Truth in Lending, 5244-5498 [E8-31185]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 74, Number 18 (Thursday, January 29, 2009)]
[Rules and Regulations]
[Pages 5244-5498]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-31185]



Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / 
Rules and Regulations

[[Page 5244]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1286]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board is amending Regulation Z, which implements the Truth 
in Lending Act (TILA), and the staff commentary to the regulation, 
following a comprehensive review of TILA's rules for open-end 
(revolving) credit that is not home-secured. Consumer testing was 
conducted as a part of the review.
    Except as otherwise noted, the changes apply solely to open-end 
credit. Disclosures accompanying credit card applications and 
solicitations must highlight fees and reasons penalty rates might be 
applied, such as for paying late. Creditors are required to summarize 
key terms at account opening and when terms are changed. Specific fees 
are identified that must be disclosed to consumers in writing before an 
account is opened, and creditors are given flexibility regarding how 
and when to disclose other fees imposed as part of the open-end plan. 
Costs for interest and fees are separately identified for the cycle and 
year to date. Creditors are required to give 45 days' advance notice 
prior to certain changes in terms and before the rate applicable to a 
consumer's account is increased as a penalty. Rules of general 
applicability such as the definition of open-end credit, dispute 
resolution procedures, and payment processing limitations apply to all 
open-end plans, including home-equity lines of credit. Rules regarding 
the disclosure of debt cancellation and debt suspension agreements are 
revised for both closed-end and open-end credit transactions. Loans 
taken against employer-sponsored retirement plans are exempt from TILA 
coverage.

DATES: The rule is effective July 1, 2010.

FOR FURTHER INFORMATION CONTACT: Benjamin K. Olson, Attorney, Amy Burke 
or Vivian Wong, Senior Attorneys, or Krista Ayoub, Ky Tran-Trong, or 
John Wood, Counsels, Division of Consumer and Community Affairs, Board 
of Governors of the Federal Reserve System, at (202) 452-3667 or 452-
2412; for users of Telecommunications Device for the Deaf (TDD) only, 
contact (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Background on TILA and Regulation Z

    Congress enacted the Truth in Lending Act (TILA) based on findings 
that economic stability would be enhanced and competition among 
consumer credit providers would be strengthened by the informed use of 
credit resulting from consumers' awareness of the cost of credit. The 
purposes of TILA are (1) to provide a meaningful disclosure of credit 
terms to enable consumers to compare credit terms available in the 
marketplace more readily and avoid the uninformed use of credit; and 
(2) to protect consumers against inaccurate and unfair credit billing 
and credit card practices.
    TILA's disclosures differ depending on whether consumer credit is 
an open-end (revolving) plan or a closed-end (installment) loan. TILA 
also contains procedural and substantive protections for consumers. 
TILA is implemented by the Board's Regulation Z. An Official Staff 
Commentary interprets the requirements of Regulation Z. By statute, 
creditors that follow in good faith Board or official staff 
interpretations are insulated from civil liability, criminal penalties, 
or administrative sanction.

II. Summary of Major Changes

    The goal of the amendments to Regulation Z is to improve the 
effectiveness of the disclosures that creditors provide to consumers at 
application and throughout the life of an open-end (not home-secured) 
account. The changes are the result of the Board's review of the 
provisions that apply to open-end (not home-secured) credit. The Board 
is adopting changes to format, timing, and content requirements for the 
five main types of open-end credit disclosures governed by Regulation 
Z: (1) Credit and charge card application and solicitation disclosures; 
(2) account-opening disclosures; (3) periodic statement disclosures; 
(4) change-in-terms notices; and (5) advertising provisions. The Board 
is also adopting additional protections that complement rules issued by 
the Board and other federal banking agencies published elsewhere in 
today's Federal Register regarding certain credit card practices.
    Applications and solicitations. Format and content changes are 
adopted to make the credit and charge card application and solicitation 
disclosures more meaningful and easier for consumers to use. The 
changes include:

     Adopting new format requirements for the summary table, 
including rules regarding: type size and use of boldface type for 
certain key terms, and placement of information.
     Revising content, including: a requirement that 
creditors disclose the duration that penalty rates may be in effect, 
a shorter disclosure about variable rates, new descriptions when a 
grace period is offered on purchases or when no grace period is 
offered, and a reference to consumer education materials on the 
Board's Web site.
    Account-opening disclosures. Requirements for cost disclosures 
provided at account opening are adopted to make the information more 
conspicuous and easier to read. The changes include:

     Disclosing certain key terms in a summary table at 
account opening, in order to summarize for consumers key information 
that is most important to informed decision-making. The table is 
substantially similar to the table required for credit and charge 
card applications and solicitations.
     Adopting a different approach to disclosing fees, to 
provide greater clarity for identifying fees that must be disclosed. 
In addition, creditors would have flexibility to disclose charges 
(other than those in the summary table) in writing or orally.

    Periodic statement disclosures. Revisions are adopted to make 
disclosures on periodic statements more understandable, primarily by 
making changes to the format requirements, such as by grouping fees and 
interest charges together. The changes include:

     Itemizing interest charges for different types of 
transactions, such as purchases and cash advances, grouping interest 
charges and fees separately, and providing separate totals of fees 
and interest for the month and year-to-date.
     Eliminating the requirement to disclose an ``effective 
APR.''
     Requiring disclosure of the effect of making only the 
minimum required payment on the time to repay balances, as required 
by the Bankruptcy Act.

    Changes in consumer's interest rate and other account terms. The 
final rule expands the circumstances under which consumers receive 
written notice of changes in the terms (e.g., an increase in the 
interest rate) applicable to their accounts, and increase the amount of 
time these notices must be sent before the change becomes effective. 
The changes include:

     Increasing advance notice before a changed term can be 
imposed from 15 to 45 days, to better allow consumers to obtain 
alternative financing or change their account usage.
     Requiring creditors to provide 45 days' prior notice 
before the creditor increases a rate either due to a change in the 
terms applicable to the consumer's account or due to the consumer's 
delinquency or default or as a penalty.
     When a change-in-terms notice accompanies a periodic 
statement, requiring

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a tabular disclosure on the front side of the periodic statement of 
the key terms being changed.

    Advertising provisions. Rules governing advertising of open-end 
credit are revised to help ensure consumers better understand the 
credit terms offered. These revisions include:

     Requiring advertisements that state a periodic payment 
amount on a plan offered to finance the purchase of goods or 
services to state, in equal prominence to the periodic payment 
amount, the time period required to pay the balance and the total of 
payments if only periodic payments are made.
     Permitting advertisements to refer to a rate as 
``fixed'' only if the advertisement specifies a time period for 
which the rate is fixed and the rate will not increase for any 
reason during that time, or if a time period is not specified, if 
the rate will not increase for any reason while the plan is open.

    Additional protections. Rules are adopted that provide additional 
protections to consumers. These include:

     In setting reasonable cut-off hours for mailed payments 
to be received on the due date and be considered timely, deeming 5 
p.m. to be a reasonable time.
     Requiring creditors that do not accept mailed payments 
on the due date, such as on weekends or holidays, to treat a mailed 
payment received on the next business day as timely.
     Clarifying that advances that are separately 
underwritten are generally not open-end credit, but closed-end 
credit for which closed-end disclosures must be given.

III. The Board's Review of Open-end Credit Rules

A. Advance Notices of Proposed Rulemaking

    December 2004 ANPR. The Board began a review of Regulation Z in 
December 2004.\1\ The Board initiated its review of Regulation Z by 
issuing an advance notice of proposed rulemaking (December 2004 ANPR). 
69 FR 70925, December 8, 2004. At that time, the Board announced its 
intent to conduct its review of Regulation Z in stages, focusing first 
on the rules for open-end (revolving) credit accounts that are not 
home-secured, chiefly general-purpose credit cards and retailer credit 
card plans. The December 2004 ANPR sought public comment on a variety 
of specific issues relating to three broad categories: the format of 
open-end credit disclosures, the content of those disclosures, and the 
substantive protections provided for open-end credit under the 
regulation. The December 2004 ANPR solicited comment on the scope of 
the Board's review, and also requested commenters to identify other 
issues that the Board should address in the review. A summary of the 
comments received in response to the December 2004 ANPR is contained in 
the supplementary information to proposed revisions to Regulation Z 
published by the Board in June 2007 (June 2007 Proposal). 72 FR 32948, 
32949, June 14, 2007.
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    \1\ The review was initiated pursuant to requirements of section 
303 of the Riegle Community Development and Regulatory Improvement 
Act of 1994, section 610(c) of the Regulatory Flexibility Act of 
1980, and section 2222 of the Economic Growth and Regulatory 
Paperwork Reduction Act of 1996.
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    October 2005 ANPR. The Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2005 (the Bankruptcy Act) primarily amended the 
federal bankruptcy code, but also contained several provisions amending 
TILA. Public Law 109-8, 119 Stat. 23. The Bankruptcy Act's TILA 
amendments principally deal with open-end credit accounts and require 
new disclosures on periodic statements, on credit card applications and 
solicitations, and in advertisements.
    In October 2005, the Board published a second ANPR to solicit 
comment on implementing the Bankruptcy Act amendments (October 2005 
ANPR). 70 FR 60235, October 17, 2005. In the October 2005 ANPR, the 
Board stated its intent to implement the Bankruptcy Act amendments as 
part of the Board's ongoing review of Regulation Z's open-end credit 
rules. A summary of the comments received in response to the October 
2005 ANPR also is contained in the supplementary information to the 
June 2007 Proposal. 72 FR 32948, 32950, June 14, 2007.

B. Notices of Proposed Rulemakings

    June 2007 Proposal. The Board published proposed amendments to 
Regulation Z's rules for open-end plans that are not home-secured in 
June 2007. 72 FR 32948, June 14, 2007. The goal of the proposed 
amendments to Regulation Z was to improve the effectiveness of the 
disclosures that creditors provide to consumers at application and 
throughout the life of an open-end (not home-secured) account. In 
developing the proposal, the Board conducted consumer research, in 
addition to considering comments received on the two ANPRs. 
Specifically, the Board retained a research and consulting firm (Macro 
International) to assist the Board in using consumer testing to develop 
proposed model forms, as discussed in C. Consumer Testing of this 
section, below. The proposal would have made changes to format, timing, 
and content requirements for the five main types of open-end credit 
disclosures governed by Regulation Z: (1) Credit and charge card 
application and solicitation disclosures; (2) account-opening 
disclosures; (3) periodic statement disclosures; (4) change-in-terms 
notices; and (5) advertising provisions.
    For credit and charge card application and solicitation 
disclosures, the June 2007 Proposal included new format requirements 
for the summary table, such as rules regarding type size and use of 
boldface type for certain key terms, placement of information, and the 
use of cross-references. Content revisions included requiring creditors 
to disclose the duration that penalty rates may be in effect and a 
shorter disclosure about variable rates.
    For disclosures provided at account opening, the June 2007 Proposal 
called for creditors to disclose certain key terms in a summary table 
that is substantially similar to the table required for credit and 
charge card applications and solicitations. A different approach to 
disclosing fees was proposed, to provide greater clarity for 
identifying fees that must be disclosed, and to provide creditors with 
flexibility to disclose charges (other than those in the summary table) 
in writing or orally.
    The June 2007 Proposal also included changes to the format 
requirements for periodic statements, such as by grouping fees, 
interest charges, and transactions together and providing separate 
totals of fees and interest for the month and year-to-date. The 
proposal also modified the provisions for disclosing the ``effective 
APR,'' including format and terminology requirements to make it more 
understandable. Because of concerns about the disclosure's 
effectiveness, however, the Board also solicited comment on whether 
this rate should be required to be disclosed. The proposal required 
card issuers to disclose the effect of making only the minimum required 
payment on repayment of balances, as required by the Bankruptcy Act.
    For changes in consumer's interest rate and other account terms, 
the June 2007 Proposal expanded the circumstances under which consumers 
receive written notice of changes in the terms (e.g., an increase in 
the interest rate) applicable to their accounts to include increases of 
a rate due to the consumer's delinquency or default, and increased the 
amount of time (from 15 to 45 days) these notices must be sent before 
the change becomes effective.
    For advertisements that state a minimum monthly payment on a plan 
offered to finance the purchase of goods or services, the June 2007 
Proposal required additional information about

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the time period required to pay the balance and the total of payments 
if only minimum payments are made. The proposal also limited the 
circumstances under which an advertisement may refer to a rate as 
``fixed.''
    The Board received over 2,500 comments on the June 2007 Proposal. 
About 85% of these were from consumers and consumer groups, and of 
those, nearly all (99%) were from individuals. Of the approximately 15% 
of comment letters received from industry representatives, about 10% 
were from financial institutions or their trade associations. The vast 
majority (90%) of the industry letters were from credit unions and 
their trade associations. Those latter comments mainly concerned a 
proposed revision to the definition of open-end credit that could 
affect how many credit unions currently structure their consumer loan 
products.
    In general, commenters generally supported the June 2007 Proposal 
and the Board's use of consumer testing to develop revisions to 
disclosure requirements. There was opposition to some aspects of the 
proposal. For example, industry representatives opposed many of the 
format requirements for periodic statements as being overly 
prescriptive. They also opposed the Board's proposal to require 
creditors to provide at least 45 days' advance notice before certain 
key terms change or interest rates are increased due to default or 
delinquency or as a penalty. Consumer groups opposed the Board's 
proposed alternative that would eliminate the effective annual 
percentage rate (effective APR) as a periodic statement disclosure. 
Consumers and consumer groups also believed the Board's proposal was 
too limited in scope and urged the Board to provide more substantive 
protections and prohibit certain card issuer practices. Comments on 
specific proposed revisions are discussed in VI. Section-by-Section 
Analysis, below.
    May 2008 Proposal. In May 2008, the Board published revisions to 
several disclosures in the June 2007 Proposal (May 2008 Proposal). 73 
FR 28866, May 19, 2008. In developing these revisions, the Board 
considered comments received on the June 2007 Proposal and worked with 
its testing consultant, Macro International, to conduct additional 
consumer research, as discussed in C. Consumer Testing of this section, 
below. In addition, the May 2008 Proposal contained proposed amendments 
to Regulation Z that complemented a proposal published by the Board, 
along with the Office of Thrift Supervision and the National Credit 
Union Administration, to adopt rules prohibiting specific unfair acts 
or practices with respect to consumer credit card accounts under their 
authority under the Federal Trade Commission Act (FTC Act). See 15 
U.S.C. 57a(f)(1). 73 FR 28904, May 19, 2008.
    The May 2008 Proposal would have, among other things, required 
changes for the summary table provided on or with application and 
solicitations for credit and charge cards. Specifically, it would have 
required different terminology than the term ``grace period'' as a 
heading that describes whether the card issuer offers a grace period on 
purchases, and added a de minimis dollar amount trigger of more than 
$1.00 for disclosing minimum interest or finance charges.
    Under the May 2008 Proposal, creditors assessing fees at account 
opening that are 25% or more of the minimum credit limit would have 
been required to provide in the account-opening summary table a notice 
of the consumer's right to reject the plan after receiving disclosures 
if the consumer has not used the account or paid a fee (other than 
certain application fees).
    Currently, creditors may require consumers to comply with 
reasonable payment instructions. The May 2008 Proposal would have 
deemed a cut-off hour for receiving mailed payments before 5 p.m. on 
the due date to be an unreasonable instruction. The proposal also would 
have prohibited creditors that set due dates on a weekend or holiday 
but do not accept mailed payments on those days from considering a 
payment received on the next business day as late for any reason.
    For deferred interest plans that advertise ``no interest'' or 
similar terms, the May 2008 Proposal would have added notice and 
proximity requirements to require advertisements to state the 
circumstances under which interest is charged from the date of purchase 
and, if applicable, that the minimum payments required will not pay off 
the balance in full by the end of the deferral period.
    The Board received over 450 comments on the May 2008 Proposal. 
About 88% of these were from consumers and consumer groups, and of 
those, nearly all (98%) were from individuals. Six comments (1%) were 
from government officials or organizations, and the remaining 11% 
represented industry, such as financial institutions or their trade 
associations and payment system networks.
    Commenters generally supported the May 2008 Proposal, although like 
the June 2007 Proposal, some commenters opposed aspects of the 
proposal. For example, operational concerns and costs for system 
changes were cited by industry representatives that opposed limitations 
on when creditors may consider mailed payments to be untimely. 
Regarding revised disclosure requirements, some industry and consumer 
group commenters opposed proposed heading descriptions for accounts 
offering a grace period, although these commenters were split between 
those that favor retaining the current term (``grace period'') and 
those that suggested other heading descriptions. Consumer groups 
opposed the May 2008 proposal to permit card issuers and creditors to 
omit charges in lieu of interest that are $1.00 or less from the table 
provided with credit or charge card applications and solicitations and 
the table provided at account opening. Some retailers opposed the 
proposed advertising rules for deferred interest offers. Comments on 
specific proposed revisions are discussed in VI. Section-by-Section 
Analysis, below.

C. Consumer Testing

    Developing the June 2007 Proposal. A principal goal for the 
Regulation Z review was to produce revised and improved credit card 
disclosures that consumers will be more likely to pay attention to, 
understand, and use in their decisions, while at the same time not 
creating undue burdens for creditors. In April 2006, the Board retained 
a research and consulting firm (Macro International) that specializes 
in designing and testing documents to conduct consumer testing to help 
the Board review Regulation Z's credit card rules. Specifically, the 
Board used consumer testing to develop model forms that were proposed 
in June 2007 for the following credit card disclosures required by 
Regulation Z:

     Summary table disclosures provided in direct-mail 
solicitations and applications;
     Disclosures provided at account opening;
     Periodic statement disclosures; and
     Subsequent disclosures, such as notices provided when 
key account terms are changed, and notices on checks provided to 
access credit card accounts.

    Working closely with the Board, Macro International conducted 
several tests. Each round of testing was conducted in a different city 
throughout the United States. In addition, the consumer testing groups 
contained participants with a range of ethnicities, ages, educational 
levels, and credit card behavior. The consumer testing groups also 
contained participants likely to have subprime credit cards as well as 
those likely to have prime credit cards.

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    Initial research and design of disclosures for testing. In advance 
of testing a series of revised disclosures, the Board conducted 
research to learn what information consumers currently use in making 
decisions about their credit card accounts, and how they currently use 
disclosures that are provided to them. In May and June 2006, the Board 
worked with Macro International to conduct two sets of focus groups 
with credit card consumers. Through these focus groups, the Board 
gathered information on what credit terms consumers usually consider 
when shopping for a credit card, what information they find useful when 
they receive a new credit card in the mail, and what information they 
find useful on periodic statements. In August 2006, the Board worked 
with Macro International to conduct one-on-one discussions with credit 
card account holders. Consumers were asked to view existing sample 
credit card disclosures. The goals of these interviews were: (1) To 
learn more about what information consumers read when they receive 
current credit card disclosures; (2) to research how easily consumers 
can find various pieces of information in these disclosures; and (3) to 
test consumers' understanding of certain credit card-related words and 
phrases. In the fall of 2006, the Board worked with Macro International 
to develop sample credit card disclosures to be used in the later 
rounds of testing, taking into account information learned through the 
focus groups and the one-on-one interviews.
    Additional testing and revisions to disclosures. In late 2006 and 
early 2007, the Board worked with Macro International to conduct four 
rounds of one-on-one interviews (seven to nine participants per round), 
where consumers were asked to view new sample credit card disclosures 
developed by the Board and Macro International. The rounds of 
interviews were conducted sequentially to allow for revisions to the 
testing materials based on what was learned from the testing during 
each previous round.
    Several of the model forms contained in the June 2007 Proposal were 
developed through the testing. A report summarizing the results of the 
testing is available on the Board's public Web site: https://
www.federalreserve.gov (May 2007 Macro Report).\2\ See also VI. 
Section-by-Section Analysis, below. To illustrate by example:
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    \2\ Design and Testing of Effective Truth in Lending 
Disclosures, Macro International, May 16, 2007.

     Testing participants generally read the summary table 
provided in direct-mail credit card solicitations and applications 
and ignored information presented outside of the table. The June 
2007 Proposal would have required that information about events that 
trigger penalty rates and about important fees (late-payment fees, 
over-the-credit-limit fees, balance transfer fees, and cash advance 
fees) be placed in the table. Currently, this information may be 
placed outside the table.
     With respect to the account-opening disclosures, 
consumer testing indicates that consumers commonly do not review 
their account agreements, which currently are often in small print 
and dense prose. The June 2007 Proposal would have required 
creditors to include a table summarizing the key terms applicable to 
the account, similar to the table required for credit card 
applications and solicitations. The goal of setting apart the most 
important terms in this way is to better ensure that consumers are 
apprised of those terms.
     With respect to periodic statement disclosures, many 
consumers more easily noticed the number and amount of fees when the 
fees were itemized and grouped together with interest charges. 
Consumers also noticed fees and interest charges more readily when 
they were located near the disclosure of the transactions on the 
account. The June 2007 Proposal would have required creditors to 
group all fees together and describe them in a manner consistent 
with consumers' general understanding of costs (``interest charge'' 
or ``fee''), without regard to whether the fees would be considered 
``finance charges,'' ``other charges'' or neither under the 
regulation.
     With respect to change-in-terms notices, creditors 
commonly provide notices about changes to terms or rates in the same 
envelope with periodic statements. Consumer testing indicates that 
consumers may not typically look at the notices if they are provided 
as separate inserts given with periodic statements. In such cases 
under the June 2007 Proposal, a table summarizing the change would 
have been required on the periodic statement directly above the 
transaction list, where consumers are more likely to notice the 
changes.

    Developing the May 2008 Proposal. In early 2008, the Board worked 
with a testing consultant, Macro International, to revise model 
disclosures published in the June 2007 Proposal in response to comments 
received. In March 2008, the Board conducted an additional round of 
one-on-one interviews on revised disclosures provided with applications 
and solicitations, on periodic statements, and with checks that access 
a credit card account. A report summarizing the results of the testing 
is available on the Board's public Web site: https://
www.federalreserve.gov (December 2008 Macro Report on Qualitative 
Testing).\3\
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    \3\ Design and Testing of Effective Truth in Lending 
Disclosures: Findings from Qualitative Consumer Research, Macro 
International, December 15, 2008.
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    With respect to the summary table provided in direct-mail credit 
card solicitations and applications, participants who read the heading 
``How to Avoid Paying Interest on Purchases'' on the row describing a 
grace period generally understood what the phrase meant. The May 2008 
Proposal would have required issuers to use that phrase, or a 
substantially similar phrase, as the row heading to describe an account 
with a grace period for purchases, and the phrase ``Paying Interest,'' 
or a substantially similar phrase, if no grace period is offered. (The 
same row headings were also proposed for tables provided at account-
opening and with checks that access credit card accounts.)
    Prior to the May 2008 Proposal, the Board also tested a disclosure 
of a use-by date applicable to checks that access a credit card 
account. The responses given by testing participants indicated that 
they generally did not understand prior to the testing that there may 
be a use-by date applicable to an offer of a promotional rate for a 
check that accesses a credit card account. However, the participants 
that saw and read the tested language understood that a standard cash 
advance rate, not the promotional rate, would apply if the check was 
used after the date disclosed. Thus, in May 2008 the Board proposed to 
require that creditors disclose any use-by date applicable to an offer 
of a promotional rate for access checks.
    Testing conducted after May 2008. In July and August 2008, the 
Board worked with Macro International to conduct two additional rounds 
of one-on-one interviews. See the December 2008 Macro Report on 
Qualitative Testing, which summarizes the results of these interviews. 
The results of this consumer testing were used to develop the final 
rule, and are discussed in more detail in VI. Section-by-Section 
Analysis.
    For example, these rounds of interviews examined, among other 
things, whether consumers understand the meaning of a minimum interest 
charge disclosed in the summary table provided in direct-mail credit 
card solicitations and applications. Most participants could correctly 
explain the meaning of a minimum interest charge, and most participants 
indicated that a minimum interest charge would not be important to them 
because it is a relatively small sum of money ($1.50 on the forms 
tested). The final rule accordingly establishes a threshold of $1.00; 
if the minimum interest charge is $1.00 or less it is not required to 
be disclosed in the table.
    Consumers also were asked to review periodic statements that 
disclosed an impending rate increase, with a tabular summary of the 
change appearing on statement, as proposed by the Board in

[[Page 5248]]

June 2007. This testing was used in the development of final Samples G-
20 and G-21, which give creditors guidance on how advance notice of 
impending rate increases or changes in terms should be presented.
    Quantitative testing. In September 2008, the Board worked with 
Macro International to develop a survey to conduct quantitative 
testing. The goal of quantitative testing was to measure consumers' 
comprehension and the usability of the newly-developed disclosures 
relative to existing disclosures and formats. A report summarizing the 
results of the testing is available on the Board's public Web site: 
https://www.federalreserve.gov (December 2008 Macro Report on 
Quantitative Testing).\4\
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    \4\ Design and Testing of Effective Truth in Lending 
Disclosures: Findings from Experimental Study, Macro International, 
December 15, 2008.
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    The quantitative consumer testing conducted for the Board consisted 
of mall-intercept interviews of a total of 1,022 participants in seven 
cities: Dallas, TX; Detroit, MI; Los Angeles, CA; Seattle, WA; 
Springfield, IL; St. Louis, MO; and Tallahassee, FL. Each interview 
lasted approximately fifteen minutes and consisted of showing the 
participant models of the summary table provided in direct-mail credit 
card solicitations and applications and the periodic statement and 
asking a series of questions designed to assess the effectiveness of 
certain formatting and content requirements proposed by the Board or 
suggested by commenters.
    With regard to the summary table provided in direct-mail credit 
card solicitations and applications, consumers were asked questions 
intended to gauge the impact of (i) combining rows for APRs applicable 
to different transaction types, (ii) the inclusion of cross-references 
in the table, and (iii) the impact of splitting the table onto two 
pages instead of presenting the table entirely on a single page. More 
details about the specific forms used in the testing as well as the 
questions asked are available in the December 2008 Macro Report on 
Quantitative Testing.
    The results of the testing demonstrated that combining the rows for 
APRs applicable to different transaction types that have the same 
applicable rate did not have a statistically significant impact on 
consumers' ability to identify those rates. Thus, the final rule 
permits creditors to combine rows disclosing the rates for different 
transaction types to which the same rate applies.
    Similarly, the testing indicated that the inclusion of cross-
references in the table did not have a statistically significant impact 
on consumers' ability to identify fees and rates applicable to their 
accounts. As a result, the Board has not adopted the proposed 
requirement that certain cross-references between certain rates and 
fees be included in the table.
    Finally, the testing demonstrated that consumers have more 
difficulty locating fees applicable to their accounts when the table is 
split on two pages and the fee appears on the second page of the table. 
As discussed further in VI. Section-by-Section Analysis, the Board is 
not requiring that creditors use a certain paper size or present the 
entire table on a single page, but is requiring creditors that split 
the table onto two or more pages to include a reference indicating that 
additional important information regarding the account is presented on 
a separate page.
    The Board also tested whether consumers' understanding of payment 
allocation practices could be improved through disclosure. The testing 
showed that a disclosure, even of the relatively simple payment 
allocation practice of applying payments to lower-interest balances 
before higher-interest balances,\5\ improved understanding for very few 
consumers. The disclosure also confused some consumers who had 
understood payment allocation based on prior knowledge before reviewing 
the disclosure. Based on this result, and because of substantive 
protections adopted by the Board and other federal banking agencies 
published elsewhere in this Federal Register, the Board is not 
requiring a payment allocation disclosure in the summary table provided 
in direct-mail solicitations and applications or at account-opening.
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    \5\ Under final rules issued by the Board and other federal 
banking agencies published elsewhere in today's Federal Register, 
issuers are prohibited from allocating payments to low-interest 
balances before higher-interest balances. However, the Board chose 
to test a disclosure of this practice in quantitative consumer 
testing because (i) it is currently the practice of many issuers and 
(ii) to test one of the simpler payment allocation methods on the 
assumption that consumers might be more likely to understand 
disclosure of a simpler payment allocation method than a more 
complex one.
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    With regard to periodic statements, the Board's testing consultant 
examined (i) the effectiveness of grouping transactions and fees on the 
periodic statement, (ii) consumers' understanding of the effective APR 
disclosure, (iii) the formatting and location of change-in-terms 
notices included with periodic statements, and (iv) the formatting and 
grouping of various payment information, including warnings about the 
effect of late payments and making only the minimum payment.
    The testing demonstrated that grouping of fees and transactions, by 
type, separately on the periodic statement improved consumers' ability 
to find fees that were charged to the account and also moderately 
improved consumers' ability to locate transactions. Grouping fees 
separately from transactions made it more difficult for some consumers 
to match a transaction fee to the relevant transaction, although most 
consumers could successfully match the transaction and fee regardless 
of how the transaction list was presented. As discussed in more detail 
in VI. Section-by-Section Analysis, the final rule requires grouping of 
fees and interest separate from transactions on the periodic statement, 
but the Board has provided flexibility for issuers to disclose 
transactions on the periodic statement.
    With regard to the effective APR, testing overwhelmingly showed 
that few consumers understood the disclosure and that some consumers 
were less able to locate the interest rate applicable to cash advances 
when the effective APR also was disclosed on the periodic statement. 
Accordingly, and for the additional reasons discussed in more detail in 
VI. Section-by-Section Analysis, the final rule eliminates the 
requirement to disclose an effective APR for open-end (not home-
secured) credit.
    When a change-in-terms notice for the APR for purchases was 
included with the periodic statement, disclosure of a tabular summary 
of the change on the front of the statement moderately improved 
consumers' ability to identify the rate that would apply when the 
changes take effect. However, whether the tabular summary was presented 
on page one or page two of the statement did not have an effect on the 
ability of participants to notice or comprehend the disclosure. Thus, 
the final rule requires a tabular summary of key changes on the 
periodic statement, when a change-in-terms notice is included with the 
periodic statement, but permits creditors to disclose that summary on 
the front of any page of the statement.
    The formatting of certain grouped information regarding payments, 
including the amount of the minimum payment, due date, and warnings 
regarding the effect of making late or minimum payments did not have an 
effect on consumers' ability to notice or comprehend these disclosures. 
Thus, while the final rule requires that this

[[Page 5249]]

information be grouped, creditors are not required to format this 
information in any particular manner.

D. Other Outreach and Research

    Throughout the Board's review of Regulation Z's rules affecting 
open-end (not home-secured) plans, the Board solicited input from 
members of the Board's Consumer Advisory Council on various issues. 
During 2005 and 2006, for example, the Council discussed the 
feasibility and advisability of reviewing Regulation Z in stages, ways 
to improve the summary table provided on or with credit card 
applications and solicitations, issues related to TILA's substantive 
protections (including dispute resolution procedures), and issues 
related to the Bankruptcy Act amendments. In 2007 and 2008, the Council 
discussed the June 2007 and May 2008 Proposals, respectively, and 
comments received by the Board in response to the proposals. In 
addition, Board met or conducted conference calls with various industry 
and consumer group representatives throughout the review process 
leading to the June 2007 and May 2008 Proposals. Consistent with the 
Bankruptcy Act, the Board also met with the other federal banking 
agencies, the National Credit Union Administration (NCUA), and the 
Federal Trade Commission (FTC) regarding the clear and conspicuous 
disclosure of certain information required by the Bankruptcy Act. The 
Board also reviewed disclosures currently provided by creditors, 
consumer complaints received by the federal banking agencies, and 
surveys on credit card usage to help inform the June 2007 Proposal.\6\
---------------------------------------------------------------------------

    \6\ Surveys reviewed include: Thomas A. Durkin, Credit Cards: 
Use and Consumer Attitudes, 1970-2000, FEDERAL RESERVE BULLETIN, 
(September 2000); Thomas A. Durkin, Consumers and Credit 
Disclosures: Credit Cards and Credit Insurance, FEDERAL RESERVE 
BULLETIN (April 2002).
---------------------------------------------------------------------------

E. Reviewing Regulation Z in Stages

    The Board is proceeding with a review of Regulation Z in stages. 
This final rule largely contains revisions to rules affecting open-end 
plans other than home-equity lines of credit (HELOCs) subject to Sec.  
226.5b. Possible revisions to rules affecting HELOCs will be considered 
in the Board's review of home-secured credit, currently underway. To 
minimize compliance burden for creditors offering HELOCs as well as 
other open-end credit, many of the open-end rules have been reorganized 
to delineate clearly the requirements for HELOCs and other forms of 
open-end credit. Although this reorganization increases the size of the 
regulation and commentary, the Board believes a clear delineation of 
rules for HELOCs and other forms of open-end credit pending the review 
of HELOC rules provides a clear compliance benefit to creditors.
    In addition, as discussed elsewhere in this section and in VI. 
Section-by-Section Analysis, the Board has eliminated the requirement 
to disclose an effective annual percentage rate for open-end (not home-
secured) credit. For a home-equity plan subject to Sec.  226.5b, under 
the final rule a creditor has the option to disclose an effective APR 
(according to the current rules in Regulation Z for computing and 
disclosing the effective APR), or not to disclose an effective APR. The 
Board notes that the rules for computing and disclosing the effective 
APR for HELOCs could be the subject of comment during the review of 
rules affecting HELOCs.

IV. The Board's Rulemaking Authority

    TILA mandates that the Board prescribe regulations to carry out the 
purposes of the act. TILA also specifically authorizes the Board, among 
other things, to do the following:

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

    In adopting this final rule, the Board has considered the 
information collected from comment letters submitted in response to its 
ANPRs and the June 2007 and May 2008 Proposals, its experience in 
implementing and enforcing Regulation Z, and the results obtained from 
testing various disclosure options in controlled consumer tests. For 
the reasons discussed in this notice, the Board believes this final 
rule is appropriate to effectuate the purposes of TILA, to prevent the 
circumvention or evasion of TILA, and to facilitate compliance with the 
act.
    Also as explained in this notice, the Board believes that the 
specific exemptions adopted are appropriate because the existing 
requirements do not provide a meaningful benefit to consumers in the 
form of useful information or protection. In reaching this conclusion, 
the Board considered (1) the amount of the loan and whether the 
disclosure provides a benefit to consumers who are parties to the 
transaction involving a loan of such amount; (2) the extent to which 
the requirement complicates, hinders, or makes more expensive the 
credit process; (3) the status of the borrower, including any related 
financial arrangements of the borrower, the financial sophistication of 
the borrower relative to the type of transaction, and the importance to 
the borrower of the credit, related supporting property, and coverage 
under TILA; (4) whether the loan is secured by the principal residence 
of the borrower; and (5) whether the exemption would undermine the goal 
of consumer protection. The rationales for these exemptions are 
explained in VI. Section-by-Section Analysis, below.

V. Discussion of Major Revisions

    The goal of the revisions adopted in this final rule is to improve 
the effectiveness of the Regulation Z disclosures that must be provided 
to consumers for open-end accounts. A summary of the key account terms 
must accompany applications and solicitations for credit card accounts. 
For all open-end credit plans, creditors must disclose costs and terms 
at account opening, generally before the first transaction. Consumers 
must receive periodic statements of account activity, and creditors 
must provide notice before certain changes in the account terms may 
become effective.
    To shop for and understand the cost of credit, consumers must be 
able to identify and understand the key terms of open-end accounts. 
However, the terms and conditions that impact credit card account 
pricing can be complex. The revisions to Regulation Z are intended to 
provide the most essential information to consumers when the 
information would be most useful to them, with content and formats that 
are clear and conspicuous. The revisions are expected to improve 
consumers' ability to make informed credit decisions and enhance 
competition among credit card issuers. Many of the changes are based on 
the consumer testing that was conducted in

[[Page 5250]]

connection with the review of Regulation Z.
    In considering whether to adopt the revisions, the Board has also 
sought to balance the potential benefits for consumers with the 
compliance burdens imposed on creditors. For example, the revisions 
seek to provide greater certainty to creditors in identifying what 
costs must be disclosed for open-end plans, and when those costs must 
be disclosed. The Board has adopted the proposal that fees must be 
grouped on periodic statements, but has withdrawn from the final rule 
proposed requirements that would have required additional formatting 
changes to the periodic statement, such as the grouping of 
transactions, for which the burden to creditors may exceed the benefit 
to consumers. More effective disclosures may also reduce customer 
confusion and misunderstanding, which may also ease creditors' costs 
relating to consumer complaints and inquiries.

A. Credit Card Applications and Solicitations

    Under Regulation Z, credit and charge card issuers are required to 
provide information about key costs and terms with their applications 
and solicitations.\7\ This information is abbreviated, to help 
consumers focus on only the most important terms and decide whether to 
apply for the credit card account. If consumers respond to the offer 
and are issued a credit card, creditors must provide more detailed 
disclosures at account opening, generally before the first transaction 
occurs.
---------------------------------------------------------------------------

    \7\ Charge cards are a type of credit card for which full 
payment is typically expected upon receipt of the billing statement. 
To ease discussion, this notice will refer simply to ``credit 
cards.''
---------------------------------------------------------------------------

    The application and solicitation disclosures are considered among 
the most effective TILA disclosures principally because they must be 
presented in a standardized table with headings, content, and format 
substantially similar to the model forms published by the Board. In 
2001, the Board revised Regulation Z to enhance the application and 
solicitation disclosures by adding rules and guidance concerning the 
minimum type size and requiring additional fee disclosures.
    Proposal. The proposal added new format requirements for the 
summary table,\8\ including rules regarding type size and use of 
boldface type for certain key terms, placement of information, and the 
use of cross-references. Content revisions included a requirement that 
creditors disclose the duration that penalty rates may be in effect, a 
shorter disclosure about variable rates, and a reference to consumer 
education materials available on the Board's Web site.
---------------------------------------------------------------------------

    \8\ This table is commonly referred to as the ``Schumer box.''
---------------------------------------------------------------------------

    Summary of final rule.
    Penalty pricing. The final rule makes several revisions that seek 
to improve consumers' understanding of default or penalty pricing. 
Currently, credit card issuers must disclose inside the table the APR 
that will apply in the event of the consumer's ``default.'' Some 
creditors define a ``default'' as making one late payment or exceeding 
the credit limit once. The actions that may trigger the penalty APR are 
currently required to be disclosed outside the table.
    Consumer testing indicated that many consumers did not notice the 
information about penalty pricing when it was disclosed outside the 
table. Under the final rule, card issuers are required to include in 
the table the specific actions that trigger penalty APRs (such as a 
late payment), the rate that will apply and the circumstances under 
which the penalty rate will expire or, if true, the fact that the 
penalty rate could apply indefinitely. The regulation requires card 
issuers to use the term ``penalty APR'' because the testing 
demonstrated that some consumers are confused by the term ``default 
rate.''
    Similarly, the final rule requires card issuers to disclose inside 
(rather than outside) the table the fees for paying late, exceeding a 
credit limit, or making a payment that is returned. Cash advance fees 
and balance transfer fees also must be disclosed inside the table. This 
change is also based on consumer testing results; fees disclosed 
outside the table were often not noticed. Requiring card issuers to 
disclose returned-payment fees, required credit insurance, debt 
suspension, or debt cancellation coverage fees, and foreign transaction 
fees are new disclosures.
    Variable-rate information. Currently, applications and 
solicitations offering variable APRs must disclose inside the table the 
index or formula used to make adjustments and the amount of any margin 
that is added. Additional details, such as how often the rate may 
change, must be disclosed outside the table. Under the final rule, 
information about variable APRs is reduced to a single phrase 
indicating the APR varies ``with the market,'' along with a reference 
to the type of index, such as ``Prime.'' Consumer testing indicated 
that few consumers use the variable-rate information when shopping for 
a card. Moreover, participants were distracted or confused by details 
about margin values, how often the rate may change, and where an index 
can be found.
    Subprime accounts. The final rule addresses a concern that has been 
raised about subprime credit cards, which are generally offered to 
consumers with low credit scores or credit problems. Subprime credit 
cards often have substantial fees associated with opening the account. 
Typically, fees for the issuance or availability of credit are billed 
to consumers on the first periodic statement, and can substantially 
reduce the amount of credit available to the consumer. For example, the 
initial fees on an account with a $250 credit limit may reduce the 
available credit to less than $100. Consumer complaints received by the 
federal banking agencies state that consumers were unaware when they 
applied for subprime cards of how little credit would be available 
after all the fees were assessed at account opening.
    The final rule requires additional disclosures if the card issuer 
requires fees or a security deposit to issue the card that are 15 
percent or more of the minimum credit limit offered for the account. In 
such cases, the card issuer is required to include an example in the 
table of the amount of available credit the consumer would have after 
paying the fees or security deposit, assuming the consumer receives the 
minimum credit limit.
    Balance computation methods. TILA requires creditors to identify 
their balance computation method by name, and Regulation Z requires 
that the disclosure be inside the table. However, consumer testing 
demonstrates that these names hold little meaning for consumers, and 
that consumers do not consider such information when shopping for 
accounts. The final rule requires creditors to place the name of the 
balance computation method outside the table, so that the disclosure 
does not detract from information that is more important to consumers.
    Description of grace period. The final rule requires card issuers 
to use the heading ``How to Avoid Paying Interest on Purchases'' on the 
row describing a grace period offered on all purchases, and the phrase 
``Paying Interest'' if a grace period is not offered on all purchases. 
Consumer testing indicates consumers do not understand the term ``grace 
period'' as a description of actions consumers must take to avoid 
paying interest.

B. Account-Opening Disclosures

    Regulation Z requires creditors to disclose costs and terms before 
the first transaction is made on the account. The disclosures must 
specify the

[[Page 5251]]

circumstances under which a ``finance charge'' may be imposed and how 
it will be determined. A ``finance charge'' is any charge that may be 
imposed as a condition of or an incident to the extension of credit, 
and includes, for example, interest, transaction charges, and minimum 
charges. The finance charge disclosures include a disclosure of each 
periodic rate of interest that may be applied to an outstanding balance 
(e.g., purchases, cash advances) as well as the corresponding annual 
percentage rate (APR). Creditors must also explain any grace period for 
making a payment without incurring a finance charge. In addition, they 
must disclose the amount of any charge other than a finance charge that 
may be imposed as part of the credit plan (``other charges''), such as 
a late-payment charge. Consumers' rights and responsibilities in the 
case of unauthorized use or billing disputes must also be explained. 
Currently, there are few format requirements for these account-opening 
disclosures, which are typically interspersed among other contractual 
terms in the creditor's account agreement.
    Proposal. Certain key terms were proposed to be disclosed in a 
summary table at account opening, which would be substantially similar 
to the table required for applications and solicitations. A different 
approach to disclosing fees was proposed, including providing creditors 
with flexibility to disclose charges (other than those in the summary 
table) in writing or orally after the account is opened, but before the 
charge is imposed.
    Summary of final rule.
    Account-opening summary table. Account-opening disclosures have 
often been criticized because the key terms TILA requires to be 
disclosed are often interspersed within the credit agreements, and such 
agreements are long and complex. To address this concern and make the 
information more conspicuous, the final rule requires creditors to 
provide at account-opening a table summarizing key terms. Creditors may 
continue, however, to provide other account-opening disclosures, aside 
from the fees and terms specified in the table, with other terms in 
their account agreements.
    The new table provided at account opening is substantially similar 
to the table provided with direct-mail credit card applications and 
solicitations. Consumer testing indicates that consumers generally are 
aware of the table on applications and solicitations. Consumer testing 
also indicates that consumers may not typically read their account 
agreements, which are often in small print and dense prose. Thus, 
setting apart the most important terms in a summary table will better 
ensure that consumers are aware of those terms.
    The table required at account opening includes more information 
than the table required at application. For example, it includes a 
disclosure whether or not there is a grace period for all features of 
an account. For subprime credit cards, to give consumers the 
opportunity to avoid fees, the final rule also requires issuers to 
provide consumers at account opening, a notice about the right to 
reject a plan when fees have been charged but the consumer has not used 
the plan. However, to reduce compliance burden for creditors that 
provide account-opening disclosures at application, the final rule 
allows creditors to provide the more specific and inclusive account-
opening table at application in lieu of the table otherwise required at 
application.
    How charges are disclosed. Under the current rules, a creditor must 
disclose any ``finance charge'' or ``other charge'' in the account-
opening disclosures. A subsequent notice is required if one of the fees 
disclosed at account opening increases or if certain fees are newly 
introduced during the life of the plan. The terms ``finance charge'' 
and ``other charge'' are given broad and flexible meanings in the 
regulation and commentary. This ensures that TILA adapts to changing 
conditions, but it also creates uncertainty. The distinctions among 
finance charges, other charges, and charges that do not fall into 
either category are not always clear. As creditors develop new kinds of 
services, some find it difficult to determine if associated charges for 
the new services meet the standard for a ``finance charge'' or ``other 
charge'' or are not covered by TILA at all. This uncertainty can pose 
legal risks for creditors that act in good faith to comply with the 
law. Examples of included or excluded charges are in the regulation and 
commentary, but these examples cannot provide definitive guidance in 
all cases. Creditors are subject to civil liability and administrative 
enforcement for under-disclosing the finance charge or otherwise making 
erroneous disclosures, so the consequences of an error can be 
significant. Furthermore, over-disclosure of rates and finance charges 
is not permitted by Regulation Z for open-end credit.
    The fee disclosure rules also have been criticized as being 
outdated. These rules require creditors to provide fee disclosures at 
account opening, which may be months, and possibly years, before a 
particular disclosure is relevant to the consumer, such as when the 
consumer calls the creditor to request a service for which a fee is 
imposed. In addition, an account-related transaction may occur by 
telephone, when a written disclosure is not feasible.
    The final rule is intended to respond to these criticisms while 
still giving full effect to TILA's requirement to disclose credit 
charges before they are imposed. Accordingly, the rules are revised to 
(1) specify precisely the charges that creditors must disclose in 
writing at account opening (interest, minimum charges, transaction 
fees, annual fees, and penalty fees such as for paying late), which 
must be listed in the summary table, and; (2) permit creditors to 
disclose other less critical charges orally or in writing before the 
consumer agrees to or becomes obligated to pay the charge. Although the 
final rule permits creditors to disclose certain costs orally for 
purposes of TILA, the Board anticipates that creditors will continue to 
identify fees in the account agreement for contract or other reasons.
    Under the final rule, some charges are covered by TILA that the 
current regulation, as interpreted by the staff commentary, excludes 
from TILA coverage, such as fees for expedited payment and expedited 
delivery. It may not have been useful to consumers to cover such 
charges under TILA when such coverage would have meant only that the 
charges were disclosed long before they became relevant to the 
consumer. The Board believes it will be useful to consumers to cover 
such charges under TILA as part of a rule that permits their disclosure 
at a time and in a manner that consumers would be likely to notice the 
disclosure of the charge. Further, as new services (and associated 
charges) are developed, the proposal minimizes risk of civil liability 
as well as inconsistency among creditors associated with the 
determination as to whether a fee is a finance charge or an other 
charge, or is not covered by TILA at all.

C. Periodic Statements

    Creditors are required to provide periodic statements reflecting 
the account activity for the billing cycle (typically, about one 
month). In addition to identifying each transaction on the account, 
creditors must identify each ``finance charge'' using that term, and 
each ``other charge'' assessed against the account during the statement 
period. When a periodic interest rate is applied to an outstanding 
balance to compute the finance charge, creditors must disclose the 
periodic rate and its corresponding APR. Creditors must also disclose 
an ``effective'' or ``historical''

[[Page 5252]]

APR for the billing cycle, which, unlike the corresponding APR, 
includes not just interest but also finance charges imposed in the form 
of fees (such as cash advance fees or balance transfer fees). Periodic 
statements must also state the time period a consumer has to pay an 
outstanding balance to avoid additional finance charges (the ``grace 
period''), if applicable.
    Proposal. Interest charges for different types of transactions, 
such as purchases and cash advances would be itemized, and separate 
totals of fees and interest for the month and year-to-date would be 
disclosed. The proposal offered two approaches regarding the 
``effective APR.'' One modified the provisions for disclosing the 
``effective APR,'' including format and terminology requirements,\9\ 
and the other solicited comment on whether this rate should be required 
to be disclosed. To implement changes required by the Bankruptcy Act, 
the proposal required creditors to disclose of the effect of making 
only the minimum required payment on repayment of balances.
---------------------------------------------------------------------------

    \9\ The ``effective'' APR reflects interest and other finance 
charges such as cash advance fees or balance transfer fees imposed 
for the billing cycle.
---------------------------------------------------------------------------

    Summary of final rule.
    Fees and interest costs. The final rule contains a number of 
revisions to the periodic statement to improve consumers' understanding 
of fees and interest costs. Currently, creditors must identify on 
periodic statements any ``finance charges'' added to the account during 
the billing cycle, and creditors typically intersperse th