureau 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 Bureau 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 Bureau 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 Bureau ultimately finds that revocation is proper, notice of the Bureau'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. [76 FR 79772, Dec. 22, 2011, as amended at 88 FR 16543, Mar. 20, 2023] Appendix C to Part 1026—Issuance of Official Interpretations Official Interpretations Interpretations of this part issued by officials of the Bureau 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 Interpretations A request for an official interpretation shall be in writing and addressed to the Assistant Director, Office of Regulations, Division of Research, Monitoring, and Regulations, Bureau of Consumer Financial Protection, 1700 G Street, NW., Washington, DC 20552. The request shall contain a complete statement of all relevant facts concerning the issue, including copies of all pertinent documents. Scope of Interpretations No 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. [76 FR 79772, Dec. 22, 2011, as amended at 88 FR 16543, Mar. 20, 2023] Appendix D to Part 1026—Multiple Advance Construction Loans Section 1026.17(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 § 1026.18(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 § 1026.18(g). 4. Amount financed—The amount financed for disclosure purposes is the entire commitment amount less any prepaid finance charge. Part II—Construction and Permanent Financing Disclosed as One Transaction A. The creditor shall estimate the interest payable during the construction period to be included in the total finance charge as follows: 1. If interest is payable only on the amount actually advanced for the time it is outstanding, assume that one-half of the commitment amount is outstanding at the contract interest rate for the entire construction period. 2. If interest is payable on the entire commitment amount without regard to the dates or amounts of actual disbursements, assume that the entire commitment amount is outstanding at the contract rate for the entire construction period. B. The creditor shall compute the estimated annual percentage rate as follows: 1. Estimated interest payable during the construction period shall be treated for computation purposes as a prepaid finance charge (although it shall not be treated as a prepaid finance charge for disclosure purposes). 2. The number of payment shall not include any payments of interest only that are made during the construction period. 3. The first payment period shall consist of one-half of the construction period plus the period between the end of the construction period and the amortization payment. C. The creditor shall disclose the repayment schedule as follows: 1. For loans under paragraph A.1 of part II, other than loans that are subject to § 1026.19(e) and (f), without reflecting the number or amounts of payments of interest only that are made during the construction period. The fact that interest payments must be made and the timing of such payments shall be disclosed. 2. For loans under paragraph A.2 of part II and loans under paragraph A.1 of part II that are subject to § 1026.19(e) and (f), including any payments of interest only that are made during the construction period. D. The creditor shall disclose the amount financed as the entire commitment amount less any prepaid finance charge. [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 80130, Dec. 31, 2013] Appendix E to Part 1026—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 1026.6(a)(5) or § 1026.6(b)(5)(iii). 2. Section 1026.6(a)(2) or § 1026.6(b)(3)(ii)(B), as applicable. 3. Section 1026.6(a)(4) or § 1026.6(b)(5)(ii). 4. Section 1026.7(a)(2) or § 1026.7(b)(2), as applicable; § 1026.7(a)(9) or § 1026.7(b)(9), as applicable. 5. Section 1026.9(a). 6. Section 1026.9(c). 7. Section 1026.10. 8. Section 1026.11(a). 9. Section 1026.12 including § 1026.12(c) and (d), as applicable. 10. Section 1026.13, as applicable. 11. Section 1026.15, as applicable. Appendix F to Part 1026—Optional Annual Percentage Rate Computations for Creditors Offering Open-End Credit Plans Secured by a Consumer's Dwelling In determining the denominator of the fraction under § 1026.14(c)(3), no amount will be used more than once when adding the sum of the balances subject to periodic rates to the sum of the amounts subject to specific transaction charges. (Where a portion of the finance charge is determined by application of one or more daily periodic rates, the phrase “sum of the balances” shall also mean the “average of daily balances.”) In every case, the full amount of transactions subject to specific transaction charges shall be included in the denominator. Other balances or parts of balances shall be included according to the manner of determining the balance subject to a periodic rate, as illustrated in the following examples of accounts on monthly billing cycles: 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% 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% 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 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% of the transaction amount or $3.00. The periodic rate is 1 1/2 3/4 Appendix G to Part 1026—Open-End Model Forms and Clauses G-1 Balance Computation Methods Model Clauses (Home-equity Plans) (§§ 1026.6 and 1026.7) G-1(A) Balance Computation Methods Model Clauses (Plans other than Home-equity Plans) (§§ 1026.6 and 1026.7) G-2 Liability for Unauthorized Use Model Clause (Home-equity Plans) (§ 1026.12) G-2(A) Liability for Unauthorized Use Model Clause (Plans Other Than Home-equity Plans) (§ 1026.12) G-3 Long-Form Billing-Error Rights Model Form (Home-equity Plans) (§§ 1026.6 and 1026.9) G-3(A) Long-Form Billing-Error Rights Model Form (Plans Other Than Home-equity Plans) (§§ 1026.6 and 1026.9) G-4 Alternative Billing-Error Rights Model Form (Home-equity Plans) (§ 1026.9) G-4(A) Alternative Billing-Error Rights Model Form (Plans Other Than Home-equity Plans) (§ 1026.9) G-5 Rescission Model Form (When Opening an Account) (§ 1026.15) G-6 Rescission Model Form (For Each Transaction) (§ 1026.15) G-7 Rescission Model Form (When Increasing the Credit Limit) (§ 1026.15) G-8 Rescission Model Form (When Adding a Security Interest) (§ 1026.15) G-9 Rescission Model Form (When Increasing the Security) (§ 1026.15) G-10(A) Applications and Solicitations Model Form (Credit Cards) (§ 1026.60(b)) G-10(B) Applications and Solicitations Sample (Credit Cards) (§ 1026.60(b)) G-10(C) Applications and Solicitations Sample (Credit Cards) (§ 1026.60(b)) G-10(D) Applications and Solicitations Model Form (Charge Cards) (§ 1026.60(b)) G-10(E) Applications and Solicitations Sample (Charge Cards) (§ 1026.60(b)) G-11 Applications and Solicitations Made Available to General Public Model Clauses (§ 1026.60(e)) G-12 Reserved G-13(A) Change in Insurance Provider Model Form (Combined Notice) (§ 1026.9(f)) G-13(B) Change in Insurance Provider Model Form (§ 1026.9(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 (§ 1026.4(d)(3)) G-16(B) Debt Suspension Sample (§ 1026.4(d)(3)) G-17(A) Account-opening Model Form (§ 1026.6(b)(2)) G-17(B) Account-opening Sample (§ 1026.6(b)(2)) G-17(C) Account-opening Sample (§ 1026.6(b)(2)) G-17(D) Account-opening Sample (§ 1026.6(b)(2)) G-18(A) Transactions; Interest Charges; Fees Sample (§ 1026.7(b)) G-18(B) Late Payment Fee Sample (§ 1026.7(b)) G-18(C)(1) Minimum Payment Warning (When Amortization Occurs and the 36-Month Disclosures Are Required) (§ 1026.7(b)) G-18(C)(2) Minimum Payment Warning (When Amortization Occurs and the 36-Month Disclosures Are Not Required) (§ 1026.7(b)) G-18(C)(3) Minimum Payment Warning (When Negative or No Amortization Occurs) (§ 1026.7(b)) G-18(D) Periodic Statement New Balance, Due Date, Late Payment and Minimum Payment Sample (Credit cards) (§ 1026.7(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 (§ 1026.9(b)(3)) G-20 Change-in-Terms Sample (Increase in Annual Percentage Rate) (§ 1026.9(c)(2)) G-21 Change-in-Terms Sample (Increase in Fees) (§ 1026.9(c)(2)) G-22 Penalty Rate Increase Sample (Payment 60 or Fewer Days Late) (§ 1026.9(g)(3)) G-23 Penalty Rate Increase Sample (Payment More Than 60 Days Late) (§ 1026.9(g)(3)) G-24 Deferred Interest Offer Clauses (§ 1026.16(h)) G-25(A) Consent Form for Over-the-Limit Transactions (§ 1026.56) G-25(B) Revocation Notice for Periodic Statement Regarding Over-the-Limit Transactions (§ 1026.56) 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: 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 email 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 email 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 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. 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-10(B) APPLICATIONS AND SOLICITATIONS SAMPLE (CREDIT CARDS) G-10(C) APPLICATIONS AND SOLICITATIONS SAMPLE (CREDIT CARDS) G-10(E) Applications and Solicitations Sample (Charge Cards) 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-17(B) ACCOUNT-OPENING SAMPLE G-17(C) ACCOUNT-OPENING SAMPLE G-18(A) PERIODIC STATEMEMT TRANSACTIONS; INTEREST CHARGES; FEES SAMPLE G-18(B) LATE PAYMENT FEE SAMPLE G-18(D) PERIODIC STATEMENT NEW BALANCE, DUE DATE, LATE PAYMENT AND MINIMUM PAYMENT SAMPLE (CREDIT CARDS) G-18(E) [Reserved] G-18(F) PERIODIC STATEMENT FORM G-18(G) PERIODIC STATEMENT FORM 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-21 CHANGE-IN-TERMS SAMPLE (INCREASE IN FEES) 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]: Appendix H to Part 1026—Closed-End Model Forms and Clauses H-1 Credit Sale Model Form (§ 1026.18) H-2 Loan Model Form (§ 1026.18) H-3 Amount Financed Itemization Model Form (§ 1026.18(c)) H-4(A) Variable-Rate Model Clauses (§ 1026.18(f)(1)) H-4(B) Variable-Rate Model Clauses (§ 1026.18(f)(2)) H-4(C) Variable-Rate Model Clauses (§ 1026.19(b)) H-4(D)(1) Adjustable-Rate Mortgage Model Form (§ 1026.20(c)) H-4(D)(2) Adjustable-Rate Mortgage Sample Form (§ 1026.20(c)) H-4(D)(3) Adjustable-Rate Mortgage Model Form (§ 1026.20(d)) H-4(D)(4) Adjustable-Rate Mortgage Sample Form (§ 1026.20(d)) H-4(E) Fixed-Rate Mortgage Interest Rate and Payment Summary Model Clause (§ 1026.18(s)) H-4(F) Adjustable-Rate Mortgage or Step-Rate Mortgage Interest Rate and Payment Summary Model Clause (§ 1026.18(s)) H-4(G) Mortgage with Negative Amortization Interest Rate and Payment Summary Model Clause (§ 1026.18(s)) H-4(H) Fixed-Rate Mortgage with Interest-Only Interest Rate and Payment Summary Model Clause (§ 1026.18(s)) H-4(I) Adjustable-Rate Mortgage Introductory Rate Disclosure Model Clause (§ 1026.18(s)(2)(iii)) H-4(J) Balloon Payment Disclosure Model Clause (§ 1026.18(s)(5)) H-4(K) No Guarantee to Refinance Statement Model Clause (§ 1026.18(t)) H-5 Demand Feature Model Clauses (§ 1026.18(i)) H-6 Assumption Policy Model Clause (§ 1026.18(q)) H-7 Required Deposit Model Clause (§ 1026.18(r)) H-8 Rescission Model Form (General) (§ 1026.23) H-9 Rescission Model Form (Refinancing (with Original Creditor)) (§ 1026.23) H-10 Credit Sale Sample H-11 Installment Loan Sample H-12 Refinancing Sample H-13 Closed-End Transaction With Demand Feature Sample H-14 Variable-Rate Mortgage Sample (§ 1026.19(b)) H-15 Closed-End Graduated-Payment Transaction Sample H-16 Mortgage Sample H-17(A) Debt Suspension Model Clause H-17(B) Debt Suspension Sample H-18 Private Education Loan Application and Solicitation Model Form H-19 Private Education Loan Approval Model Form H-20 Private Education Loan Final Model Form H-21 Private Education Loan Application and Solicitation Sample H-22 Private Education Loan Approval Sample H-23 Private Education Loan Final Sample H-24(A) Mortgage Loan Transaction Loan Estimate—Model Form H-24(B) Mortgage Loan Transaction Loan Estimate—Fixed Rate Loan Sample H-24(C) Mortgage Loan Transaction Loan Estimate—Interest Only Adjustable Rate Loan Sample H-24(D) Mortgage Loan Transaction Loan Estimate—Refinance Sample H-24(E) Mortgage Loan Transaction Loan Estimate—Balloon Payment Sample H-24(F) Mortgage Loan Transaction Loan Estimate—Negative Amortization Sample H-24(G) Mortgage Loan Transaction Loan Estimate—Modification to Loan Estimate for Transaction Not Involving Seller—Model Form H-24(H) Mortgage Loan Transaction Loan Estimate—Model Form for PACE Transactions H-25(A) Mortgage Loan Transaction Closing Disclosure—Model Form H-25(B) Mortgage Loan Transaction Closing Disclosure—Fixed Rate Loan Sample H-25(C) Mortgage Loan Transaction Closing Disclosure—Borrower Funds From Second-Lien Loan in Summaries of Transactions Sample H-25(D) Mortgage Loan Transaction Closing Disclosure—Borrower Satisfaction of Seller's Second-Lien Loan Outside of Closing in Summaries of Transactions Sample H-25(E) Mortgage Loan Transaction Closing Disclosure—Refinance Transaction Sample H-25(F) Mortgage Loan Transaction Closing Disclosure—Refinance Transaction Sample (amount in excess of § 1026.19(e)(3)) H-25(G) Mortgage Loan Transaction Closing Disclosure—Refinance Transaction With Cash From Consumer at Consummation Sample H-25(H) Mortgage Loan Transaction Closing Disclosure—Modification to Closing Cost Details—Model Form H-25(I) Mortgage Loan Transaction Closing Disclosure—Modification to Closing Disclosure for Disclosure Provided to Seller—Model Form H-25(J) Mortgage Loan Transaction Closing Disclosure—Modification to Closing Disclosure for Transaction Not Involving Seller—Model Form H-25(K) Mortgage Loan Transaction Closing Disclosure—Model Form for PACE Transactions H-26 Mortgage Loan Transaction—Pre-Loan Estimate Statement—Model Form H-27(A) Mortgage Loan Transaction —Written List of Providers—Model Form H-27(B) Mortgage Loan Transaction—Sample of Written List of Providers H-27(C) Mortgage Loan Transaction—Sample of Written List of Providers with Services You Cannot Shop For H-28(A) Mortgage Loan Transaction Loan Estimate—Spanish Language Model Form H-28(B) Mortgage Loan Transaction Loan Estimate—Spanish Language Purchase Sample H-28(C) Mortgage Loan Transaction Loan Estimate—Spanish Language Refinance Sample H-28(D) Mortgage Loan Transaction Loan Estimate—Spanish Language Balloon Payment Sample H-28(E) Mortgage Loan Transaction Loan Estimate—Spanish Language Negative Amortization Sample H-28(F) Mortgage Loan Transaction Closing Disclosure—Spanish Language Model Form H-28(G) Mortgage Loan Transaction Closing Disclosure—Spanish Language Purchase Sample H-28(H) Mortgage Loan Transaction Closing Disclosure—Spanish Language Refinance Sample H-28(I) Mortgage Loan Transaction Loan Estimate—Modification to Loan Estimate for Transaction Not Involving Seller—Spanish Language Model Form H-28(J) Mortgage Loan Transaction Closing Disclosure—Modification to Closing Disclosure for Transaction Not Involving Seller—Spanish Language Model Form H-28(K) Mortgage Loan Transaction Loan Estimate—Model Form for PACE Transactions—Spanish Language Model Form H-28(L) Mortgage Loan Transaction Closing Disclosure—Model Form for PACE Transactions—Spanish Language Model Form H-29 Escrow Cancellation Notice Model Form (§ 1026.20(e)) H-30(A) Sample Form of Periodic Statement (§ 1026.41) H-30(B) Sample Form of Periodic Statement with Delinquency Box (§ 1026.41) H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan (§ 1026.41) H-30(D) Sample Clause for Homeownership Counselor Contact Information (§ 1026.41) H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7 or Chapter 11 Bankruptcy H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 or Chapter 13 Bankruptcy 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 at least 210, but no more than 240, days before first payment at the adjusted level is due after the initial interest rate adjustment of the loan. This notice will contain information about the adjustment, including the interest rate, payment amount, and loan balance.] • [You will be notified at least 60, but no more than 120, days before first payment at the adjusted level is due after any interest rate adjustment resulting in a corresponding payment change. This notice will contain information about the adjustment, including the interest rate, 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: 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-13—Closed-End Transaction With Demand Feature Sample 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 at least 210, but no more than 240, days before first payment at the adjusted level is due after the initial interest rate adjustment of the loan. This notice will contain information about the adjustment, including the interest rate, payment amount, and loan balance.] • [You will be notified at least 60, but no more than 120, days before first payment at the adjusted level is due after any interest rate adjustment resulting in a corresponding payment change. This notice will contain information about the adjustment, including the interest rate, 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: • [You will be notified at least 210, but no more than 240, days before first payment at the adjusted level is due after the initial interest rate adjustment of the loan. This notice will contain information about the adjustment, including the interest rate, payment amount, and loan balance.] • [You will be notified at least 60, but no more than 120, days before first payment at the adjusted level is due after any interest rate adjustment resulting in a corresponding payment change. This notice will contain information about the adjustment, including the interest rate, payment amount, and loan balance.] H-15 Closed-End Graduated Payment Transaction Sample 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 H-24(A) Mortgage Loan Transaction Loan Estimate—Model Form Description: H-24(B) Mortgage Loan Transaction Loan Estimate—Fixed Rate Loan Sample Description: H-24(C) Mortgage Loan Transaction Loan Estimate—Interest Only Adjustable Rate Loan Sample Description: H-24(D) Mortgage Loan Transaction Loan Estimate—Refinance Sample Description: H-24(E) Mortgage Loan Transaction Loan Estimate—Balloon Payment Sample Description: H-24(F) Mortgage Loan Transaction Loan Estimate—Negative Amortization Sample Description: H-24(G) Mortgage Loan Transaction Loan Estimate—Modification to Loan Estimate for Transaction Not Involving Seller—Model Form Description: H-24(H) Mortgage Loan Transaction Loan Estimate—Model Form for PACE Transactions H-25(A) Mortgage Loan Transaction Closing Disclosure—Model Form Description: H-25(B) Mortgage Loan Transaction Closing Disclosure—Fixed Rate Loan Sample Description: H-25(C) Mortgage Loan Transaction Closing Disclosure—Borrower Funds From Second-Lien Loan in Summaries of Transactions Sample Description: H-25(D) Mortgage Loan Transaction Closing Disclosure—Borrower Satisfaction of Seller's Second-Lien Loan Outside of Closing in Summaries of Transactions Sample Description: H-25(E) Mortgage Loan Transaction Closing Disclosure—Refinance Transaction Sample Description: H-25(F) Mortgage Loan Transaction Closing Disclosure—Refinance Transaction Sample (Amount in Excess of § 1026.19(e)(3)) Description: H-25(G) Mortgage Loan Transaction Closing Disclosure—Refinance Transaction With Cash From Consumer at Consummation Description: H-25(H) Mortgage Loan Transaction Closing Disclosure—Modification to Closing Cost Details—Model Form Description: H-25(I) Mortgage Loan Transaction Closing Disclosure—Modification to Closing Disclosure for Disclosure Provided to Seller—Model Form Description: H-25(J) Mortgage Loan Transaction Closing Disclosure—Modification to Closing Disclosure for Transaction Not Involving Seller—Model Form Description: H-25(K) Mortgage Loan Transaction Closing Disclosure—Model Form for PACE Transactions H-26 Mortgage Loan Transaction—Pre-Loan Estimate Statement—Model Form Description: H-27(A) Mortgage Loan Transaction—Written List of Providers—Model Form Description: H-27(B) Mortgage Loan Transaction—Sample of Written List of Providers Description: H-27(C) Mortgage Loan Transaction—Sample of Written List of Providers With Services You Cannot Shop for Description: H-28(A) Mortgage Loan Transaction Loan Estimate—Spanish Language Model Form Description: H-28(B) Mortgage Loan Transaction Loan Estimate—Spanish Language Purchase Sample Description: H-28(C) Mortgage Loan Transaction Loan Estimate—Spanish Language Refinance Sample Description: H-28(D) Mortgage Loan Transaction Loan Estimate—Spanish Language Balloon Payment Sample Description: H-28(E) Mortgage Loan Transaction Loan Estimate—Spanish Language Negative Amortization Sample Description: H-28(F) Mortgage Loan Transaction Closing Disclosure—Spanish Language Model Form Description: H-28(G) Mortgage Loan Transaction Closing Disclosure—Spanish Language Purchase Sample Description: H-28(H) Mortgage Loan Transaction Closing Disclosure—Spanish Language Refinance Sample Description: H-28(I) Mortgage Loan Transaction Loan Estimate—Modification to Loan Estimate for Transaction Not Involving Seller—Spanish Language Model Form Description: H-28(J) Mortgage Loan Transaction Closing Disclosure—Modification to Closing Disclosure for Transaction Not Involving Seller—Spanish Language Model Form Description: H-28(K) Mortgage Loan Transaction Loan Estimate—Model Form for PACE Transactions—Spanish Language Model Form H-28(L) Mortgage Loan Transaction Closing Disclosure—Model Form for PACE Transactions—Spanish Language Model Form H-29 Escrow Cancellation Notice Model Form (§ 1026.20(e)) Description: H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan H-30(D) Sample Clause for Homeownership Counselor Contact Information Housing Counselor Information: • U.S. Department of Housing and Urban Development (HUD): For a list of homeownership counselors or counseling organizations in your area, go to http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7 or Chapter 11 Bankruptcy H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 or Chapter 13 Bankruptcy [76 FR 79772, Dec. 22, 2011, as amended at 78 FR 11008, Feb. 14, 2013; 78 FR 80130, Dec. 31, 2013; 80 FR 8776, Feb. 19, 2015; 81 FR 72390, Oct. 19, 2016; 86 FR 69782, Dec. 8, 2021] Appendix I to Part 1026 [Reserved] Appendix J to Part 1026—Annual Percentage Rate Computations for Closed-End Credit Transactions ( a (1) Section 1026.22(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. Appendix K to Part 1026—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. 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 Appendix L to Part 1026—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 Loan period 1 [Optional loan period Loan period 2 Loan period 3 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 Appendix M1 to Part 1026—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. Appendix M2 to Part 1026—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: pmt01 = estimated monthly payment to repay balance in 36 months sumpmts36 = sum of payments for repayment in 36 months 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 expmgt 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 geexpm and expm ne 0 then perrate1 = (rrate/365) * days; if pmtltdmin 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 pmtgt (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 pmtgt xxxbal1 and xxxbal2 gt 0 and pmt le (xxxbal1 + xxxbal2) then do; cbal2 = xxxbal2 − (pmt − xxxbal1); cbal1 = 0; cbal3 = xxxbal3; end; if pmtgt 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 tbalgt 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 = savtot =; put title = ‘ ’; run; Appendix N to Part 1026—Higher-Priced Mortgage Loan Appraisal Safe Harbor Review To qualify for the safe harbor provided in § 1026.35(c)(3)(ii), 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 10444, Feb. 13, 2013, as amended at 78 FR 78586, Dec. 26, 2013] Appendix O to Part 1026—Illustrative Written Source Documents for Higher-Priced Mortgage Loan Appraisal Rules A creditor acts with reasonable diligence under § 1026.35(c)(4)(vi)(A) 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 § 1026.35(c)(3)(i) 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 10444, Feb. 13, 2013] Appendix P to Part 1026 [Reserved] Supplement I to Part 1026—Official Interpretations Link to an amendment published at 89 FR 106838, Dec. 30, 2024. 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 1026.1—Authority, Purpose, Coverage, Organization, Enforcement and Liability 1(c) Coverage 1. Foreign applicability. Paragraph 1(c)(5). 1. Exemption for certain mortgage transactions. 1(d) Organization. Paragraph 1(d)(5). 1. Effective date. General. ii. Pre-application activities. iii. Determination of preemption. iv. Post-consummation escrow cancellation disclosure and partial payment disclosure. v. Examples. A. Application received on or after effective date of the TILA-RESPA Final Rule. B. Application received before effective date of the TILA-RESPA Final Rule. C. Predisclosure written estimates. D. Request for preemption determination. E. Effective dates for the post-consummation escrow cancelation disclosure and partial payment disclosure. 2. 2017 TILA-RESPA Amendments. Generally. A. A person has the option of complying either: with 12 CFR part 1026 as it is in effect; or with 12 CFR part 1026 as it was in effect on October 9, 2017, together with any amendments to 12 CFR part 1026 that become effective after October 9, 2017, other than the 2017 TILA-RESPA Amendments; and B. An act or omission violates 12 CFR part 1026 only if it violates both: 12 CFR part 1026 as it is in effect; and 12 CFR part 1026 as it was in effect on October 9, 2017, together with any amendments to 12 CFR part 1026 that become effective after October 9, 2017, other than the 2017 TILA-RESPA Amendments. ii. Post-consummation escrow cancellation disclosure and partial payment disclosure. Section 1026.2—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) Application. 1. In general. i. Assume a creditor provides a consumer with an application form containing 20 questions about the consumer's credit history and the collateral value. The consumer submits answers to nine of the questions and informs the creditor that the consumer will contact the creditor the next day with answers to the other 11 questions. Although the consumer provided nine pieces of information, the consumer did not provide a social security number. The creditor has not yet received an application for purposes of § 1026.2(a)(3). ii. Assume a creditor requires all applicants to submit 20 pieces of information. The consumer submits only six pieces of information and informs the creditor that the consumer will contact the creditor the next day with answers to the other 14 questions. The six pieces of information provided by the consumer were the consumer's name, income, social security number, property address, estimate of the value of the property, and the mortgage loan amount sought. Even though the creditor requires 14 additional pieces of information to process the consumer's request for a mortgage loan, the creditor has received an application for the purposes of § 1026.2(a)(3) and therefore must comply with the relevant requirements under § 1026.19. 2. Social security number to obtain a credit report. 3. Receipt of credit report fees. 2(a)(4) Billing Cycle or Cycle 1. Intervals. 2. Creditors that do not bill. cycle billing cycle 3. Equal cycles. i.e., 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. ii. Under § 1026.2(a)(7), with respect to a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61 where that credit feature is offered by an affiliate or business partner of the prepaid account issuer as those terms are defined in § 1026.61, the affiliate or business partner offering the credit feature is an agent of the prepaid account issuer and thus, is itself a card issuer with respect to the hybrid prepaid-credit card. 2. Prepaid cards that are not hybrid prepaid-credit cards. 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. Trusts. 4. Successors in interest. Assumption of the mortgage loan obligation. ii. Communications with confirmed successors in interest. iii. Treatment of transferor consumer. iv. Multiple notices unnecessary. 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. Involuntary tax liens, involuntary 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 an involuntary 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. 3. Transactions on the asset features of prepaid accounts when there are insufficient or unavailable funds. Paragraph 2(a)(15) 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 covered overdraft credit or if the instrument directly accesses a line of credit. B. A debit card (other than a debit card that is solely an account number) that also accesses a credit account (that is, a debit-credit card or hybrid debit-credit card as defined in § 1026.62). See comment 2(a)(15)-2.ii.C for guidance on whether a debit card that is solely an account number is a 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. F. A prepaid card that is a hybrid prepaid-credit card as defined in § 1026.61. ii. In contrast, credit card does not include, for example: A. A check-guarantee or debit card with no credit feature or agreement. 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 or as provided in § 1026.61 with respect to a hybrid prepaid-credit card. An account number that can access an open-end line of credit to purchase goods or services includes an account number that can access a covered overdraft credit account offered by a very large financial institution. 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 § 1026.2(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 § 1026.2(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 § 1026.2(a)(15)(i). D. A prepaid card that is not a hybrid prepaid-credit card as defined in § 1026.61. E. A check-guarantee or debit card that can access non-covered overdraft credit as defined in § 1026.62 and cannot access any other form of credit. 3. Charge card. charge card A. Under the regulation, a reference to credit cards generally includes charge cards. In particular, references to credit card accounts under an open-end (not home-secured) consumer credit plan in subparts B and G generally include charge cards. B. The term charge card ii. A hybrid prepaid-credit card as defined in § 1026.61 is a charge card with respect to a covered separate credit feature if no periodic rate is used to compute the finance charge in connection with the covered separate credit feature. Unlike other charge card accounts, the requirements in § 1026.7(b)(11) apply to a covered separate credit feature accessible by a hybrid prepaid-credit card that is a charge card when that covered separate credit feature is a credit card account under an open-end (not home-secured) consumer credit plan. Thus, under § 1026.5(b)(2)(ii)(A), with respect to a covered separate credit feature that is a credit card account under an open-end (not home-secured) consumer credit plan, a card issuer of a hybrid prepaid-credit card that meets the definition of a charge card because no periodic rate is used to compute a finance charge in connection with the covered separate credit feature must adopt reasonable procedures for the covered separate credit feature designed to ensure that (1) periodic statements are mailed or delivered at least 21 days prior to the payment due date disclosed on the statement pursuant to § 1026.7(b)(11)(i)(A); and (2) the card issuer does not treat as late for any purposes a required minimum periodic payment received by the card issuer within 21 days after mailing or delivery of the periodic statement disclosing the due date for that payment. 4. Credit card account under an open-end (not home-secured) consumer credit plan. i. An open-end consumer credit account is a credit card account under an open-end (not home-secured) consumer credit plan for purposes of § 1026.2(a)(15)(ii) if: A. The account is accessed by a credit card, as defined in § 1026.2(a)(15)(i); and B. The account is not excluded under § 1026.2(a)(15)(ii)(A) or (B). ii. The exclusion from credit card account under an open-end (not home-secured) consumer credit plan provided by § 1026.2(a)(15)(ii)(B) for covered overdraft credit offered by a creditor that is not a very large financial institution does not apply to a covered separate credit feature accessible by a hybrid prepaid-credit card (including a hybrid prepaid-credit card that is solely an account number) as defined in § 1026.61. 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. 8. Prepaid cards that are not hybrid prepaid-credit cards. Paragraph 2(a)(17)(ii) [Reserved] Paragraph 2(a)(17)(iii) 1. Card issuers subject to Subpart B. 2. Prepaid cards that are not hybrid prepaid-credit cards. 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 § 1026.18(b). B. It may, but need not, be reflected in the payment schedule under § 1026.18(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 § 1026.18(h) must equal the sum of the payments disclosed under § 1026.18(g). 3. Effect of existing liens. 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 § 1026.18(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. 4. Automated valuation models. See 2(a)(20) Open-End Credit 1. General. all 3 2. Existence of a plan. ii. With respect to a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61, a plan means a program where the consumer is obligated contractually to repay any credit extended by the creditor. For example, a plan includes a program under which a creditor routinely extends credit from a covered separate credit feature offered by the prepaid account issuer, its affiliate, or its business partner where the prepaid card can be used from time to time to draw, transfer, or authorize the draw or transfer of credit from the covered separate credit feature in the course of authorizing, settling, or otherwise completing transactions conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers, and the consumer is obligated contractually to repay those credit transactions. Such a program constitutes a plan notwithstanding that, for example, the creditor has not agreed in writing to extend credit for those transactions, the creditor retains discretion not to extend credit for those transactions, or the creditor does not extend credit for those transactions once the consumer has exceeded a certain amount of credit. See § 1026.61(a) and related commentary for guidance on the applicability of this regulation to credit accessible by hybrid prepaid-credit cards. iii. Some creditors offer programs containing a number of different credit features. The consumer has a single account with the institution that can be accessed repeatedly via a number of sub-accounts established for the different program features and rate structures. Some features of the program might be used repeatedly (for example, an overdraft line) while others might be used infrequently (such as the part of the credit line available for secured credit). If the program as a whole is subject to prescribed terms and otherwise meets the definition of open-end credit, such a program would be considered a single, multifeatured plan. iv. With respect to a covered asset account as defined in § 1026.62, a plan includes, for example, a program where the consumer is obligated contractually to repay any credit extended by the creditor. Such a program constitutes a plan notwithstanding that, for example, the creditor has not agreed in writing to extend credit for those transactions, the creditor retains discretion not to extend credit for those transactions, or the creditor does not extend credit for those transactions once the consumer has exceeded a certain amount of credit. 3. Repeated transactions. 4. Finance charge on an outstanding balance. ii. With regard to a covered separate credit feature and an asset feature on a prepaid account that are both accessible by a hybrid prepaid-credit card as defined in § 1026.61, any service, transaction, activity, or carrying charges imposed on the covered separate credit feature, and any such charges imposed on the asset feature of the prepaid account to the extent that the amount of the charge exceeds comparable charges imposed on prepaid accounts in the same prepaid account program that do not have a covered separate credit feature accessible by a hybrid prepaid-credit card, generally is a finance charge. See iii. Regardless of whether a financial institution assesses such charges on a covered asset account as defined in § 1026.62 or a separate credit account, any service, transaction, activity, or carrying charges imposed by the financial institution for paying a transaction that overdraws a consumer's covered asset account held at the financial institution are generally finance charges unless they are otherwise addressed by § 1026.4(b)(2), (b)(12), or (c). See 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 § 1026.40(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 1026.4(c)(7)—exclusions from the finance charge. ii. Section 1026.15(f)—exemption from the right of rescission. iii. Section 1026.18(q)—whether or not the obligation is assumable. iv. Section 1026.20(b)—disclosure requirements for assumptions. v. Section 1026.23(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 § 1026.18(q) (assumability policies). However, the rescission rules of §§ 1026.15 and 1026.23 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, § 1026.20(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. et seq. 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. Paragraph 2(a)(27) 2(a)(27)(i) Successor in interest 1. Joint tenants and tenants by the entirety. 2. Beneficiaries of trusts. inter vivos inter vivos inter vivos inter vivos 2(b) Rules of Construction 1. [Reserved] 2. Amount. Section 1026.3—Exempt Transactions 1. Relationship to § 1026.12. 2. Relationship to § 1026.42(i). 3(a) Business, Commercial, Agricultural, or Organizational Credit 1. Primary purposes. 2. Business purpose purchases. 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. 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. But see 10. Trusts. i. Trusts for tax or estate planning purposes. ii. Land trusts. 3(b) Credit Over Applicable Threshold Amount 1. 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 § 1026.6 (account-opening disclosures), § 1026.7 (periodic statements), § 1026.52 (limitations on fees), and § 1026.55 (limitations on increasing annual percentage rates, fees, and charges). For example: 1. 2. 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 § 1026.2(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. 2. B. Initial extension of credit. 1. 2. 3. 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 § 1026.3(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 § 1026.3(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 § 1026.3(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 § 1026.3(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 § 1026.3(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. 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. 3(h) Partial exemption for certain mortgage loans. 1. Partial exemption. 2. Establishing compliance. 3. Relationship to partial exemption for certain federally related mortgage loans. 4. Recording fees. 5. Transfer taxes. Section 1026.4—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 § 1026.4(a).) 3. Forfeitures of interest. i. 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. ii. 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: A. 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. B. 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 § 1026.9(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. 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 § 1026.4(b)(7), may be excluded if the requirements of § 1026.4(d)(1) are met. ii. Appraisal fees mentioned in § 1026.4(b)(4) are excluded for real property or residential mortgage transactions under § 1026.4(c)(7). Paragraph 4(b)(2) 1. Checking or transaction 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 § 1026.4(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. 2. Prepaid accounts. 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. Paragraph 4(b)(9) 1. Discounts for payment by other than credit. 2. Exception for cash discounts. 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. regular price discount surcharge, regular price 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. Paragraph 4(b)(10) 1. Definition. 2. Coverage written in connection with a transaction. Paragraph 4(b)(11) 1. Credit in connection with a prepaid card. i. A separate credit feature that meets the conditions of § 1026.61(a)(2)(i) is defined as a covered separate credit feature accessible by a hybrid prepaid-credit card. See ii. If a prepaid card can access a non-covered separate credit feature as described in § 1026.61(a)(2)(ii), the card is not a hybrid prepaid-credit card with respect to that credit feature. In that case: A. Section 1026.4(b)(11) and related commentary do not apply to fees or charges imposed on the non-covered separate credit feature; instead, the general rules set forth in § 1026.4 determine whether these fees or charges are finance charges; and B. Fees or charges on the asset feature of the prepaid account are not finance charges under § 1026.4 with respect to the non-covered separate credit feature. See comment 61(a)(2)-5.iii for guidance on the applicability of this regulation in connection with non-covered credit features accessible by prepaid cards. iii. If the prepaid card is not a hybrid prepaid-credit card with respect to credit extended through a negative balance on the asset feature of the prepaid account pursuant to § 1026.61(a)(4), with regard to that credit, fees charged on the asset feature of the prepaid account in accordance with § 1026.61(a)(4)(ii)(B) are not finance charges. Paragraph 4(b)(11)(i) 1. Transaction fees imposed on the covered separate credit feature. Paragraph 4(b)(11)(ii) 1. Fees or charges imposed on the asset feature of a prepaid account. See ii. Where the hybrid prepaid-credit card accesses credit from a covered separate credit feature in the course of authorizing, settling, or otherwise completing a transaction conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers, any per transaction fees imposed on the asset feature of prepaid accounts, including load and transfer fees, for such credit from the credit feature are comparable only to per transaction fees for each transaction to access funds in the asset feature of a prepaid account that are imposed on prepaid accounts in the same prepaid account program that does not have such a credit feature. Per transaction fees for a transaction that is conducted to load or draw funds into a prepaid account from some other source are not comparable for purposes of § 1026.4(b)(11)(ii). To illustrate: A. Assume a prepaid account issuer charges $0.50 on prepaid accounts without a covered separate credit feature for each transaction that accesses funds in the asset feature of the prepaid accounts. Also, assume that the prepaid account issuer charges $0.50 per transaction on the asset feature of prepaid accounts in the same prepaid program where the hybrid prepaid-credit card accesses credit from a covered separate credit feature in the course of a transaction. In this case, the $0.50 per transaction fee imposed on the asset feature of the prepaid account with a covered separate credit feature is not a finance charge. B. Assume same facts as in paragraph A above, except that assume the prepaid account issuer charges $1.25 on the asset feature of a prepaid account for each transaction where the hybrid prepaid-credit card accesses credit from the covered separate credit feature in the course of the transaction. In this case, the additional $0.75 is a finance charge. C. Assume a prepaid account issuer charges $0.50 on prepaid accounts without a covered separate credit feature for each transaction that accesses funds in the asset feature of the prepaid accounts. Assume also that the prepaid account issuer charges both a $0.50 per transaction fee and a $1.25 transfer fee on the asset feature of prepaid accounts in the same prepaid program where the hybrid prepaid-credit card accesses credit from a covered separate credit feature in the course of a transaction. In this case, both fees charged on a per-transaction basis for the credit transaction ( i.e., D. Assume same facts as in paragraph C above, except that assume the prepaid account issuer also charges a load fee of $1.25 whenever funds are transferred or loaded from a separate asset account, such as from a deposit account via a debit card, in the course of a transaction on prepaid accounts without a covered separate credit feature, in addition to charging a $0.50 per transaction fee. The $1.25 excess in paragraph C is still a finance charge because load or transfer fees that are charged on the asset feature of prepaid account for credit from the covered separate credit feature are compared only to per transaction fees imposed for accessing funds in the asset feature of the prepaid account for prepaid accounts without such a credit feature. Per transaction fees for a transaction that is conducted to load or draw funds into a prepaid account from some other source are not comparable for purposes of § 1026.4(b)(11)(ii). iii. A consumer may choose in a particular circumstance to draw or transfer credit from the covered separate credit feature outside the course of a transaction conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. For example, a consumer may use the prepaid card at the prepaid account issuer's website to load funds from the covered separate credit feature outside the course of a transaction conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. See A. Assume a prepaid account issuer charges a $1.25 load fee to transfer funds from a non-covered separate credit feature, such as a non-covered separate credit card account, into prepaid accounts that do not have a covered separate credit feature and does not charge a fee for a direct deposit of salary from an employer or a direct deposit of government benefits on those prepaid accounts. Assume the prepaid account issuer charges $1.25 on the asset feature of a prepaid account with a covered separate credit feature to load funds from the covered separate credit feature outside the course of a transaction. In this case, the $1.25 fee imposed on the asset feature of the prepaid account with a covered separate credit feature is a finance charge because no fee is charged for a direct deposit of salary from an employer or a direct deposit of government benefits on prepaid accounts without such a credit feature. Fees imposed on prepaid accounts without a covered separate credit feature for a one-time load or transfer of funds from a non-covered separate credit feature are not comparable for purposes of § 1026.4(b)(11)(ii). B. Assume that a prepaid account issuer charges a $1.25 load fee for a one-time transfer of funds from a separate asset account, such as from a deposit account via a debit card, to a prepaid account without a covered separate credit feature and does not charge a fee for a direct deposit of salary from an employer or a direct deposit of government benefits on those prepaid accounts. Assume the prepaid account issuer charges $1.25 on the asset feature of a prepaid account with a covered separate credit feature to load funds from the covered separate credit feature outside the course of a transaction. In this case, the $1.25 fee imposed on the asset feature of the prepaid account with a covered separate credit feature is a finance charge because no fee is charged for a direct deposit of salary from an employer or a direct deposit of government benefits on prepaid accounts without a covered separate credit feature. Fees imposed on prepaid accounts without a covered separate credit feature for a one-time load or transfer of funds from a separate asset account are not comparable for purposes of § 1026.4(b)(11)(ii). 2. Relation to Regulation E. 4(c) Charges Excluded From the Finance Charge Paragraph 4(c)(1) 1. Application fees. Paragraph 4(c)(2) 1. Late payment charges. 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 1026.4(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. 2. Credit accessed in connection with a prepaid account. 3. Credit accessed in connection with a covered asset account. Paragraph 4(c)(4) 1. Participation fees—periodic basis. 2. Participation fees—exclusions. 3. Credit accessed in connection with by a prepaid account. Paragraph 4(c)(5) 1. Seller's points. commitment fee 2. Other seller-paid amounts. Paragraph 4(c)(6) 1. Lost interest. 4(c)(7) Real-Estate Related Fees 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. 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 § 1026.4(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. 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. 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. 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 1026.5—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 § 1026.6(a)(1)(ii), the term annual percentage rate more conspicuous ii. In disclosing the amount of the finance charge, required by § 1026.7(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. 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 5(b)(2)(i) Statement Required 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. 5(b)(2)(ii) Timing Requirements 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 § 1026.5(b)(2)(ii)(A) and the date on which any grace period expires for purposes of § 1026.5(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 § 1026.5(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, § 1026.5(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 1026.5(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 1026.5(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, § 1026.5(b)(2)(ii)(B)( 2 ii 3. Grace periods. Definition of grace period. See ii. Applicability of § 1026.5(b)(2)(ii)(B)(1). 1 1 See 1 ii iii. Example. 1 i 1 ii 1 ii 4. Application of § 1026.5(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 1026.6—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. 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. 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 § 1026.6(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 § 1026.13 (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 § 1026.4(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 § 1026.4(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 § 1026.4(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 § 1026.4(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. ii. For example, if a creditor offers three payment options (one for each of the categories described in the commentary to § 1026.40(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 § 1026.40(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 § 1026.40(a)), the disclosures under § 1026.40(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 § 1026.40(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 § 1026.6(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 60(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 1026. 2. Clear and conspicuous standard. 3. Terminology. 6(b)(2) Required Disclosures for Account-Opening Table for Open-End (Not Home-Secured) Plans 1. Fees imposed on the asset feature of a prepaid account in connection with a covered separate credit feature accessible by a hybrid prepaid-credit card. 2. Fees imposed on the asset feature of a prepaid account that are not charges imposed as part of the plan. 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. 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 § 1026.60(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) Paragraph 6(b)(3)(iii)(B) 1. Fees for package of services. Paragraph 6(b)(3)(iii)(D) 1. Fees imposed on the asset feature of the prepaid account in connection with a covered separate credit feature accessible by a hybrid prepaid-credit card. i. Assume a prepaid account issuer charges a $0.50 per transaction fee on an asset feature of the prepaid account for purchases when a hybrid prepaid-credit card accesses a covered separate credit feature in the course of authorizing, settling, or otherwise completing purchase transactions conducted with the card and a $0.50 transaction fee for purchases that access funds in the asset feature of a prepaid account in the same program without such a credit feature. The $0.50 fees are comparable fees and the $0.50 fee for purchases when a hybrid prepaid-credit card accesses a covered separate credit feature in the course of authorizing, settling, or otherwise completing purchase transactions conducted with the card is not a charge imposed as part of the plan. However, if in this example, the prepaid account issuer imposes a $1.25 per transaction fee on an asset feature of the prepaid account for purchases when a hybrid prepaid-credit card accesses a covered separate credit feature in the course of authorizing, settling, or otherwise completing purchase transactions conducted with the card, the $0.75 excess is a charge imposed as part of the plan. This $0.75 excess also is a finance charge under § 1026.4(b)(11)(ii). ii. See comment 4(b)(11)(ii)-1 for additional illustrations of when a prepaid account issuer is charging comparable per transaction fees or load or transfer fees on the prepaid account. Paragraph 6(b)(3)(iii)(E) 1. Fees imposed on the asset feature of a prepaid account in connection with a non-covered separate credit feature. 6(b)(4) Disclosure of Rates for Open-End (Not Home-Secured) Plans 6(b)(4)(i)(B) Range of Balances 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. 6(b)(4)(i)(D) Balance Computation Method 1. Explanation of balance computation method. See See 2. Allocation of payments. 6(b)(4)(ii) Variable-Rate Accounts 1. Variable-rate disclosures—coverage. 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. 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 § 1026.6(b)(4)(ii). 6(b)(4)(iii) Rate Changes Not Due to Index or Formula 1. Events that cause the initial rate to change. Changes based on expiration of time period. ii. Changes based on specified contract terms. 2. Rate that will apply after initial rate changes. 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 1026.7—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. etc. 2. Format. etc. 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 § 1026.7(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 § 1026.7(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. i. 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. ii. 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 7(a)(6)(i) Finance Charges 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 7(a)(6)(ii) Other Charges 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 § 1026.40. 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 § 1026.7(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 § 1026.7(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. i. 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. ii. 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. average daily balance (including new purchases) average daily balance (including new purchases) average daily balance (including new transactions) 8. Use of balance computation names in § 1026.60(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. 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) Plan 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 § 1026.54. 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. See 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 i 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 asset account and credit account statements. Section 1026.8—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 § 1026.6(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 § 1026.7(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 § 1026.7(b)(6). 2. Amount—transactions not billed in full. 3. Date—when a transaction takes place. 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. 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. 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.” 9. Covered separate credit feature accessible by hybrid prepaid-credit card. ii. On the other hand, a transaction will be treated as “nonsale credit” for purposes of § 1026.8(b) in cases where a consumer uses a hybrid prepaid-credit card as defined in § 1026.61 to make a purchase to obtain goods or services from a merchant and credit is transferred from a covered separate credit feature accessed by the hybrid prepaid-credit card into the asset feature of the prepaid account to cover the amount of the purchase. For example, assume the same facts as above, except that the $15 will be transferred from the credit feature to the asset feature, and a transaction of $25 is debited from the asset feature of the prepaid account. In this case, the $15 credit transaction is treated as “nonsale credit” under § 1026.8(b). See iii. If a transaction is “sale credit” as described above in comment 8(a)-9.i, the following applies: A. If a hybrid prepaid-credit card is used to obtain goods or services from a merchant and the transaction is partially paid with funds in the asset feature of the prepaid account, and partially paid with credit from a covered separate credit feature, the amount to be disclosed under § 1026.8(a) is the amount of the credit extension, not the total amount of the purchase transaction. B. For a transaction at point of sale where credit from a covered separate credit feature is accessed by a hybrid prepaid-credit card, and that transaction partially involves the purchase of goods or services and partially involves other credit such as cash back given to the cardholder, the creditor must disclose the entire amount of the credit transaction as sale credit, including the part of the transaction that does not relate to the purchase of goods or services. 8(b) Nonsale Credit 1. Nonsale credit. i. A cash advance. ii. An advance on a credit plan that is accessed by overdrafts on an asset account other than a prepaid account as defined in § 1026.61. 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. v. An advance at an ATM on a covered separate credit feature accessed by a hybrid prepaid-credit card as defined in § 1026.61. If a hybrid prepaid-credit card is used to obtain an advance at an ATM and the transaction is partially paid with funds from the asset feature of the prepaid account, and partially paid with a credit extension from the covered separate credit feature, the amount to be disclosed under § 1026.8(b) is the amount of the credit extension, not the total amount of the ATM transaction. vi. A transaction where a consumer uses a hybrid prepaid-credit card as defined in § 1026.61 to make a purchase to obtain goods or services from a merchant and credit is transferred from a covered separate credit feature accessed by the hybrid prepaid-credit card into the asset feature of the prepaid account to cover the amount of the purchase, as described in comment 8(a)-9.ii. In this scenario, the amount to be disclosed under § 1026.8(b) is the amount of the credit extension, not the total amount of the purchase transaction. 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 1026.9—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)(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 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. 4. Changing index for calculating a variable rate from LIBOR to the Board-selected benchmark replacement for consumer loans in specified circumstances. See the Board-selected benchmark replacement for consumer loans. 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 § 1026.9(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 § 1026.30), or a variable-rate feature is added to a fixed-rate plan, the creditor must include the disclosures required by § 1026.40(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 § 1026.40(d)(5)(iii) (and, in variable-rate plans, the disclosures required by § 1026.40(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 § 1026.40(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 § 1026.40(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 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. 3. Replacing LIBOR. 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 § 1026.9(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 § 1026.6(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. In general. ii. Changing index for calculating a variable rate from LIBOR to the Board-selected benchmark replacement for consumer loans in specified circumstances. See the Board-selected benchmark replacement for consumer loans. 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 § 1026.9(c)(2)(iv) with a notice described in § 1026.9(g)(3). 8. Content. 9. Clear and conspicuous standard. See 1 10. Terminology. See 1 11. Reasons for increase. In general. 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 § 1026.9(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 § 1026.9(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 § 1026.9(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 §§ 1026.9(c)(2)(v)(B) and 1026.6(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 § 1026.6(b)(2)(ii), (iii), (viii), (ix), (xi), or (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 § 1026.59. General. See i. Example. 14. Replacing LIBOR. 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 § 1026.6(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 § 1026.9(c) and (g) and § 1026.55—examples. 2. Affected consumers. 3. Combining a notice described in § 1026.9(g)(3) with a notice described in § 1026.9(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 § 1026.9(g)(4). Assume that a creditor decreased the credit limit applicable to a consumer's account and sent a notice pursuant to § 1026.9(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 § 1026.9(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 § 1026.9(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 § 1026.9(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 § 1026.9(c) and to treat the account as not subject to § 1026.9(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. Paragraph 9(h)(2)(ii) 1. Termination or suspension of credit availability. 2. Solely as a result of rejection. See Paragraph 9(h)(2)(iii) 1. Relevant date for repayment methods. 2. Balance on the account. 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 1026.10—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. Section 1026.12(d)(3)(ii) defines “periodically” to mean no more frequently than once per calendar month for payments made periodically from a deposit account, including a prepaid account, held by a card issuer to pay credit card debt in a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61 held by the card issuer. In a payroll deduction plan in which funds are deposited to a prepaid account held by the card issuer, and from which payments are made on a monthly basis to a covered separate credit feature accessible by a hybrid prepaid-credit card that is held by the card issuer, payment is received on the date when it is debited to the prepaid 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 § 1026.10(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 § 1026.10(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 § 1026.10(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 § 1026.10(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 § 1026.10(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, § 1026.10(b) permits the creditor to treat payments made via such third party as nonconforming payments in accordance with § 1026.10(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. 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 § 1026.10(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 1026.11—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 § 1026.11(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 1026.12—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. i. Granting overdraft privileges on a checking account when the consumer already has a check guarantee card; or ii. Allowing a prepaid card to access a covered separate credit feature that would make the card into a hybrid prepaid-credit card as defined in § 1026.61 with respect to the covered separate credit feature. iii. Extending covered overdraft credit through a hybrid debit-credit card as defined in § 1026.62. 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 § 1026.2 and used in § 1026.12(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. Issuance of non-credit cards other than prepaid cards. B. Examples. ii. Issuance of a prepaid card. 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 § 1026.12(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 § 1026.11(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 single card that is both a debit card and a credit card, such as a hybrid debit-credit card as defined in § 1026.62, with a credit card and a separate debit card with only debit functions (or debit functions plus an associated capability to extend overdraft credit that is not covered overdraft credit as defined in § 1026.62), since the latter card could be issued on an unsolicited basis under Regulation E. ii. Replacing a single card that is both a prepaid card and a credit card with a credit card and a separate prepaid card where the latter card is not a hybrid prepaid-credit card as defined in § 1026.61. iii. 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 § 1026.6, 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 § 1026.9(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 § 1026.13. 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 § 1026.13. 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 §§ 1026.12 and 1026.53 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 § 1026.53 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. 5. Prepaid cards. A. A consumer uses a hybrid prepaid-credit card as defined in § 1026.61 to make a purchase to obtain goods or services from a merchant and credit is drawn directly from a covered separate credit feature accessed by the hybrid prepaid-credit card without transferring funds into the asset feature of the prepaid account to cover the amount of the purchase. For example, assume that the consumer has $10 of funds in the asset feature of the prepaid account and initiates a transaction with a merchant to obtain goods or services with the hybrid prepaid-credit card for $25. In this case, $10 is debited from the asset feature and $15 of credit is drawn directly from the covered separate credit feature accessed by the hybrid prepaid-credit card without any transfer of funds into the asset feature of the prepaid account to cover the amount of the purchase. In this case, the consumer is using credit accessed by the hybrid prepaid-credit card to purchase property or services where credit is drawn directly from the covered separate credit feature accessed by the hybrid prepaid-credit card to cover the amount of the purchase. B. A consumer uses a hybrid prepaid-credit card as defined in § 1026.61 to make a purchase to obtain goods or services from a merchant and credit is transferred from a covered separate credit feature accessed by the hybrid prepaid-credit card into the asset feature of the prepaid account to cover the amount of the purchase. For example, assume the same facts as above, except that the $15 will be transferred from a covered separate credit feature to the asset feature, and a transaction of $25 is debited from the asset feature of the prepaid account. In this case, the consumer is using credit accessed by the hybrid prepaid-credit card to purchase property or services because credit is transferred to the asset feature of the prepaid account to cover the amount of a purchase made with the card. This is true even though the $15 credit transaction is treated as “nonsale credit” under § 1026.8(b). See ii. For a transaction at point of sale where a hybrid prepaid-credit card is used to obtain goods or services from a merchant and the transaction is partially paid with funds from the asset feature of the prepaid account, and partially paid with credit from the covered separate credit feature, the amount of the purchase transaction that is funded by credit generally would be subject to the requirements of § 1026.12(c). The amount of the transaction funded from the prepaid account would not be subject to the requirements of § 1026.12(c). 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 credit extended by the overdraft line. If partial payment for the purchase is made with a hybrid prepaid-credit card or a hybrid debit-credit card, the right to assert claims or defenses would apply to credit accessed from a covered separate credit feature or covered overdraft credit account, respectively.) 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 (other than a hybrid debit-credit 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. 12(c)(3)(ii) Exclusion 1. Merchant honoring card. 12(d) Offsets by Card Issuer Prohibited 1. Meaning of funds on deposit. 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. ii. With respect to a credit card account other than a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61, indicia of the consumer's awareness and intent to grant a security interest in a deposit account 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. iii. With respect to a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61, in order for a consumer to show awareness and intent to grant a security interest in a deposit account, including a prepaid account, all of the following conditions must be met: A. In addition to being disclosed in the issuer's account-opening disclosures under § 1026.6, the security agreement must be provided to the consumer in a document separate from the deposit account agreement and the credit card account agreement; B. The separate document setting forth the security agreement must be signed by the consumer; C. The separate document setting forth the security agreement must refer to the deposit account number and to a specific amount of funds in the deposit account in which the card issuer is taking a security interest and these two elements of the document must be separately signed or initialed by the consumer; D. The separate document setting forth the security agreement must specifically enumerate the conditions under which the card issuer will enforce the security interest and each of those conditions must be separately signed or initialed by the consumer. iv. 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 § 1026.12(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 and Regulation E, 12 CFR 1005.10(e)), 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). iii. Automatically deducting from the consumer's deposit account any fee or charge imposed on the asset feature of the prepaid account that is not a charge imposed as part of the plan under § 1026.6(b)(3). See § 1026.6(b)(3)(iii)(D) and (E) and related commentary regarding fees imposed on the asset feature of a prepaid account that are not charges imposed as part of the plan under § 1026.6(b)(3) with respect to covered separate credit features accessible by hybrid prepaid-credit cards and non-covered separate credit features as those terms are defined in § 1026.61. 3. Prepaid accounts. i. The card issuer is not prohibited under § 1026.12(d) from automatically deducting the amount due on the periodic statement on the 25th of each month, or on an earlier date in each calendar month, from a deposit account held by the card issuer, if the deductions are pursuant to a plan that is authorized in writing by the cardholder (as discussed in comment 12(d)(3)-1) and comply with the limitations in § 1026.13(d)(1). ii. The card issuer is prohibited under § 1026.12(d) from automatically deducting all or part of the cardholder's credit card debt from a deposit account (including the prepaid account) held with the card issuer more frequently than once per calendar month, such as on a daily or weekly basis, or whenever deposits are made or expected to be made to the deposit account. 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 1026.13—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 1026.13(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 § 1026.12. 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. i.e., 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 an agreement with respect to an account other than a prepaid account. 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 (12 CFR part 1005) provisions (such as timing and notice) for the entire transaction. ii. The creditor need not provisionally credit the consumer's account, under 12 CFR 1005.11(c)(2)(i), for any portion of the unpaid extension of credit. iii. The creditor must credit the consumer's account under § 1005.11(c) with any finance or other charges incurred as a result of the alleged error. iv. The provisions of § 1026.13(d) and (g) apply only to the credit portion of the transaction. 4. Credit under a covered separate credit feature accessible by a hybrid prepaid-credit card. i. If the transaction solely involves an extension of credit under a covered separate credit feature and does not access funds from the asset feature of the prepaid account, the error resolution requirements of Regulation Z apply. To illustrate, assume that there is $0 in the asset feature of the prepaid account, and the consumer makes a $25 transaction with the card. The error resolution requirements of Regulation Z apply to the transaction. This is true regardless of whether the $25 of credit is drawn directly from the covered separate credit feature without a transfer to the asset feature of the prepaid account to cover the amount of the transaction, or whether the $25 of credit is transferred from the covered separate credit feature to the asset feature of the prepaid account to cover the amount of the transaction. ii. If the transaction accesses funds from the asset feature of a prepaid account only (with no credit extended under the credit feature), the provisions of Regulation E apply. iii. If the transaction accesses funds from the asset feature of a prepaid account but also involves an extension of credit under the covered separate credit feature, a creditor must comply with the requirements of Regulation E, 12 CFR 1005.11, and 1005.18(e) as applicable, governing error resolution rather than those of § 1026.13(a), (b), (c), (e), (f), and (h). To illustrate, assume that there is $10 in the asset feature of the prepaid account, and the consumer makes a $25 transaction with the card. The error resolution requirements of Regulations E and Z apply as described above to the transaction. This is true regardless of whether $10 is debited from the asset feature and $15 of credit is drawn directly from the covered separate credit feature without a transfer to the asset feature of the prepaid account to cover the amount of the transaction, or whether $15 of credit is transferred from the covered separate credit feature to the asset feature of the prepaid account and a $25 transaction is debited from the asset feature to cover the amount of the transaction. When this paragraph applies: A. An error asserted with respect to the transaction is subject, for error resolution purposes, to the applicable Regulation E (12 CFR part 1005) provisions (such as timing and notice) for the entire transaction. B. The creditor need not provisionally credit the consumer's account, under Regulation E, 12 CFR 1005.11(c)(2)(i), for any portion of the unpaid extension of credit. C. The creditor must credit the consumer's account under § 1005.11(c) with any finance or other charges incurred as a result of the alleged error. D. The provisions of § 1026.13(d) and (g) apply only to the credit portion of the transaction. 5. Prepaid cards that are not hybrid prepaid-credit cards. Section 1026.14—Determination of Annual Percentage Rate 14(a) General Rule 1. Tolerance. 2. Rounding. 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 Credit Plans Secured by a Consumer's Dwelling 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 1026. 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 1026.15—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. i. Opening the account. ii. Each credit extension. iii. Increasing the credit limit. iv. Adding to an existing account a security interest in the consumer's principal dwelling. v. 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 § 1026.15(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. A security interest that is acquired by a contractor who is also extending the credit in the transaction. B. 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. ii. 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. 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. B. All security interests that may arise in connection with the credit transaction are validly waived. C. 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. iii. Although liens arising by operation of law are not considered security interests for purposes of disclosure under § 1026.2, 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 § 1026.6(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. A. The occurrence that gives rise to the right of rescission. B. Delivery of all C. Delivery to the consumer of the required rescission notice. ii. 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. A. The expiration of three years after the occurrence giving rise to the right of rescission. B. Transfer of all the consumer's interest in the property. C. 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. ii. 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 § 1026.15. 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. 2. Format. 3. Content. i. A description of the property subject to the security interest. ii. A statement that joint owners may have the right to rescind and that a rescission by one is effective for all. iii. 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. A. Disburse advances to the consumer. B. Begin performing services for the consumer. C. Deliver materials to the consumer. ii. 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. i. Prepare the cash advance check. ii. Perfect the security interest. iii. Accrue finance charges during the delay period. 4. Performance by third party. 5. Delay beyond rescission period. A. Waiting a reasonable time after expiration of the rescission period to allow for delivery of a mailed notice. B. Obtaining a written statement from the consumer that the right has not been exercised. ii. 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. i. If the consumer's right to rescind is activated by the opening of a plan, any security interest in the principal dwelling is void. ii. 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. iii. 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. i. If the occurrence is the opening of the plan, the creditor must return any membership or application fee paid. ii. 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. iii. 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 i. 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. ii. 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. Section 1026.16—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 § 1026.16(g)(4) as it applies to written or electronic advertisements only, a clear and conspicuous disclosure means the required information in § 1026.16(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 § 1026.16(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 § 1026.16(h)(3) as it applies to written or electronic advertisements only, a clear and conspicuous disclosure means the required information in § 1026.16(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 § 1026.16(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. 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 16(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 16(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. 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 email 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 and Fees 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 1026.17—General Disclosure Requirements 1. Rules for certain mortgage disclosures. 17(a) Form of Disclosures Paragraph 17(a)(1) 1. Clear and conspicuous. 2. Segregation of disclosures. A. By outlining them in a box. B. By bold print dividing lines. C. By a different color background. D. By a different type style. ii. The general segregation requirement described in this subparagraph does not apply to the disclosures required under § 1026.19(b) although the disclosures must be clear and conspicuous. 3. Location. i. They may appear on a disclosure statement separate from all other material. ii. They may be placed on the same document with the credit contract or other information, so long as they are segregated from that information. iii. They may be shown on the front or back of a document. iv. They need not begin at the top of a page. v. 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 § 1026.18(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 labeled “unsecured” or “not secured” to the security interest disclosures given under § 1026.18(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 § 1026.18(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 § 1026.18(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 § 1026.18(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 § 1026.18(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 § 1026.18(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 § 1026.18(f)(1) for variable-rate transactions subject to § 1026.18(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 § 1026.18(l) on a single payment loan. xvi. The notice set forth in § 1026.19(a)(4), in a closed-end transaction not subject to § 1026.19(a)(1)(i). In a mortgage transaction subject to § 1026.19(a)(1)(i), the creditor must disclose the notice contained in § 1026.19(a)(4) grouped together with the disclosures made under § 1026.18. See 6. Multiple-purpose forms. i. The variable rate disclosure under § 1026.18(f). ii. The demand feature disclosure under § 1026.18(i). iii. A reference to the possibility of a security interest arising from a spreader clause, under § 1026.18(m). iv. The assumption policy disclosure under § 1026.18(q). v. The required deposit disclosure under § 1026.18(r). 7. Balloon payment financing with leasing characteristics. Paragraph 17(a)(2) 1. When disclosures must be more conspicuous. i. The terms must be more conspicuous only in relation to the other required disclosures under § 1026.18. 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. ii. The terms need not be more conspicuous except as part of the finance charge and annual percentage rate disclosures under § 1026.18(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 § 1026.18(k) or a required deposit under § 1026.18(r). iii. The creditor's identity under § 1026.18(a) may, but need not, be more prominently displayed than the finance charge and annual percentage rate. iv. The terms need not be more conspicuous than figures (including, for example, numbers, percentages, and dollar signs). 2. Making disclosures more conspicuous. i. Capitalized when other disclosures are printed in capital and lower case. ii. Printed in larger type, bold print or different type face. iii. Printed in a contrasting color. iv. Underlined. v. 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. 17(c) Basis of Disclosures and Use of Estimates Paragraph 17(c)(1) 1. Legal obligation. 2. Modification of obligation. i. 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 § 1026.19(b) for an example of a preferred-rate transaction that is a variable-rate transaction.) ii. 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. iii. 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. i. If the third-party buydown is reflected in the credit contract between the consumer and the bank, the finance charge and all other disclosures affected by it must take the buydown into account as an amendment to the contract's interest rate provision. 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 disclosures required under §§ 1026.18(g), 1026.18(s), 1026.37(c), and 1026.38(c), as applicable, must reflect the two payment levels, except as otherwise provided in those paragraphs. However, the amount paid by the seller would not be specifically reflected in the disclosure of the finance charge and other disclosures affected by it given by the bank, since that amount constitutes seller's points and thus is not part of the finance charge. The seller-paid amount is disclosed, however, as a credit from the seller in the summaries of transactions disclosed pursuant to § 1026.38(j) and (k). ii. If the third-party buydown 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 disclosure of the finance charge and other disclosures affected by it given by the bank must not reflect the seller buydown in any way. For example, the annual percentage rate and disclosures required under §§ 1026.18(g), 1026.18(s), 1026.37(c), and 1026.38(c), as applicable, would not take into account the reduction in the interest rate and payment level for the first two years resulting from the buydown. The seller-paid amount is, however, disclosed as a credit from the seller in the summaries of transactions disclosed pursuant to § 1026.38(j) and (k). 4. Consumer buydowns. i. For example: A. The amount paid by the consumer is a prepaid finance charge (even if deposited in an escrow account). B. A composite annual percentage rate must be calculated, taking into account both interest rates, as well as the effect of the prepaid finance charge. C. The disclosures under §§ 1026.18(g) and (s), 1026.37(c), and 1026.38(c), as applicable, must reflect the multiple rate and payment levels resulting from the buydown, except as otherwise provided in those sections. Further, for example, the disclosures must reflect that the transaction is a step rate product under §§ 1026.37(a)(10)(B) and 1026.38(a)(5)(iii). ii. 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 disclosure of the finance charge and other disclosures affected by it 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 the disclosures required under §§ 1026.18(g) and (s), 1026.37(c), 1026.37(l)(1) and (3), 1026.38(c), and 1026.38(o)(5), as applicable. 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 two 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 disclosed pursuant to § 1026.18(g) should show 12 payments of $804.62 and 348 payments of $1,025.31. Similarly, the disclosures required by §§ 1026.18(s), 1026.37(c), 1026.37(l)(1) and (3), 1026.38(c), and 1026.38(o)(5) should reflect the effect of this calculation. The finance charge should be $266,463.32 and, for transactions subject to § 1026.18, the total of payments should be $366,463.32. B. Same loan as above, except with a two-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 disclosed pursuant to § 1026.18(g) should show 12 payments of $804.62, 12 payments of $950.09, and 336 payments of $1,024.34. Similarly, the disclosures required by §§ 1026.18(s), 1026.37(c), 1026.37(l)(1) and (3), 1026.38(c), and 1026.38(o)(5) should reflect the effect of this calculation. The finance charge should be $265,234.76 and, for transactions subject to § 1026.18, the total of payments should be $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. i. 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 § 1026.20(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 § 1026.17(c)(6).) ii. “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 § 1026.2, other types of shared-equity arrangements are not considered “credit” and are not subject to Regulation Z.) iii. 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. iv. Graduated-payment mortgages and step-rate transactions without a variable-rate feature are not considered variable-rate transactions. v. “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, except as otherwise provided in §§ 1026.18(s), 1026.37, and 1026.38, as applicable. 12. Graduated payment adjustable rate mortgages. i. The finance charge includes the amount of negative amortization based on the assumption that the rate in effect at consummation remains unchanged. ii. The amount financed does not include the amount of negative amortization. iii. As in any variable-rate transaction, the annual percentage rate is based on the terms in effect at consummation. iv. The disclosures required by § 1026.18(g) and (s) reflect 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 disclosures required by § 1026.18(g) and (s) may require several different levels of payments, even with the assumption that the original interest rate does not increase. For transactions subject to § 1026.19(e) and (f), see § 1026.37(c) and its commentary for a discussion of different rules for graduated payment adjustable rate mortgages. 13. Growth-equity mortgages. A. Estimate the amount of payment increases, based on the best information reasonably available; or B. Disclose by analogy to the variable-rate disclosures in 1026.18(f)(1). ii. 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. i. 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.” ii. 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 occurrence of the event estimated to be most likely to occur first.) iii. 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.” iv. 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 § 1026.18(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 § 1026.19(b)(2)(vii). 15. Morris Plan transactions. 16. Number of transactions. i. 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. ii. 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. iii. 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. i. 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.) ii. If the consumer is required to repay more than the amount borrowed, the difference is a finance charge unless excluded under § 1026.4. 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 § 1026.4.) 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. 19. Rebates and loan premiums. Paragraph 17(c)(2)(i) 1. Basis for estimates. 2. Labeling estimates. 3. Simple-interest transactions. Paragraph 17(c)(2)(ii) 1. Per-diem interest. Paragraph 17(c)(3) 1. Minor variations. i. 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. ii. 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. i. 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. ii. 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 § 1026.17(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. A. 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. B. The term is the period from the date on which the finance charge begins to be earned to the date of the final payment. C. The regular period is the most common interval between payments in the transaction. ii. 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 costs. 17(d) Multiple Creditors; Multiple Consumers 1. Multiple creditors. i. The 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 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 § 1026.18(j) must be made, even though the disclosing creditor is not the seller. 2. Multiple consumers. See 17(e) Effect of Subsequent Events 1. Events causing inaccuracies. 17(f) Early Disclosures 1. Change in rate or other terms. i. Transactions not secured by real property or a cooperative unit. 1/8 B. In a regular transaction not secured by real property or a cooperative unit, if early disclosures are marked as estimates and the disclosed annual percentage rate is within 1/8 C. If disclosures for transactions not secured by real property or a cooperative unit are made on July 1, the transaction is consummated on July 15, and the finance charge increased by $35 but the disclosed annual percentage rate is within the permitted tolerance, the creditor must at least redisclose the changed terms that were not marked as estimates. See ii. Reverse mortgages. iii. Transactions secured by real property or a cooperative unit other than reverse mortgages. 2. Variable rate. 3. Content of new disclosures. See 4. Special rules. Paragraph 17(f)(2) 1. Irregular transactions. 17(g) Mail or Telephone Orders—Delay in Disclosures 1. Conditions for use. i. 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.) ii. 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. i. The cash price for the sale plus that portion of the finance charge and other charges applicable to that sale; or ii. 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. Section 1026.18—Content of Disclosures 1. As applicable. A. In a loan transaction, the creditor may delete disclosure of the total sale price. B. In a credit sale requiring disclosure of the total sale price under § 1026.18(j), the creditor may delete any reference to a downpayment where no downpayment is involved. ii. 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: A. 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. B. 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. 3. Scope of coverage. A. Unsecured; B. Secured by personal property that is not a dwelling; C. Secured by personal property (other than a cooperative unit) that is a dwelling and are not also secured by real property; or D. Reverse mortgages subject to § 1026.33. ii. Of the foregoing transactions that are subject to § 1026.18, the creditor discloses a payment schedule under § 1026.18(g) for those described in paragraphs i.A and i.B of this comment. For transactions described in paragraphs i.C and i.D of this comment, the creditor discloses an interest rate and payment summary table under § 1026.18(s). See also comments 18(g)-6 and 18(s)-4 for additional guidance on the applicability to different transaction types of §§ 1026.18(g) or (s) and 1026.19(e) and (f). iii. Because § 1026.18 does not apply to transactions secured by real property or a cooperative unit, other than reverse mortgages, references in the section and its commentary to “mortgages” refer only to transactions described in paragraphs i.C and i.D of this comment, as applicable. 18(a) Creditor 1. Identification of creditor. 18(b) Amount Financed 1. Disclosure required. amount financed Paragraph 18(b)(1) 1. Downpayments. i. 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. ii. Deferred downpayments that are treated as part of the downpayment are not part of the amount financed under § 1026.18(b)(1). Paragraph 18(b)(2) 1. Adding other amounts. Paragraph 18(b)(3) 1. Prepaid finance charges. A. 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 § 1026.18(b)(1) is $2,500 and $40 should be deducted under § 1026.18(b(3), thereby yielding an amount financed of $2,460. ii. 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 § 1026.18(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 § 1026.18(b)(3). When the finance charges are not included in the principal loan amount, they should not be deducted under § 1026.18(b)(3). The following examples illustrate the application of § 1026.18(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. A. If the creditor determines the principal loan amount under § 1026.18(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 § 1026.18(b)(3), thereby obtaining an amount financed of $2,500. B. If the creditor determines the principal loan amount under § 1026.18(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 § 1026.18(b)(3), thereby obtaining an amount financed of $2,500. iii. 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. A. If the creditor determines the principal loan amount under § 1026.18(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 § 1026.18(b)(3), thereby obtaining an amount financed of $2,460. B. If the creditor determines the principal loan amount under § 1026.18(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 § 1026.18(b)(3), thereby obtaining an amount financed of $2,460. iv. 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. i. 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 § 1026.18(b)(1) is $1000, no amounts are added under § 1026.18(b)(2), and the $10 loan fee is a prepaid finance charge to be deducted under § 1026.18(b)(3). The amount financed is $990. ii. 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 § 1026.18(b)(1) is $940, which results in an amount financed of $930, after deduction of the $10 prepaid finance charge under § 1026.18(b)(3). iii. 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 § 1026.18(b)(1) is thus $1000 and the amount financed $990, after deducting the $10 prepaid finance charge under § 1026.18(b)(3). 18(c) Itemization of Amount Financed 1. Disclosure required. A. 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. B. 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. ii. 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 § 1026.18, 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 § 1026.18(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 § 1026.18(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 note 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. 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. 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. i. When no specific index is used, any identifiable factors used to determine whether to increase the rate must be disclosed. ii. When the increase in the rate is purely discretionary, the fact that any increase is within the creditor's discretion must be disclosed. iii. 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. i. Demand obligations with no alternate maturity date. ii. Private education loans as defined in § 1026.46(b)(5). iii. 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. See 5. [Reserved] 6. Mortgage transactions. See 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 § 1026.18(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 § 1026.18(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. 18(k) Prepayment 1. Disclosure required. i. The fact that no prepayment penalty will be imposed may not simply be inferred from the absence of a prepayment penalty disclosure; the creditor must indicate that prepayment will not result in a prepayment penalty. ii. If a prepayment penalty or prepayment rebate 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. iii. Any difference in prepayment rebate or prepayment 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) 1. Examples of prepayment penalties. i. A charge determined by treating the loan balance as outstanding for a period of time after prepayment in full and applying the interest rate to such “balance,” even if the charge results from interest accrual amortization used for other payments in the transaction under the terms of the loan contract. “Interest accrual amortization” refers to the method by which the amount of interest due for each period ( e.g., ii. A fee, such as an origination or other loan closing cost, that is waived by the creditor on the condition that the consumer does not prepay the loan. However, the term prepayment penalty does not include a waived bona fide third-party charge imposed by the creditor if the consumer pays all of a covered transaction's principal before the date on which the principal is due sooner than 36 months after consummation. For example, assume that at consummation, the creditor waives $3,000 in closing costs to cover bona fide third-party charges but the terms of the loan agreement provide that the creditor may recoup the $3,000 in waived charges if the consumer repays the entire loan balance sooner than 36 months after consummation. The $3,000 charge is not a prepayment penalty. In contrast, for example, assume that at consummation, the creditor waives $3,000 in closing costs to cover bona fide third-party charges but the terms of the loan agreement provide that the creditor may recoup $4,500 in part to recoup waived charges, if the consumer repays the entire loan balance sooner than 36 months after consummation. The $3,000 that the creditor may impose to cover the waived bona fide third-party charges is not a prepayment penalty, but the additional $1,500 charge is a prepayment penalty and must be disclosed pursuant to § 1026.37(k)(1). iii. A minimum finance charge in a simple interest transaction. 2. Fees that are not prepayment penalties. i. Fees imposed for preparing and providing documents when a loan is paid in full, if such fees are imposed whether or not the loan is prepaid. Examples include a loan payoff statement, a reconveyance document, or another document releasing the creditor's security interest in the dwelling that secures the loan. ii. Loan guarantee fees. Paragraph 18(k)(2) 1. Rebate of finance charge. A. Precomputed finance charges such as add-on charges. This includes computing a refund of an unearned finance charge, such as precomputed interest, by a method that is less favorable to the consumer than the actuarial method, as defined by section 933(d) of the Housing and Community Development Act of 1992, 15 U.S.C. 1615(d). For purposes of computing a refund of unearned interest, if using the actuarial method defined by applicable State law results in a refund that is greater than the refund calculated by using the method described in section 933(d) of the Housing and Community Development Act of 1992, creditors should use the State law definition in determining if a refund is a prepayment penalty. B. 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. ii. No description of the method of computing earned or unearned finance charges is required or permitted as part of the segregated disclosures under § 1026.18(k)(2). 18(l) Late Payment 1. Definition. i. The right of acceleration. ii. Fees imposed for actual collection costs, such as repossession charges or attorney's fees. iii. Deferral and extension charges. iv. 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. 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. 18(o) Certain Security Interest Charges 1. Format. Paragraph 18(p) Contract Reference 1. Content. 18(q) Assumption Policy 1. Policy statement. 2. Original terms. original terms 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. i. Requirement that a borrower be a customer or a member even if that involves a fee or a minimum balance. ii. Required property insurance escrow on a mobile home transaction. iii. Refund of interest when the obligation is paid in full. iv. Deposits that are immediately available to the consumer. v. Funds deposited with the creditor to be disbursed (for example, for construction) before the loan proceeds are advanced. vi. [Reserved] vii. Escrow of loan proceeds to be released when the repairs are completed. 18(s) Interest Rate and Payment Summary for Mortgage Transactions 1. In general. 2. Amortizing loans. See 3. Negative amortization. See See also 4. Scope of coverage in relation to § 1026.19(e) and (f). 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. ii. For adjustable-rate mortgage transactions, § 1026.18(s)(3)(i)(A) requires that for each interest rate required to be disclosed under § 1026.18(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 or any functional equivalent. 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 1026.19—Certain Mortgage and Variable-Rate Transactions 19(a)(1)(i) Time of Disclosures 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)(2) Waiting Periods for Early Disclosures and Corrected Disclosures 1. Business day definition. See 2. Consummation after both waiting periods expire. Paragraph 19(a)(2)(i) 1. Timing. Paragraph 19(a)(2)(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 § 1026.19(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 § 1026.19(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 § 1026.22, the creditor must provide a corrected disclosure to the consumer before consummation, which triggers the three-business-day waiting period in § 1026.19(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 § 1026.22, the creditor must disclose the changed terms before consummation, consistent with § 1026.17(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 § 1026.22, the creditor must provide a corrected disclosure to the consumer before consummation, which triggers the three-business-day waiting period in § 1026.19(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 § 1026.22, the creditor must disclose the changed terms before consummation, consistent with § 1026.17(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(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. 3. Intermediary agent or broker. A. 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. B. 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. C. 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. ii. 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. 5. Examples of variable-rate transactions. 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 §§ 1026.19(b)(1) and 1026.19(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 § 1026.19(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: § 1026.19(b)(2)(i), (iii), (iv), (v), (vi), (vii), (viii), and (ix). (See comments 20(c)(1)(ii)-3.ii, 20(d)(1)(ii)-2.ii, 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 § 1026.19(b)(2)(viii), variable-rate loans that differ as to that feature constitute separate programs under § 1026.19(b)(2). ii. If, however, a representative value may be given for a loan feature or the feature need not be disclosed under § 1026.19(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. 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. 19(e) Mortgage loans—Early disclosures. 1. Affiliate. 19(e)(1) Provision of disclosures. 19(e)(1)(i) Creditor. 1. Requirements. 2. Cooperative units. 19(e)(1)(ii) Mortgage broker. 1. Mortgage broker responsibilities. 2. Creditor responsibilities. 19(e)(1)(iii) Timing. 1. Timing and use of estimates. See 2. Waiting period. 3. Denied or withdrawn applications. 4. Timeshares. 5. Multiple-advance construction loans. i. Assume a creditor receives a consumer's application for construction financing only on Monday, June 1. The creditor must deliver or place in the mail the disclosures required by § 1026.19(e)(1)(i) for only the construction financing no later than Thursday, June 4, the third business day after the creditor received the consumer's application, and not later than the seventh business day before consummation of the transaction. ii. Assume the creditor receives a consumer's application for both construction and permanent financing on Monday, June 1. The creditor must deliver or place in the mail the disclosures required by § 1026.19(e)(1)(i) for both the construction and permanent financing, disclosed as either one transaction or separate transactions, no later than Thursday, June 4, the third business day after the creditor received the consumer's application, and not later than the seventh business day before consummation of the transaction. iii. Assume the creditor receives a consumer's application for construction financing only on Monday, June 1. Assume further that the creditor receives the consumer's application for permanent financing on Monday, June 8. The creditor must deliver or place in the mail the disclosures required by § 1026.19(e)(1)(i) for the construction financing no later than Thursday, June 4, the third business day after the creditor received the consumer's application for the construction financing only, and not later than the seventh business day before consummation of the construction transaction. The creditor must deliver or place in the mail the disclosures required by § 1026.19(e)(1)(i) for the permanent financing no later than Thursday, June 11, the third business day after the creditor received the consumer's application for the permanent financing, and not later than the seventh business day before consummation of the permanent financing transaction. iv. Assume the same facts as in comment 19(e)(1)(iii)-5.ii, under which the creditor provides the disclosures required by § 1026.19(e)(1)(i) for both construction financing and permanent financing. If the creditor generally conducts separate closings for the construction financing and the permanent financing or expects that the construction financing and the permanent financing may have separate closings, providing separate Loan Estimates for the construction financing and for the permanent financing allows the creditor to deliver separate Closing Disclosures for the separate phases. For example, assume further that the consumer has requested permanent financing after receiving separate Loan Estimates for the construction financing and for the permanent financing, that consummation of the construction financing is scheduled for July 1, and that consummation of the permanent financing is scheduled on or about June 1 of the following year. The creditor may provide the construction financing Closing Disclosure at least three business days before consummation of that transaction on July 1 and delay providing the permanent financing Closing Disclosure until three business days before consummation of that transaction on or about June 1 of the following year, in accordance with § 1026.19(f)(1)(ii). The creditor may also issue a revised Loan Estimate for the permanent financing at any time prior to 60 days before consummation, following the procedures under § 1026.19(e)(3)(iv)(F). 19(e)(1)(iv) Receipt of early disclosures. 1. Mail delivery. 2. Electronic delivery. 19(e)(1)(v) Consumer's waiver of waiting period before consummation. 1. Modification or waiver. 2. Examples of waivers within the seven-business-day waiting period. 19(e)(1)(vi) Shopping for settlement service providers. 1. Permission to shop. 2. Disclosure of services for which the consumer may shop. 3. Written list of providers. 4. Identification of available providers. 5. Statement that consumer may choose different provider. See 6. Additional information on written list. 7. Relation to RESPA and Regulation X. 19(e)(2) Predisclosure activity. 19(e)(2)(i) Imposition of fees on consumer. 19(e)(2)(i)(A) Fee restriction. 1. Fees restricted. 2. Intent to proceed. 3. Timing of fees. 4. Collection of fees. i. A creditor receives a consumer's application directly from the consumer and does not impose any fee, other than a bona fide and reasonable fee for obtaining a consumer's credit report, until the consumer receives the disclosures required under § 1026.19(e)(1)(i) and indicates an intent to proceed with the transaction described by those disclosures. ii. A third party submits a consumer's application to a creditor and neither the creditor nor the third party imposes any fee, other than a bona fide and reasonable fee for obtaining a consumer's credit report, until the consumer receives the disclosures required under § 1026.19(e)(1)(i) and indicates an intent to proceed with the transaction described by those disclosures. iii. A third party submits a consumer's application to a creditor following a different creditor's denial of the consumer's application (or following the consumer's withdrawal of that application), and if a fee already has been assessed for obtaining the credit report, the new creditor or third party does not impose any additional fee until the consumer receives disclosures required under § 1026.19(e)(1)(i) from the new creditor and indicates an intent to proceed with the transaction described by those disclosures. 5. Fees “imposed by” a person. 19(e)(2)(i)(B) Exception to fee restriction. 1. Requirements. 19(e)(2)(ii) Written information provided to consumer. 1. Requirements. See 19(e)(2)(iii) Verification of information. 1. Requirements. i. A creditor may ask for the sale price and address of the property, but the creditor may not require the consumer to provide a purchase and sale agreement to support the information the consumer provides orally before the creditor provides the disclosures required by § 1026.19(e)(1)(i). ii. A mortgage broker may ask for the names, account numbers, and balances of the consumer's checking and savings accounts, but the mortgage broker may not require the consumer to provide bank statements, or similar documentation, to support the information the consumer provides orally before the mortgage broker provides the disclosures required by § 1026.19(e)(1)(i). 19(e)(3) Good faith determination for estimates of closing costs. 19(e)(3)(i) General rule. 1. Requirement. i. Fees paid to the creditor. ii. Fees paid to a mortgage broker. iii. Fees paid to an affiliate of the creditor or a mortgage broker. iv. Fees paid to an unaffiliated third party if the creditor did not permit the consumer to shop for a third party service provider for a settlement service. v. Transfer taxes. 2. Charges “paid by or imposed on the consumer.” 3. Fees “paid to” a person. 4. Transfer taxes and recording fees. 5. Lender credits. 6. Good faith analysis for lender credits. 7. Use of unrounded numbers. 19(e)(3)(ii) Limited increases permitted for certain charges. 1. Requirements. i. Fees paid to an unaffiliated third party if the creditor permitted the consumer to shop for the third-party service, consistent with § 1026.19(e)(1)(vi)(A). ii. Recording fees. 2. Aggregate increase limited to ten percent. i. Assume that, in the disclosures provided under § 1026.19(e)(1)(i), the creditor includes a $300 estimated fee for a settlement agent, the settlement agent fee is included in the category of charges subject to § 1026.19(e)(3)(ii), and the sum of all charges subject to § 1026.19(e)(3)(ii) (including the settlement agent fee) equals $1,000. In this case, the creditor does not violate § 1026.19(e)(3)(ii) if the actual settlement agent fee exceeds the estimated settlement agent fee by more than 10 percent ( i.e., i.e., ii. Assume that, in the disclosures provided under § 1026.19(e)(1)(i), the sum of all estimated charges subject to § 1026.19(e)(3)(ii) equals $1,000. If the creditor does not include an estimated charge for a notary fee but a $10 notary fee is charged to the consumer, and the notary fee is subject to § 1026.19(e)(3)(ii), then the creditor does not violate § 1026.19(e)(1)(i) if the sum of all amounts charged to the consumer subject to § 1026.19(e)(3)(ii) does not exceed $1,100, even though an individual notary fee was not included in the estimated disclosures provided under § 1026.19(e)(1)(i). 3. Services for which the consumer may, but does not, select a settlement service provider. 4. Recording fees. 5. Calculating the aggregate amount of estimated charges. 6. Shopping for a third-party service. 19(e)(3)(iii) Variations permitted for certain charges. 1. Good faith requirement for prepaid interest, property insurance premiums, and escrowed amounts. See 2. Good faith requirement for required services chosen by the consumer. 3. Good faith requirement for property taxes or non-required services chosen by the consumer. 4. Bona fide charges. 19(e)(3)(iv) Revised estimates. 1. Requirement. 2. Actual increase. 3. Documentation requirement. 4. Revised disclosures for general informational purposes. e.g., 5. Best information reasonably available. See 19(e)(3)(iv)(A) Changed circumstance affecting settlement charges. 1. Requirement. i. Charges subject to the zero percent tolerance category. i.e., ii. Charges subject to the ten percent tolerance category. i.e., 2. Changed circumstance. 3. Six pieces of information presumed collected, but not required. 19(e)(3)(iv)(B) Changed circumstance affecting eligibility. 1. Requirement. 19(e)(3)(iv)(C) Revisions requested by the consumer. 1. Requirement. 19(e)(3)(iv)(D) Interest rate dependent charges. 1. Requirements. i. Assume a creditor sets the interest rate by executing a rate lock agreement with the consumer. If such an agreement exists when the original disclosures required under § 1026.19(e)(1)(i) are provided, then the actual points and lender credits are compared to the estimated points disclosed under § 1026.37(f)(1) and lender credits included in the original disclosures provided under § 1026.19(e)(1)(i) for the purpose of determining good faith under § 1026.19(e)(3)(i). If the consumer enters into a rate lock agreement with the creditor after the disclosures required under § 1026.19(e)(1)(i) were provided, then § 1026.19(e)(3)(iv)(D) requires the creditor to provide, no later than three business days after the date that the consumer and the creditor enter into a rate lock agreement, a revised version of the disclosures required under § 1026.19(e)(1)(i) reflecting the revised interest rate, the points disclosed under § 1026.37(f)(1), lender credits, and any other interest rate dependent charges and terms. Provided that the revised version of the disclosures required under § 1026.19(e)(1)(i) reflect any revised points disclosed under § 1026.37(f)(1) and lender credits, the actual points and lender credits are compared to the revised points and lender credits for the purpose of determining good faith under § 1026.19(e)(3)(i). 2. After the Closing Disclosure is provided. 19(e)(3)(iv)(E) Expiration. 1. Requirements. 2. Longer time period. 19(e)(3)(iv)(F) Delayed settlement date on a construction loan. 1. Requirements. i.e., 19(e)(4) Provision and receipt of revised disclosures. 19(e)(4)(i) General Rule 1. Three-business-day requirement. i. Assume a creditor requires a pest inspection. The unaffiliated pest inspection company informs the creditor on Monday that the subject property contains evidence of termite damage, requiring a further inspection, the cost of which will cause an increase in estimated settlement charges subject to § 1026.19(e)(3)(ii) by more than 10 percent. The creditor must provide revised disclosures by Thursday to comply with § 1026.19(e)(4)(i). ii. Assume a creditor receives information on Monday that, because of a changed circumstance under § 1026.19(e)(3)(iv)(A), the title fees will increase by an amount totaling six percent of the originally estimated settlement charges subject to § 1026.19(e)(3)(ii). The creditor had received information three weeks before that, because of a changed circumstance under § 1026.19(e)(3)(iv)(A), the pest inspection fees increased by an amount totaling five percent of the originally estimated settlement charges subject to § 1026.19(e)(3)(ii). Thus, on Monday, the creditor has received sufficient information to establish a valid reason for revision and must provide revised disclosures reflecting the 11 percent increase by Thursday to comply with § 1026.19(e)(4)(i). iii. Assume a creditor requires an appraisal. The creditor receives the appraisal report, which indicates that the value of the home is significantly lower than expected. However, the creditor has reason to doubt the validity of the appraisal report. A reason for revision has not been established because the creditor reasonably believes that the appraisal report is incorrect. The creditor then chooses to send a different appraiser for a second opinion, but the second appraiser returns a similar report. At this point, the creditor has received information sufficient to establish that a reason for revision has, in fact, occurred, and must provide corrected disclosures within three business days of receiving the second appraisal report. In this example, in order to comply with §§ 1026.19(e)(3)(iv) and 1026.25, the creditor must maintain records documenting the creditor's doubts regarding the validity of the appraisal to demonstrate that the reason for revision did not occur upon receipt of the first appraisal report. 19(e)(4)(ii) Relationship Between Revised Loan Estimates and Closing Disclosures 1. Revised Loan Estimate may not be delivered at the same time as the Closing Disclosure. i. If the creditor is scheduled to meet with the consumer and provide the disclosures required by § 1026.19(f)(1)(i) on Wednesday, June 3, and the APR becomes inaccurate on Tuesday, June 2, the creditor complies with the requirements of § 1026.19(e)(4) by providing the disclosures required under § 1026.19(f)(1)(i) reflecting the revised APR on Wednesday, June 3. However, the creditor does not comply with the requirements of § 1026.19(e)(4) if it provides both a revised version of the disclosures required under § 1026.19(e)(1)(i) reflecting the revised APR on Wednesday, June 3, and also provides the disclosures required under § 1026.19(f)(1)(i) on Wednesday, June 3. ii. If the creditor is scheduled to email the disclosures required under § 1026.19(f)(1)(i) to the consumer on Wednesday, June 3, and the consumer requests a change to the loan that would result in revised disclosures pursuant to § 1026.19(e)(3)(iv)(C) on Tuesday, June 2, the creditor complies with the requirements of § 1026.19(e)(4) by providing the disclosures required under § 1026.19(f)(1)(i) reflecting the consumer-requested changes on Wednesday, June 3. However, the creditor does not comply with the requirements of § 1026.19(e)(4) if it provides disclosures reflecting the consumer-requested changes using both the revised version of the disclosures required under § 1026.19(e)(1)(i) on Wednesday, June 3, and also the disclosures required under § 1026.19(f)(1)(i) on Wednesday, June 3. iii. Consummation is scheduled for Thursday, June 4. The creditor hand delivers the disclosures required by § 1026.19(f)(1)(i) on Monday, June 1, and, on Tuesday, June 2, the consumer requests a change to the loan that would result in revised disclosures pursuant to § 1026.19(e)(3)(iv)(C) but would not require a new waiting period pursuant to § 1026.19(f)(2)(ii). Under § 1026.19(f)(2)(i), the creditor is required to provide corrected disclosures reflecting any changed terms to the consumer so that the consumer receives the corrected disclosures at or before consummation. The creditor complies with the requirements of § 1026.19(e)(4) by hand delivering the disclosures required by § 1026.19(f)(2)(i) reflecting the consumer-requested changes on Thursday, June 4. iv. Consummation is originally scheduled for Wednesday, June 10. The creditor hand delivers the disclosures required by § 1026.19(f)(1)(i) on Friday, June 5. On Monday, June 8, the consumer reschedules consummation for Wednesday, June 17. Also on Monday, June 8, the consumer requests a rate lock extension that would result in revised disclosures pursuant to § 1026.19(e)(3)(iv)(C) but would not require a new waiting period pursuant to § 1026.19(f)(2)(ii). The creditor complies with the requirements of § 1026.19(e)(4) by delivering or placing in the mail the disclosures required by § 1026.19(f)(2)(i) reflecting the consumer-requested changes on Thursday, June 11. Under § 1026.19(f)(2)(i), the creditor is required to provide corrected disclosures reflecting any changed terms to the consumer so that the consumer receives the corrected disclosures at or before consummation. The creditor complies with § 1026.19(f)(2)(i) by hand delivering the disclosures on Thursday, June 11. Alternatively, the creditor complies with § 1026.19(f)(2)(i) by providing the disclosures to the consumer by mail, including by electronic mail, on Thursday, June 11, because the consumer is considered to have received the corrected disclosures on Monday, June 15 (unless the creditor relies on evidence that the consumer received the corrected disclosures earlier). See § 1026.19(f)(1)(iii) and comments 19(f)(1)(iii)-1 and -2. See also § 1026.38(t)(3) and comment 19(f)(1)(iii)-2 regarding providing the disclosures required by § 1026.19(f)(1)(i) (including any corrected disclosures provided under § 1026.19(f)(2)(i) or (ii)) in electronic form. v. Consummation is originally scheduled for Wednesday, June 10. The creditor hand delivers the disclosures required by § 1026.19(f)(1)(i) on Friday, June 5, and the APR becomes inaccurate on Monday, June 8, such that the creditor is required to delay consummation and provide corrected disclosures, including any other changed terms, so that the consumer receives them at least three business days before consummation under § 1026.19(f)(2)(ii). Consummation is rescheduled for Friday, June 12. The creditor complies with the requirements of § 1026.19(e)(4) by hand delivering the disclosures required by § 1026.19(f)(2)(ii) reflecting the revised APR and any other changed terms to the consumer on Tuesday, June 9. See § 1026.19(f)(2)(ii) and associated commentary regarding changes before consummation requiring a new waiting period. See comment 19(e)(4)(i)-1 for further guidance on when sufficient information has been received to establish an event has occurred. 19(f) Mortgage loans—Final disclosures. 19(f)(1) Provision of disclosures. 19(f)(1)(i) Scope. 1. Requirements. 2. Best information reasonably available. i. Actual term unknown. A. Assume a creditor provides the disclosure under § 1026.19(f)(1)(ii)(A) for a transaction in which the title insurance company that is providing the title insurance policies is acting as the settlement agent in connection with the transaction, but the creditor does not request the actual cost of the lender's title insurance policy that the consumer is purchasing from the title insurance company and instead discloses an estimate based on information from a different transaction. The creditor has not exercised due diligence in obtaining the information about the cost of the lender's title insurance policy required under the “reasonably available” standard in connection with the estimate disclosed for the lender's title insurance policy. B. Assume that in the prior example the creditor obtained information about the terms of the consumer's transaction from the settlement agent regarding the amounts disclosed under § 1026.38(j) and (k). The creditor has exercised due diligence in obtaining the information about the costs under § 1026.38(j) and (k) for purposes of the “reasonably available” standard in connection with such disclosures under § 1026.38(j) and (k). ii. Estimates. See iii. Settlement agent. 3. Denied or withdrawn applications. 19(f)(1)(ii) Timing. 1. Timing. See 2. Receipt of disclosures three business days before consummation. See See 3. Timeshares. 19(f)(1)(iii) Receipt of disclosures. 1. Mail delivery. 2. Other forms of delivery. 19(f)(1)(iv) Consumer's waiver of waiting period before consummation. 1. Modification or waiver. 19(f)(1)(v) Settlement agent. 1. Requirements. 2. Settlement agent responsibilities. 3. Creditor responsibilities. 4. Shared responsibilities permitted—completing the disclosures. 19(f)(2) Subsequent changes. 19(f)(2)(i) Changes before consummation not requiring a new waiting period. 1. Requirements. i. Assume consummation is scheduled for Thursday, the consumer received the disclosures required under § 1026.19(f)(1)(i) on Monday, and a walk-through inspection occurs on Wednesday morning. During the walk-through the consumer discovers damage to the dishwasher. The seller agrees to credit the consumer $500 towards a new dishwasher. The creditor complies with the requirements of § 1026.19(f) if the creditor provides corrected disclosures so that the consumer receives them at or before consummation on Thursday. ii. Assume consummation is scheduled for Friday and on Monday morning the creditor sends the disclosures via overnight delivery to the consumer, ensuring that the consumer receives the disclosures on Tuesday. On Monday night, the seller agrees to sell certain household furnishings to the consumer for an additional $1,000, to be paid at the real estate closing, and the consumer immediately informs the creditor of the change. The creditor must provide corrected disclosures so that the consumer receives them at or before consummation. The creditor does not violate § 1026.19(f) because the change to the transaction resulting from negotiations between the seller and consumer occurred after the creditor provided the final disclosures, regardless of the fact that the change occurred before the consumer had received the final disclosures. iii. Assume consummation is scheduled for Thursday, the consumer received the disclosures required under § 1026.19(f)(1)(i) on Monday, and a walk-through inspection occurs on Wednesday morning. As a result of consumer and seller negotiations, the total amount due from the buyer increases by $500. Also on Wednesday, the creditor discovers that the homeowner's insurance premium that was disclosed as $800 is actually $850. The new $500 amount due and the $50 insurance premium understatements are not violations of § 1026.19(f)(1)(i), and the creditor complies with § 1026.19(f)(1)(i) by providing corrected disclosures reflecting the $550 increase so that the consumer receives them at or before consummation, pursuant to § 1026.19(f)(2)(ii). 2. Inspection. 19(f)(2)(ii) Changes before consummation requiring a new waiting period. 1. Conditions for corrected disclosures. i. Example—APR becomes inaccurate. A. On Thursday, June 11, the annual percentage rate will be 7.10 percent. The creditor is not required to delay consummation to provide corrected disclosures under § 1026.19(f)(2)(ii) because the annual percentage rate is accurate pursuant to § 1026.22, but the creditor is required under § 1026.19(f)(2)(i) to provide corrected disclosures, including any other changed terms, so that the consumer receives them on or before Thursday, June 11. B. On Thursday, June 11, the annual percentage rate will be 7.15 percent and corrected disclosures were not received by the consumer on or before Monday, June 8 because the annual percentage rate is inaccurate pursuant to § 1026.22. The creditor is required to delay consummation and provide corrected disclosures, including any other changed terms, so that the consumer receives them at least three business days before consummation under § 1026.19(f)(2)(ii). ii. Example—loan product changes. A. On Thursday, June 11, the loan product required to be disclosed changes to a “5/1 Adjustable Rate.” The creditor is required to provide corrected disclosures and delay consummation until the consumer has received the corrected disclosures provided under § 1026.19(f)(1)(i) reflecting the change in the product disclosure, and any other changed terms, at least three business days before consummation. If, after the corrected disclosures in this example are provided, the loan product subsequently changes before consummation to a “3/1 Adjustable Rate,” the creditor is required to provide additional corrected disclosures and again delay consummation until the consumer has received the corrected disclosures provided under § 1026.19(f)(1)(i) reflecting the change in the product disclosure, and any other changed terms, at least three business days before consummation. B. On Thursday, June 11, the loan product required to be disclosed has changed to a “Fixed Rate” with a “Negative Amortization” feature. The creditor is required to provide corrected disclosures and delay consummation until the consumer has received the corrected disclosures provided under § 1026.19(f)(1)(i) reflecting the change in the product disclosure, and any other changed terms, at least three business days before consummation. iii. Example—prepayment penalty is added. 19(f)(2)(iii) Changes due to events occurring after consummation. 1. Requirements. i. Assume consummation occurs on a Monday and the security instrument is recorded on Tuesday, the day after consummation. If the creditor learns on Tuesday that the fee charged by the recorder's office differs from that previously disclosed pursuant to § 1026.19(f)(1)(i), and the changed fee results in a change in the amount actually paid by the consumer, the creditor complies with § 1026.19(f)(1)(i) and (f)(2)(iii) by revising the disclosures accordingly and delivering or placing them in the mail no later than 30 days after Tuesday. ii. Assume consummation occurs on a Tuesday, October 1 and the security instrument is not recorded until 15 days after October 1 on Thursday, October 16. The creditor learns on Monday, November 4 that the transfer taxes owed to the State differ from those previously disclosed pursuant to § 1026.19(f)(1)(i), resulting in an increase in the amount actually paid by the consumer. The creditor complies with § 1026.19(f)(1)(i) and § 1026.19(f)(2)(iii) by revising the disclosures accordingly and delivering or placing them in the mail no later than 30 days after Monday, November 4. Assume further that the increase in transfer taxes paid by the consumer also exceeds the amount originally disclosed under § 1026.19(e)(1)(i) above the limitations prescribed by § 1026.19(e)(3)(i). Pursuant to § 1026.19(f)(2)(v), the creditor does not violate § 1026.19(e)(1)(i) if the creditor refunds the excess to the consumer no later than 60 days after consummation, and the creditor does not violate § 1026.19(f)(1)(i) if the creditor delivers disclosures corrected to reflect the refund of such excess no later than 60 days after consummation. The creditor satisfies these requirements under § 1026.19(f)(2)(v) if it revises the disclosures accordingly and delivers or places them in the mail by November 30. iii. Assume consummation occurs on a Monday and the security instrument is recorded on Tuesday, the day after consummation. During the recording process on Tuesday the settlement agent and the creditor discover that the property is subject to an unpaid $500 nuisance abatement assessment, which was not disclosed pursuant to § 1026.19(f)(1)(i), and learns that pursuant to an agreement with the seller, the $500 assessment will be paid by the seller rather than the consumer. Because the $500 assessment does not result in a change to an amount actually paid by the consumer, the creditor is not required to provide a corrected disclosure pursuant to § 1026.19(f)(2)(iii). However, the assessment will result in a change to an amount actually paid by the seller from the amount disclosed under § 1026.19(f)(4)(i). Pursuant to § 1026.19(f)(4)(ii), the settlement agent must deliver or place in the mail corrected disclosures to the seller no later than 30 days after Tuesday and provide a copy to the creditor pursuant to § 1026.19(f)(4)(iv). iv. Assume consummation occurs on a Monday and the security instrument is recorded on Tuesday, the day after consummation. Assume further that ten days after consummation the municipality in which the property is located raises property tax rates effective after the date on which settlement concludes. Section 1026.19(f)(2)(iii) does not require the creditor to provide the consumer with corrected disclosures because the increase in property tax rates is not in connection with the settlement of the transaction. 2. Per-diem interest. 19(f)(2)(iv) Changes due to clerical errors. 1. Requirements. 19(f)(2)(v) Refunds related to the good faith analysis. 1. Requirements. 19(f)(3) Charges disclosed. 19(f)(3)(i) Actual charge. 1. Requirements. 19(f)(3)(ii) Average charge. 1. Requirements. See 2. Defining the class of transactions. i. Assume a creditor defines a geographic area that contains two subdivisions, one with a median appraisal cost of $200, and the other with a median appraisal cost of $1,000. This geographic area would not satisfy the requirements of § 1026.19(f)(3)(ii) because the cost characteristics of the two populations are dissimilar. However, a geographic area would be appropriately defined if both subdivisions had a relatively normal distribution of appraisal costs, even if the distribution for each subdivision ranges from below $200 to above $1,000. ii. Assume a creditor defines a type of loan that includes two distinct rate products. The median recording fee for one product is $80, while the median recording fee for the other product is $130. This definition of loan type would not satisfy the requirements of § 1026.19(f)(3)(ii) because the cost characteristics of the two products are dissimilar. However, a type of loan would be appropriately defined if both products had a relatively normal distribution of recording fees, even if the distribution for each product ranges from below $80 to above $130. 3. Uniform use. i. Assume a creditor elects to use an average charge for appraisal fees. The creditor defines a class of transactions as all fixed rate loans originated between January 1 and April 30 secured by real property or a cooperative unit located within a particular metropolitan statistical area. The creditor must then charge the average appraisal charge to all consumers obtaining fixed rate loans originated between May 1 and August 30 secured by real property or a cooperative unit located within the same metropolitan statistical area. ii. The example in paragraph i of this comment assumes that a consumer would not be required to pay the average appraisal charge unless an appraisal was required on that particular loan. Using the example above, if a consumer applies for a loan within the defined class, but already has an appraisal report acceptable to the creditor from a prior loan application, the creditor may not charge the consumer the average appraisal fee because an acceptable appraisal report has already been obtained for the consumer's application. Similarly, although the creditor defined the class broadly to include all fixed rate loans, the creditor may not require the consumer to pay the average appraisal charge if the particular fixed rate loan program the consumer applied for does not require an appraisal. 4. Average amount paid. 5. Adjustments based on retrospective analysis required. 6. Adjustments based on prospective analysis permitted, but not required. 7. Charges that vary with loan amount or property value. 8. Prohibited by law. 9. Documentation required. 19(f)(4) Transactions involving a seller. 19(f)(4)(i) Provision to seller. 1. Requirement. 2. Simultaneous subordinate financing. 19(f)(4)(ii) Timing. 1. Requirement. 19(g) Special information booklet at time of application. 19(g)(1) Creditor to provide special information booklet. 1. Revision of booklet. Federal Register. Federal Register. www.consumerfinance.gov/learnmore 2. Multiple applicants. 3. Consumer's application. 19(g)(2) Permissible changes. 1. Reproduction. See also 2. Other permissible changes. 3. Permissible changes to title of booklets in use before October 3, 2015. Federal Register. Section 1026.20 Disclosure Requirements Regarding Post-Consummation Events 20(a) Refinancings 1. Definition. i. 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. ii. 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. 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. For example, a creditor does not add a variable-rate feature by changing the index of a variable-rate transaction from the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index to the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index respectively because the replacement index is a comparable index to the corresponding U.S. Dollar LIBOR index. See the Board-selected benchmark replacement for consumer loans. See 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 § 1026.19(b) also must be given at that time. iv. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the relevant factors to be considered in determining whether a replacement index is comparable to a particular LIBOR index depend on the replacement index being considered and the LIBOR index being replaced. For example, these determinations may need to consider certain aspects of the historical data itself for a particular replacement index, such as whether the replacement index is a backward-looking rate (e.g., historical average of rates) such that timing aspects of the data may need to be adjusted to match up with the particular forward-looking LIBOR term-rate being replaced. The types of relevant factors to establish if a replacement index could meet the “comparable” standard with respect to a particular LIBOR index using historical data or future expectations, include but are not limited to, whether: (1) the movements over time are comparable; (2) the consumers' payments using the replacement index compared to payments using the LIBOR index are comparable if there is sufficient data for this analysis; (3) the index levels are comparable; (4) the replacement index is publicly available; and (5) the replacement index is outside the control of the creditor. The Board-selected benchmark replacement for consumer loans is considered comparable with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. 4. Unearned finance charge. 5. Coverage. Paragraph 20(a)(1) 1. Renewal. i. Accrued unpaid interest is added to the principal balance. ii. Changes are made in the terms of renewal resulting from the factors listed in § 1026.17(c)(3). iii. 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. 20(b) Assumptions 1. General definition. A. A residential mortgage transaction. B. An express acceptance of the subsequent consumer by the creditor. C. A written agreement. ii. 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 § 1026.20(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. 3. Express agreement. Expressly agrees i. Approval of creditworthiness. ii. Notification of a change in records. iii. Mailing of a coupon book to the subsequent consumer. iv. Acceptance of payments from the new consumer. 4. Retention of original consumer. 5. Status of parties. 6. Disclosures. i. The amount financed is the remaining principal balance plus any arrearages or other accrued charges from the original transaction. ii. 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. iii. 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 § 1026.4. If a transaction involves add-on or discount finance charges, the creditor may make abbreviated disclosures, as outlined in § 1026.20(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 § 1026.18(f)(2)(ii) or § 1026.19(b). In such transactions, a creditor may disclose the variable-rate feature solely in accordance with § 1026.18(f)(1). 7. Abbreviated disclosures. annual percentage rate total of payments, annual percentage rate 20(c) Rate adjustments with a corresponding change in payment. 1. Creditors, assignees, and servicers. 2. Loan modifications. 3. Conversions. i.e., Paragraph 20(c)(1)(i). 1. In general. Paragraph 20(c)(1)(ii). 1. Short-term ARMs. 2. First new payment due within 210 days after consummation. 3. Non-adjustable-rate mortgages. i. Shared-equity or shared-appreciation mortgages; ii. Price-level adjusted 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; iii. Graduated-payment mortgages or step-rate transactions; iv. Renewable balloon-payment instruments; and v. Preferred-rate loans. Paragraph 20(c)(2). 1. Timing. Paragraph 20(c)(2)(ii)(A). 1. C urrent and new interest rates. Paragraph 20(c)(2)(iv). 1. Rate limits and foregone interest rate increases. Paragraph 20(c)(2)(v)(B). 1. Application of previously foregone interest rate increases. Paragraph 20(c)(2)(vi). 1. Amortization statement. 2. Amortization payment. Paragraph 20(c)(2)(vii). 1. Prepayment penalty. See also Paragraph 20(c)(3)(i). 1. Format of disclosures. 20(d) Initial rate adjustment. 1. Creditors, assignees, and servicers. 2. Loan modifications. 3. Timing and form of initial rate adjustment. 4. Conversions. i.e., Paragraph 20(d)(1)(i). 1. In general. Paragraph 20(d)(1)(ii). 1. Short-term ARMs. 2. Non-adjustable-rate mortgages. i. Shared-equity or shared-appreciation mortgages; ii. Price-level adjusted 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; iii. Graduated-payment mortgages or step-rate transactions; iv. Renewable balloon-payment instruments; and v. Preferred-rate loans. Paragraph 20(d)(2)(i). 1. Date of the disclosure. Paragraph 20(d)(2)(iii)(A). 1. Current and new interest rates. Paragraph 20(d)(2)(v). 1. Rate limits and foregone interest rate increases. Paragraph 20(d)(2)(vii). 1. Amortization statement. 2. Amortization payment. Paragraph 20(d)(2)(viii). 1. Prepayment penalty. See also Paragraph 20(d)(3)(i). 1. Format of disclosures. 20(e) Escrow account cancellation notice for certain mortgage transactions. 20(e)(1) Scope. 1. Real property or dwelling. See 2. Escrow account established in connection with the consumer's delinquency or default. 3. Termination of the underlying debt obligation. 20(e)(2) Content requirements. 1. Clear and conspicuous standard. Paragraph 20(e)(2)(i). 1. Escrow closing fee. 20(e)(3) Optional information. 1. Optional information permitted. 20(e)(4) Form of disclosures. 1. Grouped and separate. 2. Notice must be in writing in a form that the consumer may keep. 3. Modifications of disclosures. 20(e)(5) Timing. 20(e)(5)(i) Cancellation upon consumer's request. 1. Timing requirements See 20(e)(5)(iii) Receipt of disclosure. 1. Timing of receipt. Section 1026.21—Treatment of Credit Balances Paragraph 21(a) 1. Credit balance. 2. Total balance due. total balance due 3. Timing of refund. i. Refunding any credit balance to the consumer immediately. ii. Refunding any credit balance prior to a written request from the consumer. iii. 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. Section 1026.22—Determination of Annual Percentage Rate 22(a) Accuracy of 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 1/4 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. Bureau tables. Paragraph 22(b)(2) 1. Other calculation tools. 1/8 1/4 22(c) Single Add-On Rate Transactions 1. General rule. 22(d) Certain Transactions Involving Ranges of Balances 1. General rule. Section 1026.23—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. A security interest that is acquired by a contractor who is also extending the credit in the transaction. B. 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. ii. 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. 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. B. All security interests that may arise in connection with the credit transaction are validly waived. C. 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. iii. Although liens arising by operation of law are not considered security interests for purposes of disclosure under § 1026.2, 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 § 1026.18(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. A. Consummation of the transaction. B. Delivery of all material disclosures. C. Delivery to the consumer of the required rescission notice. ii. For example: A. 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. B. 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. A. The expiration of three years after consummation of the transaction. B. Transfer of all the consumer's interest in the property. C. 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. ii. 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. Paragraph 23(b) 23(b)(1) Notice of Right To Rescind 1. Who receives notice. 2. Format. 3. Content. i. A description of the property subject to the security interest. ii. A statement that joint owners may have the right to rescind and that a rescission by one is effective for all. iii. 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. i. Disburse loan proceeds to the consumer. ii. Begin performing services for the consumer. iii. Deliver materials to the consumer. 2. Escrow. 3. Actions during the delay period. i. Prepare the loan check. ii. Perfect the security interest. iii. Prepare to discount or assign the contract to a third party. iv. Accrue finance charges during the delay period. 4. Delay beyond rescission period. A. Waiting a reasonable time after expiration of the rescission period to allow for delivery of a mailed notice. B. Obtaining a written statement from the consumer that the right has not been exercised. ii. 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. Spreader clauses. 8. Converting open-end to closed-end credit. 23(g) Tolerances for Accuracy 1. Example. 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. 2. Example. Section 1026.24—Advertising 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) Advertisement 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 § 1026.24(d). 24(d) Advertisement of Terms That Require Additional Disclosures 1. General rule. 24(d)(1) Triggering Terms 1. Downpayment. downpayment A. Only 5% down. B. As low as $100 down. C. Total move-in costs of $800. ii. This provision applies only if a downpayment is actually required; statements such as no downpayment no trade-in required 2. Payment period. A. 48-month payment terms. B. 30-year mortgage. C. Repayment in as many as 36 monthly installments. ii. 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. A. “Payable in installments of $103.” B. “$25 weekly.” C. “$500,000 loan for just $1,650 per month.” D. “$1,200 balance payable in 10 equal installments.” ii. 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. A. “$500 total cost of credit.” B. “$2 monthly carrying charge.” C. “$50,000 mortgages, 2 points to the borrower.” ii. 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. 24(d)(2) Additional Terms 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 email 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. Subpart D—Miscellaneous Section 1026.25—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. 25(c) Records Related to Certain Requirements for Mortgage Loans. 25(c)(1) Records related to requirements for loans secured by real property or a cooperative unit. 1. Evidence of required actions. 2. Mortgage brokers. 25(c)(2) Records Related to Requirements for Loan Originator Compensation 1. Scope of records of loan originator compensation. i. Records sufficient to evidence payment and receipt of compensation. ii. Compensation agreement. iii. Three-year retention period. 2. Example. 25(c)(3) Records related to minimum standards for transactions secured by a dwelling. 1. Evidence of compliance with repayment ability provisions. 2. Dwelling-secured transactions and prepayment penalties. Section 1026.26—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. Section 1026.27—Language of Disclosures 1. Subsequent disclosures. Section 1026.28—Effect on State Laws 28(a) Inconsistent Disclosure Requirements 1. General. 2. Rules for chapters 1, 2, and 3. i. A state law that requires use of the term finance charge, ii. 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. A state law that requires disclosure of the minimum periodic payment for open-end credit, even though not required by § 1026.7. B. 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.” ii. Similarly, a state law that requires itemization of the amount financed does not automatically contradict the permissive itemization under § 1026.18(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. i. Since the prohibition against giving the state disclosures does not apply until the Bureau makes its determination, the creditor may choose to give state disclosures until the Bureau formally determines that the state law is inconsistent. (The Bureau will provide sufficient time for creditors to revise forms and procedures as necessary to conform to its determinations.) 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 § 1026.17(a)(1). This ability to give state disclosures relieves any uncertainty that the creditor might have prior to Bureau determinations of inconsistency. ii. 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 § 1026.28(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. i. A state law that has a narrower or broader definition of billing error. ii. A state law that requires the creditor to take different steps to resolve errors. iii. 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 § 1026.12(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 § 1026.12(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. i. 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. ii. 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. iii. 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. i. 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. ii. 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. iii. 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. iv. 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. i. 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. ii. 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. iii. Sections 365.070-2 and 408.260-2—Use of the terms time price differential time charge iv. 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. v. 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. i. 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. i. 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. i. Effective October 1, 1986, the Board of Governors determined that the following provision in the state law of Arizona is preempted by the Federal law: A. Section 6-621A.2—Use of the term the total sum of total of payments. ii. 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. i. 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 section 106(a) and § 1026.4(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. i. 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. ii. 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. i. A state law that requires card issuers to offer a grace period or that prohibits certain fees in credit and charge card transactions. ii. 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 §§ 1026.60 and 1026.9(e). iii. 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. Section 1026.29—State Exemptions 29(a) General Rule 1. Classes eligible. 2. Substantial similarity. 3. Adequate enforcement. 4. Exemptions granted. A. Maine. B. Connecticut. C. Massachusetts. D. Oklahoma. E. Wyoming. ii. Although RESPA and its implementing Regulation X do not provide procedures for granting State exemptions, for transactions subject to § 1026.19(e) and (f), compliance with the requirements of §§ 1026.19(e) and (f), 1026.37, and 1026.38 satisfies the requirements of sections 4 and 5 of RESPA (other than the RESPA section 5(c) requirements regarding provision of a list of certified homeownership counselors). If such a transaction is subject to one of the State exemptions previously granted by the Board of Governors and noted in comment 29(a)-4.i above, however, then compliance with the requirements of any State laws and regulations incorporating the requirements of §§ 1026.19(e) and (f), 1026.37, and 1026.38 likewise satisfies the requirements of sections 4 and 5 of RESPA (other than the RESPA section 5(c) requirements regarding provision of a list of certified homeownership counselors) and the provisions of Regulation X (12 CFR part 1024) implementing those sections of RESPA. 29(b) Civil Liability 1. Not eligible for exemption. Section 1026.30—Limitation on Rates 1. Scope of coverage. A. Dwelling-secured credit obligations that require variable-rate disclosures under the regulation because the interest rate may increase during the term of the obligation. B. 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. ii. 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: A. “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.) B. 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.) C. Dwelling-secured fixed-rate closed-end multiple advance transactions in which each advance is disclosed as a separate transaction. D. “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. iii. 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. i. 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 § 1026.3(a).) ii. Creditors subject to this section are only those that fall within the definition of a creditor in § 1026.2(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 generally 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. Subpart E—Special Rules for Certain Home Mortgage Transactions Section 1026.31—General Rules 31(c) Timing of Disclosure 1. Furnishing disclosures. 31(c)(1) Disclosures for high-cost mortgages. 1. Pre-consummation or account opening waiting period. 31(c)(1)(i) Change in Terms 1. Redisclosure required. 2. Premiums or other charges financed at consummation or account opening. 31(c)(1)(ii) Telephone disclosures. 1. Telephone disclosures. 31(c)(1)(iii) Consumer's waiver of waiting period before consummation or account opening. 31(c)(1)(iii) Consumer's waiver of waiting period before consummation or account opening. 1. Modification or waiver. 31(c)(2) Disclosures for Reverse Mortgages 1. Business days. 2. Open-end plans. see 31(d) Basis of Disclosures and Use of Estimates 1. Redisclosure. 31(d)(3) Per-Diem Interest 1. Per-diem interest. 31(h) Corrections and unintentional violations. 1. Notice requirements. 2. Reasonable time. Section 1026.32—Requirements for High-Cost Mortgages 32(a) Coverage Paragraph 32(a)(1). 1. The term high-cost mortgage Paragraph 32(a)(1)(i). 1. Average prime offer rate. High-cost mortgages 2. Comparable transaction. 3. Rate set. Paragraph 32(a)(1)(i)(B). 1. Loan amount less than $50,000. Paragraph 32(a)(1)(ii). 1. Annual adjustment of $1,000 amount. i. For 2015, $1,020, reflecting a 2 percent increase in the CPI-U from June 2013 to June 2014, rounded to the nearest whole dollar. ii. For 2016, $1,017, reflecting a 0.2 percent decrease in the CPI-U from June 2014 to June 2015, rounded to the nearest whole dollar. iii. For 2017, $1,029, reflecting a 1.1 percent increase in the CPI-U from June 2015 to June 2016, rounded to the nearest whole dollar. iv. For 2018, $1,052, reflecting a 2.2 percent increase in the CPI-U from June 2016 to June 2017, rounded to the nearest whole dollar. v. For 2019, $1,077, reflecting a 2.5 percent increase in the CPI-U from June 2017 to June 2018, rounded to the nearest whole dollar. vi. For 2020, $1,099, reflecting a 2 percent increase in the CPI-U from June 2018 to June 2019, rounded to the nearest whole dollar. vii. For 2021, $1,103, reflecting a 0.3 percent increase in the CPI-U from June 2019 to June 2020, rounded to the nearest whole dollar. viii. For 2022, $1,148, reflecting a 4.2 percent increase in the CPI-U from June 2020 to June 2021, rounded to the nearest whole dollar. ix. For 2023, $1,243, reflecting an 8.3 percent increase in the CPI-U from June 2021 to June 2022, rounded to the nearest whole dollar. x. For 2024, $1,305, reflecting a 4.9 percent increase in the CPI-U from June 2022 to June 2023, rounded to the nearest whole dollar. xi. For 2025, $1,348, reflecting a 3.4 percent increase in the CPI-U from June 2023 to June 2024, rounded to the nearest whole dollar. xii. For 2026, $1,380, reflecting a 2.3 percent increase in the CPI-U from June 2024 to June 2025, rounded to the nearest whole dollar. 2. Historical adjustment of $400 amount. i. For 1996, $412, reflecting a 3 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. xviii. For 2013, $625, reflecting a 2.3 percent increase in the CPI-U from June 2011 to June 2012, rounded to the nearest whole dollar. xix. For 2014, $632, reflecting a 1.1 percent increase in the CPI-U from June 2012 to June 2013, rounded to the nearest whole dollar. 3. Applicable threshold. i. For 2015, $20,391, reflecting a 2 percent increase in the CPI-U from June 2013 to June 2014, rounded to the nearest whole dollar. ii. For 2016, $20,350, reflecting a 0.2 percent decrease in the CPI-U from June 2014 to June 2015, rounded to the nearest whole dollar. iii. For 2017, $20,579, reflecting a 1.1 percent increase in the CPI-U from June 2015 to June 2016, rounded to the nearest whole dollar. iv. For 2018, $21,032, reflecting a 2.2 percent increase in the CPI-U from June 2016 to June 2017, rounded to the nearest whole dollar. v. For 2019, $21,549, reflecting a 2.5 percent increase in the CPI-U from June 2017 to June 2018, rounded to the nearest whole dollar. vi. For 2020, $21,980, reflecting a 2 percent increase in the CPI-U from June 2018 to June 2019, rounded to the nearest whole dollar. vii. For 2021, $22,052, reflecting a 0.3 percent increase in the CPI-U from June 2019 to June 2020, rounded to the nearest whole dollar. viii. For 2022, $22,969, reflecting a 4.2 percent increase in the CPI-U from June 2020 to June 2021, rounded to the nearest whole dollar. ix. For 2023, $24,866, reflecting an 8.3 percent increase in the CPI-U from June 2021 to June 2022, rounded to the nearest whole dollar. x. For 2024, $26,092, reflecting a 4.9 percent increase in the CPI-U from June 2022 to June 2023, rounded to the nearest whole dollar. xi. For 2025, $26,968, reflecting a 3.4 percent increase in the CPI-U from June 2023 to June 2024, rounded to the nearest whole dollar. xii. For 2026, $27,592, reflecting a 2.3 percent increase in the CPI-U from June 2024 to June 2025, rounded to the nearest whole dollar. Paragraph 32(a)(1)(iii). 1. Maximum period and amount. See 2. Examples; open-end credit. i. Assume that the terms of a home-equity line of credit with an initial credit limit of $10,000 require the consumer to pay a $500 flat fee if the consumer terminates the plan less than 36 months after account opening. The $500 fee constitutes a prepayment penalty under § 1026.32(b)(6)(ii), and the penalty is greater than 2 percent of the $10,000 initial credit limit, which is $200. Under § 1026.32(a)(1)(iii), the plan is a high-cost mortgage subject to the requirements and restrictions set forth in §§ 1026.32 and 1026.34. ii. Assume that the terms of a home-equity line of credit with an initial credit limit of $10,000 and a ten-year term require the consumer to pay a $200 flat fee if the consumer terminates the plan prior to its normal expiration. The $200 prepayment penalty does not exceed 2 percent of the initial credit limit, but the terms of the agreement permit the creditor to charge the fee more than 36 months after account opening. Thus, under § 1026.32(a)(1)(iii), the plan is a high-cost mortgage subject to the requirements and restrictions set forth in §§ 1026.32 and 1026.34. iii. Assume that, under the terms of a home-equity line of credit with an initial credit limit of $150,000, the creditor may charge the consumer any closing costs waived by the creditor if the consumer terminates the plan less than 36 months after account opening. Assume also that the creditor waived closing costs of $1,000. Bona fide third-party charges comprised $800 of the $1,000 in waived closing costs, and origination charges retained by the creditor or its affiliate comprised the remaining $200. Under § 1026.32(b)(6)(ii), the $800 in bona fide third-party charges is not a prepayment penalty, while the $200 for the creditor's own originations costs is a prepayment penalty. The total prepayment penalty of $200 is less than 2 percent of the initial $150,000 credit limit, and the penalty does not apply if the consumer terminates the plan more than 36 months after account opening. Thus, the plan is not a high-cost mortgage under § 1026.32(a)(1)(iii). 32(a)(2) Exemptions. Paragraph 32(a)(2)(ii). 1. Construction-permanent loans. See also Paragraph 32(a)(2)(iii). 1. Housing Finance Agency. 32(a)(3) Determination of annual percentage rate. 1. In general. 2. Open-end credit. 3. Rates that vary; index rate plus maximum margin. ii. In general, for transactions subject to § 1026.32(a)(3)(ii), the annual percentage rate is determined by adding the index rate in effect on the date that the interest rate for the transaction is set to the maximum margin for the transaction, as set forth in the agreement for the loan or plan. In some cases, a transaction subject to § 1026.32(a)(3)(ii) may have an initial rate that is a premium rate and is higher than the index rate plus the maximum margin as of the date the interest rate for the transaction is set. In such cases, the annual percentage rate is determined based on the initial “premium” rate. iii. The following examples illustrate the rule: A. Assume that the terms of a closed-end, adjustable-rate mortgage loan provide for a fixed, initial interest rate of 2 percent for two years following consummation, after which the interest rate will adjust annually in accordance with an index plus a 2 percent margin. Also assume that the applicable index is 3 percent as of the date the interest rate for the transaction is set, and a lifetime interest rate cap of 15 percent applies to the transaction. Pursuant to § 1026.32(a)(3)(ii), for purposes of determining the annual percentage rate for § 1026.32(a)(1)(i), the interest rate for the transaction is 5 percent (3 percent index rate plus 2 percent margin). B. Assume the same transaction terms set forth in paragraph 3.iii.A, except that an initial interest rate of 6 percent applies to the transaction. Pursuant to § 1026.32(a)(3)(ii), for purposes of determining the annual percentage rate for § 1026.32(a)(1)(i), the interest rate for the transaction is 6 percent. C. Assume that the terms of an open-end credit agreement with a five-year draw period and a five-year repayment period provide for a fixed, initial interest rate of 2 percent for the first year of the repayment period, after which the interest rate will adjust annually pursuant to a publicly-available index outside the creditor's control, in accordance with the limitations applicable to open-end credit plans in § 1026.40(f). Also assume that, pursuant to the terms of the open-end credit agreement, a margin of 2 percent applies because the consumer is employed by the creditor, but that the margin will increase to 4 percent if the consumer's employment with the creditor ends. Finally, assume that the applicable index rate is 3.5 percent as of the date the interest rate for the transaction is set, and a lifetime interest rate cap of 15 percent applies to the transaction. Pursuant to § 1026.32(a)(3)(ii), for purposes of determining the annual percentage rate for § 1026.32(a)(1)(i), the interest rate for the transaction is 7.5 percent (3.5 percent index rate plus 4 percent maximum margin). D. Assume the same transaction terms set forth in paragraph 3.iii.C, except that an initial interest rate of 8 percent applies to the transaction. Pursuant to § 1026.32(a)(3)(ii), for purposes of determining the annual percentage rate for § 1026.32(a)(1)(i), the interest rate for the transaction is 8 percent. 4. Rates that vary other than in accordance with an index. 5. Fixed-rate and -term payment options. 32(b) Definitions. 32(b) Definitions Paragraph 32(b)(1). 1. Known at or before consummation. i. General. ii. Prepayment penalties. iii. Certain mortgage and credit insurance premiums. 1 2. Charges paid by parties other than the consumer. i. Examples—included in points and fees. See ii. Examples—not included in points and fees. iii. Seller's points. iv. Creditor-paid charges. See Paragraph 32(b)(1)(i). 1. General. Paragraph 32(b)(1)(i)(B). 1. Federal and State mortgage insurance premiums and guaranty fees. Paragraph 32(b)(1)(i)(C). 1. Private mortgage insurance premiums. Payable after consummation. 1 ii. Payable at or before consummation. General. 2 i.e., B. Non-refundable premiums. C. Example. 2. Method of paying private mortgage insurance premiums. 2 Paragraph 32(b)(1)(i)(D). 1. Charges not retained by the creditor, loan originator, or an affiliate of either. loan originator 2. Private mortgage insurance. 3. Real estate-related fees. 4. Credit insurance. Paragraph 32(b)(1)(i)(E). 1. Bona fide discount point. bona fide discount point 2. Average prime offer rate. See 3. Example. Paragraph 32(b)(1)(i)(F). 1. Bona fide discount point and average prime offer rate. bona fide discount point average prime offer rate, 2. Example. Paragraph 32(b)(1)(ii). 1. Loan originator compensation—general. 2. Loan originator compensation—attributable to a particular transaction. 3. Loan originator compensation—timing. 4. Loan originator compensation—calculating loan originator compensation in connection with other charges or payments included in the finance charge or made to loan originators. Consumer payments to mortgage brokers. ii. Payments by a mortgage broker to its individual loan originator employee. iii. Creditor's origination fees—loan originator not employed by creditor. 5. Loan originator compensation—calculating loan originator compensation in manufactured home transactions. ii. If the creditor has knowledge that the sales price of a manufactured home includes loan originator compensation, then such compensation can be attributed to the transaction at the time the interest rate is set and therefore is included in points and fees under § 1026.32(b)(1)(ii). However, the creditor is not required to investigate the sales price of a manufactured home to determine if the sales price includes loan originator compensation. iii. As provided in § 1026.32(b)(1)(ii)(D), compensation paid by a manufactured home retailer to its employees is not included in points and fees under § 1026.32(b)(1)(ii). ii. If the creditor has knowledge that the sales price of a manufactured home includes loan originator compensation, then such compensation can be attributed to the transaction at the time the interest rate is set and therefore is included in points and fees under § 1026.32(b)(1)(ii). However, the creditor is not required to investigate the sales price of a manufactured home to determine if the sales price includes loan originator compensation. iii. As provided in § 1026.32(b)(1)(ii)(D), compensation paid by a manufactured home retailer to its employees is not included in points and fees under § 1026.32(b)(1)(ii). Paragraph 32(b)(1)(iii). 1. Other charges. Paragraph 32(b)(1)(iv). 1. Credit insurance and debt cancellation or suspension coverage. 2. Credit property insurance. 3. Life, accident, health, or loss-of-income insurance. Paragraph 32(b)(2). 1. See comment 32(b)(1)-2 for guidance concerning the inclusion in points and fees of charges paid by parties other than the consumer. Paragraph 32(b)(2)(i). 1. Finance charge. Paragraph 32(b)(2)(i)(B). 1. See comment 32(b)(1)(i)(B)-1 for further guidance concerning the exclusion of mortgage insurance premiums payable in connection with any Federal or State agency program. Paragraph 32(b)(2)(i)(C). 1. See comment 32(b)(1)(i)(C)-1 and -2 for further guidance concerning the exclusion of mortgage insurance premiums payable for any guaranty or insurance that protects the creditor against the consumer's default or other credit loss and that is not in connection with any Federal or State agency program. Paragraph 32(b)(2)(i)(D). 1. For purposes of § 1026.32(b)(2)(i)(D), the term loan originator Paragraph 32(b)(2)(i)(E). 1. See comments 32(b)(1)(i)(E)-1 through -3 for further guidance concerning the exclusion of up to two bona fide discount points from points and fees. Paragraph 32(b)(2)(i)(F). 1. See comments 32(b)(1)(i)(F)-1 and -2 for further guidance concerning the exclusion of up to one bona fide discount point from points and fees. Paragraph 32(b)(2)(ii). 1. For purposes of § 1026.32(b)(2)(ii), the term loan originator Paragraph 32(b)(2)(iii). 1. Other charges. Paragraph 32(b)(2)(iv). 1. Credit insurance and debt cancellation or suspension coverage. Paragraph 32(b)(2)(vii). 1. Participation fees. Paragraph 32(b)(2)(viii). 1. Transaction fees to draw down the credit line. 2. Fixed-rate loan option. 32(b)(3) Bona fide discount point. 32(b)(3)(i) Closed-end credit. 1. Definition of bona fide discount point. 32(b)(4) Total loan amount. 32(b)(4)(i) Closed-end credit. 1. Total loan amount; examples. i. If the consumer finances a $300 fee for a creditor-conducted appraisal and pays $400 in prepaid finance charges at closing, the amount financed under § 1026.18(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 § 1026.32(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 § 1026.18(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 § 1026.32(b)(1)(iii). In this case, the amount financed is the same as the total loan amount: $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 unemployment insurance, and pays $400 in prepaid finance charges at closing, the amount financed under § 1026.18(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 § 1026.32(b)(1)(ii), and the $500 insurance premium is added under 1026.32(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. 32(b)(6) Prepayment penalty. 1. Examples of prepayment penalties; closed-end credit transactions. i. A charge determined by treating the loan balance as outstanding for a period of time after prepayment in full and applying the interest rate to such “balance,” even if the charge results from interest accrual amortization used for other payments in the transaction under the terms of the loan contract. “Interest accrual amortization” refers to the method by which the amount of interest due for each period ( e.g., ii. A fee, such as an origination or other loan closing cost, that is waived by the creditor on the condition that the consumer does not prepay the loan. However, the term prepayment penalty does not include a waived bona fide third-party charge imposed by the creditor if the consumer pays all of a covered transaction's principal before the date on which the principal is due sooner than 36 months after consummation. For example, assume that at consummation, the creditor waives $3,000 in closing costs to cover bona fide third-party charges but the terms of the loan agreement provide that the creditor may recoup the $3,000 in waived charges if the consumer repays the entire loan balance sooner than 36 months after consummation. The $3,000 charge is not a prepayment penalty. In contrast, for example, assume that at consummation, the creditor waives $3,000 in closing costs to cover bona fide third-party charges but the terms of the loan agreement provide that the creditor may recoup $4,500, in part to recoup waived charges, if the consumer repays the entire loan balance sooner than 36 months after consummation. The $3,000 that the creditor may impose to cover the waived bona fide third-party charges is not a prepayment penalty, but the additional $1,500 charge is a prepayment penalty and subject to the restrictions under § 1026.43(g). iii. A minimum finance charge in a simple interest transaction. iv. Computing a refund of unearned interest by a method that is less favorable to the consumer than the actuarial method, as defined by section 933(d) of the Housing and Community Development Act of 1992, 15 U.S.C. 1615(d). For purposes of computing a refund of unearned interest, if using the actuarial method defined by applicable State law results in a refund that is greater than the refund calculated by using the method described in section 933(d) of the Housing and Community Development Act of 1992, creditors should use the State law definition in determining if a refund is a prepayment penalty. 2. Fees that are not prepayment penalties; closed-end credit transactions. i. Fees imposed for preparing and providing documents when a loan is paid in full if such fees are imposed whether or not the loan is prepaid. Examples include a loan payoff statement, a reconveyance document, or another document releasing the creditor's security interest in the dwelling that secures the loan. ii. Loan guarantee fees. 3. Examples of prepayment penalties; open-end credit. prepayment penalty prepayment penalty 4. Fees that are not prepayment penalties; open-end credit. i. Fees imposed for preparing and providing documents when an open-end credit plan is terminated, if such fees are imposed whether or not the consumer terminates the plan prior to the end of its term. Examples include a payoff statement, a reconveyance document, or another document releasing the creditor's security interest in the dwelling that secures the line of credit. ii. Loan guarantee fees. iii. Any fee that the creditor may impose in lieu of termination and acceleration under comment 40(f)(2)-2. 32(c)(2) Annual percentage rate. 1. Disclosing annual percentage rate for open-end high-cost mortgages. 32(c)(3) Regular payment; minimum periodic payment example; balloon payment. 1. Balloon payment. Paragraph 32(c)(3)(i). 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.” 32(c)(4) Variable-rate. 1. Calculating “worst-case” payment example. i. The consumer borrows the full credit line at account opening with no additional extensions of credit. ii. The consumer makes only minimum periodic payments during the draw period and any repayment period. iii. If the annual percentage rate may increase during the plan, the maximum annual percentage rate that is included in the contract, as required by § 1026.30, applies to the plan at account opening. 32(c)(5) Amount Borrowed 1. Optional insurance; debt-cancellation coverage. Paragraph 32(d) Limitations 1. Additional prohibitions applicable under other sections. 32(d)(1)(i) Balloon Payment 1. Regular periodic payments. 2. Repayment period. 3. No repayment period. 32(d)(2) Negative Amortization 1. Negative amortization. 32(d)(4) Increased Interest Rate 1. Variable-rate transactions. 32(d)(5) Rebates 1. Calculation of refunds. 32(d)(8) Acceleration of debt. Paragraph 32(d)(8)(i). 1. Fraud or material misrepresentation. 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 be cause for 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 and materially affected in violation of the loan or open-end credit agreement. If the consumer commits waste or otherwise destructively uses or fails to maintain the property, including demolishing or removing structures from the property, such that the action adversely affects the security in a material way, the loan or open-end credit agreement 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 in a material way, the creditor may terminate a loan or open-end credit agreement and accelerate the balance. Section 1026.33—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 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. 33(c)(3) Additional Creditor Compensation 1. Shared appreciation or equity. 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 1026.34—Prohibited Acts or Practices in Connection With High-Cost Mortgages 34(a) Prohibited Acts or Practices for High-Cost Mortgages 34(a)(1) Home-Improvement Contracts Paragraph 34(a)(1)(i) 1. Joint payees. 34(a)(2) Notice to Assignee 1. Subsequent sellers or assignors. 2. Format. 3. Assignee liability. 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 § 1026.23(e) and § 1026.31(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 § 1026.4(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 § 1026.32 to the same borrower) into a loan subject to § 1026.32, 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 § 1026.32. Assume that on April 1, 2003, Creditor A makes but does not assign a second-lien loan subject to § 1026.32. 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 § 1026.32) into another loan subject to § 1026.32 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 § 1026.32, Creditor A is prohibited from refinancing the loan made by Creditor C (or any other loan subject to § 1026.32 to the same borrower) into another loan subject to § 1026.32 until January 15, 2004. Creditor C is similarly prohibited from refinancing any loan subject to § 1026.32 to that borrower into another until March 1, 2004. (The limitations of § 1026.34(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.) Paragraph 34(a)(4) Repayment Ability for High-Cost Mortgages 1. Application of repayment ability rule. 2. General prohibition. 3. Other dwelling-secured obligations. 4. Discounted introductory rates and non-amortizing payments. 5. Repayment ability as of account opening. 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. In general. See 34(a)(4)(iii) Presumption of Compliance 1. In general. Paragraph 34(a)(4)(iii)(B) 1. Determination of payment schedule. Paragraph 34(a)(4)(iii)(C) 1. “Income” and “debt”. 34(a)(4)(iv) Exclusions From Presumption of Compliance 1. In general. 2. Renewable balloon loan. 34(a)(5) Pre-loan counseling. 34(a)(5)(i) Certification of counseling required. 1. HUD-approved counselor. 2. State housing finance authority. 3. Processing applications. 4. Form of certification. 5. Purpose of certification. 34(a)(5)(ii) Timing of counseling. 1. Disclosures for open-end credit plans. 2. Transactions not subject to RESPA or § 1026.40. 3. Initial disclosure. 34(a)(5)(iv) Content of certification. 1. Statement of counseling on advisability. 2. Statement of verification. 34(a)(5)(v) Counseling fees. 1. Financing. 34(a)(5)(vi) Steering prohibited. 1. An example of an action that constitutes steering would be when a creditor repeatedly highlights or otherwise distinguishes the same counselor in the notices the creditor provides to consumers pursuant to § 1026.34(a)(5)(vii). 2. Section 1026.34(a)(5)(vi) does not prohibit a creditor from providing a consumer with objective information related to counselors or counseling organizations in response to a consumer's inquiry. An example of an action that would not constitute steering would be when a consumer asks the creditor for information about the fees charged by a counselor, and the creditor responds by providing the consumer information about fees charged by the counselor to other consumers that previously obtained counseling pursuant to § 1026.34(a)(5). 34(a)(6) Recommended default. 1. Facts and circumstances. 2. Examples. ii. When delay of consummation of a high-cost mortgage occurs for reasons outside the control of a creditor or mortgage broker, that creditor or mortgage broker does not “recommend or encourage” default because the creditor or mortgage broker informed a consumer that: A. The consumer's high-cost mortgage is scheduled to be consummated prior to the due date for the next payment due on the consumer's existing loan, which is intended to be paid by the proceeds of the new high-cost mortgage; and B. Any delay of consummation of the new high-cost mortgage beyond the payment due date of the existing loan will not relieve the consumer of the obligation to make timely payment on that loan. 34(a)(8) Late fees. 34(a)(8)(i) General. 1. For purposes of § 1026.34(a)(8), in connection with an open-end credit plan, the amount of the payment past due is the required minimum periodic payment as provided under the terms of the open-end credit agreement. 34(a)(8)(iii) Multiple late charges assessed on payment subsequently paid. 1. Section 1026.34(a)(8)(iii) prohibits the pyramiding of late fees or charges in connection with a high-cost mortgage payment. For example, assume that a consumer's regular periodic payment of $500 is due on the 1st of each month. On August 25, the consumer makes a $500 payment which was due on August 1, and as a result, a $10 late charge is assessed. On September 1, the consumer makes another $500 payment for the regular periodic payment due on September 1, but does not pay the $10 late charge assessed on the August payment. Under § 1026.34(h)(2), it is impermissible to allocate $10 of the consumer's September 1 payment to cover the late charge, such that the September payment becomes delinquent. In short, because the $500 payment made on September 1 is a full payment for the applicable period and is paid by its due date or within any applicable grace period, no late charge may be imposed on the account in connection with the September payment. 34(a)(8)(iv) Failure to make required payment. 1. Under § 1026.34(a)(8)(iv), if a consumer fails to make one or more required payments and then resumes making payments but fails to bring the account current, it is permissible, if permitted by the terms of the loan contract or open-end credit agreement, to apply the consumer's payments first to the past due payment(s) and to impose a late charge on each subsequent required payment until the account is brought current. To illustrate: Assume that a consumer's regular periodic payment of $500 is due on the 1st of each month, or before the expiration of a 15-day grace period. Also assume that the consumer fails to make a timely installment payment by August 1 (or within the applicable grace period), and a $10 late charge therefore is imposed. The consumer resumes making monthly payments on September 1. Under § 1026.34(a)(8)(iv), if permitted by the terms of the loan contract, the creditor may apply the $500 payment made on September 1 to satisfy the missed $500 payment that was due on August 1. If the consumer makes no other payment prior to the end of the grace period for the payment that was due on September 1, the creditor may also impose a $10 late fee for the payment that was due on September 1. 34(a)(10) Financing of points and fees. 1. Points and fees. 2. Examples of financing points and fees. 34(b) Prohibited acts or practices for dwelling-secured loans; structuring loans to evade high-cost mortgage requirements. 1. Examples. ii. A creditor does not structure a transaction in violation of § 1026.34(b) when a loan to finance the initial construction of a dwelling may be permanently financed by the same creditor, such as a “construction-to-permanent” loan, and the construction phase and the permanent phase are treated as separate transactions. Section 1026.17(c)(6)(ii) permits the creditor to give either one combined disclosure for both the construction financing and the permanent financing, or a separate set of disclosures for each of the two phases as though they were two separate transactions. See also 2. Amount of credit extended. 34(b) Prohibited Acts or Practices for Dwelling-Secured Loans; Open-End Credit 1. Amount of credit extended. Section 1026.35—Requirements for Higher-Priced Mortgage Loans 35(a) Definitions Paragraph 35(a)(1) 1. Comparable transaction. 2. Rate set. 3. Threshold for “jumbo” loans. Paragraph 35(a)(2) 1. Average prime offer rate. 2. Bureau table. see 3. Additional guidance on determination of average prime offer rates. http://www.ffiec.gov/hmda. 35(b) Escrow Accounts 1. Principal dwelling. See 35(b)(1) Requirement to escrow for property taxes and insurance 1. Administration of escrow accounts. 2. Optional insurance items. 3. Transactions not subject to § 1026.35(b)(1). 35(b)(2) Exemptions Paragraph 35(b)(2)(i). 1. Construction-permanent loans. See also Paragraph 35(b)(2)(ii). 1. Limited exemption. 2. Planned unit developments. 3. More than one governing association associated with a dwelling. Paragraph 35(b)(2)(iii) 1. Requirements for exemption. i. During the preceding calendar year, or during either of the two preceding calendar years if the application for the loan was received before April 1 of the current calendar year, a creditor extended a first-lien covered transaction, as defined in § 1026.43(b)(1), secured by a property located in an area that is either “rural” or “underserved,” as set forth in § 1026.35(b)(2)(iv). A. In general, whether the rural-or-underserved test is satisfied depends on the creditor's activity during the preceding calendar year. However, if the application for the loan in question was received before April 1 of the current calendar year, the creditor may instead meet the rural-or-underserved test based on its activity during the next-to-last calendar year. This provides creditors with a grace period if their activity meets the rural-or-underserved test (in § 1026.35(b)(2)(iii)(A)) in one calendar year but fails to meet it in the next calendar year. B. A creditor meets the rural-or-underserved test for any higher-priced mortgage loan consummated during a calendar year if it extended a first-lien covered transaction in the preceding calendar year secured by a property located in a rural-or-underserved area. If the creditor does not meet the rural-or-underserved test in the preceding calendar year, the creditor meets this condition for a higher-priced mortgage loan consummated during the current calendar year only if the application for the loan was received before April 1 of the current calendar year and the creditor extended a first-lien covered transaction during the next-to-last calendar year that is secured by a property located in a rural or underserved area. The following examples are illustrative: 1. 2. ii. The creditor and its affiliates together extended no more than 2,000 covered transactions, as defined in § 1026.43(b)(1), secured by first liens, that were sold, assigned, or otherwise transferred by the creditor or its affiliates to another person, or that were subject at the time of consummation to a commitment to be acquired by another person, during the preceding calendar year or during either of the two preceding calendar years if the application for the loan was received before April 1 of the current calendar year. For purposes of § 1026.35(b)(2)(iii)(B), a transfer of a first-lien covered transaction to “another person” includes a transfer by a creditor to its affiliate. A. In general, whether this condition is satisfied depends on the creditor's activity during the preceding calendar year. However, if the application for the loan in question is received before April 1 of the current calendar year, the creditor may instead meet this condition based on activity during the next-to-last calendar year. This provides creditors with a grace period if their activity falls at or below the threshold in one calendar year but exceeds it in the next calendar year. B. For example, assume that in 2015 a creditor and its affiliates together extended 1,500 loans that were sold, assigned, or otherwise transferred by the creditor or its affiliates to another person, or that were subject at the time of consummation to a commitment to be acquired by another person, and 2,500 such loans in 2016. Because the 2016 transaction activity exceeds the threshold but the 2015 transaction activity does not, the creditor satisfies this condition for exemption for a higher-priced mortgage loan consummated during 2017 if the creditor received the application for the loan before April 1, 2017, but does not satisfy this condition for a higher-priced mortgage loan consummated during 2017 if the application for the loan was received on or after April 1, 2017. C. For purposes of § 1026.35(b)(2)(iii)(B), extensions of first-lien covered transactions, during the applicable time period, by all of a creditor's affiliates, as “affiliate” is defined in § 1026.32(b)(5), are counted toward the threshold in this section. “Affiliate” is defined in § 1026.32(b)(5) as “any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq. iii. As of the end of the preceding calendar year, or as of the end of either of the two preceding calendar years if the application for the loan was received before April 1 of the current calendar year, the creditor and its affiliates that regularly extended covered transactions secured by first liens, together, had total assets that are less than the applicable annual asset threshold. A. For purposes of § 1026.35(b)(2)(iii)(C), in addition to the creditor's assets, only the assets of a creditor's “affiliate” (as defined by § 1026.32(b)(5)) that regularly extended covered transactions (as defined by § 1026.43(b)(1)) secured by first liens, are counted toward the applicable annual asset threshold. See B. Only the assets of a creditor's affiliate that regularly extended first-lien covered transactions during the applicable period are included in calculating the creditor's assets. The meaning of “regularly extended” is based on the number of times a person extends consumer credit for purposes of the definition of “creditor” in § 1026.2(a)(17). Because covered transactions are “transactions secured by a dwelling,” consistent with § 1026.2(a)(17)(v), an affiliate regularly extended covered transactions if it extended more than five covered transactions in a calendar year. Also consistent with § 1026.2(a)(17)(v), because a covered transaction may be a high-cost mortgage subject to § 1026.32, an affiliate regularly extends covered transactions if, in any 12-month period, it extends more than one covered transaction that is subject to the requirements of § 1026.32 or one or more such transactions through a mortgage broker. Thus, if a creditor's affiliate regularly extended first-lien covered transactions during the preceding calendar year, the creditor's assets as of the end of the preceding calendar year, for purposes of the asset limit, take into account the assets of that affiliate. If the creditor, together with its affiliates that regularly extended first-lien covered transactions, exceeded the asset limit in the preceding calendar year—to be eligible to operate as a small creditor for transactions with applications received before April 1 of the current calendar year—the assets of the creditor's affiliates that regularly extended covered transactions in the year before the preceding calendar year are included in calculating the creditor's assets. C. If multiple creditors share ownership of a company that regularly extended first-lien covered transactions, the assets of the company count toward the asset limit for a co-owner creditor if the company is an “affiliate,” as defined in § 1026.32(b)(5), of the co-owner creditor. Assuming the company is not an affiliate of the co-owner creditor by virtue of any other aspect of the definition (such as by the company and co-owner creditor being under common control), the company's assets are included toward the asset limit of the co-owner creditor only if the company is controlled by the co-owner creditor, “as set forth in the Bank Holding Company Act.” If the co-owner creditor and the company are affiliates (by virtue of any aspect of the definition), the co-owner creditor counts all of the company's assets toward the asset limit, regardless of the co-owner creditor's ownership share. Further, because the co-owner and the company are mutual affiliates the company also would count all of the co-owner's assets towards its own asset limit. See D. A creditor satisfies the criterion in § 1026.35(b)(2)(iii)(C) for purposes of any higher-priced mortgage loan consummated during 2016, for example, if the creditor (together with its affiliates that regularly extended first-lien covered transactions) had total assets of less than the applicable asset threshold on December 31, 2015. A creditor that (together with its affiliates that regularly extended first-lien covered transactions) did not meet the applicable asset threshold on December 31, 2015, satisfies this criterion for a higher-priced mortgage loan consummated during 2016 if the application for the loan was received before April 1, 2016, and the creditor (together with its affiliates that regularly extended first-lien covered transactions) had total assets of less than the applicable asset threshold on December 31, 2014. E. Under § 1026.35(b)(2)(iii)(C), the $2,000,000,000 asset threshold adjusts automatically each year based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars. The Bureau will publish notice of the asset threshold each year by amending this comment. For calendar year 2026, the asset threshold is $2,785,000,000. A creditor that together with the assets of its affiliates that regularly extended first-lien covered transactions during calendar year 2025 has total assets of less than $2,785,000,000 on December 31, 2025, satisfies this criterion for purposes of any loan consummated in 2026 and for purposes of any loan consummated in 2027 for which the application was received before April 1, 2027. For historical purposes: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. iv. The creditor and its affiliates do not maintain an escrow account for any mortgage transaction being serviced by the creditor or its affiliate at the time the transaction is consummated, except as provided in § 1026.35(b)(2)(iii)(D)( 1 2 1 2 1 2 1 2 Paragraph 35(b)(2)(iii)(D)(1) 1. Exception for certain accounts. 2 2 Paragraph 35(b)(2)(iii)(D)(2) 1. Exception for post-consummation escrow accounts for distressed consumers. 2 Paragraph 35(b)(2)(iv). 1. Requirements for “rural” or “underserved” status. See i. Under § 1026.35(b)(2)(iv)(A), an area is rural during a calendar year if it is: A county that is neither in a metropolitan statistical area nor in a micropolitan statistical area that is adjacent to a metropolitan statistical area; or a census block that is not in an urban area, as defined by the U.S. Census Bureau using the latest decennial census of the United States. Metropolitan statistical areas and micropolitan statistical areas are defined by the Office of Management and Budget and applied under currently applicable Urban Influence Codes (UICs), established by the United States Department of Agriculture's Economic Research Service (USDA-ERS). For purposes of § 1026.35(b)(2)(iv)(A)( 1 1 http://www.ers.usda.gov/data-products/urban-influence-codes/documentation.aspx. ii. Under § 1026.35(b)(2)(iv)(B), an area is underserved during a calendar year if, according to Home Mortgage Disclosure Act (HMDA) data for the preceding calendar year, it is a county in which no more than two creditors extended covered transactions, as defined in § 1026.43(b)(1), secured by first liens, five or more times on properties in the county. Specifically, a county is an “underserved” area if, in the applicable calendar year's public HMDA aggregate dataset, no more than two creditors have reported five or more first-lien covered transactions, with HMDA geocoding that places the properties in that county. iii. A. Each calendar year, the Bureau applies the “underserved” area test and the “rural” area test to each county in the United States. If a county satisfies either test, the Bureau will include the county on a list of counties that are rural or underserved as defined by § 1026.35(b)(2)(iv)(A)( 1 B. A property is deemed to be in a rural or underserved area according to the definitions in § 1026.35(b)(2)(iv) during a particular calendar year if it is identified as such by an automated tool provided on the Bureau's public website. A printout or electronic copy from the automated tool provided on the Bureau's public website designating a particular property as being in a rural or underserved area may be used as “evidence of compliance” that a property is in a rural or underserved area, as defined in § 1026.35(b)(2)(iv)(A) and (B), for purposes of the record retention requirements in § 1026.25. C. The U.S. Census Bureau may provide on its public website an automated address search tool that specifically indicates if a property is located in an urban area for purposes of the Census Bureau's most recent delineation of urban areas. For any calendar year that began after the date on which the Census Bureau announced its most recent delineation of urban areas, a property is deemed to be in a rural area if the search results provided for the property by any such automated address search tool available on the Census Bureau's public website do not designate the property as being in an urban area. A printout or electronic copy from such an automated address search tool available on the Census Bureau's public website designating a particular property as not being in an urban area may be used as “evidence of compliance” that the property is in a rural area, as defined in § 1026.35(b)(2)(iv)(A), for purposes of the record retention requirements in § 1026.25. D. For a given calendar year, a property qualifies for a safe harbor if any of the enumerated safe harbors affirms that the property is in a rural or underserved area or not in an urban area. For example, the Census Bureau's automated address search tool may indicate a property is in an urban area, but the Bureau's rural or underserved counties list indicates the property is in a rural or underserved county. The property in this example is in a rural or underserved area because it qualifies under the safe harbor for the rural or underserved counties list. The lists of counties posted on the Bureau's public website, the automated tool on its public website, and the automated address search tool available on the Census Bureau's public website, are not the exclusive means by which a creditor can demonstrate that a property is in a rural or underserved area as defined in § 1026.35(b)(2)(iv)(A) and (B). However, creditors are required to retain “evidence of compliance” in accordance with § 1026.25, including determinations of whether a property is in a rural or underserved area as defined in § 1026.35(b)(2)(iv)(A) and (B). 2. Examples. Federal Register see Qualifying Urban Areas for the 2010 Census, ii. A county is considered an “underserved” area for a given calendar year based on the most recent available HMDA data. For example, assume a creditor makes first-lien covered transactions in County Y during calendar year 2016, and the most recent HMDA data are for calendar year 2015, published in the third quarter of 2016. The creditor will use the 2015 HMDA data to determine “underserved” area status for County Y in calendar year 2016 for the purposes of qualifying for the “rural or underserved” exemption for any higher-priced mortgage loans consummated in calendar year 2017 or for any higher-priced mortgage loan consummated during 2018 for which the application was received before April 1, 2018. Paragraph 35(b)(2)(v). 1. Forward commitments. Paragraph 35(b)(2)(vi). 1. For guidance on applying the grace periods for determining asset size or transaction thresholds under § 1026.35(b)(2)(vi)(A), (B) and (C), the rural or underserved requirement, or other aspects of the exemption in § 1026.35(b)(2)(vi) not specifically discussed in the commentary to § 1026.35(b)(2)(vi), an insured depository institution or insured credit union may refer to the commentary to § 1026.35(b)(2)(iii), while allowing for differences between the features of the two exemptions. Paragraph 35(b)(2)(vi)(A) 1. The asset threshold in § 1026.35(b)(2)(vi)(A) will adjust automatically each year, based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars. Unlike the asset threshold in § 1026.35(b)(2)(iii) and the other thresholds in § 1026.35(b)(2)(vi), affiliates are not considered in calculating compliance with this threshold. The Bureau will publish notice of the asset threshold each year by amending this comment. For calendar year 2026, the asset threshold is $12,485,000,000. A creditor that is an insured depository institution or insured credit union that during calendar year 2025 had assets of $12,485,000,000 or less on December 31, 2025, satisfies this criterion for purposes of any loan consummated in 2026 and for purposes of any loan secured by a first lien on a principal dwelling of a consumer consummated in 2027 for which the application was received before April 1, 2027. For historical purposes: 1. 2. 3. 4. 5. Paragraph 35(b)(2)(vi)(B) 1. The transaction threshold in § 1026.35(b)(2)(vi)(B) differs from the transaction threshold in § 1026.35(b)(2)(iii)(B) in two ways. First, the threshold in § 1026.35(b)(2)(vi)(B) is 1,000 loans secured by first liens on a principal dwelling, while the threshold in § 1026.35(b)(2)(iii)(B) is 2,000 loans secured by first liens on a dwelling. Second, all loans made by the creditor and its affiliates secured by a first lien on a principal dwelling count toward the 1,000-loan threshold in § 1026.35(b)(2)(vi)(B), whether or not such loans are held in portfolio. By contrast, under § 1026.35(b)(2)(iii)(B), only loans secured by first liens on a dwelling that were sold, assigned, or otherwise transferred to another person, or that were subject at the time of consummation to a commitment to be acquired by another person, are counted toward the 2,000-loan threshold. 35(b)(3) Cancellation. 1. Termination of underlying debt obligation. 2. Minimum durations. 3. Less than eighty percent unpaid principal balance. 35(c)—Appraisals 35(c)(1) Definitions 35(c)(1)(i) Certified or Licensed Appraiser 1. USPAP. 2. Appraiser's certification. 3. FIRREA title XI and implementing regulations. 35(c)(2) Exemptions 1. Compliance with title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Paragraph 35(c)(2)(i) 1. Qualified mortgage criteria. i. The loan is—(1) subject to the Bureau's ability-to-repay requirements in § 1026.43 as a “covered transaction” (defined in § 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 § 1026.43 as a “covered transaction” (defined in § 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 § 1026.43(a) are not “covered transactions” under the Bureau's ability-to-repay requirements in § 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 § 1026.43, see, e.g., See See Paragraph 35(c)(2)(ii) 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 35(c)(2)(iii) 1. Secured by a mobile home. Paragraph 35(c)(2)(iv) 1. Construction-to-permanent loans. See See 2. Financing initial construction. See Paragraph 35(c)(2)(vii)(A)( 1 1. Same credit risk holder. See 1 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 § 1026.35(c)(2)(vii), 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 § 1026.35(c)(2)(vii), 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. 1 Paragraph 35(c)(2)(vii)(B) 1. Regular periodic payments. see Paragraph 35(c)(2)(vii)(C) 1. Permissible use of proceeds. For applications received on or after July 18, 2015 Paragraph 35(c)(2)(viii)(A) 1. Secured by new manufactured home and land—physical visit of the interior. Paragraph 35(c)(2)(viii)(B) 1. Secured by a manufactured home and not land. Paragraph 35(c)(2)(viii)(B)( 2 1. Independent. 2 2. Adjustments. Paragraph 35(c)(2)(viii)(C)( 3 1. Interest in the property. 2. Interest in the transaction. 3. Training in valuing manufactured homes. 4. Manufactured home valuation—example. 3 35(c)(3) Appraisals Required 35(c)(3)(i) In General 1. Written appraisal—electronic transmission. 35(c)(3)(ii) Safe Harbor. 1. Safe harbor. 2. Appraiser's certification. See also Paragraph 35(c)(3)(ii)(C) 1. Confirming elements in the appraisal. 35(c)(4) Additional Appraisal for Certain Higher-Priced Mortgage Loans 1. Acquisition. 35(c)(4)(i) 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 35(c)(4)(ii) Different Certified or Licensed Appraisers 1. Independent appraisers. 35(c)(4)(iii) Relationship to General Appraisal Requirements 1. Safe harbor. 35(c)(4)(iv) Required Analysis in the Additional Appraisal 1. Determining acquisition dates and prices used in the analysis of the additional appraisal. 35(c)(4)(v) No Charge for Additional Appraisal 1. Fees and mark-ups. 35(c)(4)(vi) Creditor's Determination of Prior Sale Date and Price 35(c)(4)(vi)(A) 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 § 1026.35(c)(4)(i)(B). Before extending a higher-priced mortgage loan subject to the appraisal requirements of § 1026.35(c), the creditor must either: (1) Perform additional diligence to ascertain the seller's acquisition price and, based on this information, determine whether two written appraisals are required; or (2) obtain two written appraisals in compliance with § 1026.35(c)(4). 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 § 1026.35(c)(4)(i)(B). Before extending a higher-priced mortgage loan subject to the appraisal requirements of § 1026.35(c), the creditor must either: perform additional diligence to ascertain the seller's acquisition date and, based on this information, determine whether two written appraisals are required; or obtain two written appraisals in compliance with § 1026.35(c)(4). See also 35(c)(4)(vi)(B) Inability To Determine Prior Sales Date or Price—Modified Requirements for Additional Appraisal 1. Required analysis. 35(c)(4)(vii) Exemptions From the Additional Appraisal Requirement Paragraph 35(c)(4)(vii)(C) 1. Non-profit entity. Paragraph 35(c)(4)(vii)(H) 1. Bureau table of rural counties. See 35(c)(5) Required Disclosure 35(c)(5)(i) In General 1. Multiple applicants. 2. Appraisal independence requirements not affected. 35(c)(6) Copy of Appraisals 35(c)(6)(i) In General 1. Multiple applicants. 35(c)(6)(ii) Timing 1. “Provide.” 2. No waiver. 35(c)(6)(iv) No Charge for Copy Of Appraisal 1. Fees and mark-ups. 35(e) Rules for Higher-Priced Mortgage Loans Paragraph 35(e)(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 § 1026.35(e)(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. Section 1026.36—Prohibited Acts or Practices and Certain Requirements for Credit Secured by a Dwelling 36(a) Definitions 1. Meaning of loan originator. General. 1. 2. 3. 4. 5. B. The term “loan originator” includes employees, agents, and contractors of a creditor as well as employees, agents, and contractors of a mortgage broker that satisfy this definition. C. The term “loan originator” includes any creditor that satisfies the definition of loan originator but makes use of “table funding” by a third party. See comment 36(a)-1.ii discussing table funding. Solely for purposes of § 1026.36(f) and (g) concerning loan originator qualifications, the term loan originator includes any creditor that satisfies the definition of loan originator, even if the creditor does not make use of table funding. Such a person is a creditor, not a loan originator, for general purposes of this part, including the provisions of § 1026.36 other than § 1026.36(f) and (g). D. A “loan originator organization” is a loan originator other than a natural person. The term includes any legal person or organization such as a sole proprietorship, trust, partnership, limited liability partnership, limited partnership, limited liability company, corporation, bank, thrift, finance company, or credit union. An “individual loan originator” is limited to a natural person. (Under § 1026.2(a)(22), the term “person” means a natural person or an organization.) E. The term “loan originator” does not include consumers who obtain extensions of consumer credit on their own behalf. ii. Table funding. bona fide bona fide iii. Servicing. iv. Real estate brokerage. e.g., v. Third-party advisors. 2. Meaning of mortgage broker. 3. Meaning of creditor. 4. Managers, administrative and clerical staff. i. Application-related administrative and clerical tasks. ii. Responding to consumer inquiries and providing general information. A. Provide general explanations, information, or descriptions in response to consumer queries, such as explaining credit terminology or lending policies or who confirm written offer terms already transmitted to the consumer; B. As employees of a creditor or loan originator, provide loan originator or creditor contact information of the loan originator or creditor entity for which he or she works, or of a person who works for that the same entity to a consumer, provided that the person does not discuss particular credit terms that are or may be available from a creditor or loan originator to that consumer selected based on the consumer's financial characteristics and does not direct the consumer, based on his or her assessment of the consumer's financial characteristics, to a particular loan originator or particular creditor seeking to originate credit transactions to consumers with those financial characteristics; C. Describe other product-related services (for example, persons who describe optional monthly payment methods via telephone or via automatic account withdrawals, the availability and features of online account access, the availability of 24-hour customer support, or free mobile applications to access account information); or D. Explain or describe the steps that a consumer would need to take to obtain an offer of credit, including providing general guidance on qualifications or criteria that would need to be met that is not specific to that consumer's circumstances. iii. Loan processing. A. Compile and assemble credit application packages and supporting documentation; B. Verify information provided by the consumer in a credit application such as by asking the consumer for supporting documentation or the consumer's authorization for the person to obtain supporting documentation from other persons; C. Coordinate consummation of the credit transaction or other aspects of the credit transaction process, including by communicating with a consumer about process deadlines and documents needed at consummation, provided that any communication that includes a discussion about credit terms available from a creditor to that consumer selected based on the consumer's financial characteristics only confirms credit terms already agreed to by the consumer; D. Provide a consumer with information unrelated to credit terms, such as the best days of the month for scheduling consummation; or E. Communicate on behalf of a loan originator that a written credit offer has been sent to a consumer without providing any details of that offer. iv. Underwriting, credit approval, and credit pricing. A. Receive and evaluate a consumer's information to make underwriting decisions on whether a consumer qualifies for an extension of credit and communicate decisions to a loan originator or creditor, provided that only a loan originator communicates such underwriting decisions to the consumer; B. Approve particular credit terms or set particular credit terms available from a creditor to that consumer selected based on the consumer's financial characteristics in offer or counter-offer situations, provided that only a loan originator communicates to or with the consumer regarding these credit terms, an offer, or provides or engages in negotiation, a counter-offer, or approval conditions; or C. Establish credit pricing that the creditor offers generally to the public, via advertisements or other marketing or via other persons that are loan originators. v. Producing managers. 5. 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. See iv. Amounts for charges for services that are not loan origination activities. 1. 2. 3. See B. Compensation includes any salaries, commissions, and any financial or similar incentive to an individual loan originator, regardless of whether it is labeled as payment for services that are not loan origination activities. C. Loan origination activities for purposes of this comment means activities described in § 1026.36(a)(1)(i) ( e.g., v. Amounts that exceed the actual charge for a service. 3 A. Assume a loan originator organization receives compensation directly from either a consumer or a creditor. Further assume the loan originator organization uses average charge pricing in accordance with the Real Estate Settlement Procedures Act and, based on its past average cost for credit reports, charges the consumer $25 for a credit report provided by a third party. Under the loan originator organization's agreement with the consumer reporting agency, the cost of the credit report is to be paid in a month-end bill and will vary between $15 and $35 depending on how many credit reports the originator obtains that month. Assume the $25 for the credit report is paid by the consumer or is paid by the creditor with proceeds from a rebate. At the end of the month, the cost for the credit report is determined to be $15 for this consumer's transaction, based on the loan originator organization's credit report volume that month. In this case, the $10 difference between the $25 credit report fee imposed on the consumer and the actual $15 cost for the credit report is not compensation for purposes of § 1026.36, even though the $10 is retained by the loan originator organization. B. Using the same example as in comment 36(a)-5.v.A, the $10 difference would be compensation for purposes of § 1026.36 if the price for a credit report varies between $10 and $15. vi. Returns on equity interests and dividends on equity holdings. 36(a)(1)(i)(B) Employee of a retailer of manufactured homes. 1. The definition of loan originator does not include an employee of a manufactured home retailer that “assists” a consumer in obtaining or applying for consumer credit as defined in comment 36(a)-1.i.A. 3, i. Generally describing the credit application process to a consumer without advising on credit terms available from a creditor. ii. Preparing residential mortgage loan packages, which means compiling and processing loan application materials and supporting documentation, and providing general application instructions to consumers so consumers can complete an application, without interacting or communicating with the consumer regarding transaction terms, but not filling out a consumer's application, inputting the information into an online application or other automated system, or taking information from the consumer over the phone to complete the application. iii. Collecting information on behalf of the consumer with regard to a residential mortgage loan. Collecting information “on behalf of the consumer” would include gathering information or supporting documentation from third parties on behalf of the consumer to provide to the consumer, for the consumer then to provide in the application or for the consumer to submit to the loan originator or creditor. iv. Providing or making available general information about creditors or loan originators that may offer financing for manufactured homes in the consumer's general area, when doing so does not otherwise amount to “referring” as defined in comment 36(a)-1.i.A. 1. 36(a)(4) Seller Financers; Three Properties 1. Reasonable ability to repay safe harbors. 2. Adjustable rate safe harbors. Annual rate increase. ii. Lifetime increase. 36(a)(5) Seller Financers; One Property 1. Adjustable rate safe harbors. 36(b) Scope. 1. Scope of coverage. 36(c) Servicing Practices Paragraph 36(c)(1)(i) 1. Crediting of payments. as of 2. Method of crediting periodic payments. 3. Date of receipt. 4. Temporary loss mitigation programs. 5. Permanent loan modifications. Paragraph 36(c)(1)(ii). 1. Handling of partial payments. i. Credit the partial payment upon receipt. ii. Return the partial payment to the consumer. iii. Hold the payment in a suspense or unapplied funds account. If the payment is held in a suspense or unapplied funds account, this fact must be reflected on future periodic statements, in accordance with § 1026.41(d)(3). When sufficient funds accumulate to cover a periodic payment, as defined in § 1026.36(c)(1)(i), they must be treated as a periodic payment received in accordance with § 1026.36(c)(1)(i). Paragraph 36(c)(1)(iii). 1. Payment requirements. See 2. Payment requirements—Limitations. 3. Implied guidelines for payments. Paragraph 36(c)(2). 1. Pyramiding of late fees. Paragraph 36(c)(3). 1. Person acting on behalf of the consumer. 2. Payment requirements. 3. Accuracy of payoff statements. 36(d) Prohibited Payments to Loan Originators 1. Persons covered. 2. Mortgage brokers. 36(d)(1) Payments Based on a Term of a Transaction 1. Compensation that is “based on” a term of a transaction. Objective facts and circumstances. ii. Single or multiple transactions. A. Assume that a creditor pays a bonus to an individual loan originator out of a bonus pool established with reference to the creditor's profits and the profits are determined with reference to the creditor's revenue from origination of closed-end consumer credit transactions secured by a dwelling. In such instance, the bonus is considered compensation that is based on the terms of multiple transactions by multiple individual loan originators. Therefore, the bonus is prohibited under § 1026.36(d)(1)(i), unless it is otherwise permitted under § 1026.36(d)(1)(iv). B. Assume that an individual loan originator's employment contract with a creditor guarantees a quarterly bonus in a specified amount conditioned upon the individual loan originator meeting certain performance benchmarks (e.g., volume of originations monthly). A bonus paid following the satisfaction of those contractual conditions is not directly or indirectly based on the terms of a transaction by an individual loan originator, the terms of multiple transactions by that individual loan originator, or the terms of multiple transactions by multiple individual loan originators under § 1026.36(d)(1)(i) as clarified by this comment 36(d)(1)-1.ii, because the creditor is obligated to pay the bonus, in the specified amount, regardless of the terms of transactions of the individual loan originator or multiple individual loan originators and the effect of those terms of multiple transactions on the creditor's profits. Because this type of bonus is not directly or indirectly based on the terms of multiple transactions by multiple individual loan originators, as described in § 1026.36(d)(1)(i) (as clarified by this comment 36(d)(1)-1.ii), it is not subject to the 10-percent total compensation limit described in § 1026.36(d)(1)(iv)(B)( 1 iii. Transaction term defined. e.g., A. The rights and obligations, or part of any rights or obligations, memorialized in a promissory note or other credit contract, as well as the security interest created by a mortgage, deed of trust, or other security instrument, and in any document incorporated by reference in the note, contract, or security instrument; B. The payment of any loan originator or creditor fees or charges for the credit, or for a product or service provided by the loan originator or creditor related to the extension of that credit, imposed on the consumer, including any fees or charges financed through the interest rate; and C. The payment of any fees or charges imposed on the consumer, including any fees or charges financed through the interest rate, for any product or service required to be obtained or performed as a condition of the extension of credit. D. The fees and charges described above in paragraphs B and C can only be a term of a transaction if the fees or charges are required to be disclosed in the Good Faith Estimate, the HUD-1, or the HUD-1A (and subsequently in any integrated disclosures promulgated by the Bureau under TILA section 105(b) (15 U.S.C. 1604(b)) and RESPA section 4 (12 U.S.C. 2603) as amended by sections 1098 and 1100A of the Dodd-Frank Act). 2. Compensation that is or is not based on a term of a transaction or a proxy for a term of a transaction. e.g., i. Permissible methods of compensation. A. The loan originator's overall dollar volume ( i.e., B. The long-term performance of the originator's loans. C. An hourly rate of pay to compensate the originator for the actual number of hours worked. D. Whether the consumer is an existing customer of the creditor or a new customer. E. A payment that is fixed in advance for every loan the originator arranges for the creditor ( e.g., F. The percentage of applications submitted by the loan originator to the creditor that results in consummated transactions. G. The quality of the loan originator's loan files ( e.g., ii. Proxies for terms of a transaction. A. Assume a creditor pays a loan originator a higher commission for transactions to be held by the creditor in portfolio than for transactions sold by the creditor into the secondary market. The creditor holds in portfolio only extensions of credit that have a fixed interest rate and a five-year term with a final balloon payment. The creditor sells into the secondary market all other extensions of credit, which typically have a higher fixed interest rate and a 30-year term. Thus, whether an extension of credit is held in portfolio or sold into the secondary market for this creditor consistently varies with the interest rate and whether the credit has a five-year term or a 30-year term (which are terms of the transaction) over a significant number of transactions. Also, the loan originator has the ability to change the factor by, for example, advising the consumer to choose an extension of credit a five-year term. Therefore, under these circumstances, whether or not an extension of credit will be held in portfolio is a proxy for a term of a transaction. B. Assume a loan originator organization pays loan originators higher commissions for transactions secured by property in State A than in State B. For this loan originator organization, over a significant number of transactions, transactions in State B have substantially lower interest rates than transactions in State A. The loan originator, however, does not have any ability to influence whether the transaction is secured by property located in State A or State B. Under these circumstances, the factor that affects compensation (the location of the property) is not a proxy for a term of a transaction. iii. Pooled compensation. 3. Interpretation of § 1026.36(d)(1)(iii) and (iv). i. Designated tax-advantaged plans. ii. Non-deferred profits-based compensation plans. i.e., iii. Compensation that is not directly or indirectly based on the terms of multiple transactions by multiple individual loan originators. iv. Compensation based on terms of an individual loan originator's transactions. v. Compensation under non-deferred profits-based compensation plans. 1 1 A. Total compensation. 1 B. Profits of the Person. 1 C. Time period for which the compensation under the non-deferred profits-based compensation plan is paid and to which the total compensation corresponds. 1 i.e., i.e., i.e., i.e., D. Awards of merchandise, services, trips, or similar prizes or incentives. 1 1 E. Compensation determined only with reference to non-mortgage-related business profits. 1 1 F. Additional examples. 1. 1 i.e., 2. 1 G. Reasonable reliance by individual loan originator on accounting or statement by person paying compensation. 1 1 vi. Individual loan originators who originate ten or fewer transactions. 2 2 2 1 4. Creditor's flexibility in setting loan terms. 5. Effect of modification of transaction terms. 6. Periodic changes in loan originator compensation and terms of transactions. 7. Permitted decreases in loan originator compensation. i. Assume that a consumer agrees to lock an interest rate with a creditor in connection with the financing of a purchase-money transaction. A title issue with the property being purchased delays closing by one week, which in turn causes the rate lock to expire. The consumer desires to re-lock the interest rate. Provided that the title issue was unforeseen, the loan originator may decrease the loan originator's compensation to pay for all or part of the rate-lock extension fee. ii. Assume that when applying the tolerance requirements under the regulations implementing RESPA sections 4 and 5(c), there is a tolerance violation of $70 that must be cured. Provided the violation was unforeseen, the rule is not violated if the individual loan originator's compensation decreases to pay for all or part of the amount required to cure the tolerance violation. 8. Record retention. See 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 10. Amount of credit extended under a reverse mortgage. i. The maximum proceeds available to the consumer under the loan; or ii. The maximum claim amount as defined in 24 CFR 206.3 if the mortgage is subject to 24 CFR part 206, or the appraised value of the property, as determined by the appraisal used in underwriting the loan, if the mortgage is not subject to 24 CFR part 206. 36(d)(2) Payments by Persons Other Than Consumer 36(d)(2)(i) Dual Compensation 1. Compensation in connection with a particular transaction. 2. Compensation received directly from a consumer. ii. Funds from the creditor that will be applied to reduce the consumer's settlement charges, including origination fees paid by a creditor to the loan originator, that are characterized on the disclosures made pursuant to the Real Estate Settlement Procedures Act as a “credit” are nevertheless not considered to be received by the loan originator directly from the consumer for purposes of § 1026.36(d)(2)(i). iii. Section 1026.36(d)(2)(i)(B) provides that compensation received directly from a consumer includes payments to a loan originator made pursuant to an agreement between the consumer and a person other than the creditor or its affiliates, under which such other person agrees to provide funds toward the consumer's costs of the transaction (including loan originator compensation). Compensation to a loan originator is sometimes paid on the consumer's behalf by a person other than a creditor or its affiliates, such as a non-creditor seller, home builder, home improvement contractor or real estate broker or agent. Such payments to a loan originator are considered compensation received directly from the consumer for purposes of § 1026.36(d)(2) if they are made pursuant to an agreement between the consumer and the person other than the creditor or its affiliates. State law determines whether there is an agreement between the parties. See See 36(d)(3) Affiliates 1. For purposes of § 1026.36(d), affiliates are treated as a single “person.” The term “affiliate” is defined in § 1026.32(b)(2). For example, assume a parent company has two mortgage lending subsidiaries. Under § 1026.36(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. 36(e)(1) General 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 1026.36(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 1026.36(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 § 1026.36(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, § 1026.36(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 § 1026.36(d)(1), and compliance with that provision by such a loan originator also satisfies the requirements of § 1026.36(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 § 1026.36(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 uses 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 uses the highest rate that would apply during the first five years. 4. Transactions for which the consumer likely qualifies. 36(f) Loan Originator Qualification Requirements 1. Scope. 2. Licensing and registration requirements. 3. No effect on licensing and registration requirements. Paragraph 36(f)(1) 1. Legal existence and foreign qualification. Paragraph 36(f)(2) 1. License or registration. www.nmlsconsumeraccess.org. Paragraph 36(f)(3) 1. Unlicensed individual loan originators. Paragraph 36(f)(3)(i) 1. Criminal and credit histories. 2. Retroactive obtaining of information not required. Paragraph 36(f)(3)(ii) Paragraph 36(f)(3)(ii). 1. Scope of review. 2. Retroactive determinations not required. 3. Subsequent determinations. Paragraph 36(f)(3)(ii)(B) 1. Financial responsibility, character, and general fitness. 2. Written procedures for making determinations. Paragraph 36(f)(3)(iii) 1. Training. 36(g) Name and NMLSR ID on Loan Documents Paragraph 36(g)(1) 1. NMLSR ID. 2. Loan originators without NMLSR IDs. 3. Inclusion of name and NMLSR ID. Paragraph 36(g)(1)(ii) 1. Multiple individual loan originators. 36(i) Prohibition on financing credit insurance. 1. Financing credit insurance premiums or fees. 36(k) Negative amortization counseling. 36(k)(1) Counseling required. 1. HUD-certified or -approved counselor or counseling organization. 2. Homeownership counseling. 3. Documentation. 4. Processing applications. 36(k)(3) Steering prohibited. 1. See comments 34(a)(5)(vi)-1 and -2 for guidance concerning steering. Section 1026.37—Content of Disclosures for Certain Mortgage Transactions (Loan Estimate) 1. Disclosures not applicable. 2. Format. 37(a) General information. 37(a)(3) Creditor. 1. Multiple creditors. 2. Mortgage broker as loan originator. See 37(a)(4) Date issued. 1. Applicable date. 2. Mortgage broker as loan originator. 37(a)(5) Applicants. 1. Multiple consumers. 37(a)(6) Property. 1. Alternate property address. 2. Personal property. 3. Multiple properties. 37(a)(7) Sale price. 1. Estimated property value. 2. Personal property. 37(a)(8) Loan term. 1. Partial years. i. Terms to maturity of 24 months or more. ii. Terms to maturity of less than 24 months. 2. Adjustable loan term. i.e., 3. Loan term start date. 37(a)(9) Purpose. 1. General. i. Purchase. ii. Refinance. iii. Construction. iv. Home equity loan. 2. Refinance coverage. See 37(a)(10) Product. 1. No features. i. Adjustable rate. A. No introductory period. B. Introductory period not yet known. ii. Step rate. iii. Fixed rate. 2. Additional features. i. Negative amortization. e.g., ii. Interest only. e.g., iii. Step payment. e.g., iv. Balloon payment. v. Seasonal payment. 3. Periods not in whole years. i. Terms of 24 months or more. ii. Terms of less than 24 months. iii. Adjustments more frequent than monthly. 37(a)(11) Loan type 1. Other. e.g., 37(a)(12) Loan identification number (Loan ID # ) 1. Unique identifier. i.e., 37(a)(13) Rate lock 1. Interest rate. 2. Expiration date. See 3. Time zone. i.e., 4. Revised disclosures. See 37(b) Loan terms 1. Legal obligation. 37(b)(2) Interest rate. 1. Interest rate at consummation not known. i.e., 37(b)(3) Principal and interest payment 1. Frequency of principal and interest payment. See 2. Initial periodic payment if not known. 37(b)(4) Prepayment penalty 1. Transaction includes a prepayment penalty. i.e., 2. Examples of prepayment penalties. i. A charge determined by treating the loan balance as outstanding for a period of time after prepayment in full and applying the interest rate to such “balance,” even if the charge results from interest accrual amortization used for other payments in the transaction under the terms of the loan contract. “Interest accrual amortization” refers to the method by which the amount of interest due for each period ( e.g., ii. A fee, such as an origination or other loan closing cost, that is waived by the creditor on the condition that the consumer does not prepay the loan. See comment 37(b)(4)-3.iii below for additional guidance regarding waived bona fide third-party charges imposed by the creditor if the consumer pays all of a covered transaction's principal before the date on which the principal is due sooner than 36 months after consummation. iii. A minimum finance charge in a simple interest transaction. iv. Computing a refund of unearned interest by a method that is less favorable to the consumer than the actuarial method, as defined by section 933(d) of the Housing and Community Development Act of 1992, 15 U.S.C. 1615(d). For purposes of computing a refund of unearned interest, if using the actuarial method defined by applicable State law results in a refund that is greater than the refund calculated by using the method described in section 933(d) of the Housing and Community Development Act of 1992, creditors should use the State law definition in determining if a refund is a prepayment penalty. 3. Fees that are not prepayment penalties. i. Fees imposed for preparing and providing documents when a loan is paid in full, if such fees are imposed whether or not the loan is prepaid. Examples include a loan payoff statement, a reconveyance document, or another document releasing the creditor's security interest in the dwelling that secures the loan. ii. Loan guarantee fees. iii. A waived bona fide third-party charge imposed by the creditor if the consumer pays all of a covered transaction's principal before the date on which the principal is due sooner than 36 months after consummation. For example, assume that at consummation, the creditor waives $3,000 in closing costs to cover bona fide third-party charges but the terms of the loan agreement provide that the creditor may recoup the $3,000 in waived charges if the consumer repays the entire loan balance sooner than 36 months after consummation. The $3,000 charge is not a prepayment penalty. In contrast, for example, assume that at consummation, the creditor waives $3,000 in closing costs to cover bona fide third-party charges but the terms of the loan agreement provide that the creditor may recoup $4,500 in part to recoup waived charges, if the consumer repays the entire loan balance sooner than 36 months after consummation. The $3,000 that the creditor may impose to cover the waived bona fide third-party charges is not a prepayment penalty, but the additional $1,500 charge is a prepayment penalty and must be disclosed pursuant to § 1026.37(b)(4). 4. Rebate of finance charge. 5. Additional guidance. 37(b)(5) Balloon payment 1. Regular periodic payment. i. For example, assume that, under a 15-year step rate mortgage, the loan contract provides for scheduled monthly payments of $300 each during the years one through three and scheduled monthly payments of $700 each during years four through 15. If an irregular payment of $1,000 is scheduled during the final month of year 15, that payment is disclosed as a balloon payment under § 1026.37(b)(5), because it is more than two times the regular periodic payment amount of $300 during years one through three. This is the case even though the irregular payment is not more than two times the regular periodic payment of $700 per month during years four through fifteen. The $700 monthly payments during years four through fifteen are not balloon payments even though they are more than two times the regular periodic payments during years one through three, because they are regular periodic payments. ii. If the loan has an adjustable rate under which the regular periodic payments may increase after consummation, but the amounts of such payment increases (if any) are unknown at the time of consummation, then the regular periodic payments are based on the fully-indexed rate, except as otherwise determined by any premium or discounted rates, the application of any interest rate adjustment caps, or any other known, scheduled rates under the terms specified in the loan contract. For analogous guidance, see comments 17(c)(1)-8 and -10. Similarly, if a loan has an adjustable interest rate which does not adjust the regular periodic payment but would, if the rate increased, increase only the final payment, the amount of the final payment for purposes of the balloon payment determination is based on the fully-indexed rate, except as otherwise determined by any premium or discounted rate caps, or any other known, scheduled rates under the terms specified in the loan contract. For example, assume that, under a 30-year adjustable rate mortgage, (1) the loan contract requires monthly payments of $300 during years one through five, (2) the loan contract permits interest rate increases every three years starting in the sixth year up to the fully-indexed rate, subject to caps on interest rate adjustments specified in the loan contract, (3) based on the application of the interest rate adjustment caps, the interest rate may increase to the fully-indexed rate starting in year nine, and (4) the monthly payment based on the fully-indexed rate is $700. The regular periodic payments during years one through five are $300 per month, because they are known and scheduled. The regular periodic payments during years six through eight are up to $700 per month, based on the fully-indexed rate but subject to the application of interest rate adjustment caps specified under the loan contract. The regular periodic payments during years nine through thirty are $700, based on the fully-indexed rate. Therefore, if an irregular payment of $1,000 is scheduled during the final month of year 30, that payment is disclosed as a balloon payment under § 1026.37(b)(5), because it is more than two times the regular periodic payment amount of $300 during years one through five. This is the case even though the irregular payment is not more than two times the regular periodic payment during years nine through thirty ( i.e., iii. For a loan with a negative amortization feature, the regular periodic payment does not take into account the possibility that the consumer may exercise an option to make a payment greater than the scheduled periodic payment specified under the terms of the loan contract, if any. iv. A final payment that differs from other regular periodic payments because of rounding to account for payment amounts including fractions of cents is still a regular periodic payment and need not be disclosed as a balloon payment under § 1026.37(b)(5). v. The disclosure of balloon payments in the “Projected Payments” table under § 1026.37(c) is governed by that section and its commentary, rather than § 1026.37(b)(5), except that the determination, as a threshold matter, of whether a payment disclosed under § 1026.37(c) is a balloon payment is made in accordance with § 1026.37(b)(5) and its commentary. 2. Single and double payment transactions. 37(b)(6) Adjustments after consummation 1. Periods not in whole years. 37(b)(6)(i) Adjustment in loan amount 1. Additional information regarding adjustment in loan amount. 37(b)(6)(ii) Adjustment in interest rate 1. Additional information regarding adjustment in interest rate. 2. Interest rates that adjust at multiple intervals. 37(b)(6)(iii) Increase in periodic payment 1. Additional information regarding increase in periodic payment. 2. Periodic principal and interest payments that adjust at multiple intervals. 37(b)(7) Details about prepayment penalty and balloon payment Paragraph 37(b)(7)(i) 1. Maximum prepayment penalty. 2. Additional information regarding prepayment penalty. Paragraph 37(b)(7)(ii) 1. Additional information regarding balloon payment. 37(b)(8) Timing 1. Whole years. 2. Periods not in whole years. 37(c) Projected payments 1. Definitions. 2. Construction loans. 37(c)(1) Periodic payment or range of payments Paragraph 37(c)(1)(i) 1. Periodic payments. 2. Initial periodic payment or range of payments. Paragraph 37(c)(1)(i)(A). 1. Periodic principal and interest payments. 2. Negative amortization. 3. Interest only. Paragraph 37(c)(1)(i)(B). 1. Balloon payment. Paragraph 37(c)(1)(i)(C). 1. General. 2. Calculation of mortgage insurance termination. 3. Disclosure of mortgage insurance termination. Paragraph 37(c)(1)(i)(D). 1. Anniversary of the due date of initial periodic payment. Paragraph 37(c)(1)(ii). Paragraph 37(c)(1)(ii)(A). 1. Special rule regarding balloon payments that are final payments. 2. Example. Paragraph 37(c)(1)(ii)(B). 1. Special rule regarding disclosure of the automatic termination of mortgage insurance. i.e., 2. Examples of special rule regarding disclosure of the automatic termination of mortgage insurance. ii. Assume the same loan as above, except that the terms of the legal obligation also provide for a third interest rate adjustment that would occur after 15 years. The creditor would disclose on the table required by § 1026.37(c) the initial periodic payment for years one through five (reflecting the principal and interest payment corresponding to the introductory interest rate and payments for mortgage insurance premiums), an additional separate periodic payment or range of payments for years six through 10 (reflecting the principal and interest payment corresponding to the interest rate that would apply after the first interest rate adjustment and no payments for mortgage insurance premiums), an additional separate periodic payment or range of payments for years 11 through 15 (reflecting the principal and interest payment corresponding to the interest rate that would apply after the second interest rate adjustment), and an additional separate periodic payment or range of payments for years 16 through 30 (reflecting the principal and interest payment corresponding to the interest rate that would apply after the third interest rate adjustment until the end of the loan term). In this example, the automatic termination of mortgage insurance would not be separately disclosed on the table required by § 1026.37(c) because the total number of separate periodic payments or ranges of payments otherwise disclosed pursuant to § 1026.37(c)(1) exceeds three. However, the creditor would disclose the termination of mortgage insurance beginning with the periodic payment or range of payments for years six through 10, which is the next disclosed event requiring disclosure of additional separate periodic payments or ranges of payments. Paragraph 37(c)(1)(iii). 1. Ranges of payments. Paragraph 37(c)(1)(iii)(B). 1. Multiple events occurring in a single year. i. Assume a loan with a 30-year term with a payment that adjusts every month for the first 12 months and is fixed thereafter, where mortgage insurance is not required, and where no escrow account would be established for the payment of charges described in § 1026.37(c)(4)(ii). The creditor discloses as a single range of payments the initial periodic payment and the periodic payment that would apply after each payment adjustment during the first 12 months, which single range represents the minimum payment and maximum payment, respectively. Under § 1026.37(c)(1)(i)(D), the creditor also discloses, as an additional separate periodic payment or range of payments, the periodic principal and interest payment or range of payments that would apply after the payment becomes fixed. ii. Assume instead a loan with a 30-year term with a payment that adjusts upward at three months and at six months and is fixed thereafter, where mortgage insurance is not required, and where no escrow account would be established for the payment of charges described in § 1026.37(c)(4)(ii). The creditor discloses as a single range of payments the initial periodic payment, the periodic payment that would apply after the payment adjustment that occurs at three months, and the periodic payment that would apply after the payment adjustment that occurs at six months, which single range represents the minimum payment and maximum payment, respectively, which would apply during the first year of the loan. Under § 1026.37(c)(1)(i)(D), the creditor also discloses as an additional separate periodic payment or range of payments, the principal and interest payment that would apply on the first anniversary of the due date of the initial periodic payment or range of payments, because that is the anniversary that immediately follows the occurrence of the multiple payments or ranges of payments that occurred during the first year of the loan. iii. Assume that the same loan has a payment that, instead of becoming fixed after the adjustment at six months, adjusts once more at 18 months and becomes fixed thereafter. The creditor discloses the same single range of payments for year one. Under § 1026.37(c)(1)(i)(D), the creditor separately discloses the principal and interest payment that would apply on the first anniversary of the due date of the initial periodic payment in year two. Under § 1026.37(c)(1)(i)(A) and (c)(3)(ii), beginning in the next year in the sequence ( i.e., Paragraph 37(c)(1)(iii)(C). 1. Adjustable rate mortgages. 37(c)(2) Itemization. Paragraph 37(c)(2)(i). 1. General rule for adjustable rate loans. 2. Special rule for adjustable rate loans with negative amortization features. 3. Disclosure of balloon payment amounts. see Paragraph 37(c)(2)(ii). 1. Mortgage insurance disclosure. 2. Relationship to principal and interest disclosure. Paragraph 37(c)(2)(iii). 1. Escrow disclosure. 37(c)(3) Subheadings. Paragraph 37(c)(3)(ii). 1. Years. i. Assume a fixed rate loan with a term of 124 months (10 years, four months). The creditor would label the disclosure of periodic payments as “Years 1-11.” ii. Assume a loan with a 30-year term that does not require mortgage insurance and requires interest only payments for the first 60 months from the due date of the initial periodic payment, then requires fixed, fully amortizing payments of principal and interest beginning at the 61st month for the duration of the loan, the creditor would label the first disclosure of periodic payments as “Years 1-5” (including the term “only interest” pursuant to § 1026.37(c)(2)(i)) and the second disclosure of periodic payments or range of payments as “Years 6-30.” If that loan requires interest only payments for the first 54 months from the due date of the initial periodic payment, then requires fixed, fully amortizing payments of principal and interest for the duration of the loan, because the change in the periodic payment occurs on a date other than the anniversary of the due date of the initial periodic payment and the previous payment applies during that year, the creditor would likewise label the first disclosure of periodic payments as “Years 1-5” (including the term “only interest” pursuant to § 1026.37(c)(2)(i)) and the second disclosure of periodic payments or range of payments as “Years 6-30.” If the loan that requires interest only payments for the first 54 months also requires mortgage insurance that would automatically terminate under applicable law after the 100th month from the due date of the initial periodic payment, the creditor would label the first disclosure of periodic payments as “Years 1-5” (including the term “only interest” pursuant to § 1026.37(c)(2)(i)), the second disclosure of periodic payments or range of payments as “Years 6-9,” and the third disclosure of periodic payments or range of payments as “Years 10-30.” 2. Loans with variable terms. See 37(c)(4) Taxes, insurance, and assessments. Paragraph 37(c)(4)(ii). 1. Definition of taxes, insurance, and assessments. Paragraph 37(c)(4)(iv). 1. Description of other amounts. 2. Amounts paid by the creditor using escrow account funds. 37(d) Costs at closing. 37(d)(2) Optional alternative table for transactions without a seller or for simultaneous subordinate financing. 1. Optional use. 2. Method of indication. 37(f) Closing cost details; loan costs. 1. General description. 2. Mortgage broker. 3. Construction loan inspection and handling fees. See 37(f)(1) Origination charges. 1. Origination charges. 2. Indirect loan originator compensation. 3. Description of charges. 4. Points. 5. Itemization. 37(f)(2) Services you cannot shop for. 1. Services disclosed. 2. Examples of charges. 3. Title insurance services. i. Examination and evaluation, based on relevant law and title insurance underwriting principles and guidelines, of the title evidence to determine the insurability of the title being examined and what items to include or exclude in any title commitment and policy to be issued; ii. Preparation and issuance of the title commitment or other document that discloses the status of the title as it is proposed to be insured, identifies the conditions that must be met before the policy will be issued, and obligates the insurer to issue a policy of title insurance if such conditions are met; iii. Resolution of underwriting issues and taking the steps needed to satisfy any conditions for the issuance of the policies; iv. Preparation and issuance of the policy or policies of title insurance; and v. Premiums for any title insurance coverage for the benefit of the creditor. 4. Lender's title insurance policy. 37(f)(3) Services you can shop for. 1. Services disclosed. 2. Example of charges. 3. Title insurance. 37(f)(5) Item descriptions and ordering. 1. Clear and conspicuous standard. 37(f)(6) Use of addenda. 1. State law disclosures. See 2. Reference to addendum. 3. Addendum for post-consummation inspection and handling fees. See See 37(g) Closing cost details; other costs. 1. General description. 2. Charges pursuant to property contract. See also 37(g)(1) Taxes and other government fees. 1. Recording fees. 2. Other government charges. 3. Transfer taxes—terminology. 4. Transfer taxes—consumer. 5. Transfer taxes—seller. 6. Deletion and addition of items. 37(g)(2) Prepaids. 1. Examples. i. Real estate property taxes due within 60 days after consummation of the transaction; ii. Past-due real estate property taxes; iii. Mortgage insurance premiums; iv. Flood insurance premiums; and v. Homeowner's insurance premiums. 2. Interest rate. 3. Terminology. 4. Deletion of items. 37(g)(3) Initial escrow payment at closing. 1. Listed item not charged. 2. Aggregate escrow account calculation. 3. Terminology. 4. Deletion of items. 5. Escrowed tax payments for different time frames. 37(g)(4) Other. 1. Owner's title insurance policy rate. 2. Simultaneous title insurance premium rate in purchase transactions. i. The title insurance premium for a lender's title policy is based on the full premium rate, consistent with § 1026.37(f)(2) or (f)(3). ii. The owner's title insurance premium is calculated by taking the full owner's title insurance premium, adding the simultaneous issuance premium for the lender's coverage, and then deducting the full premium for lender's coverage. 3. Designation of optional items. 4. Examples. 37(g)(6) Total closing costs. Paragraph 37(g)(6)(ii). 1. Lender credits. See 2. Credits or rebates from the creditor to offset a portion or all of the closing costs. 37(g)(7) Item descriptions and ordering. 1. Clear and conspicuous standard. 37(g)(8) Use of addenda. 1. State law disclosures. See 37(h) Calculating cash to close. 37(h)(1) For all transactions. 1. Labels for amounts disclosed. 2. Simultaneous subordinate financing. 37(h)(1)(ii) Closing costs financed. 1. Calculation of amount. 2. Loan amount. 37(h)(1)(iii) Down payment and other funds from borrower. 1. Down payment and funds from borrower calculation. 1 2. Funds for borrower. 2 2 37(h)(1)(iv) Deposit. 1. Section 1026.37(h)(1)(iv)(A) requires disclosure of a deposit in a purchase transaction. The deposit to be disclosed under § 1026.37(h)(1)(iv)(A) is any amount that the consumer has agreed to pay to a party identified in the real estate purchase and sale agreement to be held until consummation of the transaction, which is often referred to as an earnest money deposit. In a purchase transaction in which no such deposit is paid in connection with the transaction, § 1026.37(h)(1)(iv)(A) requires the creditor to disclose $0. In any other type of transaction, § 1026.37(h)(1)(iv)(B) requires disclosure of the deposit amount as $0. 37(h)(1)(v) Funds for borrower. 1. No funds for borrower. 1 2. Total amount of existing debt satisfied in the transaction. 2 37(h)(1)(vi) Seller credits. 1. Non-specific seller credits to be disclosed. i.e., 2. Seller credits for specific charges. i.e., 37(h)(1)(vii) Adjustments and other credits. 1. Other credits known at the time the Loan Estimate is issued. 2. Persons that may make payments causing adjustment and other credits. 3. Credits. 4. Other credits to be disclosed. 5. Proceeds from subordinate financing or other source. 6. Reduction in amounts for adjustments. 1 2 1 37(h)(1)(viii) Estimated cash to close. 1. Result of cash to close calculation. 37(h)(2) Optional alternative calculating cash to close table for transactions without a seller or for simultaneous subordinate financing. 1. Optional use. 37(h)(2)(iii) Payoffs and payments. 1. Examples. 2. Disclosure of subordinate financing. First-lien Loan Estimate. ii. Simultaneous subordinate financing Loan Estimate. 37(h)(2)(iv) Cash to or from consumer. 1. Method of indication. 37(h)(2)(v) Closing costs financed. 1. Limitation on amount disclosed. 37(i) Adjustable payment table. 1. When table is not permitted to be disclosed. 2. Periods to be disclosed. i. Period from date of consummation. ii. Period during middle of loan term. iii. Multiple successive periods. iv. Seasonal payments. 37(i)(5) Principal and interest payments. 1. Statement of periodic payment frequency. See 2. Initial payment adjustment unknown. 3. Subsequent changes. 4. Maximum payment. 5. Payments that do not pay principal. i.e., 37(j) Adjustable interest rate table. 1. When table is not permitted to be disclosed. 37(j)(1) Index and Margin 1. Index and margin. 37(j)(2) Increases in interest rate. 1. Adjustments not based on an index. 37(j)(3) Initial interest rate. 1. Interest rate at consummation. 37(j)(4) Minimum and maximum interest rate. 1. Minimum interest rate. 2. Maximum interest rate. 37(j)(5) Frequency of adjustments. 1. Exact month unknown. 37(j)(6) Limits on interest rate changes. 1. Different limits on subsequent interest rate adjustments. 37(k) Contact information. 1. NMLSR ID. i.e., 2. License number or unique identifier. 3. Contact. 4. Email address and phone number. 37(l) Comparisons. 37(l)(1) In five years. 1. Loans with terms of less than five years. Paragraph 37(l)(1)(i). 1. Calculation of total payments in five years. 2. Negative amortization loans. Paragraph 37(l)(1)(ii). 1. Calculation of principal paid in five years. 37(l)(3) Total interest percentage. 1. General. 2. Adjustable rate and step rate mortgages. 3. Negative amortization loans. 37(m) Other considerations. 37(m)(1) Appraisal. 1. Applicability. 2. Consummation. 37(m)(2) Assumption. 1. Disclosure. 2. Original terms. 37(m)(3) Homeowner's insurance. 1. Optional disclosure. 2. Relation to the finance charge. 37(m)(4) Late payment. 1. Definition. 2. Applicability of State law. 37(m)(6) Servicing. 1. Creditor's intent. 37(m)(7) Liability after foreclosure. 1. When statement is not permitted to be disclosed. 37(m)(8) Construction loans. 1. Clear and conspicuous statement regarding redisclosure for construction loans. 37(n) Signature statement. 1. Signature line optional. 2. Multiple consumers. 3. Consumer's name. 37(o) Form of disclosures. 37(o)(1) General requirements. 1. Clear and conspicuous; segregation. 2. Balloon payment financing with leasing characteristics. 37(o)(2) Headings and labels. 1. Estimated amounts. 37(o)(3) Form. 1. Non-federally related mortgage loans. 37(o)(4) Rounding. 1. Rounding. 2. Calculations. See also 37(o)(4)(i) Nearest dollar. Paragraph 37(o)(4)(i)(A). 1. Rounding of dollar amounts. Paragraph 37(o)(4)(i)(B). 1. Rounding of loan amount. Paragraph 37(o)(4)(i)(C). 1. Rounding of the total monthly payment. 37(o)(4)(ii) Percentages. 1. Decimal places. 37(o)(5) Exceptions. 1. Permissible changes. 2. Manual completion. 3. Contact information. 4. Unit-period. 5. Additional page. 6. Translation. 37(p) PACE Transactions. 37(p)(5) Late Payment 1. For purposes of § 1026.37(p)(5), a charge is specific to the PACE transaction if the property tax collector does not impose the same charges for general property tax delinquencies. 37(p)(7) Exceptions 37(p)(7)(ii) PACE Nomenclature 1. Wherever § 1026.37 requires disclosure of the word “PACE” or form H-24(H) of appendix H uses the term “PACE,” § 1026.37(p)(7)(ii) permits a creditor to substitute the name of a specific PACE financing program that will be recognizable to the consumer in lieu of the term “PACE.” The name of a specific PACE financing program will not be recognizable to the consumer unless it is used consistently in financing documents for the PACE transaction and any marketing materials provided to the consumer. For example, if the name XYZ Financing is used in marketing materials and financing documents for the PACE transaction provided to the consumer, such that XYZ Financing will be recognizable to the consumer, the creditor may substitute the name XYZ Financing for PACE on the Loan Estimate. Section 1026.38—Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure) 1. Disclosures not applicable. 2. Format. 3. Good faith requirement. See 4. Reductions in principal balance. i. Principal reduction not paid with closing funds. ii. Principal reduction paid with closing funds. 38(a) General information. 38(a)(3) Closing information. 38(a)(3)(i) Date issued. 1. Applicable date. 38(a)(3)(iii) Disbursement date. 1. Simultaneous subordinate financing disbursement date. 38(a)(3)(iv) Settlement agent. 1. Entity name. 38(a)(3)(v) File number. 1. Alpha-numeric characters. 38(a)(3)(vi) Property. 1. Alternative property. 2. Multiple properties. 38(a)(3)(vii) Sale price. 1. No seller. 2. Personal property. 38(a)(4) Transaction information. 1. Multiple borrowers and sellers. 2. No seller transactions or simultaneous subordinate financing transactions. See also 3. Multiple creditors. 4. Consumers. 38(a)(5) Loan information. 1. General. 38(a)(5)(v) Loan identification number. 1. Same identification number as Loan Estimate. 38(b) Loan terms. 1. Guidance. 38(c) Projected payments. 1. In general. 38(c)(1) Projected payments or range of payments. 1. Escrow account analysis. 38(d) Costs at closing. 38(d)(2) Alternative table for transactions without a seller or for simultaneous subordinate financing. 1. Required use. 2. Method of indication. 38(e) Alternative calculating cash to close table for transactions without a seller or for simultaneous subordinate financing. 1. Required use. 2. More prominent disclosures. 3. Statements of differences. See 4. Statements that the consumer should see details. 5. Statement of increase or decrease. 6. Estimated amounts. 38(e)(1) Loan amount. Paragraph 38(e)(1)(iii)(A). 1. Statements of increases or decreases. 38(e)(2) Total closing costs. Paragraph 38(e)(2)(i). 1. Reference to disclosure of total closing costs. Paragraph 38(e)(2)(iii)(A). 1. Statements and references regarding the total loan costs and total other costs. i. For example, if an increase in the “Total Closing Costs” is attributable only to an increase in the appraisal fee (which is an itemized charge on the Closing Disclosure under the subheading “Services Borrower Did Not Shop For,” itself under the heading “Loan Costs”), then a statement is given under the subheading “Did this change?” that the consumer should see the total loan costs subtotal disclosed on the Closing Disclosure under § 1026.38(f)(4). If the increase in “Total Closing Costs” is attributable only to an increase in recording fees (which is an itemized charge on the Closing Disclosure under the subheading “Taxes and Other Government Fees,” itself under the heading “Other Costs”), then a statement is given under the subheading “Did this change?” that the consumer should see the total other costs subtotal disclosed on the Closing Disclosure under § 1026.38(g)(5). If, however, the increase is attributable in part to an increase in the appraisal fee and in part to an increase in the recording fee, then a statement is given under the subheading “Did this change?” that the consumer should see the total loan costs and total other costs subtotals disclosed on the Closing Disclosure under § 1026.38(f)(4) and (g)(5). ii. For guidance regarding the requirement that this statement be accompanied by a reference to the disclosures of the total loan costs and total other costs under § 1026.38(f)(4) and (g)(5), see comment 38(e)(2)(i)-1. For an example of such reference, see form H-25 of appendix H to this part. 2. Disclosure of excess amounts above limitations on increases in closing costs. i. Because certain closing costs, individually, are generally subject to the limitations on increases in closing costs under § 1026.19(e)(3)(i) ( e.g., e.g., ii. Under § 1026.38(e)(2)(iii)(A), calculation of the excess amounts above the limitations on increases in closing costs takes into account that the itemized, estimated closing costs disclosed on the Loan Estimate will not result in charges to the consumer if the service is not actually provided at or before consummation. For example, if the Loan Estimate included under “Services You Cannot Shop For” a $30 charge for a “title courier fee,” but the title company elects to hand-deliver the title documents package to the creditor at no charge, the $30 fee is not factored into the calculation of the “Total Closing Costs” that are subject to the limitations on increases in closing costs. However, if the title courier fee was assessed, but at only $15, the charge is factored into the calculation because the third party service was actually provided, albeit at a lower amount than estimated. For an example, see form H-25 of appendix H to this part. iii. Under § 1026.38(e)(2)(iii)(A), calculation of the excess amounts above the limitations on increases in closing costs takes into account that certain itemized charges listed on the Loan Estimate under the subheading “Services You Can Shop For” may be subject to different limitations depending on the circumstances. Although § 1026.19(e)(3)(iii) provides exceptions to the general rule, such a charge would generally be subject to the limitations under § 1026.19(e)(3)(i) if the consumer decided to use a provider affiliated with the creditor. However, the same charge would instead be subject to the limitations under § 1026.19(e)(3)(ii) if the consumer selected a third party service provider unaffiliated with but identified by the creditor, and the creditor permitted the consumer to shop for the service provider. See commentary to § 1026.19(e)(3) for additional guidance on calculating excess amounts above the limitations on increases in closing costs under § 1026.19(e)(3). 3. Statements regarding excess amount and any credit to the consumer. See also 38(e)(3) Closing costs paid before closing. Paragraph 38(e)(3)(i). 1. Estimate of closing costs paid before closing. Paragraph 38(e)(3)(iii)(B). 1. Equal amount. See 38(f) Closing cost details; loan costs. 1. Lender-paid charges and specific lender credits. i.e. 2. Construction loan inspection and handling fees. 38(f)(1) Origination charges. 1. Guidance in other comments. 2. Loan originator compensation. 3. Calculating compensation to a loan originator from the creditor. 38(f)(2) Services borrower did not shop for. 1. Guidance in other comments. 38(f)(3) Services borrower did shop for. 1. Provider on written list. 38(f)(5) Subtotal of loan costs. 1. Charges subtotaled. 38(g) Closing costs details; other costs. 38(g)(1) Taxes and other government fees. 1. Guidance. 2. Transfer taxes—itemization. 3. Recording fees. Fees for recording deeds and security instruments. ii. Total of all recording fees. 38(g)(2) Prepaids. 1. Guidance. 2. Negative prepaid interest. 3. No prepaid interest. 4. Interest rate for prepaid interest. 5. Property taxes. 38(g)(3) Initial escrow payment at closing. 1. Initial escrow account itemization. 2. Aggregate accounting. 3. Escrowed tax payments for different timeframes. 4. Property taxes. 5. Definition of escrow account. 38(g)(4) Other. 1. Costs disclosed. 2. Owner's title insurance premium. 3. Guidance. 4. Real estate commissions. 38(g)(6) Subtotal of costs. 1. Costs subtotaled. 38(h) Closing cost totals. Paragraph 38(h)(2). 1. Charges paid by seller and by others subtotaled. Paragraph 38(h)(3). 1. General lender credits. 2. Credits for excess charges. Paragraph 38(h)(4). 1. Consistent terminology and order of charges. 38(i) Calculating cash to close. 1. More prominent disclosures. 2. Statements of differences. See 3. Statements that the consumer should see details. 4. Statements of increases or decreases. 5. Estimated amounts. 38(i)(1) Total closing costs. Paragraph 38(i)(1)(iii)(A). 1. Statements and references regarding the total loan costs and total other costs. i. For example, if an increase in the “Total Closing Costs” is attributable only to an increase in the appraisal fee (which is an itemized charge on the Closing Disclosure under the subheading “Services Borrower Did Not Shop For,” itself under the heading “Loan Costs”), then a statement is given under the subheading “Did this change?” that the consumer should see the total loan costs subtotal disclosed on the Closing Disclosure under § 1026.38(f)(4). If the increase in “Total Closing Costs” is attributable only to an increase in recording fees (which is an itemized charge on the Closing Disclosure under the subheading “Taxes and Other Government Fees,” itself under the heading “Other Costs”), then a statement is given under the subheading “Did this change?” that the consumer should see the total other costs subtotal disclosed on the Closing Disclosure under § 1026.38(g)(5). If, however, the increase is attributable in part to an increase in the appraisal fee and in part to an increase in the recording fee, then a statement is given under the subheading “Did this change?” that the consumer should see the total loan costs and total other costs subtotals disclosed on the Closing Disclosure under § 1026.38(f)(4) and (g)(5). ii. For guidance regarding the requirement that this statement be accompanied by a reference to the disclosures of the total loan costs and total other costs under § 1026.38(f)(4) and (g)(5), see comment 38(i)-1. For an example of such reference, see form H-25 of appendix H to this part. 2. Disclosure of excess amounts above limitations on increases in closing costs. i. Because certain closing costs, individually, are generally subject to the limitations on increases in closing costs under § 1026.19(e)(3)(i) ( e.g., e.g., ii. Under § 1026.38(i)(1)(iii)(A), calculation of the excess amounts above the limitations on increases in closing costs takes into account that the itemized, estimated closing costs disclosed on the Loan Estimate will not result in charges to the consumer if the service is not actually provided at or before consummation. For example, if the Loan Estimate included under “Services You Cannot Shop For” a $30 charge for a “title courier fee,” but the title company elects to hand-deliver the title documents package to the creditor at no charge, the $30 fee is not factored into the calculation of the “Total Closing Costs” that are subject to the limitations on increases in closing costs. However, if the title courier fee was assessed, but at only $15, the charge is factored into the calculation because the third-party service was actually provided, albeit at a lower amount than estimated. iii. Under § 1026.38(i)(1)(iii)(A), calculation of the excess amounts above the limitations on increases in closing costs takes into account that certain itemized charges listed on the Loan Estimate under the subheading “Services You Can Shop For” may be subject to different limitations depending on the circumstances. Although § 1026.19(e)(3)(iii) provides exceptions to the general rule, such a charge would generally be subject to the limitations under § 1026.19(e)(3)(i) if the consumer decided to use a provider affiliated with the creditor. However, the same charge would instead be subject to the limitations under § 1026.19(e)(3)(ii) if the consumer selected a third-party service provider unaffiliated with but identified by the creditor, and the creditor permitted the consumer to shop for the service provider. See commentary to § 1026.19(e)(3) for additional guidance on calculating excess amounts above the limitations on increases in closing costs under § 1026.19(e)(3). 3. Statements regarding excess amount and any credit to the consumer. 3 See also 38(i)(2) Closing costs paid before closing Paragraph 38(i)(2)(i) 1. Estimate of closing costs paid before closing. Paragraph 38(i)(2)(iii)(B). 1. Equal amount. See 38(i)(3) Closing costs financed. 1. Calculation of amount. Generally. ii. Simultaneous subordinate financing. 2. Loan amount. 38(i)(4) Down payment/funds from borrower. Paragraph 38(i)(4)(ii)(A). 1. Down payment and funds from borrower calculation. 1 2 2. Funds for borrower. 2 2 2 2 2 Paragraph 38(i)(4)(ii)(B). 1. Funds for borrower. Paragraph 38(i)(4)(iii)(A). 1. Statement of differences. 38(i)(5) Deposit. 1. When no deposit. 38(i)(6) Funds for borrower. Paragraph 38(i)(6)(ii). 1. Final funds for borrower. 2. No funds for borrower. 1 38(i)(7) Seller credits. Paragraph 38(i)(7)(ii). 1. Final seller credits. i.e., e.g., Paragraph 38(i)(7)(iii)(A). 1. Statement that the consumer should see details. i.e., 38(i)(8) Adjustments and other credits. Paragraph 38(i)(8)(ii). 1. Adjustments and other credits. 38(i)(9) Cash to close. Paragraph 38(i)(9)(ii). 1. Final cash to close amount. 2. More prominent disclosure. 38(j) Summary of borrower's transaction. 1. In general. See 2. Addenda. See 3. Identical amounts. 38(j)(1) Itemization of amounts due from borrower. Paragraph 38(j)(1)(ii). 1. Contract sales price and personal property. Paragraph 38(j)(1)(v). 1. Contractual adjustments. i. The balance in the seller's reserve account held in connection with an existing loan, if assigned to the consumer in a loan assumption transaction; ii. Any rent that the consumer will collect after the real estate closing for a period of time prior to the real estate closing; and iii. The treatment of any tenant security deposit. 2. Other consumer charges. 3. Simultaneous subordinate financing Closing Disclosure. Paragraph 38(j)(1)(x). 1. Additional adjustments. i. Flood and hazard insurance premiums, if the consumer is being substituted as an insured under the same policy; ii. Mortgage insurance in loan assumptions; iii. Planned unit development or condominium association assessments paid in advance; iv. Fuel or other supplies on hand, purchased by the seller, which the consumer will use when the consumer takes possession of the property; and v. Ground rent paid in advance. 38(j)(2) Itemization of amounts already paid by or on behalf of borrower. Paragraph 38(j)(2)(ii). 1. Deposit. 2. Reduction of deposit when deposit used to pay for closing charges prior to closing. Paragraph 38(j)(2)(iii). 1. First user loan. Paragraph 38(j)(2)(iv). 1. Assumption of existing loan obligation of seller by consumer. Paragraph 38(j)(2)(v). 1. General seller credits. 2. Other seller credits. Paragraph 38(j)(2)(vi). 1. Credits from any party other than the seller or creditor. 2. Subordinate financing proceeds on first-lien Closing Disclosure. 3. Satisfaction of existing subordinate liens by consumer. 4. Transferred escrow balances. 5. Gift funds. 6. Adjustments. Paragraph 38(j)(2)(xi). 1. Examples. i. Utilities used but not paid for by the seller; and ii. Interest on loan assumptions. 38(j)(3) Calculation of borrower's transaction. Paragraph 38(j)(3)(iii). 1. Stating if amount is due to or from consumer. 2. Methodology. 38(j)(4) Items paid outside of closing funds. Paragraph 38(j)(4)(i). 1. Charges not paid with closing funds. 2. Items paid without closing funds not included in sums. 38(k) Summary of seller's transaction. 1. Transactions with no seller or simultaneous subordinate financing transactions. 2. Extra line items. 3. Identical amounts. See 38(k)(1) Itemization of amounts due to seller. 1. Simultaneous subordinate financing. 38(k)(2) Itemization of amounts due from seller. Paragraph 38(k)(2)(ii). 1. Distributions of deposit to seller prior to closing. Paragraph 38(k)(2)(iv). 1. Assumption of existing loan obligation of seller by consumer. 2. Other seller credits. Paragraph 38(k)(2)(vii). 1. Simultaneous subordinate financing—seller contribution. Paragraph 38(k)(2)(viii). 1. Satisfaction of other seller obligations. 2. Consumer satisfaction of outstanding subordinate loans. 3. Escrows held by closing agent for payment of invoices received after consummation. 38(k)(3) Calculation of seller's transaction. 1. Stating if amount is due to or from seller. 2. Methodology. 38(k)(4) Items paid outside of closing funds. 1. Guidance. 38(l) Loan disclosures. 38(l)(2) Demand feature. 1. Covered features. 38(l)(3) Late payment. 1. Guidance. 38(l)(6) Security interest. 1. Alternate property address. 2. Personal property. See 38(l)(7) Escrow account. 1. Definition of escrow account. 2. Addenda. See Paragraph 38(l)(7)(i)(A)(2). 1. Estimated costs not paid by escrow account funds. 2 2. During the first year. 2 1 4 2 See 5 Paragraph 38(l)(7)(i)(A)(4). 1. Estimated costs paid using escrow account funds. 4 Paragraph 38(l)(7)(i)(A)(5). 1. During the first year. 4 1 4 5 1 4 1 4 Paragraph 38(l)(7)(i)(B)(1). 1. Estimated costs paid directly by the consumer. 1 2. During the first year. 1 38(m) Adjustable payment table. 1. Guidance. 2. Master heading. 3. When table is not permitted to be disclosed. See 4. Final loan terms. See 38(n) Adjustable interest rate table. 1. Guidance. 2. Master heading. 3. When table is not permitted to be disclosed. See 4. Final loan terms. 38(o) Loan calculations. 1. Examples. i. Assume that loan costs that are designated borrower-paid at or before closing and that are part of the finance charge (see § 1026.4 for calculation of the finance charge) are understated by more than $100. For example, assume that borrower-paid loan origination fees (see § 1026.4(a)) are cumulatively understated by $150, resulting in the amounts disclosed as the total of payments and the finance charge both being understated by more than $100. Both the disclosed total of payments and the disclosed finance charge would not be accurate for purposes of § 1026.38(o)(1) and (2), respectively. ii. Assume that loan costs that are designated borrower-paid at or before closing and that are not part of the finance charge are understated by more than $100. For example, assume that borrower-paid property appraisal and inspection fees that are excluded from the finance charge under § 1026.4(c)(7)(iv) are cumulatively understated by $150, resulting in the amount disclosed as the total of payments being understated by more than $100. The disclosed total of payments would not be accurate for purposes of § 1026.38(o)(1), but the disclosed finance charge would be accurate for purposes of § 1026.38(o)(2). 38(o)(1) Total of payments. 1. Calculation of total of payments. 38(o)(2) Finance charge. 1. Calculation of finance charge. 2. Disclosure. 38(o)(3) Amount financed. 1. Calculation of amount financed. 38(o)(5) Total interest percentage. 1. In general. 38(p) Other disclosures. 38(p)(1) Appraisal. 1. Applicability. 38(p)(3) Liability after foreclosure. 1. State law requirements. 38(q) Questions notice. Paragraph 38(q)(3). 1. Prominent question mark. 38(r) Contact information. 1. Each person to be identified. i.e., e.g., 2. Name of person. e.g., 3. Address. see 4. NMLSR ID. i.e., See 5. License number or unique identifier. See 6. Contact. 7. Email address and phone number. 38(s) Signature statement. 1. General requirements. 38(t) Form of disclosures. 38(t)(1) General requirements. 1. Clear and conspicuous; segregation. 2. Balloon payment financing with leasing characteristics. 38(t)(2) Headings and labels. 1. Estimated amounts. See 38(t)(3) Form. 1. Non-federally related mortgage loans. 38(t)(4) Rounding. 1. Generally. 2. Guidance. 38(t)(5) Exceptions. 1. Permissible changes. 2. Manual completion. 3. Unit-period. 4. Signature lines. 5. Additional page. 6. Page numbers. 7. Translation. 38(t)(5)(iv) Closing Cost Details. 1. Line numbers; closing cost details. 2. Two pages; closing cost details. 3. Separate pages for Loan Costs and Other Costs. 38(t)(5)(v) Separation of consumer and seller information. 1. Permissible form modifications to separate consumer and seller information. i. Leave the applicable disclosure blank concerning the seller or consumer on the form provided to the other party; ii. Omit the table or label, as applicable, for the disclosure concerning the seller or consumer on the form provided to the other party; or iii. Provide to the seller, or assist the settlement agent in providing to the seller, a modified version of the form under § 1026.38(t)(5)(vi), as illustrated by form H-25(I) of appendix H to this part. 2. Provision of separate disclosure to consumer. 3. Provision of separate disclosure to seller. 38(t)(5)(vi) Modified version of the form for a seller or third-party. 1. For permissible form modifications to separate consumer and seller information, see comment 38(t)(5)(v)-1. 38(t)(5)(vii) Transaction without a seller or simultaneous subordinate financing transaction. 1. Alternative tables. 2. Appraised property value. Paragraph 38(t)(5)(vii)(B). 1. Amounts paid by third parties. 2. Disclosure of subordinate financing. First-lien Closing Disclosure. ii. Simultaneous subordinate financing Closing Disclosure. iii. Simultaneous subordinate financing—seller contribution. 3. Other examples. 38(t)(5)(ix) Customary recitals and information. 1. Customary recitals and information. 38(u)—PACE Transactions 38(u)(9) Exceptions 38(u)(9)(ii)(A) PACE Nomenclature 1. Wherever § 1026.38 requires disclosure of the word “PACE” or form H-25(K) of appendix H uses the term “PACE,” § 1026.38(u)(9)(ii)(A) permits a creditor to substitute the name of a specific PACE financing program that will be recognizable to the consumer in lieu of the term “PACE.” The name of a specific PACE financing program will not be recognizable to the consumer unless it is used consistently in financing documents for the PACE transaction and any marketing materials provided to the consumer. For example, if the name XYZ Financing is used in marketing materials and financing documents provided to the consumer for the PACE transaction, such that XYZ Financing will be recognizable to the consumer, the creditor may substitute the name XYZ Financing for PACE on the Closing Disclosure. Section 1026.39—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. 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 Disclosures 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. 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 § 1026.39(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. 2. Partial payment policy. e.g., See Paragraph 39(d)(1) 1. Identification of covered person. Paragraph 39(d)(1)(i) 1. Multiple transfers, single disclosure. See Paragraph 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(d)(5) Partial payment policy. 1. Format of disclosure. 39(e) Optional Disclosures 1. Generally. See Section 1026.40—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 preexisting plans. 4. Disclosure of repayment phase—applicability of requirements. 5. Payment terms—applicability of closed-end provisions and substantive rules. i. 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 §§ 1026.6 and 1026.40, and not under subpart C. Furthermore, the creditor must continue to provide periodic statements under § 1026.7 and comply with other provisions of subpart B (such as the substantive requirements of § 1026.40(f)) throughout the plan, including the repayment phase. ii. 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 § 1026.40(f) throughout the plan. iii. 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. 40(a) Form of Disclosures 40(a)(1) General 1. Written disclosures. See 2. Disclosure of annual percentage rate—more conspicuous requirement. annual percentage rate 3. Segregation of disclosures. A. Any prepayment penalty. B. How a substitute index may be chosen. C. Actions the creditor may take short of terminating and accelerating an outstanding balance. D. Renewal terms. E. Rebate of fees. ii. 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. 40(a)(2) Precedence of Certain Disclosures 1. Precedence rule. Paragraph 40(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. 40(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 40(c) Duties of Third Parties 1. Disclosure requirements. 40(d) Content of Disclosures 1. Disclosures given as applicable. 2. Duty to respond to requests for information. 40(d)(1) Retention of Information 1. When disclosure not required. 40(d)(2) Conditions for Disclosed Terms Paragraph 40(d)(2)(i) 1. Guaranteed terms. 2. Date for obtaining disclosed terms. Paragraph 40(d)(2)(ii) 1. Relation to other provisions. 40(d)(4) Possible Actions by Creditor Paragraph 40(d)(4)(i) 1. Fees imposed upon termination. 2. Changes specified in the initial agreement. Paragraph 40(d)(4)(iii) 1. Disclosure of conditions. 2. Form of disclosure. 40(d)(5) Payment Terms Paragraph 40(d)(5)(i) 1. Length of the plan. 2. Renewal provisions. Paragraph 40(d)(5)(ii) 1. Determination of the minimum periodic payment. 2. Fixed rate and term payment options during draw period. 3. Balloon payments. Paragraph 40(d)(5)(iii) 1. Minimum periodic payment example. 2. Representative examples. interest only ii. 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 § 1026.40(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 § 1026.40(d)(5)(iii) and (d)(12)(x) and (xi).) Creditors may use representative examples under § 1026.40(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 § 1026.40(d)(5)(i) and (ii). 3. Examples for draw and repayment periods. 4. Reverse mortgages. i. 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 required 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 § 1026.40(d)(5)(iii) should assume a single $10,000 draw. ii. 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.) iii. 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.” iv. 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. 40(d)(6) Annual Percentage Rate 1. Preferred-rate plans. 40(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 40(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. 40(d)(9) Negative Amortization 1. Disclosure required. 40(d)(10) Transaction Requirements 1. Applicability. 40(d)(12) Disclosures for Variable-Rate Plans 1. Variable-rate provisions. Paragraph 40(d)(12)(iv) 1. Determination of annual percentage rate. Paragraph 40(d)(12)(viii) 1. Preferred-rate provisions. 2. Provisions on conversion to fixed rates. Paragraph 40(d)(12)(ix) 1. Periodic limitations on increases in rates. 2. Maximum limitations on increases in rates. 3. Form of disclosures. Paragraph 40(d)(12)(x) 1. Maximum rate payment example. 2. Time the maximum rate could be reached. Paragraph 40(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. A. 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. B. 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. C. 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. ii. 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. 40(e) Brochure 1. Substitutes. 2. Effect of third party delivery of brochure. 40(f) Limitations on Home Equity Plans 1. Coverage. Paragraph 40(f)(1) 1. External index. 2. Publicly available. 3. Provisions not prohibited. Paragraph 40(f)(2) 1. Limitations on termination and acceleration. 2. Other actions permitted. Paragraph 40(f)(2)(i) 1. Fraud or material misrepresentation. Paragraph 40(f)(2)(ii) 1. Failure to meet repayment terms. Paragraph 40(f)(2)(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 plan 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 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 40(f)(3) 1. Scope of provision. 2. Charges not covered. Paragraph 40(f)(3)(i) 1. Changes provided for in agreement. 2. Prohibited provisions. Paragraph 40(f)(3)(ii) 1. Replacing LIBOR. i. Assume that LIBOR becomes unavailable after June 30, 2023, and assume a contract provides that a creditor may not replace an index unilaterally under a plan unless the original index becomes unavailable and provides that the replacement index and replacement margin will result in an annual percentage rate substantially similar to a rate that is in effect when the original index becomes unavailable. In this case, the creditor may use § 1026.40(f)(3)(ii)(A) to replace the LIBOR index used under the plan so long as the conditions of that provision are met. Section 1026.40(f)(3)(ii)(B) provides that a creditor may replace the LIBOR index if, among other conditions, the replacement index value in effect on October 18, 2021, and replacement margin will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. If the replacement index is not published on October 18, 2021, the creditor generally must use the next calendar day for which both the LIBOR index and the replacement index are published as the date for selecting indices values in determining whether the annual percentage rate based on the replacement index is substantially similar to the rate based on the LIBOR index. The one exception is that if the replacement index is the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the creditor must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, must use the index value on the first date that index is published, in determining whether the annual percentage rate based on the replacement index is substantially similar to the rate based on the LIBOR index. See the Board-selected benchmark replacement for consumer loans. ii. Assume that LIBOR becomes unavailable after June 30, 2023, and assume a contract provides that a creditor may not replace an index unilaterally under a plan unless the original index becomes unavailable but does not require that the replacement index and replacement margin will result in an annual percentage rate substantially similar to a rate that is in effect when the original index becomes unavailable. In this case, the creditor would be contractually prohibited from unilaterally replacing a LIBOR index used under the plan until it becomes unavailable. At that time, the creditor has the option of using § 1026.40(f)(3)(ii)(A) or (B) to replace the LIBOR index if the conditions of the applicable provision are met. iii. Assume that LIBOR becomes unavailable after June 30, 2023, and assume a contract provides that a creditor may change the terms of the contract (including the index) as permitted by law. In this case, if the creditor replaces a LIBOR index under a plan on or after April 1, 2022, but does not wait until the LIBOR index becomes unavailable to do so, the creditor may only use § 1026.40(f)(3)(ii)(B) to replace the LIBOR index if the conditions of that provision are met. In this case, the creditor may not use § 1026.40(f)(3)(ii)(A). If the creditor waits until the LIBOR index used under the plan becomes unavailable to replace the LIBOR index, the creditor has the option of using § 1026.40(f)(3)(ii)(A) or (B) to replace the LIBOR index if the conditions of the applicable provision are met. Paragraph 40(f)(3)(ii)(A) 1. Substitution of index. 2. Replacing LIBOR. i. The Bureau has determined that effective April 1, 2022, the prime rate published in the Wall Street Journal has historical fluctuations that are substantially similar to those of the 1-month and 3-month U.S. Dollar LIBOR indices, and no further determination is required. In order to use this prime rate as the replacement index for the 1-month or 3-month U.S. Dollar LIBOR index, the creditor also must comply with the condition in § 1026.40(f)(3)(ii)(A) that the prime rate and replacement margin would have resulted in an annual percentage rate substantially similar to the rate in effect at the time the LIBOR index became unavailable. See also ii. By operation of the Adjustable Interest Rate (LIBOR) Act, Public Law 117-103, division U, and the Board's implementing regulation, 12 CFR part 253, the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index has historical fluctuations substantially similar to those of the LIBOR index being replaced. See the Board-selected benchmark replacement for consumer loans. See also iii. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the relevant factors to be considered in determining whether a replacement index has historical fluctuations substantially similar to those of a particular LIBOR index depend on the replacement index being considered and the LIBOR index being replaced. For example, these determinations may need to consider certain aspects of the historical data itself for a particular replacement index, such as whether the replacement index is a backward-looking rate (e.g., historical average of rates) such that timing aspects of the data may need to be adjusted to match up with the particular forward-looking LIBOR term-rate being replaced. The types of relevant factors to establish if a replacement index would meet the “historical fluctuations are substantially similar” standard with respect to a particular LIBOR index using historical data, include but are not limited to, whether: (1) the movements over time are substantially similar; and (2) the consumers' payments using the replacement index compared to payments using the LIBOR index are substantially similar if there is sufficient historical data for this analysis. The Board-selected benchmark replacement for consumer loans is considered to meet the “historical fluctuations are substantially similar” standard with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. 3. Substantially similar rate when LIBOR becomes unavailable. i. Assume that the 1-month U.S. Dollar LIBOR index used under a plan becomes unavailable on June 30, 2023, and on that day the LIBOR index value is 2%, the margin is 10%, and the annual percentage rate is 12%. Also, assume that a creditor has selected the prime index published in the Wall Street Journal as the replacement index, and the value of the prime index is 5% on June 30, 2023. The creditor would satisfy the requirement to use a replacement index and replacement margin that will produce an annual percentage rate substantially similar to the rate that was in effect when the LIBOR index used under the plan became unavailable by selecting a 7% replacement margin. (The prime index value of 5% and the replacement margin of 7% would produce a rate of 12% on June 30, 2023.) Thus, if the creditor provides a change-in-terms notice under § 1026.9(c)(1) on July 1, 2023, disclosing the prime index as the replacement index and a replacement margin of 7%, where these changes will become effective on July 17, 2023, the creditor satisfies the requirement to use a replacement index and replacement margin that will produce an annual percentage rate substantially similar to the rate that was in effect when the LIBOR index used under the plan became unavailable. This is true even if the prime index value changes after June 30, 2023, and the annual percentage rate calculated using the prime index value and 7% margin on July 17, 2022, is not substantially similar to the rate calculated using the LIBOR index value on June 30, 2023. Paragraph 40(f)(3)(ii)(B) 1. Replacing LIBOR. i. The Bureau has determined that effective April 1, 2022, the prime rate published in the Wall Street Journal has historical fluctuations that are substantially similar to those of the 1-month and 3-month U.S. Dollar LIBOR indices, and no further determination is required. In order to use this prime rate as the replacement index for the 1-month or 3-month U.S. Dollar LIBOR index, the creditor also must comply with the condition in § 1026.40(f)(3)(ii)(B) that the prime rate index value in effect on October 18, 2021, and replacement margin will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. See also ii. By operation of the Adjustable Interest Rate (LIBOR) Act, Public Law 117-103, division U, and the Board's implementing regulation, 12 CFR part 253, the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index has historical fluctuations substantially similar to those of the LIBOR index being replaced. See the Board-selected benchmark replacement for consumer loans. See also iii. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the relevant factors to be considered in determining whether a replacement index has historical fluctuations substantially similar to those of a particular LIBOR index depend on the replacement index being considered and the LIBOR index being replaced. For example, these determinations may need to consider certain aspects of the historical data itself for a particular replacement index, such as whether the replacement index is a backward-looking rate (e.g., historical average of rates) such that timing aspects of the data may need to be adjusted to match up with the particular forward-looking LIBOR term-rate being replaced. The types of relevant factors to establish if a replacement index would meet the “historical fluctuations are substantially similar” standard with respect to a particular LIBOR index using historical data, include but are not limited to, whether: (1) the movements over time are substantially similar; and (2) the consumers' payments using the replacement index compared to payments using the LIBOR index are substantially similar if there is sufficient historical data for this analysis. The Board-selected benchmark replacement for consumer loans is considered to meet the “historical fluctuations are substantially similar” standard with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. 2. Using index values on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. i. Assume a variable rate used under the plan that is based on the 1-month U.S. Dollar LIBOR index and assume that LIBOR becomes unavailable after June 30, 2023. On October 18, 2021, the LIBOR index value is 2%, the margin on that day is 10% and the annual percentage rate using that index value and margin is 12%. Assume on January 1, 2022, a creditor provides a change-in-terms notice under § 1026.9(c)(1) disclosing a new margin of 12% for the variable rate pursuant to a written agreement under § 1026.40(f)(3)(iii), and this change in the margin becomes effective on January 1, 2022, pursuant to § 1026.9(c)(1). Assume that there are no more changes in the margin that is used in calculating the variable rate prior to April 1, 2022, the date on which the creditor provides a change-in-terms notice under § 1026.9(c)(1), disclosing the replacement index and replacement margin for the variable rate that will be effective on April 17, 2022. In this case, the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan is 12%. Assume that the creditor has selected the prime index published in the Wall Street Journal as the replacement index, and the value of the prime index is 5% on October 18, 2021. A replacement margin of 9% is permissible under § 1026.40(f)(3)(ii)(B) because that replacement margin combined with the prime index value of 5% on October 18, 2021, will produce an annual percentage rate of 14%, which is substantially similar to the 14% annual percentage rate calculated using the LIBOR index value in effect on October 18, 2021, (which is 2%) and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan (which is 12%). 3. Substantially similar rates using index values on October 18, 2021. i. Assume that the 1-month U.S. Dollar LIBOR index used under the plan has a value of 2% on October 18, 2021, the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan is 10%, and the annual percentage rate based on that LIBOR index value and that margin is 12%. Also, assume that the creditor has selected the prime index published in the Wall Street Journal as the replacement index, and the value of the prime index is 5% on October 18, 2021. A creditor would satisfy the requirement to use a replacement index value in effect on October 18, 2021, and replacement margin that will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan, by selecting a 7% replacement margin. (The prime index value of 5% and the replacement margin of 7% would produce a rate of 12%.) Thus, if the creditor provides a change-in-terms notice under § 1026.9(c)(1) on April 1, 2022, disclosing the prime index as the replacement index and a replacement margin of 7%, where these changes will become effective on April 17, 2022, the creditor satisfies the requirement to use a replacement index value in effect on October 18, 2021, and replacement margin that will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. This is true even if the prime index value or the LIBOR index value changes after October 18, 2021, and the annual percentage rate calculated using the prime index value and 7% margin on April 17, 2022, is not substantially similar to the rate calculated using the LIBOR index value on October 18, 2021, or substantially similar to the rate calculated using the LIBOR index value on April 17, 2022. Paragraph 40(f)(3)(iii) 1. Changes by written agreement. 2. Written agreement. Paragraph 40(f)(3)(iv) 1. Beneficial changes. Paragraph 40(f)(3)(v) 1. Insignificant changes. 2. Examples of insignificant changes. Paragraph 40(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. 40(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. 40(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 1026.41—Periodic Statements for Residential Mortgage Loans 41(a) In general. 1. Recipient of periodic statement. 2. Billing cycles shorter than a 31-day period. 3. One statement per billing cycle. but see 4. Opting out. 41(b) Timing of the periodic statement. 1. Reasonably prompt time. 2. Courtesy period. 41(c) Form of the periodic statement. 1. Clear and conspicuous standard. 2. Additional information; disclosures required by other laws. 3. Electronic distribution. 4. Presumed consent. 5. Permissible changes. i. Use “this mortgage” or “the mortgage” instead of “your mortgage.” ii. Use “The payments on this mortgage are late” instead of “You are late on your mortgage payments.” iii. Use “This is the amount needed to bring the loan current” instead of “You must pay this amount to bring your loan current.” 41(d) Content and layout of the periodic statement. 1. Close proximity. 2. Not applicable. 3. Terminology. 4. Temporary loss mitigation programs. 5. First statement after exemption terminates. 41(d)(1) Amount due. 1. Acceleration. 2. Temporary loss mitigation programs. 3. Permanent loan modifications. 41(d)(2) Explanation of amount due. 1. Acceleration. 2. Temporary loss mitigation programs. 41(d)(3) Past payment breakdown. 1. Partial payments. i. Suppose a payment of $1,000 is due, but the consumer sends in only $600 on January 1, which is held in a suspense account. Further assume there are no fees charged on this account. Assuming there are no other funds in the suspense account, the January statement should reflect: Unapplied funds since last statement—$600. Unapplied funds YTD—$600. ii. Assume the same facts as in the preceding paragraph, except that during February the consumer sends in $300 and this too is held in the suspense account. The statement should reflect: Unapplied funds since last statement—$300. Unapplied funds YTD—$900. iii. Assume the same facts as in the preceding paragraph, except that during March the consumer sends in $400. Of this payment, $100 completes a full periodic payment when added to the $900 in funds already held in the suspense account. This $1,000 is applied to the January payment, and the remaining $300 remains in the suspense account. The statement should reflect: Unapplied funds since last statement—$300. Unapplied Funds YTD—$300. 41(d)(4) Transaction Activity. 1. Meaning. i. Payments received and applied; ii. Payments received and held in a suspense account; iii. The imposition of any fees (for example late fees); and iv. The imposition of any charges (for example, private mortgage insurance). 2. Description of late fees. 3. Partial payments. 41(d)(8) Delinquency information. 1. Length of delinquency. 2. Application of funds. 41(e) Exemptions. 41(e)(3) Coupon book exemption. 1. Fixed rate. 2. Coupon book. 3. Information location. 4. Outstanding principal balance. 41(e)(4) Small servicers. 41(e)(4)(ii) Small servicer defined. 1. Mortgage loans considered. 2. Services, together with affiliates, 5,000 or fewer mortgage loans. i. A servicer services 3,000 mortgage loans, all of which it or an affiliate owns or originated. An affiliate of the servicer services 4,000 other mortgage loans, all of which it or an affiliate owns or originated. Because the number of mortgage loans serviced by a servicer is determined by counting the mortgage loans serviced by a servicer together with any affiliates, both of these servicers are considered to be servicing 7,000 mortgage loans and neither servicer is a small servicer. ii. A service services 3,100 mortgage loans—3,000 mortgage loans it owns or originated and 100 mortgage loans it neither owns nor originated, but for which it owns the mortgage servicing rights. The servicer is not a small servicer because it services mortgage loans for which the servicer (or an affiliate) is not the creditor or assignee, notwithstanding that the servicer services fewer than 5,000 mortgage loans. 3. Master servicing and subservicing. i. A credit union services 4,000 mortgage loans, all of which it originated or owns. The credit union retains a credit union service organization, that is not an affiliate, to subservice 1,000 of the mortgage loans. The credit union is a small servicer and, thus, can gain the benefit of the small servicer exemption for the 3,000 mortgage loans the credit union services itself. The credit union service organization is not a small servicer because it services mortgage loans it does not own or did not originate. Accordingly, the credit union service organization does not gain the benefit of the small servicer exemption and, thus, must comply with any applicable mortgage servicing requirements for the 1,000 mortgage loans it subservices. ii. A bank holding company, through a lender subsidiary, owns or originated 4,000 mortgage loans. All mortgage servicing rights for the 4,000 mortgage loans are owned by a wholly owned master servicer subsidiary. Servicing for the 4,000 mortgage loans is conducted by a wholly owned subservicer subsidiary. The bank holding company controls all of these subsidiaries and, thus, they are affiliates of the bank holding company pursuant 12 CFR 1026.32(b)(2). Because the master servicer and subservicer service 5,000 or fewer mortgage loans, and because all the mortgage loans are owned or originated by an affiliate, the master servicer and the subservicer both qualify for the small servicer exemption for all 4,000 mortgage loans. iii. A nonbank servicer services 4,000 mortgage loans, all of which it originated or owns. The servicer retains a “component servicer” to assist it with servicing functions. The component servicer is not engaged in “servicing” as defined in 12 CFR 1024.2; that is, the component servicer does not receive any scheduled periodic payments from a borrower pursuant to the terms of any mortgage loan, including amounts for escrow accounts, and does not make the payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage servicing loan documents or servicing contract. The component servicer is not a subservicer pursuant to 12 CFR 1024.31 because it is not engaged in servicing, as that term is defined in 12 CFR 1024.2. The nonbank servicer is a small servicer and, thus, can gain the benefit of the small servicer exemption with regard to all 4,000 mortgage loans it services. 4. Nonprofit entity that services 5,000 or fewer mortgage loans. i. Nonprofit entity A services 3,000 of its own mortgage loans, and 1,500 mortgage loans on behalf of associated nonprofit entity B. All 4,500 mortgage loans were originated by A or B. Associated nonprofit entity C services 2,500 mortgage loans, all of which it originated. Because the number of mortgage loans serviced by a nonprofit entity is determined by counting the number of mortgage loans serviced by the nonprofit entity (including mortgage loans serviced on behalf of associated nonprofit entities) but not counting any mortgage loans serviced by an associated nonprofit entity, A and C are both small servicers. ii. A nonprofit entity services 4,500 mortgage loans—3,000 mortgage loans it originated, 1,000 mortgage loans originated by associated nonprofit entities, and 500 mortgage loans neither it nor an associated nonprofit entity originated. The nonprofit entity is not a small servicer because it services mortgage loans for which neither it nor an associated nonprofit entity is the creditor, notwithstanding that it services fewer than 5,000 mortgage loans. 41(e)(4)(iii) Small servicer determination. 1. Loans obtained by merger or acquisition. 2. Timing for small servicer exemption. i. Assume a servicer (that as of January 1 of the current year qualifies as a small servicer) begins servicing more than 5,000 mortgage loans on October 1, and services more than 5,000 mortgage loans as of January 1 of the following year. The servicer would no longer be considered a small servicer on January 1 of the following year and would have to comply with any requirements from which it is no longer exempt as a small servicer on April 1 of the following year. ii. Assume a servicer (that as of January 1 of the current year qualifies as a small servicer) begins servicing more than 5,000 mortgage loans on February 1, and services more than 5,000 mortgage loans as of January 1 of the following year. The servicer would no longer be considered a small servicer on January 1 of the following year and would have to comply with any requirements from which it is no longer exempt as a small servicer on that same January 1. iii. Assume a servicer (that as of January 1 of the current year qualifies as a small servicer) begins servicing more than 5,000 mortgage loans on February 1, but services fewer than 5,000 mortgage loans as of January 1 of the following year. The servicer is considered a small servicer for the following year. 3. Mortgage loans not considered in determining whether a servicer is a small servicer. 4. Mortgage loans not considered in determining whether a nonprofit entity is a small servicer. 5. Limited role of voluntarily serviced mortgage loans. 41(e)(5) Certain consumers in bankruptcy. 1. Consumer's representative. 1 2. Multiple requests. 1 3. Effective upon receipt. 1 4. Bankruptcy case revived. 41(e)(5)(i) Exemption. 1. Multiple obligors. Paragraph 41(e)(5)(i)(B)(2). 1. Bankruptcy plan. 2 Paragraph 41(e)(5)(i)(B)(4). 1. Statement of intention. 4 4 41(e)(5)(ii) Reaffirmation or consumer request to receive statement or coupon book. 1. Form of periodic statement or coupon book. See 41(e)(5)(iv) Timing of compliance following transition. 41(e)(5)(iv)(A) Triggering events for transitioning to modified and unmodified periodic statements. 1. Section 1026.41(f) becomes applicable or ceases to apply. See 2. Servicer ceases to qualify for an exemption. i. The consumer's bankruptcy case is dismissed or closed without the consumer having discharged personal liability for the mortgage loan; ii. The consumer files an amended bankruptcy plan or statement of intention that provides, as applicable, for the maintenance of payments due under the mortgage loan and the payment of pre-petition arrearage or that the consumer will retain the dwelling securing the mortgage loan; iii. A consumer makes a partial or periodic payment on the mortgage loan despite the consumer in bankruptcy having filed a statement of intention identifying an intent to surrender the dwelling securing the mortgage loan, thus making § 1026.41(e)(5)(i)(B)( 4 iv. The consumer in bankruptcy reaffirms personal liability for the mortgage loan; or v. The consumer submits a written request pursuant to § 1026.41(e)(ii) that the servicer resume providing a periodic statement or coupon book. 41(e)(5)(iv)(B) Single-Statement Exemption. 1. Timing. i. If an event listed in § 1026.41(e)(5)(iv)(A) occurs on October 6, before the end of the 15-day courtesy period provided for the October 1 payment due date, and the servicer has not yet provided a periodic statement or coupon book for the billing cycle with a November 1 payment due date, the servicer is exempt from providing a periodic statement or coupon book for that billing cycle. The servicer is required thereafter to resume providing periodic statements or coupon books that comply with the requirements of § 1026.41 by providing a modified or unmodified periodic statement or coupon book for the billing cycle with a December 1 payment due date within a reasonably prompt time after November 1 or the end of the 15-day courtesy period provided for the November 1 payment due date. See ii. If an event listed in § 1026.41(e)(5)(iv)(A) occurs on October 20, after the end of the 15-day courtesy period provided for the October 1 payment due date, and the servicer timely provided a periodic statement or coupon book for the billing cycle with the November 1 payment due date, the servicer is not required to correct the periodic statement or coupon book already provided and is exempt from providing the next periodic statement or coupon book, which is the one that would otherwise be required for the billing cycle with a December 1 payment due date. The servicer is required thereafter to resume providing periodic statements or coupon books that comply with the requirements of § 1026.41 by providing a modified or unmodified periodic statement or coupon book for the billing cycle with a January 1 payment due date within a reasonably prompt time after December 1 or the end of the 15-day courtesy period provided for the December 1 payment due date. See 2. Duplicate coupon books not required. 3. Subsequent triggering events. See 1 See 2 41(e)(6) Charged-off loans. 1. Change in ownership. See 2. Change in servicing. Paragraph 41(e)(6)(i)(B). 1. Clearly and conspicuously. See 41(f) Modified periodic statements and coupon books for certain consumers in bankruptcy. 1. Compliance after the bankruptcy case ends. 2. Terminology. See 3. Other periodic statement requirements continue to apply. 4. Further modifications. 1 See 5. Commencing compliance. 6. Reaffirmation. 41(f)(3) Chapter 12 and chapter 13 consumers. 1. Pre-petition payments and post-petition payments. ii. If a consumer is a debtor in a case under chapter 12 or if a consumer's bankruptcy plan modifies the terms of the mortgage loan, such as by reducing the outstanding balance of the mortgage loan or altering the applicable interest rate, the disclosures under § 1026.41(d)(1) and (2) and (f)(3)(ii) and (iii) may disclose either the amount payable under the original terms of the mortgage loan, the amount payable under the remaining secured portion of the adjusted mortgage loan, or a statement that the consumer should contact the trustee or the consumer's attorney with any questions about the amount payable. In such cases, the remaining disclosures under § 1026.41(d) or (f)(3), as applicable, may be limited to how payments are applied to the remaining secured portion of the adjusted mortgage loan. 2. Post-petition fees and charges. 3. First statement after exemption terminates. See 41(f)(3)(ii) Amount due. 1. Amount due. 41(f)(3)(iii) Explanation of amount due. 1. Explanation of amount due. See 41(f)(3)(v) Pre-petition arrearage. 1. Pre-petition arrearage. 41(f)(4) Multiple obligors. 1. Modified statements. See 2. Obligors in different chapters of bankruptcy. Section 1026.42—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 42(d)(5)(i) Loan Production Function 1. Loan production function. 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. Paragraph 42(f)(2)(i) 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 § 1026.42(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 42(i) Quality Control Standards for Automated Valuation Models Paragraph 42(i)(2)(vi) 1. Servicers. Section 1026.43—Minimum Standards for Transactions Secured by a Dwelling 1. Record retention. 2. General QM Amendments Effective on March 1, 2021. 43(a) Scope. 1. Consumer credit. 2. Real property. See Paragraph 43(a)(3). 1. Renewable temporary or “bridge” loan. 2. Construction phase of a construction-to-permanent loan. Paragraph 43(a)(3)(iv). 1. General. e.g., Paragraph 43(a)(3)(v)(D). 1. General. 1 2 2 2 3 2 1 2 2 3 Paragraph 43(a)(3)(vi). 1. General. Paragraph 43(a)(3)(vii). 1. Requirements of exclusion. 1 43(b) Definitions. 43(b)(1) Covered transaction. 1. The definition of covered transaction restates the scope of the rule as described at § 1026.43(a). 43(b)(3) Fully indexed rate. 1. Discounted and premium adjustable-rate transactions. i.e., i.e., 2. Index or formula value at consummation. 3. Interest rate adjustment caps. i.e., 4. Lifetime maximum interest rate. 5. Step-rate and fixed-rate mortgages. i.e., i. Assume a step-rate mortgage with an interest rate fixed at 6.5 percent for the first two years of the loan, 7 percent for the next three years, and 7.5 percent thereafter for the remainder of loan term. For purposes of this section, the creditor must use 7.5 percent, which is the maximum rate that may apply during the loan term. “Step-rate mortgage” is defined in § 1026.18(s)(7)(ii). ii. Assume a fixed-rate mortgage with an interest rate at consummation of 7 percent that is fixed for the 30-year loan term. For purposes of this section, the maximum interest rate that may apply during the loan term is 7 percent, which is the interest rate that is fixed at consummation. “Fixed-rate mortgage” is defined in § 1026.18(s)(7)(iii). 43(b)(4) Higher-Priced Covered Transaction 1. Average prime offer rate. see 2. Comparable transaction. See 3. Rate set. 4. Determining the annual percentage rate for certain loans for which the interest rate may or will change. See 43(b)(5) Loan amount. 1. Disbursement of the loan amount. See also 43(b)(6) Loan term. 1. General. 43(b)(7) Maximum loan amount. 1. Calculation of maximum loan amount. 2. Assumed interest rate. 3. Examples. i. Adjustable-rate mortgage with negative amortization. i.e., B. To determine the maximum loan amount, assume that the initial interest rate increases to the maximum lifetime interest rate of 10.5 percent at the first adjustment ( i.e., i.e., i.e., ii. Fixed-rate, graduated payment mortgage with negative amortization. 43(b)(8) Mortgage-Related Obligations 1. General. 2. Property taxes. 3. Insurance premiums and similar charges. i. If a creditor does not require earthquake insurance to be obtained in connection with the mortgage loan, but the consumer voluntarily chooses to purchase such insurance, the earthquake insurance premium is not a mortgage-related obligation for purposes of § 1026.43(b)(8). ii. If a creditor requires a minimum amount of coverage for homeowners' insurance and the consumer voluntarily chooses to purchase a more comprehensive amount of coverage, the portion of the premium allocated to the required minimum coverage is a mortgage-related obligation for purposes of § 1026.43(b)(8), while the portion of the premium allocated to the more comprehensive coverage voluntarily purchased by the consumer is not a mortgage-related obligation for purposes of § 1026.43(b)(8). iii. If the consumer purchases insurance or similar coverage not required by the creditor at consummation without having requested the specific non-required insurance or similar coverage and without having agreed to the premium or charge for the specific non-required insurance or similar coverage prior to consummation, the premium or charge is not voluntary for purposes of § 1026.43(b)(8) and is a mortgage-related obligation. 4. Mortgage insurance, guarantee, or similar charges. 5. Relation to the finance charge. 43(b)(11) Recast. 1 . Date of the recast. 43(b)(12) Simultaneous loan. 1. General. 2. Same consumer. e.g., 43(b)(13) Third-party record. 1. Electronic records. 2. Forms. Paragraph 43(b)(13)(i). 1. Reviewed record. Paragraph 43(b)(13)(iii). 1. Creditor's records. 43(b)(14) PACE Company 1. Indicia of whether a person administers a PACE financing program for purposes of § 1026.43(b)(14) include, for example, marketing PACE financing to consumers, developing or implementing policies and procedures for the origination process, being substantially involved in making a credit decision, or extending an offer to the consumer. 43(c) Repayment ability. 43(c)(1) General requirement. 1. Reasonable and good faith determination. i. General. ii. Considerations. 1. 2. 3. B. In contrast, the following may be evidence that a creditor's ability-to-repay determination was not reasonable or in good faith: 1. 2. 3. 4. 5. 6. C. All of the considerations listed in paragraphs (A) and (B) above may be relevant to whether a creditor's ability-to-repay determination was reasonable and in good faith. However, these considerations are not requirements or prohibitions with which creditors must comply, nor are they elements of a claim that a consumer must prove to establish a violation of the ability-to-repay requirements. For example, creditors are not required to validate their underwriting criteria using mathematical models. These considerations also are not absolute in their application; instead they exist on a continuum and may apply to varying degrees. For example, the longer a consumer successfully makes timely payments after consummation or recast the less likely it is that the creditor's determination of ability to repay was unreasonable or not in good faith. Finally, each of these considerations must be viewed in the context of all facts and circumstances relevant to a particular extension of credit. For example, in some cases inconsistent application of underwriting standards may indicate that a creditor is manipulating those standards to approve a loan despite a consumer's inability to repay. The creditor's ability-to-repay determination therefore may be unreasonable or in bad faith. However, in other cases inconsistently applied underwriting standards may be the result of, for example, inadequate training and may nonetheless yield a reasonable and good faith ability-to-repay determination in a particular case. Similarly, although an early payment default on a mortgage will often be persuasive evidence that the creditor did not have a reasonable and good faith belief in the consumer's ability to repay (and such evidence may even be sufficient to establish a prima facie case of an ability-to-repay violation), a particular ability-to-repay determination may be reasonable and in good faith even though the consumer defaulted shortly after consummation if, for example, the consumer experienced a sudden and unexpected loss of income. In contrast, an ability-to-repay determination may be unreasonable or not in good faith even though the consumer made timely payments for a significant period of time if, for example, the consumer was able to make those payments only by foregoing necessities such as food and heat. 2. Repayment ability at consummation. 3. Interaction with Regulation B. 43(c)(2) Basis for determination. 1. General. Paragraph 43(c)(2)(i). 1. Income or assets generally. 2. Income or assets relied on. See 3. Reasonably expected income. 4. Seasonal or irregular income. 5. Multiple applicants. Paragraph 43(c)(2)(ii). 1. Employment status and income. Paragraph 43(c)(2)(iii). 1. General. Paragraph 43(c)(2)(iv). 1. Home equity lines of credit. 2. Knows or has reason to know. 3. Scope of timing. 4. Knows or has reason to know—PACE transaction. Paragraph 43(c)(2)(v). 1. General. i. Assume that a consumer will be required to pay property taxes, as described in comment 43(b)(8)-2, on a quarterly, annual, or other basis after consummation. Section 1026.43(c)(2)(v) includes these recurring property taxes in the evaluation of the consumer's monthly payment for mortgage-related obligations. However, if the consumer will incur a one-time charge to satisfy property taxes that are past due, § 1026.43(c)(2)(v) does not include this one-time charge in the evaluation of the consumer's monthly payment for mortgage-related obligations. ii. Assume that a consumer will be required to pay mortgage insurance premiums, as described in comment 43(b)(8)-2, on a monthly, annual, or other basis after consummation. Section 1026.43(c)(2)(v) includes these recurring mortgage insurance payments in the evaluation of the consumer's monthly payment for mortgage-related obligations. However, if the consumer will incur a one-time fee or charge for mortgage insurance or similar purposes, such as an up-front mortgage insurance premium imposed at consummation, § 1026.43(c)(2)(v) does not include this up-front mortgage insurance premium in the evaluation of the consumer's monthly payment for mortgage-related obligations. 2. Obligations to an association, other than special assessments. 3. Special assessments imposed by an association. 4. Pro rata amount. i. Assume that a consumer applies for a mortgage loan on February 1st. Assume further that the subject property is located in a jurisdiction where property taxes are paid in arrears on the first day of October. The creditor complies with § 1026.43(c)(2)(v) by determining the annual property tax amount owed in the prior October, dividing the amount by 12, and using the resulting amount as the pro rata monthly property tax payment amount for the determination of the consumer's monthly payment for mortgage-related obligations. The creditor complies even if the consumer will likely owe more in the next year than the amount owed the prior October because the jurisdiction normally increases the property tax rate annually, provided that the creditor does not have knowledge of an increase in the property tax rate at the time of underwriting. See also comment 43(c)(2)(v)-5 regarding estimates of mortgage-related obligations. ii. Assume that a subject property is located in a special water district, the assessments for which are billed separately from local property taxes. The creditor complies with § 1026.43(c)(2)(v) by dividing the full amount that will be owed by the number of months in the assessment period, and including the resulting amount in the calculation of monthly mortgage-related obligations. However, § 1026.43(c)(2)(v) does not require a creditor to adjust the monthly amount to account for potential deviations from the average monthly amount. For example, assume in this example that the special water assessment is billed every eight months, that the consumer will have to pay the first water district bill four months after consummation, and that the seller will not provide the consumer with any funds to pay for the seller's obligation ( i.e., iii. Assume that the subject property is located in an area where flood insurance is required by Federal law, and assume further that the flood insurance policy premium is paid every three years following consummation. The creditor complies with § 1026.43(c)(2)(v) by dividing the three-year premium by 36 months and including the resulting amount in the determination of the consumer's monthly payment for mortgage-related obligations. The creditor complies even if the consumer will not establish a monthly escrow for flood insurance. iv. Assume that the subject property is part of a homeowners association that has imposed upon the seller a special assessment of $1,200. Assume further that this special assessment will become the consumer's obligation upon consummation of the transaction, that the consumer is permitted to pay the special assessment in twelve $100 installments after consummation, and that the mortgage loan will not be originated pursuant to a government program that contains specific requirements for prorating special assessments. The creditor complies with § 1026.43(c)(2)(v) by dividing the $1,200 special assessment by 12 months and including the resulting $100 monthly amount in the determination of the consumer's monthly payment for mortgage-related obligations. The creditor complies by using this calculation even if the consumer intends to pay the special assessment in a manner other than that used by the creditor in determining the monthly pro rata amount, such as where the consumer intends to pay six $200 installments. 5. Estimates. i. Assume that the property is subject to a community governance association, such as a homeowners association. The creditor complies with § 1026.43(c)(2)(v) by relying on an estimate of mortgage-related obligations prepared by the homeowners association. In accordance with the guidance provided under comment 17(c)(2)(i)-1, the creditor need only exercise due diligence in determining mortgage-related obligations, and complies with § 1026.43(c)(2)(v) by relying on the representations of other reliable parties in preparing estimates. ii. Assume that the homeowners association has imposed a special assessment on the seller, but the seller does not inform the creditor of the special assessment, the homeowners association does not include the special assessment in the estimate of expenses prepared for the creditor, and the creditor is unaware of the special assessment. The creditor complies with § 1026.43(c)(2)(v) if it does not include the special assessment in the determination of mortgage-related obligations. The creditor may rely on the representations of other reliable parties, in accordance with the guidance provided under comment 17(c)(2)(i)-1. iii. Assume that the homeowners association imposes a special assessment after the creditor has completed underwriting, but prior to consummation. The creditor does not violate § 1026.43(c)(2)(v) if the creditor does not include the special assessment in the determination of the consumer's monthly payment for mortgage-related obligations, provided the homeowners association does not inform the creditor about the special assessment during underwriting. Section 1026.43(c)(2)(v) does not require the creditor to re-underwrite the loan. The creditor has complied with § 1026.43(c)(2)(v) by including the obligations known to the creditor at the time the loan is underwritten, even if the creditor learns of new mortgage-related obligations before the transaction is consummated. Paragraph 43(c)(2)(vi). 1. Consideration of current debt obligations. 2. Multiple applicants. Paragraph 43(c)(2)(vii). 1. Monthly debt-to-income ratio and residual income. Paragraph 43(c)(2)(viii). 1. Consideration of credit history. 2. Multiple applicants. 43(c)(3) Verification using third-party records. 1. Records specific to the individual consumer. 2. Obtaining records. 3. Credit report as a reasonably reliable third-party record. 4. Verification of simultaneous loans. 5. Verification of mortgage-related obligations. 6. Verification of current debt obligations. 7. Verification of credit history. 8. Verification of military employment. 43(c)(4) Verification of Income or Assets 1. Income or assets relied on. See See also 2. Multiple applicants. See 3. Tax-return transcript. See 4. Unidentified funds. Paragraph 43(c)(4)(vi). 1. Government benefits. 43(c)(5) Payment calculation. 43(c)(5)(i) General rule. 1. General. 2. Greater of the fully indexed rate or introductory rate; premium adjustable-rate transactions. i.e., 3. Monthly, fully amortizing payments. 4. Substantially equal. 5. Examples. i. Fixed-rate mortgage. ii. Adjustable-rate mortgage with discount for five years. iii. Step-rate mortgage. 43(c)(5)(ii) Special rules for loans with a balloon payment, interest-only loans, and negative amortization loans. Paragraph 43(c)(5)(ii)(A). 1. General. 2. First five years after the date on which the first regular periodic payment will be due. 1 i. Assume a loan that provides for regular monthly payments and a balloon payment due at the end of a six-year loan term. The loan is consummated on August 15, 2014, and the first monthly payment is due on October 1, 2014. The first five years after the first monthly payment end on October 1, 2019. The balloon payment must be made on the due date of the 72nd monthly payment, which is September 1, 2020. For purposes of determining the consumer's ability to repay the loan under § 1026.43(c)(2)(iii), the creditor need not consider the balloon payment that is due on September 1, 2020. ii. Assume a loan that provides for regular monthly payments and a balloon payment due at the end of a five-year loan term. The loan is consummated on August 15, 2014, and the first monthly payment is due on October 1, 2014. The first five years after the first monthly payment end on October 1, 2019. The balloon payment must be made on the due date of the 60th monthly payment, which is September 1, 2019. For purposes of determining the consumer's ability to repay the loan under § 1026.43(c)(2)(iii), the creditor must consider the balloon payment that is due on September 1, 2019. 3. Renewable balloon-payment mortgage; loan term. 4. Examples of loans with a balloon payment that are not higher-priced covered transactions. i. Balloon-payment mortgage with a three-year loan term; fixed interest rate. ii. Renewable balloon-payment mortgage with a three-year loan term. iii. Balloon-payment mortgage with a six-year loan term; fixed interest rate. 5. Higher-priced covered transaction with a balloon payment. Paragraph 43(c)(5)(ii)(B). 1. General. 2. Examples. i. Fixed-rate mortgage with interest-only payments for five years. ii. Adjustable-rate mortgage with discount for three years and interest-only payments for five years. Paragraph 43(c)(5)(ii)(C). 1. General. 2. Term of loan. 3. Examples. i. Adjustable-rate mortgage with negative amortization. i.e., B. To determine the maximum loan amount, assume that the interest rate increases to the maximum lifetime interest rate of 10.5 percent at the first adjustment ( i.e., i.e., i.e., C. For purposes of § 1026.43(c)(2)(iii), the creditor must determine the consumer's ability to repay the loan based on a monthly payment of $1,716, which is the substantially equal, monthly payment of principal and interest that will repay the maximum loan amount of $229,251 over the remaining loan term of 333 months using the fully indexed rate of 8 percent. See comments 43(b)(7)-1 and -2 discussing the calculation of the maximum loan amount, and § 1026.43(b)(11) for the meaning of the term “recast.” ii. Fixed-rate, graduated payment mortgage. 43(c)(6) Payment calculation for simultaneous loans. 1. Scope. 2. Payment calculation—covered transaction. 3. Payment calculation—home equity line of credit. 43(c)(7) Monthly Debt-to-Income Ratio or Residual Income 1. Monthly debt-to-income ratio or monthly residual income. 2. Use of both monthly debt-to-income ratio and monthly residual income. 3. Compensating factors. 43(d) Refinancing of non-standard mortgages. 43(d)(1) Definitions. 43(d)(1)(i) Non-standard mortgage. Paragraph 43(d)(1)(i)(A). 1. Adjustable-rate mortgage with an introductory fixed rate. 43(d)(1)(ii) Standard mortgage. Paragraph 43(d)(1)(ii)(A). 1. Regular periodic payments. see See also Paragraph 43(d)(1)(ii)(D). 1. First five years after consummation. Paragraph 43(d)(1)(ii)(E). 1. Permissible use of proceeds. 43(d)(2) Scope. 1. Written application. Paragraph 43(d)(2)(ii). 1. Materially lower. Paragraph 43(d)(2)(iv). 1. Late payment—12 months prior to application. i.e., 2. Payment due date. Paragraph 43(d)(2)(v). 1. Late payment—six months prior to application. Paragraph 43(d)(2)(vi). 1. Non-standard mortgage loan made in accordance with ability-to-repay or qualified mortgage requirements. 43(d)(3) Exemption from repayment ability requirements. 1. Two-part determination. 43(d)(4) Offer of rate discounts and other favorable terms. 1. Documented underwriting practices. 43(d)(5) Payment calculations. 43(d)(5)(i) Non-Standard mortgage. 1. Payment calculation for a non-standard mortgage. 2. Fully indexed rate. 3. Written application. 4. Payment calculation for an adjustable-rate mortgage with an introductory fixed rate. i. First, the payment must be based on the outstanding principal balance as of the date on which the mortgage is recast, assuming all scheduled payments have been made up to that date and the last payment due under those terms is made and credited on that date. For example, assume an adjustable-rate mortgage with a 30-year loan term. The loan agreement provides that the payments for the first 24 months are based on a fixed rate, after which the interest rate will adjust annually based on a specified index and margin. The loan is recast on the due date of the 24th payment. If the 24th payment is due on September 1, 2014, the creditor must calculate the outstanding principal balance as of September 1, 2014, assuming that all 24 payments under the fixed rate terms have been made and credited timely. ii. Second, the payment calculation must be based on substantially equal monthly payments of principal and interest that will fully repay the outstanding principal balance over the term of the loan remaining as of the date the loan is recast. Thus, in the example above, the creditor must assume a loan term of 28 years (336 monthly payments). iii. Third, the payment must be based on the fully indexed rate, as described in § 1026.43(d)(5)(i)(A). 5. Example of payment calculation for an adjustable-rate mortgage with an introductory fixed rate. i. A loan in an amount of $200,000 has a 30-year loan term. The loan agreement provides for a discounted introductory interest rate of 5 percent that is fixed for an initial period of two years, after which the interest rate will adjust annually based on a specified index plus a margin of 3 percentage points. ii. The non-standard mortgage is consummated on February 15, 2014, and the first monthly payment is due on April 1, 2014. The loan is recast on the due date of the 24th monthly payment, which is March 1, 2016. iii. On March 15, 2015, the creditor receives the consumer's written application for a refinancing after the consumer has made 12 monthly on-time payments. On this date, the index value is 4.5 percent. iv. To calculate the non-standard mortgage payment that must be compared to the standard mortgage payment under § 1026.43(d)(2)(ii), the creditor must use: A. The outstanding principal balance as of March 1, 2016, assuming all scheduled payments have been made up to March 1, 2016, and the last payment due under the fixed rate terms is made and credited on March 1, 2016. In this example, the outstanding principal balance is $193,948. B. The fully indexed rate of 7.5 percent, which is the index value of 4.5 percent as of March 15, 2015 (the date on which the application for a refinancing is received) plus the margin of 3 percent. C. The remaining loan term as of March 1, 2016, the date of the recast, which is 28 years (336 monthly payments). v. Based on these assumptions, the monthly payment for the non-standard mortgage for purposes of determining whether the standard mortgage monthly payment is lower than the non-standard mortgage monthly payment ( see 6. Payment calculation for an interest-only loan. i. First, the payment must be based on the outstanding principal balance as of the date of the recast, assuming all scheduled payments are made under the terms of the legal obligation in effect before the mortgage is recast. For a loan on which only interest and no principal has been paid, the outstanding principal balance at the time of recast will be the loan amount, as defined in § 1026.43(b)(5), assuming all scheduled payments are made under the terms of the legal obligation in effect before the mortgage is recast. For example, assume that a mortgage has a 30-year loan term, and provides that the first 24 months of payments are interest-only. If the 24th payment is due on September 1, 2015, the creditor must calculate the outstanding principal balance as of September 1, 2015, assuming that all 24 payments under the interest-only payment terms have been made and credited timely and that no payments of principal have been made. ii. Second, the payment calculation must be based on substantially equal monthly payments of principal and interest that will fully repay the loan amount over the term of the loan remaining as of the date the loan is recast. Thus, in the example above, the creditor must assume a loan term of 28 years (336 monthly payments). iii. Third, the payment must be based on the fully indexed rate, as described in § 1026.43(d)(5)(i)(A). 7. Example of payment calculation for an interest-only loan. i. A loan in an amount of $200,000 has a 30-year loan term. The loan agreement provides for a fixed interest rate of 7 percent, and permits interest-only payments for the first two years (the first 24 payments), after which time amortizing payments of principal and interest are required. ii. The non-standard mortgage is consummated on February 15, 2014, and the first monthly payment is due on April 1, 2014. The loan is recast on the due date of the 24th monthly payment, which is March 1, 2016. iii. On March 15, 2015, the creditor receives the consumer's written application for a refinancing, after the consumer has made 12 monthly on-time payments. The consumer has made no additional payments of principal. iv. To calculate the non-standard mortgage payment that must be compared to the standard mortgage payment under § 1026.43(d)(2)(ii), the creditor must use: A. The loan amount, which is the outstanding principal balance as of March 1, 2016, assuming all scheduled interest-only payments have been made and credited up to that date. In this example, the loan amount is $200,000. B. An interest rate of 7 percent, which is the interest rate in effect at the time of consummation of this fixed-rate non-standard mortgage. C. The remaining loan term as of March 1, 2016, the date of the recast, which is 28 years (336 monthly payments). v. Based on these assumptions, the monthly payment for the non-standard mortgage for purposes of determining whether the standard mortgage monthly payment is lower than the non-standard mortgage monthly payment ( see 8. Payment calculation for a negative amortization loan. i. First, the calculation must be based on the maximum loan amount, determined after adjusting for the outstanding principal balance. If the consumer makes only the minimum periodic payments for the maximum possible time, until the consumer must begin making fully amortizing payments, the outstanding principal balance will be the maximum loan amount, as defined in § 1026.43(b)(7). In this event, the creditor complies with § 1026.43(d)(5)(i)(C)( 3 3 ii. Second, the calculation must be based on substantially equal monthly payments of principal and interest that will fully repay the maximum loan amount over the term of the loan remaining as of the date the loan is recast. For example, if the loan term is 30 years and the loan is recast on the due date of the 60th monthly payment, the creditor must assume a remaining loan term of 25 years (300 monthly payments). iii. Third, the payment must be based on the fully indexed rate as of the date of the written application for the standard mortgage. 9. Example of payment calculation for a negative amortization loan if only minimum payments made. i. A loan in an amount of $200,000 has a 30-year loan term. The loan agreement provides that the consumer can make minimum monthly payments that cover only part of the interest accrued each month until the date on which the principal balance increases to the negative amortization cap of 115 percent of the loan amount, or for the first five years of monthly payments (60 payments), whichever occurs first. The loan is an adjustable-rate mortgage that adjusts monthly according to a specified index plus a margin of 3.5 percent. ii. The non-standard mortgage is consummated on February 15, 2014, and the first monthly payment is due on April 1, 2014. Assume that the consumer has made only the minimum periodic payments. Assume further that, based on the calculation of the maximum loan amount required under § 1026.43(b)(7) and associated commentary, the negative amortization cap of 115 percent would be reached on June 1, 2016, the due date of the 27th monthly payment. iii. On March 15, 2015, the creditor receives the consumer's written application for a refinancing, after the consumer has made 12 monthly on-time payments. On this date, the index value is 4.5 percent. iv. To calculate the non-standard mortgage payment that must be compared to the standard mortgage payment under § 1026.43(d)(2)(ii), the creditor must use: A. The maximum loan amount of $229,251 as of June 1, 2016; B. The fully indexed rate of 8 percent, which is the index value of 4.5 percent as of March 15, 2015 (the date on which the creditor receives the application for a refinancing) plus the margin of 3.5 percent; and C. The remaining loan term as of June 1, 2016, the date of the recast, which is 27 years and nine months (333 monthly payments). v. Based on these assumptions, the monthly payment for the non-standard mortgage for purposes of determining whether the standard mortgage monthly payment is lower than the non-standard mortgage monthly payment ( see 10. Example of payment calculation for a negative amortization loan if payments above minimum amount made. i. A loan in an amount of $200,000 has a 30-year loan term. The loan agreement provides that the consumer can make minimum monthly payments that cover only part of the interest accrued each month until the date on which the principal balance increases to the negative amortization cap of 115 percent of the loan amount, or for the first five years of monthly payments (60 payments), whichever occurs first. The loan is an adjustable-rate mortgage that adjusts monthly according to a specified index plus a margin of 3.5 percent. The introductory interest rate at consummation is 1.5 percent. One month after consummation, the interest rate adjusts and will adjust monthly thereafter based on the specified index plus a margin of 3.5 percent. The maximum lifetime interest rate is 10.5 percent; there are no other periodic interest rate adjustment caps that limit how quickly the maximum lifetime rate may be reached. The minimum monthly payment for the first year is based on the initial interest rate of 1.5 percent. After that, the minimum monthly payment adjusts annually, but may increase by no more than 7.5 percent over the previous year's payment. The minimum monthly payment is $690 in the first year, $742 in the second year, $798 in the third year, $857 in the fourth year, and $922 in the fifth year. ii. The non-standard mortgage is consummated on February 15, 2014, and the first monthly payment is due on April 1, 2014. Assume that the consumer has made more than the minimum periodic payments, and that after the consumer's 12th monthly on-time payment the outstanding principal balance is $195,000. Based on the calculation of the maximum loan amount after adjusting for this outstanding principal balance, the negative amortization cap of 115 percent would be reached on March 1, 2019, the due date of the 60th monthly payment. iii. On March 15, 2015, the creditor receives the consumer's written application for a refinancing, after the consumer has made 12 monthly on-time payments. On this date, the index value is 4.5 percent. iv. To calculate the non-standard mortgage payment that must be compared to the standard mortgage payment under § 1026.43(d)(2)(ii), the creditor must use: A. The maximum loan amount of $229,219 as of March 1, 2019. B. The fully indexed rate of 8 percent, which is the index value of 4.5 percent as of March 15, 2015 (the date on which the creditor receives the application for a refinancing) plus the margin of 3.5 percent. C. The remaining loan term as of March 1, 2019, the date of the recast, which is exactly 25 years (300 monthly payments). v. Based on these assumptions, the monthly payment for the non-standard mortgage for purposes of determining whether the standard mortgage monthly payment is lower than the non-standard mortgage monthly payment ( see 43(d)(5)(ii) Standard mortgage. 1. Payment calculation for a standard mortgage. 2. Example of payment calculation for a standard mortgage. see 43(e) Qualified mortgages. 43(e)(1) Safe harbor and presumption of compliance. 1. General. See 43(e)(1)(i)(A) Safe harbor for transactions that are not higher-priced covered transactions. 1. Higher-priced covered transactions. 43(e)(1)(ii) Presumption of compliance for higher-priced covered transactions. 1. General. 43(e)(2) Qualified mortgage defined—general. 1. General QM Amendments Effective on March 1, 2021. See Paragraph 43(e)(2)(i). 1. Regular periodic payments. 2. Deferral of principal repayment. Paragraph 43(e)(2)(ii). 1. General. Paragraph 43(e)(2)(iv). 1. Maximum interest rate during the first five years. 2. Fixed-rate mortgage. 3. Interest rate adjustment caps. i. Adjustable-rate mortgage with discount for three years. ii. Adjustable-rate mortgage with discount for three years. iii. Step-rate mortgage. 4. First five years after the date on which the first regular periodic payment will be due. 5. Loan amount. i. The outstanding principal balance as of the earliest date the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due can take effect under the terms of the legal obligation, over the remaining term of the loan. To illustrate, assume a loan in an amount of $200,000 has a 30-year loan term. The loan agreement provides for a discounted interest rate of 5 percent that is fixed for an initial period of three years, measured from the first day of the first full calendar month following consummation, after which the interest rate will adjust annually based on a specified index plus a margin of 3 percent, subject to a 2 percent annual interest rate adjustment cap and a lifetime maximum interest rate of 9 percent. The index value in effect at consummation equals 4.5 percent. Assuming the interest rate increases after consummation as quickly as possible, the rate adjustment to the lifetime maximum interest rate of 9 percent occurs on the due date of the 48th monthly payment. The outstanding principal balance on the loan at the end of the fourth year (after the 48th monthly payment is credited) is $188,218. The creditor will meet the definition of qualified mortgage if it underwrites the covered transaction using the monthly payment of principal and interest of $1,564 to repay the outstanding principal balance of $188,218 over the remaining 26 years of the loan term (312 months) using the maximum interest rate during the first five years of 9 percent; or ii. The loan amount, as that term is defined in § 1026.43(b)(5), over the entire loan term, as that term is defined in § 1026.43(b)(6). Using the same example above, the creditor will meet the definition of qualified mortgage if it underwrites the covered transaction using the monthly payment of principal and interest of $1,609 to repay the loan amount of $200,000 over the 30-year loan term using the maximum interest rate during the first five years of 9 percent. 6. Mortgage-related obligations. 7. Examples. i. Fixed-rate mortgage. ii. Adjustable-rate mortgage with discount for three years. B. The transaction will meet the definition of a qualified mortgage if the creditor underwrites the loan using the monthly payment of principal and interest of $1,564 to repay the outstanding principal balance at the end of the fourth year of $188,218 over the remaining 26 years of the loan term (312 months), using the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due of 9 percent. Alternatively, the transaction will meet the definition of a qualified mortgage if the creditor underwrites the loan using the monthly payment of principal and interest of $1,609 to repay the loan amount of $200,000 over the 30-year loan term, using the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due of 9 percent. iii. Adjustable-rate mortgage with discount for five years. B. The transaction will meet the definition of a qualified mortgage if the creditor underwrites the loan using the monthly payment of principal and interest of $1,436 to repay the outstanding principal balance at the end of the fifth year of $186,109 over the remaining 25 years of the loan term (300 months), using the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due of 8 percent. Alternatively, the transaction will meet the definition of a qualified mortgage if the creditor underwrites the loan using the monthly payment of principal and interest of $1,468 to repay the loan amount of $200,000 over the 30-year loan term, using the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due of 8 percent. iv. Adjustable-rate mortgage with discount for seven years. B. The transaction will meet the definition of a qualified mortgage if the creditor underwrites the loan using the monthly payment of principal and interest of $1,199 to repay the loan amount of $200,000 over the 30-year loan term using the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due of 6 percent. iv. Step-rate mortgage. B. The transaction will meet the definition of a qualified mortgage if the creditor underwrites the loan using a monthly payment of principal and interest of $1,388 to repay the outstanding principal balance of $187,868 over the remaining 25 years of the loan term (300 months), using the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due of 7.5 percent. Alternatively, the transaction will meet the definition of a qualified mortgage if the creditor underwrites the loan using a monthly payment of principal and interest of $1,398 to repay $200,000 over the 30-year loan term using the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due of 7.5 percent. Paragraph 43(e)(2)(v) 1. General. Paragraph 43(e)(2)(v)(A) Consider. 2. Requirement to consider monthly debt-to-income ratio or residual income. 3. Flexibility to consider additional factors related to a consumer's ability to repay. Paragraph 43(e)(2)(v)(B) 1. Verification of income, assets, debt obligations, alimony, and child support. 1 2 2. Classifying and counting income, assets, debt obligations, alimony, and child support. 3. Safe harbor for compliance with specified external standards. i. Meeting the standards in the following manuals for verifying current or reasonably expected income or assets using third-party records provides a creditor with reasonably reliable evidence of the consumer's income or assets. Meeting the standards in the following manuals for verifying current debt obligations, alimony, and child support using third-party records provides a creditor with reasonably reliable evidence of the consumer's debt obligations, alimony, and child support obligations. Accordingly, a creditor complies with § 1026.43(e)(2)(v)(B) if it complies with verification standards in one or more of the following manuals: A. Chapters B3-3 through B3-6 of the Fannie Mae Single Family Selling Guide, published June 3, 2020; B. Sections 5102 through 5500 of the Freddie Mac Single-Family Seller/Servicer Guide, published June 10, 2020; C. Sections II.A.1 and II.A.4-5 of the Federal Housing Administration's Single Family Housing Policy Handbook, issued October 24, 2019; D. Chapter 4 of the U.S. Department of Veterans Affairs' Lenders Handbook, revised February 22, 2019; E. Chapter 4 of the U.S. Department of Agriculture's Field Office Handbook for the Direct Single Family Housing Program, revised March 15, 2019; and F. Chapters 9 through 11 of the U.S. Department of Agriculture's Handbook for the Single Family Guaranteed Loan Program, revised March 19, 2020. ii. Applicable provisions in manuals. iii. Inapplicable provisions in manuals. iv. Revised versions of manuals. v. Use of standards from more than one manual. Paragraph 43(e)(2)(vi). 1. Determining the average prime offer rate for a comparable transaction as of the date the interest rate is set. 2. Determination of applicable threshold. 3. Annual adjustment for inflation. i. For 2022, reflecting a 4.2 percent increase in the CPI-U that was reported on the preceding June 1, to satisfy § 1026.43(e)(2)(vi), the annual percentage rate may not exceed the average prime offer rate for a comparable transaction as of the date the interest rate is set by the following amounts: A. For a first-lien covered transaction with a loan amount greater than or equal to $114,847, 2.25 or more percentage points; B. For a first-lien covered transaction with a loan amount greater than or equal to $68,908 but less than $114,847, 3.5 or more percentage points; C. For a first-lien covered transaction with a loan amount less than $68,908, 6.5 or more percentage points; D. For a first-lien covered transaction secured by a manufactured home with a loan amount less than $114,847, 6.5 or more percentage points; E. For a subordinate-lien covered transaction with a loan amount greater than or equal to $68,908, 3.5 or more percentage points; F. For a subordinate-lien covered transaction with a loan amount less than $68,908, 6.5 or more percentage points. ii. For 2023, reflecting an 8.3 percent increase in the CPI-U that was reported on the preceding June 1, to satisfy § 1026.43(e)(2)(vi), the annual percentage rate may not exceed the average prime offer rate for a comparable transaction as of the date the interest rate is set by the following amounts: A. For a first-lien covered transaction with a loan amount greater than or equal to $124,331, 2.25 or more percentage points; B. For a first-lien covered transaction with a loan amount greater than or equal to $74,599 but less than $124,331, 3.5 or more percentage points; C. For a first-lien covered transaction with a loan amount less than $74,599, 6.5 or more percentage points; D. For a first-lien covered transaction secured by a manufactured home with a loan amount less than $124,331, 6.5 or more percentage points; E. For a subordinate-lien covered transaction with a loan amount greater than or equal to $74,599, 3.5 or more percentage points; F. For a subordinate-lien covered transaction with a loan amount less than $74,599, 6.5 or more percentage points. iii. For 2024, reflecting a 4.9 percent increase in the CPI-U that was reported on the preceding June 1, to satisfy § 1026.43(e)(2)(vi), the annual percentage rate may not exceed the average prime offer rate for a comparable transaction as of the date the interest rate is set by the following amounts: A. For a first-lien covered transaction with a loan amount greater than or equal to $130,461, 2.25 or more percentage points; B. For a first-lien covered transaction with a loan amount greater than or equal to $78,277 but less than $130,461, 3.5 or more percentage points; C. For a first-lien covered transaction with a loan amount less than $78,277, 6.5 or more percentage points; D. For a first-lien covered transaction secured by a manufactured home with a loan amount less than $130,461, 6.5 or more percentage points; E. For a subordinate-lien covered transaction with a loan amount greater than or equal to $78,277, 3.5 or more percentage points; F. For a subordinate-lien covered transaction with a loan amount less than $78,277, 6.5 or more percentage points. iv. For 2025, reflecting a 3.4 percent increase in the CPI-U that was reported on the preceding June 1, to satisfy § 1026.43(e)(2)(vi), the annual percentage rate may not exceed the average prime offer rate for a comparable transaction as of the date the interest rate is set by the following amounts: A. For a first-lien covered transaction with a loan amount greater than or equal to $134,841, 2.25 or more percentage points; B. For a first-lien covered transaction with a loan amount greater than or equal to $80,905 but less than $134,841, 3.5 or more percentage points; C. For a first-lien covered transaction with a loan amount less than $80,905, 6.5 or more percentage points; D. For a first-lien covered transaction secured by a manufactured home with a loan amount less than $134,841, 6.5 or more percentage points; E. For a subordinate-lien covered transaction with a loan amount greater than or equal to $80,905, 3.5 or more percentage points; F. For a subordinate-lien covered transaction with a loan amount less than $80,905, 6.5 or more percentage points. v. For 2026, reflecting a 2.3 percent increase in the CPI-U that was reported on the preceding June 1, to satisfy § 1026.43(e)(2)(vi), the annual percentage rate may not exceed the average prime offer rate for a comparable transaction as of the date the interest rate is set by the following amounts: A. For a first-lien covered transaction with a loan amount greater than or equal to $137,958, 2.25 or more percentage points; B. For a first-lien covered transaction with a loan amount greater than or equal to $82,775 but less than $137,958, 3.5 or more percentage points; C. For a first-lien covered transaction with a loan amount less than $82,775, 6.5 or more percentage points; D. For a first-lien covered transaction secured by a manufactured home with a loan amount less than $137,958, 6.5 or more percentage points; E. For a subordinate-lien covered transaction with a loan amount greater than or equal to $82,775, 3.5 or more percentage points; F. For a subordinate-lien covered transaction with a loan amount less than $82,775, 6.5 or more percentage points. 4. Determining the annual percentage rate for certain loans for which the interest rate may or will change. i. In general. ii. Loans for which the interest rate may or will change. iii. Maximum interest rate during the first five years. iv. Treatment of the maximum interest rate in determining the annual percentage rate. 5. Meaning of a manufactured home. 6. Scope of threshold for transactions secured by a manufactured home. 43(e)(3) Limits on points and fees for qualified mortgages. Paragraph 43(e)(3)(i). 1. Total loan amount. 2. Calculation of allowable points and fees. i. First, the creditor must determine the “tier” into which the loan falls based on the loan amount. The loan amount is the principal amount the consumer will borrow, as reflected in the promissory note or loan contract. See e.g., ii. Second, for tiers with a percentage limit, the creditor must determine the total loan amount based on the calculation for the total loan amount under comment 32(b)(4)(i)-1. If the loan amount is $55,000, for example, the total loan amount may be a different amount, such as $52,000. iii. Third, the creditor must apply the percentage cap on points and fees to the total loan amount. For example, for a loan of $55,000 where the total loan amount is $52,000, the allowable points and fees are 5 percent of $52,000, or $2,600. 3. Sample determination of allowable points and fees. i. A covered transaction with a loan amount of $105,000 falls into the first points and fees tier, to which a points and fees cap of 3 percent of the total loan amount applies. See ii. A covered transaction with a loan amount of $75,000 falls into the second points and fees tier, to which a points and fees cap of $3,000 applies. See iii. A covered transaction with a loan amount of $50,000 falls into the third points and fees tier, to which a points and fees cap of 5 percent of the total loan amount applies. See iv. A covered transaction with a loan amount of $15,000 falls into the fourth points and fees tier, to which a points and fees cap of $1,000 applies. See v. A covered transaction with a loan amount of $10,000 falls into the fifth points and fees tier, to which a points and fees cap of 8 percent of the total loan amount applies. See Paragraph 43(e)(3)(ii) 1. Annual adjustment for inflation. i. For 2015, reflecting a 2 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transactions total points and fees do not exceed; A. For a loan amount greater than or equal to $101,953: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $61,172 but less than $101,953: $3,059; C. For a loan amount greater than or equal to $20,391 but less than $61,172: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $12,744 but less than $20,391; $1,020; E. For a loan amount less than $12,744: 8 percent of the total loan amount. ii. For 2016, reflecting a 0.2 percent decrease in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transactions total points and fees do not exceed; A. For a loan amount greater than or equal to $101,749: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $61,050 but less than $101,749: $3,052; C. For a loan amount greater than or equal to $20,350 but less than $61,050: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $12,719 but less than $20,350; $1,017; E. For a loan amount less than $12,719: 8 percent of the total loan amount. iii. For 2017, reflecting a 1.1 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transactions total points and fees do not exceed: A. For a loan amount greater than or equal to $102,894: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $61,737 but less than $102,894: $3,087; C. For a loan amount greater than or equal to $20,579 but less than $61,737: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $12,862 but less than $20,579: $1,029; E. For a loan amount less than $12,862: 8 percent of the total loan amount. iv. For 2018, reflecting a 2.2 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: A. For a loan amount greater than or equal to $105,158: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $63,095 but less than $105,158: $3,155; C. For a loan amount greater than or equal to $21,032 but less than $63,095: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $13,145 but less than $21,032: $1,052; E. For a loan amount less than $13,145: 8 percent of the total loan amount. v. For 2019, reflecting a 2.5 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: A. For a loan amount greater than or equal to $107,747: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $64,648 but less than $107,747: $3,232; C. For a loan amount greater than or equal to $21,549 but less than $64,648: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $13,468 but less than $21,549: $1,077; E. For a loan amount less than $13,468: 8 percent of the total loan amount. vi. For 2020, reflecting a 2 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: A. For a loan amount greater than or equal to $109,898: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $65,939 but less than $109,898: $3,297; C. For a loan amount greater than or equal to $21,980 but less than $65,939: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $13,737 but less than $21,980: $1,099; E. For a loan amount less than $13,737: 8 percent of the total loan amount. vii. For 2021, reflecting a 0.3 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: A. For a loan amount greater than or equal to $110,260: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $66,156 but less than $110,260: $3,308; C. For a loan amount greater than or equal to $22,052 but less than $66,156: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $13,783 but less than $22,052: $1,103; E. For a loan amount less than $13,783: 8 percent of the total loan amount. viii. For 2022, reflecting a 4.2 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: A. For a loan amount greater than or equal to $114,847: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $68,908 but less than $114,847: $3,445; C. For a loan amount greater than or equal to $22,969 but less than $68,908: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $14,356 but less than $22,969: $1,148; E. For a loan amount less than $14,356: 8 percent of the total loan amount. ix. For 2023, reflecting an 8.3 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: A. For a loan amount greater than or equal to $124,331: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $74,599 but less than $124,331: $3,730; C. For a loan amount greater than or equal to $24,866 but less than $74,599: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $15,541 but less than $24,866: $1,243; E. For a loan amount less than $15,541: 8 percent of the total loan amount. x. For 2024, reflecting a 4.9 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: A. For a loan amount greater than or equal to $130,461: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $78,277 but less than $130,461: $3,914; C. For a loan amount greater than or equal to $26,092 but less than $78,277: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $16,308 but less than $26,092: $1,305; E. For a loan amount less than $16,308: 8 percent of the total loan amount. xi. For 2025, reflecting a 3.4 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: A. For a loan amount greater than or equal to $134,841: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $80,905 but less than $134,841: $4,045; C. For a loan amount greater than or equal to $26,968 but less than $80,905: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $16,855 but less than $26,968: $1,305; E. For a loan amount less than $16,855: 8 percent of the total loan amount. xii. For 2026, reflecting a 2.3 percent increase in the CPI-U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: A. For a loan amount greater than or equal to $137,958: 3 percent of the total loan amount; B. For a loan amount greater than or equal to $82,775 but less than $137,958: $4,139; C. For a loan amount greater than or equal to $27,592 but less than $82,775: 5 percent of the total loan amount; D. For a loan amount greater than or equal to $17,245 but less than $27,592: $1,380; E. For a loan amount less than $17,245: 8 percent of the total loan amount. Paragraph 43(e)(3)(iv). 1. Interest rate. 2. Relationship to RESPA tolerance cure. 1 3 43(e)(4) Qualified mortgage defined—other agencies. 1. General. 2. Mortgages for which the creditor received the consumer's application prior to October 1, 2022. 3. Mortgages for which the creditor received the consumer's application on or after March 1, 2021 but prior to October 1, 2022. 4. [Reserved]. 5. [Reserved]. Paragraph 43(e)(5) 1. Satisfaction of qualified mortgage requirements. 2. Debt-to-income ratio or residual income. 3. Forward commitments. 4. Creditor qualifications. 5. Requirement to hold in portfolio. 6. Application to subsequent transferees. 7. Transfer three years after consummation. 8. Transfer to another qualifying creditor. 9. Supervisory sales. 10. Mergers and acquisitions. 43(e)(7) Seasoned loans. Paragraph 43(e)(7)(i)(A) 1. Fixed-rate mortgage. 2. Fully amortizing payments. Paragraph 43(e)(7)(iii) 1. Requirement to hold in portfolio. 1 3 2. Application to subsequent transferees. (3 1 2 3 1 2 i.e., 3. Supervisory sales. 1 1 1 1 3 Paragraph 43(e)(7)(iv)(A) 1. Due date. Paragraph 43(e)(7)(iv)(A)(2) 1. 60 days delinquent. Paragraph 43(e)(7)(iv)(B) 1. Qualifying change. Paragraph 43(e)(7)(iv)(C)(2) 1. Suspension of seasoning period during certain temporary payment accommodations. 2 2 Paragraph 43(e)(7)(iv)(D) 1. Temporary payment accommodation in connection with a disaster or pandemic-related national emergency. 43(f) Balloon-Payment qualified mortgages made by certain creditors. 43(f)(1) Exemption. Paragraph 43(f)(1)(i) 1. Satisfaction of qualified mortgage requirements. Paragraph 43(f)(1)(ii) 1. Example. 2. Creditor's determination. Paragraph 43(f)(1)(iii) 1. Debt-to-income or residual income. Paragraph 43(f)(1)(iv) 1. Scheduled payments. 2. Substantially equal. 3. Interest-only payments. Paragraph 43(f)(1)(v) 1. Forward commitments. Paragraph 43(f)(1)(vi). 1. Creditor qualifications. i. During the preceding calendar year or during either of the two preceding calendar years if the application for the transaction was received before April 1 of the current calendar year, the creditor extended a first-lien covered transaction, as defined in § 1026.43(b)(1), on a property that is located in an area that is designated either “rural” or “underserved,” as defined in § 1026.35(b)(2)(iv), to satisfy the requirement of § 1026.35(b)(2)(iii)(A) (the rural-or-underserved test). Pursuant to § 1026.35(b)(2)(iv), an area is considered to be rural if it is: A county that is neither in a metropolitan statistical area, nor a micropolitan statistical area adjacent to a metropolitan statistical area, as those terms are defined by the U.S. Office of Management and Budget; or a census block that is not in an urban area, as defined by the U.S. Census Bureau using the latest decennial census of the United States. An area is considered to be underserved during a calendar year if, according to HMDA data for the preceding calendar year, it is a county in which no more than two creditors extended covered transactions secured by first liens on properties in the county five or more times. A. The Bureau determines annually which counties in the United States are rural or underserved as defined by § 1026.35(b)(2)(iv)(A)( 1 B. For example, if a creditor extended during 2017 a first-lien covered transaction that is secured by a property that is located in an area that meets the definition of rural or underserved under § 1026.35(b)(2)(iv), the creditor meets this element of the exception for any transaction consummated during 2018. C. Alternatively, if the creditor did not extend in 2017 a transaction that meets the definition of rural or underserved test under § 1026.35(b)(2)(iv), the creditor satisfies this criterion for any transaction consummated during 2018 for which it received the application before April 1, 2018, if it extended during 2016 a first-lien covered transaction that is secured by a property that is located in an area that meets the definition of rural or underserved under § 1026.35(b)(2)(iv). ii. During the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years, the creditor together with its affiliates extended no more than 2,000 covered transactions, as defined by § 1026.43(b)(1), secured by first liens, that were sold, assigned, or otherwise transferred to another person, or that were subject at the time of consummation to a commitment to be acquired by another person, to satisfy the requirement of § 1026.35(b)(2)(iii)(B). iii. As of the preceding December 31st, or, if the application for the transaction was received before April 1 of the current calendar year, as of either of the two preceding December 31sts, the creditor and its affiliates that regularly extended covered transactions secured by first liens, together, had total assets that do not exceed the applicable asset threshold established by the Bureau, to satisfy the requirement of § 1026.35(b)(2)(iii)(C). The Bureau publishes notice of the asset threshold each year by amending comment 35(b)(2)(iii)-1.iii. 43(f)(2) Post-consummation transfer of balloon-payment qualified mortgage. 1. Requirement to hold in portfolio. 2. Application to subsequent transferees. Paragraph 43(f)(2)(i). 1. Transfer three years after consummation. Paragraph 43(f)(2)(ii). 1. Transfer to another qualifying creditor. Paragraph 43(f)(2)(iii). 1. Supervisory sales. Paragraph 43(f)(2)(iv). 1. Mergers and acquisitions. 43(g) Prepayment penalties. 43(g)(2) Limits on prepayment penalties. 1. Maximum period and amount. 43(g)(3) Alternative offer required. Paragraph 43(g)(3)(i). 1. Same type of interest rate. Paragraph 43(g)(3)(iv). 1. Points and fees. Paragraph 43(g)(3)(v). 1. Transactions for which the consumer likely qualifies. 43(g)(4) Offer through a mortgage broker. 1. Rate sheet. 2. Alternative to creditor's offer. 3. Agreement. 43(g)(5) Creditor that is a loan originator. 1. Loan originator. See 2. Lower interest rate. 43(h) Evasion; open-end credit. 1. Subject to closed-end credit rules. Subpart F—Special Rules for Private Education Loans Section 1026.46—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. 46(c)(3) Electronic Disclosures 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 46(d)(1) Application or Solicitation Disclosures 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. 46(d)(2) Approval Disclosures 1. Timing. et seq. 46(g) Effect of Subsequent Events 1. Approval disclosures. 2. Final disclosures. Section 1026.47—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. Cosigner 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. Paragraph 47(a)(6)(ii) 1. Terms of Federal student loans. Paragraph 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. 47(b)(2) Fees and Default or Late Payment Costs 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 § 1026.18(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 § 1026.47(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 1026.48—Limitations on Private Education Loans 1. Co-branding—definition of marketing. Implied endorsement. 3. Disclosure. ii. A creditor is considered to have complied with § 1026.48(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. 48(c) Consumer's Right to Accept 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. 6. Permissible changes to rates and terms—re-disclosure required. 48(d) Consumer's Right to Cancel 1. Right to cancel. See 2. Method of cancellation. et seq. 3. Cancellation without penalty. 48(e) Self-Certification Form 1. General. 2. Electronic signature. 48(f) Provision of Information by Preferred Lenders 1. General. Subpart G—Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students Section 1026.51 Ability To Pay 51(a) General Rule 51(a)(1)(i) 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. Consideration of income and assets. i. A card issuer may consider any current or reasonably expected income or assets of the consumer or consumers who are applying for a new account or will be liable for debts incurred on that account, including a cosigner or guarantor. Similarly, when a card issuer is considering whether to increase the credit limit on an existing account, the card issuer may consider any current or reasonably expected income or assets of the consumer or consumers who are accountholders, cosigners, or guarantors, and are liable for debts incurred on that account. In both of these circumstances, a card issuer may treat any income and assets to which an applicant, accountholder, joint applicant, cosigner, or guarantor who is or will be liable for debts incurred on the account has a reasonable expectation of access as the applicant's current or reasonably expected income—but is not required to do so. A card issuer may instead limit its consideration of a consumer's current or reasonably expected income or assets to the consumer's independent income or assets as discussed in comments 51(b)(1)(i)-1 and 51(b)(2)-2. Although these comments clarify the independent ability-to-pay requirement that governs applications from consumers under 21, they provide guidance regarding the use of “independent income and assets” as an underwriting criterion under § 1026.51(a). For example, comment 51(b)(1)(i)-1 explains that card issuers may not consider income or assets to which applicants under 21 have only a reasonable expectation of access. An issuer who chooses to comply with § 1026.51(a) by limiting its consideration to applicants' independent income and assets likewise would not consider income or assets to which applicants 21 or older have only a reasonable expectation of access. ii. Current or reasonably expected income includes, for example, current or expected salary, wages, bonus pay, tips, and commissions. Employment may be full-time, part-time, seasonal, irregular, military, or self-employment. Other sources of income include interest or dividends, retirement benefits, public assistance, alimony, child support, and separate maintenance payments. Proceeds from student loans may be considered as current or reasonably expected income only to the extent that those proceeds exceed the amount disbursed or owed to an educational institution for tuition and other expenses. Current or reasonably expected income also includes income that is being deposited regularly into an account on which the consumer is an accountholder ( e.g., iii. Consideration of the income or assets of authorized users, household members, or other persons who are not liable for debts incurred on the account does not satisfy the requirement to consider the consumer's current or reasonably expected income or assets, unless a Federal or State statute or regulation grants a consumer who is liable for debts incurred on the account an ownership interest in such income and assets ( e.g., e.g., 5. Information regarding income and assets. i. Information provided by the consumer in connection with the account, including information provided by the consumer through the application process. For example, card issuers may rely without further inquiry on information provided by applicants in response to a request for “salary,” “income,” “assets,” “available income,” “accessible income,” or other language requesting that the applicant provide information regarding current or reasonably expected income or assets or any income or assets to which the applicant has a reasonable expectation of access. However, card issuers may not rely solely on information provided in response to a request for “household income.” In that case, the card issuer would need to obtain additional information about an applicant's current or reasonably expected income, including income and assets to which the applicant has a reasonable expectation of access (such as by contacting the applicant). See comments 51(a)(1)-4, -5, and -6 for additional guidance on determining the consumer's current or reasonably expected income under § 1026.51(a)(1). See comment 51(a)(1)-9 for guidance regarding the use of a single, common application form or process for all credit card applicants, regardless of age. ii. 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). iii. Information obtained through third parties (subject to any applicable information-sharing rules). iv. Information obtained through any empirically derived, demonstrably and statistically sound model that reasonably estimates a consumer's income or assets, including any income or assets to which the consumer has a reasonable expectation of access. 6. Examples of considering income. i. If a non-applicant's salary or other income is deposited regularly into a joint account shared with the applicant, a card issuer is permitted to consider the amount of the non-applicant's income that is being deposited regularly into the account to be the applicant's current or reasonably expected income for purposes of § 1026.51(a). ii. The non-applicant's salary or other income is deposited into an account to which the applicant does not have access. However, the non-applicant regularly transfers a portion of that income into the applicant's individual deposit account. A card issuer is permitted to consider the amount of the non-applicant's income that is being transferred regularly into the applicant's account to be the applicant's current or reasonably expected income for purposes of § 1026.51(a). iii. The non-applicant's salary or other income is deposited into an account to which the applicant does not have access. However, the non-applicant regularly uses a portion of that income to pay for the applicant's expenses. A card issuer is permitted to consider the amount of the non-applicant's income that is used regularly to pay for the applicant's expenses to be the applicant's current or reasonably expected income for purposes of § 1026.51(a) because the applicant has a reasonable expectation of access to that income. iv. The non-applicant's salary or other income is deposited into an account to which the applicant does not have access, the non-applicant does not regularly use that income to pay for the applicant's expenses, and no Federal or State statute or regulation grants the applicant an ownership interest in that income. A card issuer is not permitted to consider the non-applicant's income as the applicant's current or reasonably expected income for purposes of § 1026.51(a) because the applicant does not have a reasonable expectation of access to the non-applicant's income. 7. Current obligations. 8. Joint applicants and joint accountholders. 9. Single application. 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. 5. Current obligations. 6. Joint applicants or joint accountholders. 7. Relation to Regulation B. 51(b)(1) Applications from young consumers Paragraph 51(b)(1)(i). 1. Consideration of income and assets for young consumers. i. A card issuer may consider any current or reasonably expected income or assets of the consumer or consumers who are applying for a new account or will be liable for debts incurred on that account, including a cosigner or guarantor. However, because § 1026.51(b)(1)(i) requires that the consumer who has not attained the age of 21 have an independent ability to make the required minimum periodic payments, the card issuer may only consider the applicant's current or reasonably expected income or assets under § 1026.51(b)(1)(i). The card issuer may not consider income or assets to which an applicant, joint applicant, cosigner, or guarantor, in each case who is under the age of 21 and is or will be liable for debts incurred on the account, has only a reasonable expectation of access. ii. Current or reasonably expected income includes, for example, current or expected salary, wages, bonus pay, tips, and commissions. Employment may be full-time, part-time, seasonal, irregular, military, or self-employment. Other sources of income include interest or dividends, retirement benefits, public assistance, alimony, child support, and separate maintenance payments. Proceeds from student loans may be considered as current or reasonably expected income only to the extent that those proceeds exceed the amount disbursed or owed to an educational institution for tuition and other expenses. Current or reasonably expected income includes income that is being deposited regularly into an account on which the consumer is an accountholder ( e.g., iii. Consideration of the income and assets of authorized users, household members, or other persons who are not liable for debts incurred on the account does not satisfy the requirement to consider the consumer's current or reasonably expected income or assets, unless a Federal or State statute or regulation grants a consumer who is liable for debts incurred on the account an ownership interest in such income or assets ( e.g., e.g., 2. Information regarding income and assets for young consumers. i. Information provided by the consumer in connection with the account, including information provided by the consumer through the application process. For example, card issuers may rely without further inquiry on information provided by applicants in response to a request for “salary,” “income,” “personal income,” “individual income,” “assets,” or other language requesting that the applicant provide information regarding his or her current or reasonably expected income or assets. However, card issuers may not rely solely on information provided in response to a request for “household income.” Nor may they rely solely on information provided in response to a request for “available income,” “accessible income,” or other language requesting that the applicant provide any income or assets to which the applicant has a reasonable expectation of access. In such cases, the card issuer would need to obtain additional information about an applicant's current or reasonably expected income (such as by contacting the applicant). See comments 51(b)(1)(i)-1, -2, and -3 for additional guidance on determining the consumer's current or reasonably expected income under § 1026.51(b)(1)(i). See comment 51(a)(1)-9 for guidance regarding the use of a single, common application for all credit card applicants, regardless of age. ii. 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). iii. Information obtained through third parties (subject to any applicable information-sharing rules). iv. Information obtained through any empirically derived, demonstrably and statistically sound model that reasonably estimates a consumer's income or assets. 3. Examples of considering income for young consumers. i. If a non-applicant's salary or other income is deposited regularly into a joint account shared with the applicant, a card issuer is permitted to consider the amount of the non-applicant's income that is being deposited regularly into the account to be the applicant's current or reasonably expected income for purposes of § 1026.51(b)(1)(i). ii. The non-applicant's salary or other income is deposited into an account to which the applicant does not have access. However, the non-applicant regularly transfers a portion of that income into the applicant's individual deposit account. A card issuer is permitted to consider the amount of the non-applicant's income that is being transferred regularly into the applicant's account to be the applicant's current or reasonably expected income for purposes of § 1026.51(b)(1)(i). iii. The non-applicant's salary or other income is deposited into an account to which the applicant does not have access. However, the non-applicant regularly uses that income to pay for the applicant's expenses. A card issuer is not permitted to consider the non-applicant's income that is used regularly to pay for the applicant's expenses as the applicant's current or reasonably expected income for purposes of § 1026.51(b)(1)(i), unless a Federal or State statute or regulation grants the applicant an ownership interest in such income. iv. The non-applicant's salary or other income is deposited into an account to which the applicant does not have access, the non-applicant does not regularly use that income to pay for the applicant's expenses, and no Federal or State statute or regulation grants the applicant an ownership interest in that income. The card issuer is not permitted to consider the non-applicant's income to be the applicant's current or reasonably expected income for purposes of § 1026.51(b)(1)(i). Paragraph 51(b)(1)(ii). 1. Financial information. 51(b)(2) Credit line increases for young consumers 1. Credit line request by joint accountholder aged 21 or older. 2. Independent ability-to-pay standard. Section 1026.52—Limitations on Fees 52(a) Limitations 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 $8 if the required minimum periodic payment is not received by the payment due date (which is the twenty-fifth of the month). The card issuer is not a smaller card issuer as defined in § 1026.52(b)(3). At account opening on January 1 of year one, the credit limit for the account is $500. Section 1026.52(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 1026.52(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 1026.52(a)(2) permits the card issuer to charge a $8 late payment fee to the account. On July 15 of year one, the consumer uses the account for a $50 cash advance. Section 1026.52(a)(1) does not permit the card issuer to charge a $2.50 cash advance fee to the account. Furthermore, § 1026.52(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 1026.52(a)(1) permits the card issuer to charge the $125 in fees to the account. However, § 1026.52(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 during the first year after account opening. Section 1026.52(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 during the first year after the credit card account is opened. iii. Assume that a consumer opens a prepaid account accessed by a prepaid card on January 1 of year one and opens a covered separate credit feature accessible by a hybrid prepaid-credit card as defined by § 1026.61 that is a credit card account under an open-end (not home-secured) consumer credit plan on March 1 of year one. Assume that, under the terms of the covered separate credit feature accessible by the hybrid prepaid-credit card, a consumer is required to pay $50 in fees for the issuance or availability of credit at account opening. At credit account opening on March 1 of year one, the credit limit for the account is $200. Section 1026.52(a)(1) permits the card issuer to charge the $50 in fees to the credit account. However, § 1026.52(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 credit account during the first year after account opening. Section 1026.52(a)(1) also prohibits the card issuer from requiring the consumer to open an additional credit feature with the card issuer to fund the payment of additional non-exempt fees during the first year after the covered separate credit feature is opened. iv. Assume that a consumer opens a prepaid account accessed by a prepaid card on January 1 of year one and opens a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61 that is a credit card account under an open-end (not home-secured) consumer credit plan on March 1 of year one. Assume that, under the terms of the covered separate credit feature accessible by the hybrid prepaid-credit card, 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 5 percent of any cash advance and a late payment fee of $8 if the required minimum periodic payment is not received by the payment due date (which is the 25th of the month). The card issuer is not a smaller card issuer as defined in § 1026.52(b)(3). At credit account opening on March 1 of year one, the credit limit for the account is $500. Section 1026.52(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 April 1 of year one, the consumer uses the account for a $100 cash advance. Section 1026.52(a)(1) permits the card issuer to charge a $5 cash advance fee to the account. On April 26 of year one, the card issuer has not received the consumer's required minimum periodic payment. Section 1026.52(a)(2) permits the card issuer to charge a $8 late payment fee to the account. On July 15 of year one, the consumer uses the account for a $50 cash advance. Section 1026.52(a)(1) does not permit the card issuer to charge a $2.50 cash advance fee to the account, because the total amount of non-exempt fees reached the 25 percent limit with the $5 cash advance fee on April 1 (the $8 late fee on April 26 is exempt pursuant to § 1026.52(a)(2)(i)). Furthermore, § 1026.52(a)(1) prohibits the card issuer from collecting the $2.50 cash advance fee from the consumer by other means. 2. Fees that exceed 25 percent limit. 3. Changes in credit limit during first year. i. Increases in credit limit. ii. Decreases in credit limit. 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 § 1026.6, 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 § 1026.6 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. 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 § 1026.6. 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 § 1026.52(a)(1). Accordingly, § 1026.52(a)(1) ceases to apply to the account on July 12 of year two. C. Same facts as in comment 52(a)(1)-4.ii.B except that the card issuer has adopted reasonable procedures designed to ensure that account-opening disclosures that comply with § 1026.6 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 § 1026.52(a)(1). Accordingly, § 1026.52(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 § 1026.52(a)(1), and therefore § 1026.52(a)(1) 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 § 1026.60(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 § 1026.4(b)(7) or debt cancellation or debt suspension coverage described in § 1026.4(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 § 1026.52(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 in connection with a covered separate credit feature and an asset feature of the prepaid account that are both accessible by a hybrid prepaid-credit card. i. Except as provided in § 1026.52(a)(2), any fee or charge imposed on the covered separate credit feature, other than a charge attributable to a periodic interest rate, during the first year after account opening that the card issuer will or may require the consumer to pay in connection with the credit feature, and ii. Except as provided in § 1026.52(a)(2), any fee or charge imposed on the asset feature of the prepaid account, other than a charge attributable to a periodic interest rate, during the first year after account opening that the card issuer will or may require the consumer to pay where that fee or charge is a charge imposed as part of the plan under § 1026.6(b)(3). 3. Fees imposed on the asset feature of a prepaid account that are not charges imposed as part of the plan. 4. Fees the consumer is not required to pay. 5. 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 § 1026.52(b) or are prohibited by § 1026.52(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. A late payment fee or late fee is any fee imposed for a late payment. See 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 § 1026.56(a), to the extent the imposition of such a fee or charge is permitted by § 1026.56. 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 § 1026.52(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 § 1026.60(b)(2), except to the extent that such fees are based on account inactivity. See E. Fees for insurance described in § 1026.4(b)(7) or debt cancellation or debt suspension coverage described in § 1026.4(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 § 1026.10(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. 3. Fees in connection with covered separate credit features accessible by hybrid prepaid-credit cards. 4. Fees imposed on the asset feature of a prepaid account that are not charges imposed as part of the plan. See 5. Examples. 52(b)(1) General Rule 1. Relationship between § 1026.52(b)(1)(i) and (ii) and (b)(2). i. Relationship between § 1026.52(b)(1)(i) and (ii). A. A card issuer that complies with the safe harbors in § 1026.52(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 § 1026.52(b)(1)(i). B. A card issuer may impose a fee for one type of violation pursuant to § 1026.52(b)(1)(i) and may impose a fee for a different type of violation pursuant to § 1026.52(b)(1)(ii). For example, a card issuer may impose a late payment fee of $9 based on a cost determination pursuant to § 1026.52(b)(1)(i) but impose returned payment and over-the-limit fees of $25 or $35 pursuant to the safe harbors in § 1026.52(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 § 1026.52(b)(1)(i) may begin to impose a penalty fee for that type of violation that is consistent with § 1026.52(b)(1)(ii) at any time (subject to the notice requirements in § 1026.9), provided that the first fee imposed pursuant to § 1026.52(b)(1)(ii) is consistent with § 1026.52(b)(1)(ii)(A). For example, assume that consistent with § 1026.56, a consumer has affirmatively consented to the payment of transactions that exceed the credit limit. A transaction occurs on January 15 that causes the account balance to exceed the credit limit and, based on a cost determination pursuant to § 1026.52(b)(1)(i), the card issuer imposes a $30 over-the-limit fee. The consumer's next monthly payment brings the account balance below the credit limit. On July 15, another transaction causes the account balance to exceed the credit limit. The card issuer may impose another $30 over-the-limit fee pursuant to § 1026.52(b)(1)(i) or may impose a $25 over-the-limit fee pursuant to § 1026.52(b)(1)(ii)(A). However, the card issuer may not impose a $35 over-the-limit fee pursuant to § 1026.52(b)(1)(ii)(B). If the card issuer imposes a $25 fee pursuant to § 1026.52(b)(1)(ii)(A) for the July 15 over-the-limit transaction and on September 15 another transaction causes the account balance to exceed the credit limit, the card issuer may impose a $35 fee for the September 15 over-the-limit transaction pursuant to § 1026.52(b)(1)(ii)(B). ii. Relationship between § 1026.52(b)(1) and (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, the cost of funding delinquent accounts, and any collection costs that are incurred after an account is charged off in accordance with loan-loss provisions). 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 § 1026.52(b)(1)(i). 3. Third-party charges. 4. Amounts charged by other card issuers. 5. Uncollected fees. See 6. Late payment fees. i. Costs incurred as a result of late payments. ii. Examples. Late payment fee based on past delinquencies and costs. B. Adjustment based on fees card issuer is unable to collect. C. Adjustment based on reasonable estimate of future changes. 7. Returned payment fees. i. 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. Returned payment fee based on past returns and costs. B. Adjustment based on fees card issuer is unable to collect. C. Adjustment based on reasonable estimate of future changes. 8. Over-the-limit fees. i. 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. Over-the-limit fee based on past fees and costs. B. Adjustment based on fees card issuer is unable to collect. C. Adjustment based on reasonable estimate of future changes. 9. Declined access check fees. i. 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 §§ 1026.52(b)(2)(ii) and 1026.56(j)(1). See iii. Examples. A. Violations of same type (over the credit limit). 1. 2. 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 for penalty fees imposed pursuant to § 1026.52(b)(1)(ii)(A) and (B). i. Historical thresholds. A. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $25 under § 1026.52(b)(1)(ii)(A) and $35 under § 1026.52(b)(1)(ii)(B), through December 31, 2013. B. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $26 under § 1026.52(b)(1)(ii)(A) and $37 under § 1026.52(b)(1)(ii)(B), through December 31, 2014. C. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $27 under § 1026.52(b)(1)(ii)(A) and $38 under § 1026.52(b)(1)(ii)(B), through December 31, 2015. D. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $27 under § 1026.52(b)(1)(ii)(A), through December 31, 2016. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $37 under § 1026.52(b)(1)(ii)(B), through June 26, 2016, and $38 under § 1026.52(b)(1)(ii)(B) from June 27, 2016, through December 31, 2016. E. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $27 under § 1026.52(b)(1)(ii)(A) and $38 under § 1026.52(b)(1)(ii)(B), through December 31, 2017. F. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $27 under § 1026.52(b)(1)(ii)(A) and $38 under § 1026.52(b)(1)(ii)(B), through December 31, 2018. G. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $28 under § 1026.52(b)(1)(ii)(A) and $39 under § 1026.52(b)(1)(ii)(B), through December 31, 2019. H. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $29 under § 1026.52(b)(1)(ii)(A) and $40 under § 1026.52(b)(1)(ii)(B), through December 31, 2020. I. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $29 under § 1026.52(b)(1)(ii)(A) and $40 under § 1026.52(b)(1)(ii)(B), through December 31, 2021. J. Card issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not exceed $30 under § 1026.52(b)(1)(ii)(A) and $41 under § 1026.52(b)(1)(ii)(B), through May 13, 2024. 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. Also assume that the card issuer is not a smaller card issuer as defined in § 1026.52(b)(3). 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 § 1026.7. During the July billing cycle, the account is used for $292 in transactions, increasing the balance to $1,292. At the end of the July billing cycle, no payment has been received and the card issuer imposes a $8 late payment fee consistent with § 1026.52(b)(1)(ii). On August 5, the card issuer provides a periodic statement disclosing the $1,300 balance consistent with § 1026.7. During the August billing cycle, the account is used for $200 in transactions, increasing the balance to $1,500. At the end of the August billing cycle, no payment has been received. Consistent with § 1026.52(b)(1)(ii)(C), the card issuer may impose a late payment fee of $39, which is 3% of the $1,300 balance that was due at the end of the August billing cycle. Section 1026.52(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 in comment 52(b)(1)(ii)-3.i except that, on August 25, a $100 payment is received. Consistent with § 1026.52(b)(1)(ii)(C), the card issuer may impose a late payment fee of $36, which is 3% of the unpaid portion of the $1,300 balance that was due at the end of the August billing cycle ($1,200). iii. Same facts as in comment 52(b)(1)(ii)-3.i except that, on August 25, a $200 payment is received. Consistent with § 1026.52(b)(1)(ii)(C), the card issuer may impose a late payment fee of $33, which is 3% of the unpaid portion of the $1,300 balance that was due at the end of the August billing cycle ($1,100). In the alternative, the card issuer may impose a late payment fee of $8 consistent with § 1026.52(b)(1)(ii). However, § 1026.52(b)(2)(ii) prohibits the card issuer from imposing both fees. 4. Smaller card issuers. 52(b)(2) Prohibited Fees 1. Relationship to § 1026.52(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 § 1026.52(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 § 1026.52(b)(2)(i)(A), the amount of that fee cannot exceed $15 (even if a higher fee would be permitted under § 1026.52(b)(1)). ii. Same facts as in comment 52(b)(2)(i)-1.i 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 § 1026.52(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 § 1026.52(b)(2)(i)(A), the amount of the late payment fee cannot exceed $15 (even if a higher fee would be permitted under § 1026.52(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 § 1026.52(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 § 1026.52(b)(2)(i)(A), the amount of that fee cannot exceed $15 (even if a higher fee would be permitted under § 1026.52(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 § 1026.52(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, § 1026.52(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 § 1026.52(b)(1)). Furthermore, § 1026.52(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 in comment 52(b)(2)(i)-2.i 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 § 1026.52(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, § 1026.52(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 § 1026.52(b)(1)). Furthermore, § 1026.52(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 in comment 52(b)(2)(i)-2.i 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 1026.52(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 1026.52(b)(2)(i)(B) does not prohibit the card issuer from imposing a returned payment fee in these circumstances. Instead, for purposes of § 1026.52(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, § 1026.52(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 § 1026.52(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 § 1026.56, 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 § 1026.52(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, § 1026.52(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 § 1026.52(b)(1)). ii. Same facts as in comment 52(b)(2)(i)-3.i 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 § 1026.52(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 § 1026.52(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. 7. Declined transaction fees. 1 1 1 1 52(b)(2)(ii) Multiple Fees Based on a Single Event or Transaction 1. Single event or transaction. i. Assume that the required minimum periodic payment due on March 25 is $20 and the card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3). On March 26, the card issuer has not received any payment and imposes a late payment fee. Consistent with § 1026.52(b)(1)(ii) and (b)(2)(i), the card issuer may impose an $8 late payment fee on March 26. However, § 1026.52(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 $8 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 1026.52(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 § 1026.52(b)(1)(ii) and (b)(2)(i), the card issuer may impose an $8 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 $8 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 § 1026.52(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 and the card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3). 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 § 1026.52(b)(1)(ii) introductory text, (b)(1)(ii)(A), and (b)(2)(i)(A), the card issuer may impose a late payment fee of $8 or a returned payment fee of $25. However, § 1026.52(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 in comment 52(b)(2)(ii)-1.ii.A 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 § 1026.52(b)(1)(ii) introductory text, (b)(1)(ii)(A), and (b)(2)(i)(A), the card issuer may impose a late payment fee of $8 or a returned payment fee of $25. However, § 1026.52(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), § 1026.52(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 and the card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3). 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 § 1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a returned payment fee of $25. Nothing in § 1026.52(b)(2)(ii) prohibits the imposition of this fee. iv. Assume that the card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3) and the credit limit for an account is $1,000 and that, consistent with § 1026.56, 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 § 1026.52(b)(1)(ii) introductory text, (b)(1)(ii)(A), and (b)(2)(i)(A), the card issuer may impose a late payment fee of $8 and an over-the-limit fee of $25. Section 1026.52(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 § 1026.52(b)(1)(ii)(B), to the extent consistent with § 1026.56(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 § 1026.52(b)(1)(ii)(B), to the extent consistent with § 1026.56(j)(1). Thereafter, § 1026.56(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 § 1026.52(b)(1)(ii)(B). v. Assume that the credit limit for an account is $5,000 and that, consistent with § 1026.56, 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 § 1026.52(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, § 1026.52(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 and the card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3). On March 20, the card issuer receives a check for $50, but the check is returned for insufficient funds on March 22. Consistent with § 1026.52(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 § 1026.52(b)(1)(ii) introductory text, (b)(1)(ii)(A) and (B), and (b)(2)(i)(A), the card issuer may impose a late payment fee of $8 or a returned payment fee of $35. However, § 1026.52(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 and the card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3). 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 § 1026.52(b)(1)(ii) introductory text, (b)(1)(ii)(A), and (b)(2)(i)(A), the card issuer may impose a late payment fee of $8 or a returned payment fee of $25 with respect to the $100 payment. However, § 1026.52(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 § 1026.52(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. 52(b)(3) Smaller Card Issuer 52(b)(3)(i) 1. Entire calendar year. 52(b)(3)(ii) 1. Meeting or exceeding threshold in current calendar year. Section 1026.53—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 § 1026.55(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 § 1026.12(c) and billing error disputes under § 1026.13. 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 § 1026.12(c) or a billing error dispute under § 1026.13. 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 § 1026.13(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 § 1026.53(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 § 1026.53(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 § 1026.55. If the consumer pays $500 in excess of the required minimum periodic payment, § 1026.53(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 § 1026.53(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 § 1026.53(b)(1)(ii). Thus, § 1026.53(b)(1)(i) requires the card issuer to allocate the $400 excess payments received on February 25, March 25, and April 25 consistent with § 1026.53(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, § 1026.53(b)(1)(i) requires the card issuer to allocate the entire $400 excess payment received on May 25 to the deferred interest balance. Similarly, § 1026.53(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 § 1026.53(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 1026.53(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 § 1026.53(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 § 1026.53(a) or (b)(1)(i), as applicable, instead be allocated in a different manner. iii. Examples of consumer requests that do not satisfy § 1026.53(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 online 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 1026.54—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, § 1026.54 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, § 1026.54(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, § 1026.54(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, § 1026.54 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, § 1026.54 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 § 1026.54. 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, § 1026.54 applies to the imposition of finance charges with respect to purchases made during the June billing cycle. Specifically, § 1026.54(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, § 1026.54(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 § 1026.53. 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 1026.54(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 § 1026.54(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 § 1026.53, the card issuer allocates the $600 excess payment first to the balance with the highest annual percentage rate (the $250 cash advance balance). Although § 1026.54(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 § 1026.54(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, § 1026.54 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 1026.55—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 § 1026.9(g) notice. 2. Relationship to grace period. 3. Fees in connection with covered separate credit features accessible by hybrid prepaid-credit cards. 4. Fees imposed on the asset feature of a prepaid account that are not charges imposed as part of the plan. 5. Fees in connection with covered overdraft credit. 55(b) Exceptions 1. Exceptions not mutually exclusive. 2. Relationship between exceptions in § 1026.55(b) and notice requirements in § 1026.9. i. 14-day rule in § 1026.55(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 § 1026.55(b)(1)(i). B. Notice of new temporary rate provided consistent with § 1026.55(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 § 1026.9(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 § 1026.55(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 1026.55(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 1026.55(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 1026.55(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 1026.55(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, § 1026.55(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 § 1026.9(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 § 1026.52(a)). 3. Deferred interest and similar promotional programs. Application of § 1026.55. ii. Examples. Deferred interest offer at account opening. B. Deferred interest offer after account opening. C. Application of § 1026.55(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 1026.55 does not permit the card issuer to apply the 30% penalty rate to the $2,000 purchase balance. However, pursuant to § 1026.55(b)(3), the card issuer could provide a § 1026.9(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 1026.55 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 § 1026.55(b)(3), the card issuer could provide a § 1026.9(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 1026.55 does not permit the card issuer to impose the $50 annual fee at this time. Furthermore, § 1026.55(b)(3) does not permit the card issuer to increase the $10 annual fee during the first year after account opening. However, § 1026.55(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 § 1026.9(c) and the consumer does not reject that increase pursuant to § 1026.9(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 1026.55 does not permit the card issuer to impose the $100 annual fee at this time. Furthermore, § 1026.55(b)(3) does not permit the card issuer to increase the $0 annual fee during the first year after account opening. However, § 1026.55(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 § 1026.9(c) and the consumer does not reject that increase pursuant to § 1026.9(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, even if the card issuer's own prime rate is one of several rates used to establish the published rate. 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 § 1026.55(b)(2). However, § 1026.55(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, § 1026.55(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, § 1026.55(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, § 1026.55(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. 55(b)(3) Advance notice exception 1. Relationship to § 1026.9(h). 2. Notice provided pursuant to § 1026.9(b) and (c). 3. Account opening. Multiple accounts with same card issuer. ii. Substitution, replacement or consolidation. Generally. 1. 2. 3. 4. B. Limitation. 4. Examples. 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 § 1026.55(b)(3), the transaction occurred on October 2. Therefore, on October 30, § 1026.55(b)(3) permits the card issuer to apply the 20% rate to new purchases and to the $1,100 transaction. However, § 1026.55(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 § 1026.55(b)(3), the card issuer may treat the transaction as occurring more than 14 days after provision of the § 1026.9(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 § 1026.9(g)(3)(i)(B). 3. Reduction in rate pursuant to § 1026.55(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 § 1026.9(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, § 1026.55(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, § 1026.55(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 § 1026.9(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 § 1026.55(b)(4) increase was scheduled to increase to 20% on August 1 of year one (pursuant to § 1026.55(b)(1)). On January 1 of year two, § 1026.55(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 § 1026.55(b)(4) increase was scheduled to increase to 20% on March 1 of year two (pursuant to § 1026.55(b)(1)). On January 1 of year two, § 1026.55(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 § 1026.55(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 § 1026.55(b)(2)). On January 1 of year two, § 1026.55(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 § 1026.55(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 § 1026.9(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. 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 § 1026.55(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, § 1026.55(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, fee, or charge that does not exceed rate, fee, or charge that applied before decrease. 2. Decreases in rates, fees, and charges to amounts consistent with 50 U.S.C. app. 527 or similar statute or regulation. 3. Example. 55(b)(7) Index Replacement and Margin Change Exception 1. Replacing LIBOR. i. Assume that LIBOR becomes unavailable after June 30, 2023, and assume a contract provides that a card issuer may not replace an index unilaterally under a plan unless the original index becomes unavailable and provides that the replacement index and replacement margin will result in an annual percentage rate substantially similar to a rate that is in effect when the original index becomes unavailable. The card issuer may use § 1026.55(b)(7)(i) to replace the LIBOR index used under the plan so long as the conditions of that provision are met. Section 1026.55(b)(7)(ii) provides that a card issuer may replace the LIBOR index if, among other conditions, the replacement index value in effect on October 18, 2021, and replacement margin will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. If the replacement index is not published on October 18, 2021, the card issuer generally must use the next calendar day for which both the LIBOR index and the replacement index are published as the date for selecting indices values in determining whether the annual percentage rate based on the replacement index is substantially similar to the rate based on the LIBOR index. The one exception is that if the replacement index is the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, must use the index value on the first date that index is published, in determining whether the annual percentage rate based on the replacement index is substantially similar to the rate based on the LIBOR index. In this example, however, the card issuer would be contractually prohibited from replacing the LIBOR index used under the plan unless the replacement index and replacement margin also will produce an annual percentage rate substantially similar to a rate that is in effect when the LIBOR index becomes unavailable. ii. Assume that LIBOR becomes unavailable after June 30, 2023, and assume a contract provides that a card issuer may not replace an index unilaterally under a plan unless the original index becomes unavailable but does not require that the replacement index and replacement margin will result in an annual percentage rate substantially similar to a rate that is in effect when the original index becomes unavailable. In this case, the card issuer would be contractually prohibited from unilaterally replacing the LIBOR index used under the plan until it becomes unavailable. At that time, the card issuer has the option of using § 1026.55(b)(7)(i) or (ii) to replace the LIBOR index used under the plan if the conditions of the applicable provision are met. iii. Assume that LIBOR becomes unavailable after June 30, 2023, and assume a contract provides that a card issuer may change the terms of the contract (including the index) as permitted by law. In this case, if the card issuer replaces the LIBOR index used under the plan on or after April 1, 2022, but does not wait until the LIBOR index becomes unavailable to do so, the card issuer may only use § 1026.55(b)(7)(ii) to replace the LIBOR index if the conditions of that provision are met. In that case, the card issuer may not use § 1026.55(b)(7)(i). If the card issuer waits until the LIBOR index used under the plan becomes unavailable to replace LIBOR, the card issuer has the option of using § 1026.55(b)(7)(i) or (ii) to replace the LIBOR index if the conditions of the applicable provisions are met. Paragraph 55(b)(7)(i) 1. Replacing LIBOR. i. The Bureau has determined that effective April 1, 2022, the prime rate published in the Wall Street Journal has historical fluctuations that are substantially similar to those of the 1-month and 3-month U.S. Dollar LIBOR indices, and no further determination is required. In order to use this prime rate as the replacement index for the 1-month or 3-month U.S. Dollar LIBOR index, the card issuer also must comply with the condition in § 1026.55(b)(7)(i) that the prime rate and replacement margin will produce a rate substantially similar to the rate that was in effect at the time the LIBOR index became unavailable. See also ii. By operation of the Adjustable Interest Rate (LIBOR) Act, Public Law 117-103, division U, codified at 12 U.S.C. 5803(e)(2), and the Board's implementing regulation, 12 CFR 253.4(b)(2), the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index has historical fluctuations substantially similar to those of the LIBOR index being replaced. See the Board-selected benchmark replacement for consumer loans. See also iii. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the relevant factors to be considered in determining whether a replacement index has historical fluctuations substantially similar to those of a particular LIBOR index depend on the replacement index being considered and the LIBOR index being replaced. For example, these determinations may need to consider certain aspects of the historical data itself for a particular replacement index, such as whether the replacement index is a backward-looking rate (e.g., historical average of rates) such that timing aspects of the data may need to be adjusted to match up with the particular forward-looking LIBOR term-rate being replaced. The types of relevant factors to establish if a replacement index would meet the “historical fluctuations are substantially similar” standard with respect to a particular LIBOR index using historical data, include but are not limited to, whether: (1) the movements over time are substantially similar; and (2) the consumers' payments using the replacement index compared to payments using the LIBOR index are substantially similar if there is sufficient historical data for this analysis. The Board-selected benchmark replacement for consumer loans is considered to meet the “historical fluctuations are substantially similar” standard with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. 2. Substantially similar rate when LIBOR becomes unavailable. i. Assume that the 1-month U.S. Dollar LIBOR index used under the plan becomes unavailable on June 30, 2023, and on that day the LIBOR value is 2%, the margin is 10%, and the annual percentage rate is 12%. Also, assume that a card issuer has selected the prime index published in the Wall Street Journal as the replacement index, and the value of the prime index is 5% on June 30, 2023. The card issuer would satisfy the requirement to use a replacement index and replacement margin that will produce an annual percentage rate substantially similar to the rate that was in effect when the LIBOR index used under the plan became unavailable by selecting a 7% replacement margin. (The prime index value of 5% and the replacement margin of 7% would produce a rate of 12% on June 30, 2023.) Thus, if the card issuer provides a change-in-terms notice under § 1026.9(c)(2) on July 1, 2023, disclosing the prime index as the replacement index and a replacement margin of 7%, where these changes will become effective on August 16, 2023, the card issuer satisfies the requirement to use a replacement index and replacement margin that will produce an annual percentage rate substantially similar to the rate that was in effect when the LIBOR index used under the plan became unavailable. This is true even if the prime index value changes after June 30, 2023, and the annual percentage rate calculated using the prime index value and 7% margin on August 16, 2023, is not substantially similar to the rate calculated using the LIBOR index value on June 30, 2023. Paragraph 55(b)(7)(ii) 1. Replacing LIBOR. i. The Bureau has determined that effective April 1, 2022, the prime rate published in the Wall Street Journal has historical fluctuations that are substantially similar to those of the 1-month and 3-month U.S. Dollar LIBOR indices, and no further determination is required. In order to use this prime rate as the replacement index for the 1-month or 3-month U.S. Dollar LIBOR index, the card issuer also must comply with the condition in § 1026.55(b)(7)(ii) that the prime rate index value in effect on October 18, 2021, and replacement margin will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. See also ii. By operation of the Adjustable Interest Rate (LIBOR) Act, Public Law 117-103, division U and the Board's implementing regulation, 12 CFR part 253, the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index has historical fluctuations substantially similar to those of the LIBOR index being replaced. See the Board-selected benchmark replacement for consumer loans. See also iii. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the relevant factors to be considered in determining whether a replacement index has historical fluctuations substantially similar to those of a particular LIBOR index depend on the replacement index being considered and the LIBOR index being replaced. For example, these determinations may need to consider certain aspects of the historical data itself for a particular replacement index, such as whether the replacement index is a backward-looking rate (e.g., historical average of rates) such that timing aspects of the data may need to be adjusted to match up with the particular forward-looking LIBOR term-rate being replaced. The types of relevant factors to establish if a replacement index would meet the “historical fluctuations are substantially similar” standard with respect to a particular LIBOR index using historical data, include but are not limited to, whether: (1) the movements over time are substantially similar; and (2) the consumers' payments using the replacement index compared to payments using the LIBOR index are substantially similar if there is sufficient historical data for this analysis. The Board-selected benchmark replacement for consumer loans is considered to meet the “historical fluctuations are substantially similar” standard with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. 2. Using index values on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. i. Assume a variable rate used under the plan that is based on the 1-month U.S. Dollar LIBOR index, and assume that LIBOR becomes unavailable after June 30, 2023. On October 18, 2021, the LIBOR index value is 2%, the margin on that day is 10% and the annual percentage rate using that index value and margin is 12%. Assume that on November 16, 2021, pursuant to § 1026.55(b)(3), a card issuer provides a change-in-terms notice under § 1026.9(c)(2) disclosing a new margin of 12% for the variable rate that will apply to new transactions after November 30, 2021, and this change in the margin becomes effective on January 1, 2022. The margin for the variable rate applicable to the transactions that occurred on or prior to November 30, 2021, remains at 10%. Assume that there are no more changes in the margin used on the variable rate that applied to transactions that occurred after November 30, 2021, or to the margin used on the variable rate that applied to transactions that occurred on or prior to November 30, 2021, prior to when the card issuer provides a change-in-terms notice on April 1, 2022, disclosing the replacement index and replacement margins for both variable rates that will be effective on May 17, 2022. In this case, the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan for transactions that occurred on or prior to November 30, 2021, is 10%. The margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan for transactions that occurred after November 30, 2021, is 12%. Assume that the card issuer has selected the prime index published in the Wall Street Journal as the replacement index, and the value of the prime index is 5% on October 18, 2021. A replacement margin of 7% is permissible under § 1026.55(b)(7)(ii) for transactions that occurred on or prior to November 30, 2021, because that replacement margin combined with the prime index value of 5% on October 18, 2021, will produce an annual percentage rate of 12%, which is substantially similar to the 12% annual percentage rate calculated using the LIBOR index value in effect on October 18, 2021, (which is 2%) and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan for that balance (which is 10%). A replacement margin of 9% is permissible under § 1026.55(b)(7)(ii) for transactions that occurred after November 30, 2021, because that replacement margin combined with the prime index value of 5% on October 18, 2021, will produce an annual percentage rate of 14%, which is substantially similar to the 14% annual percentage rate calculated using the LIBOR index value in effect on October 18, 2021, (which is 2%) and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan for transactions that occurred after November 30, 2021, (which is 12%). ii. Assume a variable rate used under the plan that is based on the 1-month U.S. Dollar LIBOR index, and assume that LIBOR becomes unavailable after June 30, 2023. On October 18, 2021, the LIBOR index value is 2%, the margin on that day is 10% and the annual percentage rate using that index value and margin is 12%. Assume that on November 16, 2021, pursuant to § 1026.55(b)(4), a card issuer provides a penalty rate notice under § 1026.9(g) increasing the margin for the variable rate to 20% that will apply to both outstanding balances and new transactions effective January 1, 2022, because the consumer was more than 60 days late in making a minimum payment. Assume that there are no more changes in the margin used on the variable rate for either the outstanding balance or new transactions prior to April 1, 2022, the date on which the card issuer provides a change-in-terms notice under § 1026.9(c)(2) disclosing the replacement index and replacement margin for the variable rate that will be effective on May 17, 2022. The margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan for the outstanding balance and new transactions is 12%. Assume that the card issuer has selected the prime index published in the Wall Street Journal as the replacement index, and the value of the prime index is 5% on October 18, 2021. A replacement margin of 17% is permissible under § 1026.55(b)(7)(ii) for the outstanding balance and new transactions because that replacement margin combined with the prime index value of 5% on October 18, 2021, will produce an annual percentage rate of 22%, which is substantially similar to the 22% annual percentage rate calculated using the LIBOR index value in effect on October 18, 2021, (which is 2%) and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan for the outstanding balance and new transactions (which is 20%). 3. Substantially similar rate using index values on October 18, 2021. i. Assume that the 1-month U.S. Dollar LIBOR index used under the plan has a value of 2% on October 18, 2021, the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan is 10%, and the annual percentage rate based on that LIBOR index value and that margin is 12%. Also, assume that the card issuer has selected the prime index published in the Wall Street Journal as the replacement index, and the value of the prime index is 5% on October 18, 2021. A card issuer would satisfy the requirement to use a replacement index value in effect on October 18, 2021, and replacement margin that will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR index value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan, by selecting a 7% replacement margin. (The prime index value of 5% and the replacement margin of 7% would produce a rate of 12%.) Thus, if the card issuer provides a change-in-terms notice under § 1026.9(c)(2) on April 1, 2022, disclosing the prime index as the replacement index and a replacement margin of 7%, where these changes will become effective on May 17, 2022, the card issuer satisfies the requirement to use a replacement index value in effect on October 18, 2021, and replacement margin that will produce an annual percentage rate substantially similar to the rate calculated using the LIBOR value in effect on October 18, 2021, and the margin that applied to the variable rate immediately prior to the replacement of the LIBOR index used under the plan. This is true even if the prime index value or the LIBOR value change after October 18, 2021, and the annual percentage rate calculated using the prime index value and 7% margin on May 17, 2022, is not substantially similar to the rate calculated using the LIBOR index value on October 18, 2021, or substantially similar to the rate calculated using the LIBOR index value on May 17, 2022. 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. Paragraph 55(c)(2)(ii) 1. Amortization period starting from effective date of increase. 2. Amortization when applicable rate is variable. Paragraph 55(c)(2)(iii) 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. 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 § 1026.55(b)(1)(i), § 1026.55(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, § 1026.55(b)(4) permits the card issuer to begin imposing interest charges on transferred balances (after providing a notice consistent with § 1026.9(g) and § 1026.55(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, § 1026.55 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 § 1026.55(b)(1)(i), § 1026.55(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, § 1026.55(b)(4) permits the card issuer to begin imposing the monthly maintenance fee (after providing a notice consistent with § 1026.9(c) and § 1026.55(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, § 1026.55 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 § 1026.55 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 § 1026.55(e). B. A card issuer communicates with a consumer about a waiver or rebate of interest, fees, or other charges subject to § 1026.55 in relation to an inquiry or dispute about a specific charge, including a dispute under §§ 1026.12 or 1026.13. C. A card issuer waives or rebates interest, fees, or other charges subject to § 1026.55 in order to comply with a legal requirement (such as the limitations in § 1026.52(a)). D. A card issuer discloses a grace period, as defined in § 1026.5(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 § 1026.55 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 § 1026.55. 3. Relationship of § 1026.55(e) to grace period. 3 Section 1026.56—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, § 1026.56(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 § 1026.5(b)(2)(ii)(B)(3). On December 31, the only balance on the account is a purchase balance of $475. On that same date, $50 in fees charged as part of the plan under § 1026.6(b)(3)(i) and interest charges are imposed on the account, increasing the total balance at the end of the December billing cycle to $525. Although the total balance exceeds the $500 credit limit, § 1026.56(j)(4) prohibits the card issuer from imposing an over-the-limit fee or charge for the December billing cycle in these circumstances because the consumer's credit limit was exceeded solely because of the imposition of fees and interest charges during that cycle. 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 § 1026.6(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 § 1026.56(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, § 1026.56(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 1026.57—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. 3. Credit card accounts in connection with prepaid accounts. 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. 7. Credit card accounts in connection with prepaid accounts. 57(d) Annual report to the Bureau 57(d)(2) Contents of report 1. Memorandum of understanding. Section 1026.58—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. i. Addition or deletion of a provision giving the issuer or consumer a right under the agreement, such as a clause that allows an issuer to unilaterally change the terms of an agreement. ii. Addition or deletion of a provision giving the issuer or consumer an obligation under the agreement, such as a clause requiring the consumer to pay an additional fee. iii. Changes that may affect the cost of credit to the consumer, such as changes in a provision describing how the minimum payment will be calculated. iv. Changes that may affect how the terms of the agreement are construed or applied, such as changes in a choice-of-law provision. v. Changes that may affect the parties to whom the agreement may apply, such as provisions regarding authorized users or assignment of the agreement. 2. Non-substantive changes. i. Correction of typographical errors that do not affect the meaning of any terms of the agreement. ii. Changes to the card issuer's corporate name, logo, or tagline. iii. Changes to the format of the agreement, such as conversion to a booklet from a full-sheet format, changes in font, or changes in margins. iv. Changes to the name of the credit card to which the program applies. v. Reordering sections of the agreement without affecting the meaning of any terms of the agreement. vi. Adding, removing, or modifying a table of contents or index. vii. Changes to titles, headings, section numbers, or captions. 58(b)(4) Card issuer 1. Card issuer clarified. 2. Use of third-party service providers. 3. Partner institution Web sites. ii. In addition, § 1026.58(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 § 1026.58(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. ii. 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 § 1026.58(b)(8). The open accounts with credit cards usable only at Merchant A do not constitute three separate private label credit card plans under § 1026.58(b)(8), even though the accounts are subject to different terms. 58(c) Submission of Agreements to Bureau 58(c)(1) Quarterly Submissions 1. Quarterly submission requirement. 2. No quarterly submission required. A. Offering a new credit card agreement that was not submitted to the Bureau previously. B. Amending an agreement previously submitted to the Bureau. C. Ceasing to offer an agreement previously submitted to the Bureau. ii. For example, a card issuer offers five agreements to the public as of September 30 and submits these to the Bureau by October 31, as required by § 1026.58(c)(1). Between September 30 and December 31, the card issuer continues to offer all five of these agreements to the public without amending them and does not begin offering any new agreements. The card issuer is not required to make any submission to the Bureau by the following January 31. 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. ii. 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. ii. 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 Bureau 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 Bureau. 2. Card issuers that do not otherwise maintain Web sites. 3. Private label credit card plans. ii. The card issuer is required to submit the agreement to the Bureau under § 1026.58(c)(1). (The card issuer has more than 10,000 open accounts, so the § 1026.58(c)(5) de minimis exception does not apply. The agreement is offered solely for two different private label credit card plans ( i.e., iii. Because the card issuer is required to submit the agreement to the Bureau under § 1026.58(c)(1), the card issuer is required to post and maintain the agreement on the card issuer's publicly available Web site under § 1026.58(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 § 1026.58(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 iv. 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. v. The card issuer is required to submit the agreement to the Bureau under § 1026.58(c)(1). (The card issuer has more than 10,000 open accounts, so the § 1026.58(c)(5) de minimis exception does not apply. The agreement is offered solely for two different private label credit card plans ( i.e., vi. Because the card issuer is required to submit the agreement to the Bureau under § 1026.58(c)(1), the card issuer is required to post and maintain the agreement on the card issuer's publicly available Web site under § 1026.58(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 § 1026.58(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. 58(g) Temporary Suspension of Agreement Submission Requirement 1. Suspended quarterly submission requirement. 2. Resuming submission of credit card agreements to the Bureau. i. Specifically, the submission due on the first business day on or after April 30, 2016 shall contain, as applicable: A. 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), pursuant to § 1026.58(c)(1)(i); B. The credit card agreements that the card issuer offered to the public as of the last business day of the calendar quarter ending March 31, 2016 that the card issuer had not previously submitted to the Bureau as of the first business day on or after January 31, 2015, pursuant to § 1026.58(c)(1)(ii); C. Any credit card agreement previously submitted to the Bureau that was amended since the last business day of the calendar quarter ending December 31, 2014 and that the card issuer offered to the public as of the last business day of the calendar quarter ending March 31, 2016, pursuant to § 1026.58(c)(1)(iii) and (c)(3); and D. Notification regarding any credit card agreement previously submitted to the Bureau that the issuer is withdrawing, pursuant to § 1026.58(c)(1)(iv) and (c)(4) through (7). ii. In lieu of the submission described in comment 58(g)-2.i.B through D, § 1026.58(c)(1) permits a card issuer to submit to the Bureau a complete, updated set of the credit card agreements the card issuer offered to the public as of the calendar quarter ending March 31, 2016. See 3. Continuing obligation to post agreements on a card issuer's own Web site. Section 1026.59—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. i. 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 § 1026.55, 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 § 1026.59(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 1026.59(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 § 1026.59 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 § 1026.59(a). 3. Transition from LIBOR. General. ii. Examples. B. Assume that on April 1, 2022, the account was not subject to § 1026.59 and the annual percentage rate was the 1-month U.S. Dollar LIBOR index plus a margin of 10% equal to 12%. On May 1, 2022, the card issuer raises the annual percentage rate to the 1-month U.S. Dollar LIBOR index plus a margin of 12% equal to 14%. On June 1, 2022, the card issuer transitions the account from the LIBOR index in accordance with § 1026.55(b)(7)(ii). The card issuer selects the prime index published in the Wall Street Journal as the replacement index with a value on October 18, 2021, of 4%. The replacement formula used to derive the rate at which the card issuer may terminate its obligation to review factors must be set at the value of a replacement index on October 18, 2021, plus replacement margin that equals 12%. In this example, the replacement formula is the prime index plus 8%. 4. Selecting a replacement index. See the Board-selected benchmark replacement for consumer loans. See also 59(g) Acquired Accounts 59(g)(1) General 1. Relationship to § 1026.59(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. 59(h) Exceptions 1. Transition from LIBOR. Section 1026.60—Credit and Charge Card Applications and Solicitations 1. General. 2. Substitution of account-opening summary table for the disclosures required by § 1026.60. 3. Clear and conspicuous standard. 60(a) General Rules 60(a)(1) Definition of Solicitation 1. Invitations to apply. solicitation, 60(a)(2) Form of Disclosures; Tabular Format 1. Location of table. i. 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. 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. i. In general. See 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 comment 60(a)(2)-6.ii), such as online at a home computer, the card issuer must provide the disclosures in electronic form (such as with the application or solicitation on its website) 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 60(a)(4) Fees That Vary by State 1. Manner of disclosing range. 60(a)(5) Exceptions 1. Noncoverage of consumer-initiated requests. 60(b) Required Disclosures 1. Tabular format. See 2. Accuracy. 3. Fees imposed on the asset feature of a prepaid account in connection with a covered separate credit feature accessible by a hybrid prepaid-credit card. 4. Fees imposed on the asset feature of a prepaid account that are not charges imposed as part of the plan. 60(b)(1) Annual Percentage Rate 1. Variable-rate accounts—definition. 2. Variable-rate accounts—fact that rate varies and how the rate will be determined. 3. Discounted initial rates. Immediate proximity. 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. ii. Introductory rates—general. iii. Introductory rates—limitations on revocation. iv. Employee preferential rates. 6. Rates that depend on consumer's creditworthiness. In general. ii. Penalty rates. iii. Other factors. 7. Rate based on another rate on the account. 8. Rates. 9. Deferred interest or similar transactions. 60(b)(2) Fees for Issuance or Availability 1. Membership fees. 2. Enhancements. 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. 60(b)(3) Fixed Finance Charge; Minimum Interest Charge 1. Example of brief statement. 2. Adjustment of $1.00 threshold amount. 60(b)(4) Transaction Charges 1. Charges imposed by person other than card issuer. 2. Foreign transaction fees. 3. Prepaid cards. See ii. A fee for a transaction will be treated as a fee to make a purchase under § 1026.60(b)(4) in cases where a consumer uses a hybrid prepaid-credit card as defined in § 1026.61 to make a purchase to obtain goods or services from a merchant and credit is drawn directly from a covered separate credit feature accessed by the hybrid prepaid-credit card without transferring funds into the asset feature of the prepaid account to cover the amount of the purchase. For example, assume that the consumer has $10 of funds in the asset feature of the prepaid account and initiates a transaction with a merchant to obtain goods or services with the hybrid prepaid-credit card for $25. In this case, $10 is debited from the asset feature and $15 of credit is drawn directly from the covered separate credit feature accessed by the hybrid prepaid-credit card without any transfer of funds into the asset feature of the prepaid account to cover the amount of the purchase. A per transaction fee imposed for the $15 credit transaction must be disclosed under § 1026.60(b)(4). iii. On the other hand, a fee for a transaction will be treated as a cash advance fee under § 1026.60(b)(8) in cases where a consumer uses a hybrid prepaid-credit card as defined in § 1026.61 to make a purchase to obtain goods or services from a merchant and credit is transferred from a covered separate credit feature accessed by the hybrid prepaid-credit card into the asset feature of the prepaid account to cover the amount of the purchase. For example, assume the same facts as above, except that the $15 will be transferred from the covered separate credit feature to the asset feature, and a transaction of $25 is debited from the asset feature of the prepaid account. In this case, a per transaction fee for the $15 credit transaction must be disclosed under § 1026.60(b)(8). 60(b)(5) Grace Period 1. How grace period disclosure is made. 2. No grace period. 3. Grace period on some purchases. 60(b)(6) Balance Computation Method 1. Form of disclosure. 2. Determining the method. 60(b)(7) Statement on Charge Card Payments 1. Applicability and content. 60(b)(8) Cash Advance Fee 1. Content. 2. Foreign cash advances. 3. ATM fees. 4. Prepaid cards. See See ii. If the cash advance fee is the same dollar amount as the transaction charge for purchases described in § 1026.60(b)(4), the card issuer may disclose the fee amount under a heading that indicates the fee applies to both purchase transactions and cash advances. Examples of how fees for purchase transactions described in § 1026.60(b)(4) and fees for cash advances described in § 1026.60(b)(8) must be disclosed are as follows. Assume that all the fees in the examples below are charged on the covered separate credit feature. A. A card issuer assesses a $15 fee for credit drawn from a covered separate credit feature using a hybrid prepaid-credit card to purchase goods or services at the point of sale when the consumer has insufficient or unavailable funds in the prepaid account as described in comment 60(b)(4)-3.ii. The card issuer assesses a $25 fee for credit drawn from a covered separate credit feature using a hybrid prepaid-credit card for a cash advance at an ATM when the consumer has insufficient or unavailable funds in the prepaid account. In this instance, the card issuer must disclose separately a purchase transaction charge of $15 and a cash advance fee of $25. B. A card issuer assesses a $15 fee for credit drawn from a covered separate credit feature using a hybrid prepaid-credit card to purchase goods or services at the point of sale when the consumer has insufficient or unavailable funds in the prepaid account as discussed in comment 60(b)(4)-3.ii. The card issuer assesses a $15 fee for credit drawn from a covered separate credit feature using a hybrid prepaid-credit card for providing cash at an ATM when the consumer has insufficient or unavailable funds in the prepaid account. In this instance, the card issuer may disclose the $15 fee under a heading that indicates the fee applies to both purchase transactions and ATM cash advances. Alternatively, the card issuer may disclose the $15 fee on two separate rows, one row indicating that a $15 fee applies to purchase transactions, and a second row indicating that a $15 fee applies to ATM cash advances. C. A card issuer assesses a $15 fee for credit drawn from a covered separate credit feature using a hybrid prepaid-credit card for providing cash at an ATM when the consumer has insufficient or unavailable funds in the prepaid account. The card issuer also assesses a fee of $1.50 for out-of-network ATM cash withdrawals and $1.00 for in-network ATM cash withdrawals. The card issuer must disclose the cash advance fee as $16.50 for out-of-network ATM cash withdrawals, indicating that $1.50 is for the out-of-network ATM withdrawal fee, such as “$16.50 (including a $1.50 out-of-network ATM withdrawal fee).” The card issuer also must disclose the cash advance fee as $16.00 for in-network ATM cash withdrawals, indicating that $1.00 is for the in-network ATM withdrawal fee, such as “$16 (including a $1.00 in-network ATM cash withdrawal fee).” 60(b)(9) Late Payment Fee 1. Applicability. 60(b)(10) Over-the-Limit Fee 1. Applicability. 60(b)(13) Required Insurance, Debt Cancellation or Debt Suspension Coverage 1. Content. 60(b)(14) Available Credit 1. Calculating available credit. 2. Content. 60(b)(15) Web Site Reference 1. Content. 60(c) Direct Mail and Electronic Applications and Solicitations 1. Mailed publications. take-ones take-one take-one take-one, take-one 60(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. 60(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. 60(e)(1) Disclosure of Required Credit Information 1. Date of printing. 2. Form of disclosures. 60(e)(2) No Disclosure of Credit Information 1. When disclosure option available. no annual fee, low interest rate, favorable rates, low costs 60(e)(3) Prompt Response to Requests for Information 1. Prompt disclosure. 2. Information disclosed. 3. Manner of response. 60(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 1026.61 Hybrid Prepaid-Credit Cards 61(a) Hybrid Prepaid-Credit Card 1. Scope of § 1026.61. see generally See, e.g., 61(a)(1) In General 1. Credit. i. The person that can extend the credit does not agree in writing to extend the credit; ii. The person retains discretion not to extend the credit, or iii. The person does not extend the credit once the consumer has exceeded a certain amount of credit. 2. Prepaid card that is solely an account number. 3. Usable from time to time. See 4. Prepaid account that is a digital wallet. See A. A prepaid account number that can access such a digital wallet is a hybrid prepaid-credit card where it can be used from time to time to access a covered separate credit feature offered by the prepaid account issuer, its affiliate, or its business partner in the course of authorizing, settling, or otherwise completing a transaction conducted with the prepaid account number to obtain goods or services, obtain cash, or conduct person-to-person transfers as described in § 1026.61(a)(2)(i). B. A prepaid account number that can access such a digital wallet also is a hybrid prepaid-credit card where it can be used from time to time to access the stored credentials for a covered separate credit feature offered by the prepaid account issuer, its affiliate, or its business partner in the course of authorizing, settling, or otherwise completing a transaction conducted with the prepaid account number to obtain goods or services, obtain cash, or conduct person-to-person transfers as described in § 1026.61(a)(2)(i). C. A prepaid account number that can access such a digital wallet is not a hybrid prepaid-credit card with respect to credentials stored in the prepaid account that can access a non-covered separate credit feature as described in § 1026.61(a)(2)(ii) that is not offered by the prepaid account issuer, its affiliate, or its business partner, even if the prepaid account number can access those credentials in the course of authorizing, settling, or otherwise completing a transaction conducted with the prepaid account number to obtain goods or services, obtain cash, or conduct person-to-person transfers. D. A prepaid account number that can access such a digital wallet is not a hybrid prepaid-credit card with respect to credentials stored in the prepaid account that can access a non-covered separate credit feature as described in § 1026.61(a)(2)(ii) where the prepaid account number cannot access those credentials in the course of authorizing, settling, or otherwise completing a transaction conducted with the prepaid account number to obtain goods or services, obtain cash, or conduct person-to-person transfers, even if such credit feature is offered by the prepaid account issuer, its affiliate, or its business partner. ii. A digital wallet is not a prepaid account under Regulation E, 12 CFR 1005.2(b)(3), if the digital wallet can never be loaded with funds, such as a digital wallet that only stores payment credentials for other accounts. See 5. Prepaid account that can be used for bill payment services. 61(a)(2) Prepaid Card Can Access Credit From a Covered Separate Credit Feature 1. Draws or transfers of credit. ii. A prepaid card is a hybrid prepaid-credit card with respect to a covered separate credit feature regardless of whether: A. The credit is pushed from the covered separate credit feature to the asset feature of the prepaid account in the course of authorizing, settling, or otherwise completing transactions conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers; or B. The credit is pulled from the covered separate credit feature to the asset feature of the prepaid account in the course of authorizing, settling, or otherwise completing transactions conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. iii. A prepaid card is a hybrid prepaid-credit card with respect to a covered separate credit feature regardless of whether the covered separate credit feature can only be used as an overdraft credit feature, solely accessible by the hybrid prepaid-credit card, or whether it is a general line of credit that can be accessed in other ways. 2. Credit that can be accessed from a separate credit feature in the course of authorizing, settling, or otherwise completing a transaction. ii. The following examples illustrate transactions where credit can be drawn, transferred, or authorized to be drawn or transferred from a separate credit feature in the course of authorizing a transaction. A. A transaction initiated using a prepaid card when there are insufficient or unavailable funds in the asset feature of the prepaid account at the time the transaction is initiated and credit is transferred from the credit feature to the asset feature at the time the transaction is authorized to complete the transaction. B. A transaction initiated using a prepaid card when there are insufficient or unavailable funds in the asset feature of the prepaid account at the time the transaction is initiated and credit is directly drawn from the credit feature to complete the transaction, without transferring funds into the prepaid account. iii. The following examples illustrate transactions where credit can be drawn, transferred, or authorized to be drawn or transferred, in the course of settling a transaction. A. A transaction initiated using a prepaid card when there are sufficient or available funds in the asset feature of the prepaid account at the time of authorization to cover the amount of the transaction but where the consumer does not have sufficient or available funds in the asset feature to cover the transaction at the time of settlement. Credit automatically is drawn, transferred, or authorized to be drawn or transferred from the credit feature at settlement to pay the transaction. B. A transaction that was not authorized in advance where the consumer does not have sufficient or available funds in the asset feature to cover the transaction at the time of settlement. Credit automatically is drawn, transferred, or authorized to be drawn or transferred from the credit feature at settlement to pay the transaction. 3. Accessing credit when the asset feature has sufficient funds. i. The prepaid card can be used from time to time both to access the asset feature of a prepaid account and to draw on the covered separate credit feature in the course of a transaction independent of whether there are sufficient or available funds in the asset feature to complete the transaction. For example, assume that a consumer has $50 available funds in her prepaid account. The consumer initiates a $25 transaction with the card to purchase goods and services. If the consumer chooses at the time the transaction is initiated to use the card to access the prepaid account, the card will draw on the funds in the asset feature of the prepaid account to complete the transaction. If the consumer chooses at the time the transaction is initiated to use the card to access the credit feature, the card will draw on credit from the credit feature to complete the transaction, regardless of the fact that there were sufficient or available funds the prepaid account to complete the transaction. 4. Covered separate credit features. See, e.g., See, e.g., ii. If a prepaid card is capable of drawing or transferring credit, or authorizing either, from a separate credit feature offered by the prepaid account issuer, its affiliate, or its business partner in the course of authorizing, settling, or otherwise completing transactions conducted with the prepaid card to obtain goods or services, obtain cash, or conduct a person-to-person transfer, the credit feature is a covered separate credit feature accessible by a hybrid prepaid-credit card, even with respect to credit that is drawn or transferred, or authorized to be drawn or transferred, from the credit feature outside the course of a transaction conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. For example, with respect to a covered separate credit feature, a consumer may use the prepaid card at the prepaid account issuer's Web site to load funds from the covered separate credit feature outside the course of a transaction conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. This credit transaction is considered a credit transaction on a covered separate credit feature accessible by a hybrid prepaid-credit card, even though the load or transfer of funds occurred outside the course of a transaction conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. 5. Non-covered separate credit features. i. A prepaid card is not a hybrid prepaid-credit card under § 1026.61(a)(2)(i) with respect to a separate credit feature if the credit feature is not offered by the prepaid account issuer, its affiliate, or its business partner. This is true even if the draw or transfer of credit, or authorization of either, occurs during the course of authorizing, settling, or otherwise completing transactions to obtain goods or services, obtain cash, or conduct person-to-person transfers. For example, assume a consumer links her prepaid account to a credit card issued by a card issuer that is not the prepaid account issuer, its affiliate, or its business partner so that credit is drawn automatically into the asset feature of the prepaid account in the course of authorizing, settling, or otherwise completing transactions conducted with the prepaid card for which there are insufficient funds in the asset feature. In this case, the separate credit feature is a non-covered separate credit feature under § 1026.61(a)(2)(ii). In this situation, the prepaid card is not a hybrid prepaid-credit card with respect to the separate credit feature offered by the unrelated third-party card issuer. ii. Even if a separate credit feature is offered by the prepaid account issuer, its affiliate, or its business partner, a prepaid card is not a hybrid prepaid-credit card under § 1026.61(a)(2)(i) with respect to that separate credit feature if the separate credit feature cannot be accessed within the course of authorizing, settling, or otherwise completing transactions to obtain goods or services, obtain cash, or conduct person-to-person transfers. For example, assume that a consumer can only conduct a draw or transfer of credit, or authorization of either, from a separate credit feature to a prepaid account at the prepaid account issuer's Web site, and these draws, transfers, or authorizations of either, cannot occur in the course of authorizing, settling, or otherwise completing transactions at the Web site to obtain goods or services, obtain cash, or conduct person-to-person transfers. In this case, the separate credit feature is a non-covered separate credit feature under § 1026.61(a)(2)(ii). In this situation, the prepaid card is not a hybrid prepaid-credit card with respect to this non-covered separate credit feature. iii. The person offering the non-covered separate credit feature does not become a card issuer under § 1026.2(a)(7) and thus does not become a creditor under § 1026.2(a)(17)(iii) or (iv) because the prepaid card can be used to access credit from the non-covered separate credit feature. The person offering the non-covered separate credit feature, however, may already have obligations under this regulation with respect to that separate credit feature. For example, if the non-covered separate credit feature is an open-end credit card account offered by an unrelated third-party creditor that is not an affiliate or business partner of the prepaid account issuer, the person already will be a card issuer under § 1026.2(a)(7) and a creditor under § 1026.2(a)(17)(iii). Nonetheless, in that case, the person does not need to comply with the provisions in the regulation applicable to hybrid prepaid-credit cards even though the prepaid card can access credit from the non-covered separate credit feature. The obligations under this regulation that apply to a non-covered separate credit feature are not affected by the fact that the prepaid card can access credit from the non-covered separate credit feature. See 6. Prepaid card that can access multiple separate credit features. ii. For example, assume that a prepaid card can access “Separate Credit Feature A” where the card can be used from time to time to access credit from a separate credit feature that is offered by the prepaid account issuer, its affiliate, or its business partner in the course of authorizing, settling, or otherwise completing transactions conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. In addition, assume that the prepaid card can also access “Separate Credit Feature B” but that credit feature is being offered by an unrelated third-party creditor that is not the prepaid account issuer, its affiliate, or its business partner. The prepaid card is a hybrid prepaid-credit card with respect to Separate Credit Feature A because it is a covered separate credit feature. The prepaid card, however, is not a hybrid prepaid-credit card with respect to Separate Credit Feature B because it is a non-covered separate credit feature. 61(a)(3) Prepaid Card Can Access Credit Extended Through a Negative Balance on the Asset Feature 61(a)(3)(i) In General 1. Credit accessed on an asset feature of a prepaid account. ii. Except as provided in § 1026.61(a)(4), a prepaid card would trigger coverage as a hybrid prepaid-credit card if it is a single device that can be used from time to time to access credit that can be extended through a negative balance on the asset feature of the prepaid account. (However, unless the credit extended through a negative balance on the asset feature of the prepaid account meets the requirements of § 1026.61(a)(4), such a product structure would violate the rules under § 1026.61(b).) A credit extension through a negative balance on the asset feature of a prepaid account can occur during the authorization phase of the transaction as discussed in comment 61(a)(3)(i)-1.iii or in later periods up to the settlement of the transaction, as discussed in comment 61(a)(3)(i)-1.iv. iii. The following example illustrates transactions where a credit extension occurs during the course of authorizing a transaction. A. A transaction initiated using a prepaid card when there are insufficient or unavailable funds in the asset feature of the prepaid account at the time the transaction is initiated and credit is extended through a negative balance on the asset feature of the prepaid account when the transaction is authorized. iv. The following examples illustrate transactions where a credit extension occurs at settlement. A. Transactions that occur when there are sufficient or available funds in the asset feature of the prepaid account at the time of authorization to cover the amount of the transaction but where the consumer does not have sufficient or available funds in the asset feature to cover the transaction at the time of settlement. Credit is extended through a negative balance on the asset feature at settlement to pay those transactions. B. Transactions that settle even though they were not authorized in advance where credit is extended through a negative balance on the asset feature at settlement to pay those transactions. 61(a)(3)(ii) Negative Asset Balances 1. Credit extended on the asset feature of the prepaid account. 61(a)(4) Exception for Credit Extended Through a Negative Balance 1. Prepaid card that is not a hybrid prepaid-credit card. A. The card cannot access credit from a covered separate credit feature under § 1026.61(a)(2)(i) that is offered by the prepaid account issuer or its affiliate, though it is permissible for it to access credit from a covered separate credit feature offered by a business partner or from a non-covered separate credit feature as described under § 1026.61(a)(2)(ii); and B. The card can only access credit extended through a negative balance on the asset feature of the prepaid account in accordance with both the conditions set forth in § 1026.61(a)(4)(ii)(A) and (B). ii. If the conditions of § 1026.61(a)(4) are met and the prepaid card can access credit from a covered separate credit feature as defined in § 1026.61(a)(2)(i) that is offered by a business partner, the prepaid card is a hybrid prepaid-credit card with respect to the covered separate credit feature pursuant to § 1026.61(a)(2)(i) but is not a hybrid prepaid-credit card with respect to credit extended by a prepaid account issuer through a negative balance on the asset feature of the prepaid account that meets the conditions of § 1026.61(a)(4) or with respect to any non-covered separate credit feature pursuant to § 1026.61(a)(2)(ii). If the conditions of § 1026.61(a)(4) are met and the prepaid card cannot access credit from any covered separate credit feature as defined in § 1026.61(a)(2)(i), the prepaid card is not a hybrid prepaid-credit card with respect to credit extended by a prepaid account issuer through a negative balance on the asset feature of the prepaid account that meets the conditions of § 1026.61(a)(4) or with respect to any non-covered separate credit feature pursuant to § 1026.61(a)(2)(ii). iii. Below is an example of when a prepaid card is not a hybrid prepaid-credit card with respect to credit extended through a negative balance on the asset feature of the prepaid account because the conditions set forth in § 1026.61(a)(4) have been met. A. The prepaid card can only access credit extended through a negative balance on the asset feature of the prepaid account in accordance with both the conditions set forth in § 1026.61(a)(4)(ii)(A) and (B). The card can access credit from a non-covered separate credit feature as defined in § 1026.61(a)(2)(ii) and from a covered separate credit feature as defined in § 1026.61(a)(2)(i) offered by a business partner, but cannot access credit for a covered separate credit feature that is offered by a prepaid account issuer or its affiliate. iv. Below is an example of when a prepaid card is a hybrid prepaid-credit card with respect to credit extended through a negative balance on the asset feature of the prepaid account because the conditions set forth in § 1026.61(a)(4) have not been met. A. When there are insufficient or unavailable funds in the asset feature of the prepaid account at the time a transaction is initiated, the card can be used to draw, transfer, or authorize the draw or transfer of credit from a covered separate credit feature offered by the prepaid account issuer or its affiliate during the authorization phase to complete the transaction so that credit is not extended on the asset feature of the prepaid account. The exception in § 1026.61(a)(4) does not apply because the prepaid card can be used to draw, transfer, or authorize the draw or transfer of credit from a covered separate credit feature defined in § 1026.61(a)(2)(i) that is offered by the prepaid account issuer or its affiliate. The card is a hybrid prepaid-credit card with respect to credit extended through a negative balance on the asset feature of the prepaid account pursuant to § 1026.61(a)(3) and with respect to the covered separate credit feature pursuant to § 1026.61(a)(2)(i). In that case, a card issuer has violated § 1026.61(b) because it has structured the credit feature as a negative balance on the asset feature of the prepaid account. See v. In the case where a prepaid card is not a hybrid prepaid-credit card with respect to credit extended through a negative balance on the asset feature of the prepaid account because the conditions set forth in § 1026.61(a)(4) are met: A. The prepaid account issuer is not a card issuer under § 1026.2(a)(7) with respect to the prepaid card when it accesses credit extended through the negative balance on the asset feature of the prepaid account. The prepaid account issuer also is not a creditor under § 1026.2(a)(17)(iii) or (iv) because it is not a card issuer under § 1026.2(a)(7) with respect to the prepaid card when it accesses credit extended through the negative balance on the asset feature of the prepaid account. The prepaid account issuer also is not a creditor under § 1026.2(a)(17)(i) with respect to credit extended through the negative balance on the asset feature of the prepaid account as a result of imposing fees on the prepaid account because those fees are not finance charges with respect to that credit. See Paragraph 61(a)(4)(ii) Paragraph 61(a)(4)(ii)(A) 1. Authorization not required for every transaction. 2. Provisional credit. 3. Delayed load cushion. Incoming fund transfers. 2 ii. Consumer requests. 2 4. Permitted authorization circumstances are not mutually exclusive. 1 2 1 2 Paragraph 61(a)(4)(ii)(B) 1. Different terms on different prepaid account programs. Paragraph 61(a)(4)(ii)(B)(1) 1. Fees or charges covered by § 1026.61(a)(4)(ii)(B)(1). 1 i. The types of fees or charges prohibited by § 1026.61(a)(4)(ii)(B)( 1 A. A daily, weekly, monthly, or other periodic fee assessed each period a prepaid account has a negative balance or is in “overdraft” status; and B. A daily, weekly, monthly or other periodic fee to hold the prepaid account where the amount of the fee that applies each period is higher if the consumer is enrolled in a purchase cushion as described in § 1026.61(a)(4)(ii)(A)( 1 2 1 2 1 ii. Fees or charges described in § 1026.61(a)(4)(ii)(B) do not include: A. A daily, weekly, monthly, or other periodic fee to hold the prepaid account where the amount of the fee is not higher based on whether the consumer is enrolled in a purchase cushion as described in § 1026.61(a)(4)(ii)(A)( 1 2 Paragraph 61(a)(4)(ii)(B)(2) 1. Fees or charges covered by § 1026.61(a)(4)(ii)(B)(2). i. These types of fees or charges include: A. A fee imposed because the balance on the prepaid account becomes negative; B. Interest charges attributable to a periodic rate that applies to the negative balance; C. Any fees for delinquency, default, or a similar occurrences that result from the prepaid account having a negative balance or being in “overdraft” status, except that the actual costs to collect the credit may be imposed if otherwise permitted by law; and D. Late payment fees. ii. Fees or charges described in § 1026.61(a)(4)(ii)(B) do not include: A. Fees for actual collection costs, including attorney's fees, to collect any credit extended on the prepaid account if otherwise permitted by law. Late payment fees are not considered fees imposed for actual collection costs. See 2 Paragraph 61(a)(4)(ii)(B)(3) 1. Fees or charges covered by § 1026.61(a)(4)(ii)(B)(3). A. Transaction fees where the amount of the fee is higher based on whether the transaction accesses only asset funds in the asset feature or accesses credit. For example, a $15 transaction charge is imposed on the asset feature each time a transaction is authorized or paid when there are insufficient or unavailable funds in the asset feature at the time of the authorization or settlement. A $1.50 fee is imposed each time a transaction only accesses funds in the asset feature. The $15 charge is a charge described in § 1026.61(a)(4)(ii)(B)( 3 B. A fee for a service on the prepaid account where the amount of the fee is higher based on whether the service is requested when the asset feature has a negative balance. For example, if a prepaid account issuer charges a higher fee for an ATM balance inquiry requested on the prepaid account if the balance inquiry is requested when there is a negative balance on the asset feature than the amount of fee imposed when there is a positive balance on the asset feature, the balance inquiry fee is a fee described in § 1026.61(a)(4)(ii)(B)( 3 ii. Fees or charges described in § 1026.61(a)(4)(ii)(B) do not include: A. Transaction fees on the prepaid account where the amount of the fee imposed when the transaction accesses credit does not exceed the amount of the fee imposed when the transaction only accesses asset funds in the prepaid account. For example, assume a $1.50 transaction charge is imposed on the prepaid account for each paid transaction that is made with the prepaid card, including transactions that only access asset funds, transactions that take the account balance negative, and transactions that occur when the account balance is already negative. The $1.50 transaction charge imposed on the prepaid account is not a fee described in § 1026.61(a)(4)(ii)(B); and B. A fee for a service on the prepaid account where the amount of the fee is not higher based on whether the service is requested when the asset feature has a negative balance. For example, if a prepaid account issuer charges the same amount of fee for an ATM balance inquiry regardless of whether there is a positive or negative balance on the asset feature, the balance inquiry fee is not a fee described in § 1026.61(a)(4)(ii)(B). Paragraph 61(a)(4)(ii)(C) 1. Fees or charges not covered by § 1026.61(a)(4)(ii)(B). 61(a)(5) Definitions Paragraph 61(a)(5)(iii) 1. Card network or payment network agreements. 2. Relationship to prepaid account issuer. 61(a)(5)(iii)(D) Exception for Certain Credit Card Account Arrangements 1. When the exception applies. 2 See 1 Paragraph 61(a)(5)(iii)(D)(1) 1. Traditional credit card. ” 1 Paragraph 61(a)(5)(iii)(D)(2) 1. Written request. 2 Paragraph 61(a)(5)(iii)(D)(4) 1. Account terms, conditions, or features. 4 i. Interest paid on funds deposited into the prepaid account, if any; ii. Fees or charges imposed on the prepaid account (see comment 61(a)(5)(iii)(D)( 4 iii. The type of access device provided to the consumer; iv. Minimum balance requirements on the prepaid account; or v. Account features offered in connection with the prepaid account, such as online bill payment services. 2. The same terms, conditions, and features apply to the consumer's prepaid account. 4 2 4 3. Example of impermissible variations in load fees. 4 2 4 Paragraph 61(a)(5)(iii)(D)(5) 1. Specified terms and conditions. i. The terms and conditions required to be disclosed under § 1026.6(b), which include pricing terms, such as periodic rates, annual percentage rates, and fees and charges imposed on the credit card account; any security interests acquired under the credit account; claims and defenses rights under § 1026.12(c); and error resolution rights under § 1026.13; ii. Any repayment terms and conditions, including the length of the billing cycle, the payment due date, any grace period on the transactions on the account, the minimum payment formula, and the required or permitted methods for making conforming payments on the credit feature; and iii. The limits on liability for unauthorized credit transactions. 2. Same specified terms and conditions regardless of whether the credit card account is linked to the prepaid account. 5 2 i. The card issuer structures the credit card account as a “charge card account” (where no periodic rate is used to compute a finance charge on the credit card account) if the credit feature is linked to the prepaid card as described in § 1026.61(a)(5)(iii)(D)( 2 ii. The card issuer imposes a $50 annual fee on a consumer's credit card account if the credit feature is linked to the prepaid card as described in § 1026.61(a)(5)(iii)(D)( 2 3. Same specified terms and conditions regardless of whether credit is accessed by the prepaid card or the traditional credit card. 1 1 5 2 i. The following examples are circumstances in which a card issuer would not meet the condition of § 1026.61(a)(5)(iii)(D)( 5 A. The card issuer considers transactions using the traditional credit card to obtain goods or services from an unaffiliated merchant of the card issuer as purchase transactions with certain annual percentage rates (APRs), fees, and a grace period that applies to those purchase transactions, but treats credit extensions as cash advances that are subject to different APRs, fees, grace periods, and other specified terms and conditions where the prepaid card is used to draw, transfer, or authorize the draw or transfer of credit from the linked credit card account in the course of authorizing, settling, or otherwise completing transactions conducted with the prepaid card to obtain goods or services from an unaffiliated merchant of the card issuer. B. The card issuer generally treats one-time transfers of credit using the credit card account number to asset accounts as cash advance transactions with certain APRs and fees, but treats one-time transfers of credit using the prepaid card to the prepaid account as purchase transactions that are subject to different APRs and fees. ii. To apply the same rights under § 1026.12(c) regarding claims and defenses applicable to use of a credit card to purchase property or services, the card issuer must treat an extension of credit as a credit card transaction to purchase property or services where a prepaid card is used to draw, transfer, or authorize the draw or transfer of credit from the linked credit card account in the course of authorizing, settling, or otherwise completing transactions conducted with the prepaid card to purchase property or services and provide the same rights under § 1026.12(c) as it applies to property or services purchased with the traditional credit card. This includes situations where a consumer uses a prepaid card to make a purchase to obtain property or services from a merchant and credit is transferred from the linked credit card account in the course of authorizing, settling, or otherwise completing the prepaid transaction to make the purchase. For a transaction where a prepaid card is used to obtain property or services from a merchant and the transaction is partially paid with funds from the asset feature of the prepaid account, and partially paid with credit from the linked credit card account, the amount of the purchase transaction that is funded by credit would be subject to this guidance. A card issuer is not required to provide the rights under § 1026.12(c) with respect to the amount of the transaction funded from the prepaid account. iii. To apply the same limits on liability for unauthorized extensions of credit from the credit card account using the prepaid card as it applies to unauthorized extensions of credit from the credit card account using the traditional credit card, the card issuer must treat an extension of credit accessed by the prepaid card as a credit card transaction for purposes of the limits on liability for unauthorized extensions of credit set forth in § 1026.12(b) and impose the same liability under § 1026.12(b) to this credit extension as it applies to unauthorized transactions using the traditional credit card. Paragraph 61(a)(5)(iv) 1. Applicability of credit feature definition. See, e.g., 2. Asset account other than a prepaid account. Paragraph 61(a)(5)(vii) 1. Definition of prepaid card. 61(b) Structure of Credit Features Accessible by Hybrid Prepaid-Credit Cards 1. Credit subaccount on a prepaid account. 2. Credit extended on a credit subaccount or a separate credit account. i. If at the time a prepaid card transaction is initiated there are insufficient or unavailable funds in the asset feature of the prepaid account to complete the transaction, credit must be drawn, transferred or authorized to be drawn or transferred, from the covered separate credit feature at the time the transaction is authorized. The card issuer may not allow the asset feature on the prepaid account to become negative and draw or transfer the credit from the covered separate credit feature at a later time, such as at the end of the day. The card issuer must comply with the applicable provisions of this regulation with respect to the credit extension from the time the prepaid card transaction is authorized. ii. For transactions where there are insufficient or unavailable funds in the asset feature of the prepaid account to cover that transaction at the time it settles and the prepaid transaction either was not authorized in advance or the transaction was authorized and there were sufficient or available funds in the prepaid account at the time of authorization to cover the transaction, credit must be drawn from the covered separate credit feature to settle these transactions. The card issuer may not allow the asset feature on the prepaid account to become negative. The card issuer must comply with the applicable provisions of this regulation from the time the transaction is settled. iii. If a negative balance would result on the asset feature in circumstances other than those described in comment 61(b)-2.i and ii, credit must be drawn from the covered separate credit feature to avoid the negative balance. The card issuer may not allow the asset feature on the prepaid account to become negative. The card issuer must comply with the applicable provisions in this regulation from the time credit is drawn from the covered separate credit feature. For example, assume that a fee for an ATM balance inquiry is imposed on the prepaid account when there are insufficient or unavailable funds to cover the amount of the fee when it is imposed. Credit must be drawn from the covered separate credit feature to avoid a negative balance. 61(c) Timing Requirement for Solicitation or Application With Respect to Hybrid Prepaid-Credit Cards 1. Meaning of registration of a prepaid card or prepaid account. 2. Unsolicited issuance of credit cards and disclosures related to applications or solicitations for credit or charge card accounts. 3. Replacement or substitute cards. Appendix A—Effect on State Laws 1. Who may make requests. Appendix B—State Exemptions 1. General. Appendix C—Issuance of Official Interpretations 1. General. Appendix D—Multiple-Advance Construction Loans 1. General rule. i.e., 2. Variable-rate multiple-advance loans. 3. Calculation of the total of payments. 4. Annual percentage rate. 5. Interest reserves. i. 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. ii. 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 § 1026.18(s). See i. If a creditor uses appendix D and elects pursuant to § 1026.17(c)(6)(ii) to disclose the construction and permanent phases as separate transactions, the construction phase must be disclosed according to the rules in § 1026.18(s). Under § 1026.18(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 § 1026.18(g)” does not apply because the transaction is governed by § 1026.18(s) rather than § 1026.18(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 § 1026.18(s)(5). ii. On the other hand, if the creditor elects to disclose the construction and permanent phases as a single transaction, where interest is payable on the amount actually advanced for the time it is outstanding, the construction phase must be disclosed pursuant to appendix D, part II.C.1, 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 interest rate and payment summary table disclosed under § 1026.18(s) in such cases 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 § 1026.18(s) to the permanent phase only. For example, under § 1026.18(s)(2)(i)(A) or § 1026.18(s)(2)(i)(B)( 1), 7. Relation to §§ 1026.37 and 1026.38. i. Loan term. Disclosure as single transaction. B. Term of permanent financing. ii. Product. Separate construction loan disclosure. B. Combined construction-permanent disclosure. C. Product when interest rate at consummation not known. iii. Interest rate. iv. Increase in periodic payment. A. A creditor discloses “YES” as the answer to “Can this amount increase after closing?” pursuant to § 1026.37(b)(6)(iii) whether the creditor provides separate construction disclosures or combined construction-permanent disclosures, even though calculation of the construction financing periodic payments using the assumptions in appendix D produces interest-only periodic payments that are equal in amount. B. A creditor that discloses “YES” as the answer to “Can this amount increase after closing?” pursuant to § 1026.37(b)(6)(iii) may use months or years for the § 1026.37(b)(6)(iii) disclosures, consistent with comment 37(b)(6)-1. For example, for a 10-month construction loan, the first § 1026.37(b)(6)(iii) disclosure bullet may disclose, “Adjusts every mo. starting in mo. 1” and the second § 1026.37(b)(6)(iii) disclosure bullet may disclose, “Can go as high as $[insert maximum possible periodic principal and interest payment] in year 1”. The calculation of the maximum possible periodic principal and interest payment disclosed is based on the maximum principal balance that could be outstanding during the construction phase. As part of the “First Change/Amount” disclosure in the “Adjustable Payment (AP) Table” pursuant to § 1026.37(i)(5)(i), the creditor may omit and leave blank the amount or range corresponding to the first periodic principal and interest payment that may change. In such cases, the creditor must still disclose the timing of the first change, which is the number of the earliest possible payment ( e.g., C. When separate construction disclosures or the combined construction-permanent disclosures are provided for adjustable-rate construction financing, a creditor provides the § 1026.37(b)(6)(iii) disclosures reflecting changes that are due to changes in the interest rate and changes that are due to changes in the total amount advanced. Such a creditor discloses “YES” as the answer to “Can this amount increase after closing?” pursuant to § 1026.37(b)(6), because the initial periodic payment may increase based upon an increase in the interest rate in addition to a change based on the total amount advanced. Such a creditor also discloses a reference to the adjustable payment table required by § 1026.37(i), disclosed as provided in comment app. D-7.iv.B, because that disclosure reflects both a change due to a change in the total amount advanced, which is a change to the periodic principal and interest payment that is not based on an adjustment to the interest rate, as well as the fact that there are interest-only payments. Such a creditor also includes a reference to the adjustable interest rate table required by § 1026.37(j) because that disclosure reflects a change due to a change in the interest rate. v. Projected payments table. A. If a creditor uses appendix D and elects pursuant to § 1026.17(c)(6)(ii) to disclose the construction and permanent phases as separate transactions, the construction phase must be disclosed according to the rules in §§ 1026.37(c) and 1026.38(c). Under §§ 1026.37(c) and 1026.38(c), the creditor must disclose the periodic payments during the construction phase in a projected payments 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 § 1026.18(g)” does not apply because the transaction is governed by §§ 1026.37(c) and 1026.38(c) rather than § 1026.18(g). If interest is payable only on the amount actually advanced for the time it is outstanding, the creditor determines the amount of the interest-only payment to be made during the construction phase using the assumptions in appendix D, part I.A.1. Also, because the construction phase is being disclosed as a separate transaction and its periodic payments do not repay the principal, the creditor must disclose the construction phase transaction as a product with a balloon payment feature, pursuant to §§ 1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii), unless the transaction has negative amortization, interest-only, or step payment features, consistent with the requirement at § 1026.37(a)(10)(iii). In addition, the creditor must provide the balloon payment disclosures pursuant to §§ 1026.37(b)(5), 1026.37(b)(7)(ii), and 1026.38(b) and disclose the balloon payment in the projected payments table. B. If the creditor elects to disclose the construction and permanent phases as a single transaction, the repayment schedule must be disclosed pursuant to appendix D, part II.C.2. Under appendix D, part II.C.2, the projected payments table reflects the interest-only payments during the construction phase in a first column. The first column also reflects the amortizing payments, and mortgage insurance and escrow payments, if any, for the permanent phase if the term of the construction phase is not a full year. The following column(s) reflect the payments for the permanent phase. If interest is payable only on the amount actually advanced for the time it is outstanding, the creditor determines the amount of the interest-only payment to be made during the construction phase using the assumption in appendix D, part II.A.1. C. Consistent with comments 37(c)(2)(ii)-1 and 37(c)(2)(iii)-1, when the loan is disclosed as one transaction and only the terms of the legal obligation for the permanent phase require mortgage insurance or escrow, the way the creditor discloses the escrow and mortgage insurance depends on whether the first column of the projected payments table exclusively discloses the construction phase. If the first column of the projected payments table exclusively discloses the construction phase, the creditor discloses “0” in the first column of the projected payments table for mortgage insurance and a hyphen or dash in the first column of the projected payments table for escrow. If the first column discloses both the construction phase and the permanent phase payments, the amount of the mortgage insurance premium or escrow payment (if any) for the permanent phase is disclosed in the first column. vi. Disclosure of construction costs. A. Construction costs are the costs of improvements to be made to the property that the consumer contracts for in connection with the financing transaction and that will be paid in whole or in part with loan proceeds. B. On the Loan Estimate, a creditor factors construction costs into the funds for borrower calculation under § 1026.37(h)(1)(v). Because these amounts are disclosed under § 1026.38(j)(1)(v) on the Closing Disclosure, they are included in existing debt that is factored into the funds for borrower calculation under § 1026.37(h)(1)(v). Comment 37(h)(1)(v)-2 explains that the total amount of all existing debt being satisfied in the transaction that is used in the funds for borrower calculation is the sum of the amounts that will be disclosed on the Closing Disclosure in the summaries of transactions table under § 1026.38(j)(1)(ii), (iii), and (v), as applicable. For transactions without a seller or for simultaneous subordinate financing, construction costs may instead be disclosed under § 1026.37(h)(2)(iii) in the optional alternative calculating cash to close table. C. A creditor discloses the amount of construction costs on the Closing Disclosure under § 1026.38(j)(1)(v) in the summaries of transactions table and factors them into the down payment/funds from borrower and funds for borrower calculation under § 1026.38(i)(4) and (6). For transactions without a seller or for simultaneous subordinate financing, construction costs may instead be disclosed under § 1026.38(t)(5)(vii)(B) in the optional alternative calculating cash to close table. D. A creditor in some cases places a portion of a construction loan's proceeds in a reserve or other account at consummation. The amount of such an account, at the creditor's option, may be disclosed separately from other construction costs under § 1026.38(j)(1)(v) if space permits, or may be included in the amount disclosed for construction costs under § 1026.38(j)(1)(v). If the creditor chooses to disclose separately the amount of loan proceeds placed in a reserve or other account at consummation, the creditor may disclose the amount as a separate itemized cost, along with an itemized cost for the balance of the construction costs, in accordance with the disclosure and calculation options described in comments app. D-7.vi-B and C. The amount may be labeled with any accurate term, so long as any label the creditor uses is in accordance with the “clear and conspicuous” standard explained at comment 37(f)(5)-1. If the amount placed in an account is disclosed separately, the balance of construction costs disclosed excludes the amount placed in an account to avoid double counting. vii. Construction loan inspection and handling fees. Appendix F—Optional Annual Percentage Rate Computations for Creditors Offering Open-End Credit Plans Secured by a Consumer's Dwelling 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. 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 § 1026.40, 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 are not subject to the requirements of § 1026.40, 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 §§ 1026.60(b)(5) and 1026.6(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 § 1026.60 for applications and solicitations for credit cards other than charge cards, and the disclosures required under § 1026.6(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 §§ 1026.60(b)(3) and 1026.6(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 § 1026.60(b)(2) or § 1026.6(b)(2)(ii). If the only fee for issuance or availability of credit disclosed under § 1026.60(b)(2) or § 1026.6(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 § 1026.60(b)(2) or § 1026.6(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 §§ 1026.60 or 1026.6(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 Bureau 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 Bureau 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. viii. Models G-10(A) and G-17(A) contain rows in the table with the prescribed language, “For Credit Card Tips from the Consumer Financial Protection Bureau” and calling for a “[Reference to the Bureau's Web site]” next to that language. Until January 1, 2013, creditors may substitute “For Credit Card Tips from the Federal Reserve Board” for these two model forms' prescribed language and may provide a reference to the Federal Reserve Board's Web site rather than the Bureau's Web site. 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 § 1026.7 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 Forms and Clauses 1. Models H-1 and H-2. A. The itemization of the amount financed option. (See Samples H-12 through H-15.) B. The credit life and disability insurance disclosures. (See Samples H-11 and H-12.) C. The property insurance disclosures. (See Samples H-10 through H-12, and H-14.) D. The “filing fees” and “non-filing insurance” disclosures. (See Samples H-11 and H-12.) E. The prepayment penalty or rebate disclosures. (See Samples H-12 and H-14.) F. The total sale price. (See Samples H-11 through H-15.) iii. Other permissible changes include: A. Adding the creditor's address or telephone number. (See the commentary to § 1026.18(a).) B. 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 § 1026.18.) C. 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. D. Using brackets, instead of checkboxes, to indicate inapplicable disclosures. E. Using a line for the consumer to initial, rather than a checkbox, to indicate an election to receive an itemization of the amount financed. F. Deleting captions for disclosures. G. Using a symbol, such as an asterisk, for estimated disclosures, instead of an “e.” H. Adding a signature line to the insurance disclosures to reflect joint policies. I. Separately itemizing the filing fees. J. Revising the late charge disclosure in accordance with the commentary to § 1026.18(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)(1) illustrates the interest rate adjustment notice required under § 1026.20(c) and Model H-4(D)(2) provides an example of a notice of interest rate adjustment with corresponding payment change. Model H-4(D)(3) illustrates the interest rate adjustment notice required under § 1026.20(d) and Model H-4(D)(4) provides an example of a notice of initial interest rate adjustment. ii. Model H-4(E) illustrates the interest rate and payment summary table required under § 1026.18(s) for a fixed-rate mortgage transaction. iii. Model H-4(F) illustrates the interest rate and payment summary table required under § 1026.18(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 § 1026.18(s) for a mortgage transaction with negative amortization. v. Model H-4(H) illustrates the interest rate and payment summary table required under § 1026.18(s) for a fixed-rate, interest-only mortgage transaction. vi. Model H-4(I) illustrates the introductory rate disclosure required by § 1026.18(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 § 1026.18(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 § 1026.18(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. HRSA-502-1 9-82. 24. HRSA-502-2 9-82. 25. Models H-18, H-19, H-20. ii. The creditor may delete inapplicable disclosures, such as: A. The Federal student financial assistance alternatives disclosures. B. The self-certification disclosure. iii. Other permissible changes include, for example: A. Adding the creditor's address, telephone number, or Web site. B. Adding loan identification information, such as a loan identification number. C. Adding the date on which the form was printed or produced. D. Placing the notice of the right to cancel in the top left or top right of the disclosure to accommodate a window envelope. E. 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. F. Combining the disclosure of loan term and payment deferral options required in § 1026.47(a)(3) with the disclosure of cost estimates required in § 1026.47(a)(4) in the same chart or table ( See G. Using the first person, instead of the second person, in referring to the borrower. H. Using “borrower” and “creditor” instead of pronouns. I. Incorporating certain state “plain English” requirements. J. 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. iv. Although creditors are not required to use a certain paper size in disclosing the §§ 1026.47(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. v. While the Bureau is not requiring issuers to use the above formatting techniques in presenting information in the disclosure, the Bureau 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. vi. 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. 29. Model Form H-29. i. This model form illustrates the disclosures required by § 1026.20(e). ii. A creditor or servicer satisfies § 1026.20(e) if it provides model form H-29 or a substantially similar notice, which is properly completed with the disclosures required by § 1026.20(e). iii. Although creditors and servicers are not required to use a certain paper size in disclosing the information under § 1026.20(e), model form H-29 is designed to be printed on an 8 1/2 A. A readable font style and font size (10-point minimum font size); B. Sufficient spacing between lines of the text; C. Standard spacing between words and characters. In other words, the text was not compressed to appear smaller than 10-point type; 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. iv. While the regulation does not require creditors or servicers to use the above formatting techniques in presenting information in the tabular format (except for the 10-point minimum font size requirement), creditors and servicers are encouraged to consider these techniques when deciding how to disclose information in the notice to ensure that the information is presented in a readable format. v. Creditors and servicers may use color, shading and similar graphic techniques with respect to the notice, so long as the notice remains substantially similar to model form H-29. 30. Standard Loan Estimate and Closing Disclosure forms. Appendix J—Annual Percentage Rate Computations for Closed-End Credit Transactions 1. Use of appendix J. 2. Relation to Bureau tables. https://www.consumerfinance.gov/compliance/compliance-resources/other-applicable-requirements/annual-percentage-rate-tables/. 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. [76 FR 79772, Dec. 22, 2011] Editorial Note: For Federal Register www.govinfo.gov.