Truth in Lending, 20784-20801 [E9-10081]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 74, Number 85 (Tuesday, May 5, 2009)]
[Proposed Rules]
[Pages 20784-20801]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-10081]



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Part II





Federal Reserve System





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12 CFR Part 226



Truth in Lending; Proposed Rule

Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Proposed 
Rules

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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: Proposed rule; request for public comment.

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SUMMARY: On December 18, 2008, the Board adopted a final rule amending 
Regulation Z's provisions that apply to open-end (not home-secured) 
credit plans. The Board believes that clarification is needed regarding 
compliance with certain aspects of the final rule. Accordingly, in 
order to facilitate compliance, the Board proposes to amend specific 
portions of the regulations and official staff commentary.

DATES: Comments on the proposed amendments must be received on or 
before June 4, 2009. Comments on the Paperwork Reduction Act analysis 
set forth in Section V of this Federal Register notice must be received 
on or before July 6, 2009.

ADDRESSES: You may submit comments, identified by Docket No. R-1286, by 
any of the following methods:
     Agency Web Site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     Facsimile: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

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

SUPPLEMENTARY INFORMATION: 

I. Background

    On December 18, 2008, the Federal Reserve Board (Board) adopted a 
final rule amending Regulation Z's provisions that apply to open-end 
(not home-secured) credit. This rule was published in the Federal 
Register on January 29, 2009. See 74 FR 5244 (January 2009 Regulation Z 
Rule). On the same date, the Board, the Office of Thrift Supervision 
(OTS), and the National Credit Union Administration (NCUA) 
(collectively, the Agencies) adopted a final rule under the Federal 
Trade Commission Act (FTC Act) to protect consumers from unfair acts or 
practices with respect to consumer credit card accounts. This rule also 
was published in the Federal Register on January 29, 2009. See 74 FR 
5498 (January 2009 FTC Act Rule). The effective date for both rules is 
July 1, 2010. See 74 FR 5388-5390; 74 FR 5548.
    Since publication of the two rules, the Board has become aware that 
clarification is needed to resolve confusion regarding how institutions 
will comply with particular aspects of those rules. Accordingly, in 
order to provide guidance and facilitate compliance with the January 
2009 Regulation Z Rule by the effective date, the Board proposes to 
amend portions of the regulations and the accompanying staff 
commentary. These proposed amendments are discussed in detail in 
Section III of this supplementary information. Similarly, elsewhere in 
today's Federal Register, the Agencies have proposed to amend certain 
aspects of the January 2009 FTC Act Rule (FTC Act Proposed 
Clarifications).
    Although comment is requested on the proposed amendments, the Board 
emphasizes that the purpose of this rulemaking is to clarify and 
facilitate compliance with the consumer protections contained in the 
final rules, not to reconsider the need for--or the extent of--those 
protections. Thus, commenters are encouraged to limit their submissions 
accordingly. Finally, in order to ensure that any amendments can be 
adopted in final form with sufficient time for implementation prior to 
the effective date, comments regarding those amendments must be 
submitted within 30 days of publication in the Federal Register.\1\
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    \1\ As discussed elsewhere in the supplementary information to 
this proposed rule, commenters have 60 days to submit comments 
regarding the Paperwork Reduction Act analysis for the Board's 
proposed amendments to the January 2009 Regulation Z Rule.
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II. Statutory Authority

    In the supplementary information for the January 2009 Regulation Z 
Rule, the Board set forth the sources of its statutory authority under 
the Truth in Lending Act. See 74 FR 5249. For purposes of these 
proposed rules, the Board continues to rely on this legal authority.

III. Section-by-Section Analysis

Section 226.5a Credit and Charge Card Applications and Solicitations

5a(b) Required Disclosures

5a(b)(1) Annual Percentage Rate

    To complement the proposed disclosure requirements for deferred or 
waived interest plans described in the supplementary information to 
Sec. Sec.  226.7 and 226.16, the Board also proposes a new comment 
5a(b)(1)-9 to clarify that an issuer offering a deferred or waived 
interest plan may not disclose a rate as 0% due to the possibility that 
the consumer may not be obligated for interest regarding the deferred 
or waived interest transaction. Given the contingent nature of deferred 
or waived interest programs, and the fact that interest is accruing at 
a non-zero rate on the account, the Board believes that a disclosure of 
a 0% rate could be misleading to consumers.

Section 226.6 Account-Opening Disclosures

6(b) Rules Affecting Open-End (Not Home-Secured) Plans
    In addition to the specific proposed amendments to Sec.  226.6 
described below, the Board also is considering whether additional 
transition guidance is needed for creditors offering open-end credit 
secured by real property that may not be subject to Sec.  226.5b 
because the real property is not the consumer's dwelling. The January 
2009 Regulation Z Rule preserved certain existing rules, for example 
the rules under Sec. Sec.  226.6, 226.7, and 226.9, for home-equity 
plans subject to Sec.  226.5b pending the completion of the Board's 
separate review of the rules applicable to home-secured credit. Since 
publication of the January 2009 Regulation Z Rule, the Board 
understands that there is uncertainty regarding how creditors that 
offer open-end credit secured by real property, that

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may be unaware whether that property is, or remains, the consumer's 
dwelling, should comply with the January 2009 Regulation Z Rule. In 
particular, creditors offering such plans have asked whether they may 
comply with the existing disclosure requirements that were preserved 
for home-equity plans subject to Sec.  226.5b or whether they need to 
comply with the new disclosure requirements set forth in the final rule 
for plans that are not subject to Sec.  226.5b.
    Pursuant to the January 2009 Regulation Z Rule, the new disclosure 
requirements apply to open-end credit that is not subject to Sec.  
226.5b. However, the Board believes that it may be appropriate to 
permit creditors offering open-end credit secured by real property that 
is not the consumer's dwelling to continue to comply with the existing 
rules (consistent with treatment of plans covered under Sec.  226.5b) 
until the Board's review of the rules applicable to home-secured open-
end credit is completed. At that time, the Board would determine the 
appropriate treatment for these plans. The Board solicits comment on 
the prevalence of such open-end credit plans and the burden that would 
be associated with determining whether such plans must comply with the 
new disclosure requirements contained in the January 2009 Regulation Z 
Rule or the existing rules (as applicable to plans subject to Sec.  
226.5b). The Board also solicits comment on whether it would be 
appropriate to subject these plans to the same disclosure requirements 
that apply to home-secured plans or whether they should be treated the 
same as other open-end (not home-secured) credit.

6(b)(1) Form of Disclosures; Tabular Format for Open-End (Not Home-
Secured) Plans

    The Board proposes to make two technical corrections to Sec.  
226.6(b)(1) and (b)(1)(ii) to delete parentheses that were 
inadvertently included in the rule due to a scrivener's error, without 
intended substantive change.

6(b)(2) Required Disclosures for Account-Opening Table for Open-End 
(Not Home-Secured) Plans

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

    Section 226.6(b)(2)(i) sets forth disclosure requirements for rates 
that apply to open-end (not home-secured) accounts. Under the January 
2009 Regulation Z Rule, creditors generally must disclose the specific 
APRs that will apply to the account in the table provided at account 
opening. The Board, however, provided a limited exception to this rule 
where the APRs that creditors may charge vary by state for accounts 
opened at the point of sale. See Sec.  226.6(b)(2)(i)(E). Pursuant to 
that exception, creditors imposing APRs that vary by state and 
providing the disclosures required by Sec.  226.6(b) in person at the 
time an open-end (not home-secured) plan is established in connection 
with financing the purchase of goods or services may, at the creditor's 
option, disclose in the account-opening table either (1) the specific 
APR applicable to the consumer's account, or (2) the range of the APRs, 
if the disclosure includes a statement that the APR varies by state and 
refers the consumer to the account agreement or other disclosure 
provided with the account-opening summary table where the APR 
applicable to the consumer's account is disclosed, for example in a 
list of APRs for all states.
    The Board is proposing to provide similar flexibility to the 
disclosure of APRs at the point of sale when rates vary based on the 
consumer's creditworthiness. Thus, the Board proposes to amend Sec.  
226.6(b)(2)(i)(E) to state that creditors providing the disclosures 
required by Sec.  226.6(b) in person at the time an open-end (not home-
secured) plan is established in connection with financing the purchase 
of goods or services may, at the creditor's option, disclose in the 
account-opening table either (1) the specific APR applicable to the 
consumer's account, or (2) the range of the APRs, if the disclosure 
includes a statement that the APR varies by state or depends on the 
consumer's creditworthiness, as applicable, and refers the consumer to 
an account agreement or other disclosure provided with the account-
opening summary table where the APR applicable to the consumer's 
account is disclosed, for example in a separate document provided with 
the account-opening table.
    The Board understands that if creditors are not given additional 
flexibility, some consumers could be disadvantaged because creditors 
may provide a single rate for all consumers rather than varying the 
rate, with some consumers receiving lower rates than would be offered 
under a single-rate plan. Thus, without the proposed change, some 
consumers may be harmed by receiving higher rates. Moreover, the Board 
believes the operational changes necessary to provide the specific APR 
applicable to the consumer's account in the table at point of sale when 
that rate depends on the consumer's creditworthiness may be too 
burdensome and increase creditors' risk of inadvertent noncompliance. 
Currently, creditors that establish open-end plans at point of sale 
provide account-opening disclosures at point of sale before the first 
transaction, with a reference to the APR in a separate document 
provided with the account agreement, and commonly provide an additional 
set of disclosures which reflect the actual APR for the account when, 
for example, a credit card is sent to the consumer. The Board believes 
that permitting creditors to provide the specific APR information 
outside of the table at point of sale, with the expectation that 
consumers will receive disclosures with the specific APR applicable to 
the consumer properly formatted in the account-opening table at a later 
time, would strike an appropriate balance between the burden on 
creditors and the need to disclose to consumers the specific APR 
applicable to the consumer's account in the account-opening table 
provided at point of sale. The consumer would receive a disclosure of 
the actual APR that applies to the account at the point of sale, but 
that rate could be provided in a separate document.

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

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

    Section 226.6(b)(4)(ii) as adopted in the January 2009 Regulation Z 
Rule sets forth the rules for variable-rate disclosures at account-
opening, including accuracy requirements for the disclosed rate. The 
accuracy standard as adopted provides that a disclosed rate is accurate 
if it is in effect as of a ``specified date'' within 30 days before the 
disclosures are provided. See Sec.  226.6(b)(4)(ii)(G).
    Currently, creditors generally update rate disclosures provided at 
point of sale only when the rates have changed. The Board understands 
that some confusion has arisen as to whether the new rule as adopted 
literally requires that the account-opening disclosure specify a date 
as of which the rate was accurate, and that this date must be within 30 
days of when the disclosures are given. Such a requirement could pose 
operational challenges for disclosures provided at point of sale as it 
would require creditors to reprint disclosures periodically, even if 
the variable rate has not changed since the last time the disclosures 
were printed.
    The Board did not intend such a result. Requiring creditors to 
update rate disclosures to specify a date within the past 30 days would 
impose a burden on creditors with no corresponding benefit to 
consumers, where the disclosed rate is still accurate within the last 
30 days

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before the disclosures are provided. Accordingly, the Board proposes to 
revise the rule to clarify that a variable rate is accurate if it is a 
rate as of a specified date and this rate was in effect within the last 
30 days before the disclosures are provided.

Section 226.7 Periodic Statement

7(b) Rules Affecting Open-End (Not Home-Secured) Plans
    Deferred or waived interest plans. Comment 7(b)-1, as adopted in 
the January 2009 Regulation Z Rule, provides guidance on periodic 
statement disclosures for deferred interest transactions for open-end 
(not home-secured) plans, such as plans that permit a consumer to avoid 
interest charges if a purchase balance is paid in full by a certain 
date. The comment permits, but does not generally require, creditors to 
disclose during the promotional period information about accruing 
interest, balances subject to interest rates, and the date by which the 
balance must be paid in full to avoid interest. Comment 7(b)-1 as 
adopted indicated that guidance in the comment does not apply to card 
issuers that are subject to 12 CFR 227.24 or similar law, because in 
the January 2009 FTC Act Rule, the Agencies had concluded that deferred 
interest programs, as currently designed and marketed, were 
inconsistent with the general prohibition on the application of 
increased rates to existing balances.
    As discussed in the supplementary information to the FTC Act 
Proposed Clarifications, the Board and other Agencies are proposing to 
clarify that creditors may continue to offer deferred or waived 
interest programs where the consumer will not be obligated to pay 
interest that accrues on a balance if that balance is paid in full by a 
specified date or within a specified period of time. Any such programs, 
however, would be fully subject to the protections set forth in the 
January 2009 FTC Act Rule as amended by the FTC Act Proposed 
Clarifications, as well as to disclosure requirements under Regulation 
Z discussed in this Federal Register. These protections would apply to 
all deferred or waived interest plans and not solely those covered by 
the January 2009 FTC Act Rule.
    The Board believes that it is important that consumers receive 
clear disclosures regarding deferred or waived interest balances and 
interest accruing during the term of a deferred or waived interest 
program, in order to ensure that consumers understand the terms of the 
promotion and can tailor their account usage and payment patterns 
accordingly. As a result, the Board is proposing several revisions to 
comment 7(b)-1 to require creditors to provide consumers with pertinent 
information throughout the life of a deferred or waived interest 
promotion.
    First, the Board believes that it is important for a consumer to be 
informed of the amount of interest charges that are accruing and for 
which the consumer will be obligated if the consumer does not repay a 
deferred or waived interest balance in full by the relevant due date. 
Comment 7(b)-1 would therefore be amended to require creditors offering 
deferred or waived interest programs to disclose information about 
accruing interest balances for such programs. The Board also proposes 
that each periodic statement be required to disclose the amount of the 
deferred or waived interest balance on which interest may be imposed, 
so that consumers will be aware of the amount that they are required to 
pay to avoid being obligated for the deferred or waived interest 
amount.
    The Board also is proposing to add a new Sec.  226.7(b)(14) to 
require creditors to include on a consumer's periodic statement, for 
two billing cycles immediately preceding the date on which deferred or 
waived interest transactions must be paid in full in order to avoid the 
imposition of interest charges, a disclosure that the consumer must pay 
such transactions in full by that date in order to avoid being 
obligated for the accrued interest. The Board also proposes several 
complementary changes to comment 7(b)-1 to provide additional guidance 
on compliance with this disclosure requirement. The Board believes that 
it is important for consumers to receive this notice in the last two 
billing cycles prior to the deferred or waived interest due date. This 
would ensure that consumers are reminded of the terms of the deferred 
or waived interest promotion close to the date on which full payment is 
due, in order to give consumers an opportunity to pay off any deferred 
or waived interest balance and take advantage of the terms of the 
promotion.
    In particular, proposed Sec.  226.7(b)(14) would require creditors 
offering deferred or waived interest programs to disclose on the front 
of the periodic statement the date in a future cycle by which the 
balance on the deferred or waived interest transaction must be paid in 
full to avoid interest charges. This disclosure would be required to be 
provided on each periodic statement for the last two billing cycles 
immediately preceding such date. Creditors may, but would not be 
required to, include this disclosure on prior statements. If the 
deferred or waived interest period's duration is such that the reminder 
cannot be given for the last two billing cycles immediately preceding 
the deferred or waived interest due date, for example if the deferred 
interest period is less than two months, proposed comment 7(b)-1.iv 
clarifies that the disclosure must be included on every periodic 
statement during the deferred or waived interest period. Proposed 
comment 7(b)-1.iv sets forth examples of how this timing requirement 
would operate.
    Proposed Sample G-18(H) sets forth model language for making the 
disclosure required by proposed Sec.  226.7(b)(14). The language used 
to make the disclosure under Sec.  226.7(b)(14) would be required to be 
substantially similar to Sample G-18(H).
    Finally, in a technical amendment, the Board proposes to amend the 
terminology of comment 7(b)-1 to refer to both deferred and waived 
interest programs. The provisions in proposed Sec.  226.7(b)(14) and 
comment 7(b)-1 would apply to all types of deferred or waived interest 
programs, regardless of the particular nomenclature used to describe a 
specific plan. In a conforming technical change, the Board proposes to 
amend comment 5(b)(2)(ii)-1, which cross-references comment 7(b)-1, to 
refer to deferred and waived interest transactions.
    Interest and Fees for Acquired or Modified Accounts. To highlight 
the overall cost of a credit account to consumers, the January 2009 
Regulation Z Rule requires creditors to disclose the total amount of 
interest charges and fees for the statement period and calendar year to 
date. See Sec.  226.7(b)(6). New comments 7(b)(6)-6 and -7 would 
clarify a creditor's obligations under Sec.  227.7(b)(6) when it 
acquires a plan or account from another creditor or when the underlying 
account relationship with the creditor is changed in some way, for 
example, if a retail credit card account is upgraded to a cobranded 
general purpose credit card account or if a credit card account is 
replaced with another credit card product with different or additional 
features. The proposed comments would generally provide that the 
creditor must include the interest charges and fees incurred by the 
consumer prior to the account acquisition or change in the aggregate 
totals provided for the statement period and calendar year to date 
after the change. At the creditor's option, it may add the prior 
charges and fees to the disclosed totals following the change, or it 
may provide separate totals for each

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time period. The proposed comments would not apply when the consumer 
opens a new plan or account with another creditor and transfers 
balances from the old plan or account. Comment is requested regarding 
the operational issues associated with carrying over cost totals in the 
circumstances described in the proposed commentary.

Section 226.9 Subsequent Disclosure Requirements

226.9(c) Change in Terms

9(c)(2) Rules Affecting Open-end (Not Home-secured) Plans

    Relationship between Sec.  226.9(b) and (c). Section 226.9(c)(2) 
generally requires creditors to provide 45 days' advance notice prior 
to a change in any term that must be disclosed in the account-opening 
summary table. For changed terms that must be disclosed in the account-
opening summary table, creditors must similarly provide a summary of 
that change in a tabular format. Notice is not required in certain 
specified circumstances, including if the change involves a reduction 
of any component of a finance or other charge or where future credit 
privileges have been suspended or an account or plan has been 
terminated. The Board proposes to amend Sec.  226.9(c)(2)(iv) to 
provide that notice is also not required when the change in terms is 
applicable only to a check or checks that access a credit card account 
and the changed terms are disclosed on or with the checks in accordance 
with Sec.  226.9(b)(3).
    Under Sec.  226.9(b)(3), if a creditor mails or delivers a check 
that accesses a credit card account, it must disclose certain key terms 
applicable to the check, including any discounted promotional rate and 
when that rate will expire; the type of rate that will apply to the 
checks after expiration of the discounted promotional rate and the 
applicable APR; the date by which the consumer must use the checks in 
order to qualify for any discounted promotional rate; and any 
transaction fees applicable to the checks. These key terms must be 
disclosed in a tabular format on the front of the page containing the 
checks.
    The format and location requirements were informed through consumer 
testing conducted on behalf of the Board, which indicated that 
consumers were more likely to notice and understand the terms 
applicable to the checks when these terms were presented in this 
manner. In light of these requirements, requiring an additional tabular 
disclosure for a change in terms about the access check terms could 
create consumer confusion and would likely provide little consumer 
benefit. The Board also believes that given the enhanced disclosure 
requirements, a 45-day notice period before consumers may use a check 
would be unnecessary.
    The proposed exception in Sec.  226.9(c)(2)(iv) is limited to 
circumstances where the consumer has been provided disclosures pursuant 
to Sec.  226.9(b)(3) in connection with a check that accesses a credit 
card account. Thus, the exception would not permit a creditor to make a 
balance transfer offer by other means, such as by telephone or written 
solicitation, on finance charge terms higher than those previously 
disclosed for a balance transfer, unless the creditor also complies 
with the notice and advance timing requirements of Sec.  226.9(c) 
before the new fee or rate can be applied to the offer.
    The exception also would extend only to a check accompanied by the 
Sec.  226.9(b)(3) disclosures and not to terms applicable to other 
features of the consumer's account. A creditor would not be permitted 
to use a set of checks and Sec.  226.9(b)(3) disclosures, for example, 
to change the rate applicable when a consumer uses his or her credit 
card to take a cash advance at an ATM machine. For example, assume the 
rate that typically applies to the checks is the issuer's cash advance 
rate, currently 20%, and the issuer intends to prospectively increase 
the cash advance rate to 25%. Under the proposal, the issuer could send 
a set of checks disclosing the 25% rate in the table required by Sec.  
226.9(b)(3), and would not be required to provide an additional 45 
days' advance notice indicating that the 25% rate applies to those 
checks. The issuer would, however, be required to send 45 days' advance 
notice pursuant to Sec.  226.9(c)(2) prior to changing the cash advance 
rate applicable to the consumer's account to 25% (for access other than 
by a check accompanied with the Sec.  226.9(b)(3) disclosure).
    Proposed comment 9(c)(2)-4 would clarify the relationship between 
the change-in-terms requirements in Sec.  226.9(c) and the notice 
provisions of Sec.  226.9(b) that apply when a creditor adds a credit 
feature or delivers a credit access device for an existing open-end 
plan. The proposed comment would provide that notwithstanding any 
notice provided under Sec.  226.9(b) (except for a notice provided 
under Sec.  226.9(b)(3) as discussed above), a creditor must also 
satisfy the change-in-terms notice requirements under Sec.  226.9(c), 
where applicable, including any advance notice requirement. For 
example, if a creditor adds a balance transfer feature to an account 
more than 30 days after account-opening disclosures are provided, it 
must give the finance charge disclosures for the balance transfer 
feature under Sec.  226.9(b) as well as provide a change in terms 
notice under Sec.  226.9(c). This notice must be provided at least 45 
days prior to the effective date of the change.\2\ Similarly, if a 
creditor makes a balance transfer offer on finance charge terms that 
are higher than those previously disclosed for balance transfers, it 
would also generally be required to provide a change-in-terms notice 45 
days in advance of the effective date of the change. The proposed 
comment also provides that a creditor may provide a single notice under 
Sec.  226.9(c) to satisfy the notice requirements of both Sec.  
226.9(b) and (c).
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    \2\ If the creditor changes a term required to be disclosed in 
the account-opening table, the creditor must also provide a summary 
of the change in a tabular format under Sec.  226.9(c)(2)(iii)(B).
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    Change-in-terms requirements for temporary rate reductions. The 
Board believes that clarification is needed as to the relationship 
between the guidance in comment 9(c)(2)(iv)-2 regarding how to disclose 
skip payment features and the general timing, format, and content 
requirements of Sec.  226.9(c)(2), for temporary rate reductions 
offered on an existing account. In general, under Sec.  
226.9(c)(2)(iv), no advance notice need be given prior to the reduction 
of any component of a finance charge. However, under Sec.  
226.9(c)(2)(i), 45 days' advance written notice is required prior to a 
rate increase. Comment 9(c)(2)(iv)-2 provides guidance as to how a 
creditor that is offering a skip payment feature or interest waiver may 
comply with the requirements of Sec.  226.9(c)(2)(iv). This guidance 
was intended to address only the limited circumstances where a creditor 
offers a feature that permits a consumer to skip a payment or payments 
or where a creditor intends to waive interest charges due on the 
account, without changing the contractual rate of interest applicable 
to the consumer's balances. This comment was not intended to alter the 
notice requirements of Sec.  226.9(c)(2) for promotional rate offers, 
where the creditor lowers the rate applicable to the consumer's account 
and subsequently increases the rate. However, as drafted the comment 
may create confusion because it refers to any temporary reductions in 
finance charges.
    To clarify that advance notice in accordance with the requirements 
of Sec.  226.9(c)(2) is required prior to increasing a consumer's rate 
following a rate reduction, the Board proposes to amend comment 
9(c)(2)(iv)-2 by including language indicating that

[[Page 20788]]

creditors offering a temporary reduction in an interest rate must 
provide a notice in accordance with the timing requirements of Sec.  
226.9(c)(2)(i) and the content and format requirements of Sec.  
226.9(c)(2)(ii)(A) and (B) prior to resuming the original rate.
    Specific consumer agreement exception. Section 226.9(c)(2)(i) 
provides that the 45-day advance notice timing requirement does not 
apply if the consumer has agreed to a particular change. In this case, 
notice must be given before the effective date of the change. Comment 
9(c)(2)(i)-3 states that the provision is intended for use in ``unusual 
instances,'' such as when a consumer substitutes collateral or when the 
creditor may advance additional credit only if a change relatively 
unique to that consumer is made. The comment further provides examples 
of actions that do not constitute specific consumer agreement, 
including the consumer's acceptance of an account agreement that 
contains a general reservation of the right to change terms or the 
consumer's use of the account. Thus, the comment recognizes that the 
change in terms notice requirements generally cannot be waived or 
forfeited by the consumer.
    The Board is proposing to amend the comment to emphasize the 
limited scope of the exception and provide that the exception applies 
``solely'' to the unique circumstances specifically identified in the 
comment. The proposed comment would also add an example of an 
occurrence that would not be considered an ``agreement'' for purposes 
of relieving the creditor of its responsibility to provide an advance 
change-in-terms notice. This example would state that an ``agreement'' 
does not include a consumer's request to reopen a closed account or to 
upgrade an existing account to another account offered by the creditor 
with different credit or other features. Thus, a creditor would be 
required to provide the consumer 45 days' advance notice before 
increasing the rate for new transactions or increasing the amount of 
any applicable fees to the account in those circumstances.
226.9(g) Increase in Rates Due to Delinquency or Default or as a 
Penalty
    Section 226.9(g)(4) sets forth exceptions to the general 
requirement to provide 45 days' advance notice before increasing a rate 
due to the consumer's delinquency or default or as a penalty. Section 
226.9(g)(4)(i) as adopted in the January 2009 Regulation Z Rule 
provides a specific exception to the notice requirement when the 
consumer's rate is increased due to the consumer's failure to comply 
with the terms of a workout arrangement, provided that the annual 
percentage rate applicable to a category of transactions following any 
such increase does not exceed the rate that applied to that category of 
transactions prior to commencement of the workout arrangement. This 
exception is intended to encourage institutions to continue offering 
workout arrangements that reduce rates to consumers in serious default, 
while also ensuring that a consumer who enters into such an arrangement 
but is unable to comply with its terms is not charged a rate that 
exceeds the rate that applied prior to the arrangement without first 
receiving advance notice of that rate increase.
    The Board understands that there is some confusion as to whether 
this exception also applies to temporary hardship arrangements that 
assist consumers in overcoming financial difficulties by lowering the 
annual percentage rate for a period of time. For example, if an account 
becomes seriously delinquent, the institution may reduce the rate that 
applies to the outstanding balance from the penalty rate to a rate of 
zero on the condition that the consumer make payments that will cure 
the delinquency within a specified period of time. If the consumer 
successfully cures the delinquency in accordance with the terms of the 
temporary hardship arrangement, the institution may choose to raise the 
annual percentage rate to the rate that applied prior to commencement 
of the temporary hardship arrangement. Because such arrangements can 
provide important benefits to consumers, the Board proposes to amend 
Sec.  226.9(g)(4)(i) to clarify that the exception also applies to 
temporary hardship arrangements.
    The Board also proposes to revise Sec.  226.9(g)(4)(iii) for 
consistency with the terminology used in 12 CFR 227.24 and similar 
regulation, without intended substantive change, by deleting references 
to ``outstanding balances.''
    In a technical amendment, the Board proposes to designate as 
comment 9(g)(4)(ii)-1 commentary that was placed with commentary to 
Sec.  226.9(g)(4)(ii) but was not numbered due to a scrivener's error.
    The Board also proposes several amendments to comment 9(g)-1 for 
consistency and conformity with substantively similar amendments 
published elsewhere in today's Federal Register as part of the FTC Act 
Proposed Clarifications. For example, the Board proposes to correct a 
typographical error in comment 9(g)-1.iii.C, and to clarify the fact 
patterns presented in comments 9(g)-1.i and 9(g)-1.iii.

Section 226.12 Special Credit Card Provisions

Section 226.13 Billing Error Resolution

    Comment 12(b)-3 states that a card issuer must investigate claims 
in a reasonable manner before imposing liability for an unauthorized 
use, and sets forth guidance on conducting an investigation of a claim. 
Comment 13(f)-3 contains similar guidance for a creditor investigating 
a billing error claim. The January 2009 Regulation Z Rule amended both 
comments to specifically provide that a card issuer (or creditor) may 
not require a consumer to submit an affidavit or to file a police 
report as a condition of investigating a claim. These additions 
reflected the Board's concerns that such requests could cause a 
chilling effect on a consumer's ability to assert his or her error 
resolution rights.
    In the supplementary information discussing the amended comments, 
the Board recognized that in some cases, a card issuer may need to 
provide some form of certification indicating that the cardholder's 
claim is legitimate, for example, to obtain documentation from a 
merchant relevant to a claim or to pursue chargeback rights. 
Accordingly, the Board stated that a card issuer could ``require'' the 
cardholder to provide a signed statement supporting the asserted claim, 
provided that the act of providing the signed statement would not 
subject the cardholder to potential criminal penalty. See 74 FR at 
5363. The final comments, however, did not reflect the ability of the 
card issuer (or creditor) to require a consumer signed statement for 
these types of circumstances. Instead, the text of the final comments 
stated that a card issuer (or creditor) could ``request'' a signed 
statement. Accordingly, comments 12(b)-3 and 13(f)-3 would be amended 
to conform to the Board's intent as stated in the supplementary 
information to the January 2009 Regulation Z Rule.

Section 226.16 Advertising

    TILA Section 143, implemented by the Board in Sec.  226.16, governs 
advertisements of open-end credit plans. 15 U.S.C. 1663. In May 2008, 
the Board proposed requirements regarding the advertising of deferred 
interest offers in order to improve consumer awareness of the terms of 
such offers. However, the Board and other Agencies concluded in the 
January 2009 FTC Act Rule that deferred interest programs, as currently 
designed, are inconsistent with the general prohibition on the 
application of increased rates to existing balances and prohibited 
issuers subject to the January 2009 FTC Act Rule from

[[Page 20789]]

establishing such programs. Consequently, the Board withdrew the 
proposed advertising requirements related to deferred interest offers 
from the January 2009 Regulation Z Rule.
    Although the January 2009 FTC Act Rule prohibited deferred interest 
programs, the Agencies noted that institutions were not prohibited from 
offering promotional programs that provide similar benefits to 
consumers, such as programs where interest is assessed on purchases at 
a disclosed rate for a period of time but the interest charged is 
waived or refunded if the principal is paid in full by the end of that 
period. Recognizing that the distinction between deferred interest and 
waived or refunded interest programs has caused confusion, the Agencies 
are proposing in the FTC Act Proposed Clarifications to clarify that 
creditors may offer promotional programs where the consumer will not be 
obligated to pay interest that accrues on a balance if that balance is 
paid in full by a specified date or within a specified period of time. 
However, such programs remain fully subject to the consumer protections 
set forth in the January 2009 FTC Act Rule as amended by the FTC Act 
Proposed Clarifications.
    In light of the FTC Act Proposed Clarifications, the Board also is 
proposing new advertising requirements in Sec.  226.16(h), similar to 
those proposed in May 2008, for deferred, waived, or refunded interest 
programs in order to better inform consumers of the terms of these 
offers. The Board believes that these advertising requirements will 
complement the new periodic statement disclosures for such programs 
that are discussed in the supplementary information to Sec.  226.7(b).
16(h) Deferred or Waived Interest Offers
    The Board is proposing to use its authority under TILA Section 
143(3) to add a new Sec.  226.16(h) to require additional disclosures 
in advertisements in order to improve information consumers receive 
about the terms of deferred or waived interest offers. 15 U.S.C. 
1663(3). The new disclosure requirements would apply to advertisements 
that use terms such as ``no interest,'' ``no payments,'' ``deferred 
interest,'' ``same as cash,'' or similar terms in describing these 
offers.\3\ In summary, the proposed rules would require that the 
deferred or waived interest period be disclosed in immediate proximity 
to each deferred interest triggering term. For advertisements stating 
``no interest'' or a similar term, the fact that the balance must be 
paid in full by the end of the deferred or waived interest period also 
would need to be disclosed in immediate proximity to that term. The 
proposal also would require that certain additional information about 
the terms of the deferred or waived interest offer be disclosed in 
close proximity to the first statement of a deferred interest 
triggering term. Each of these proposals is discussed in more detail 
below.
---------------------------------------------------------------------------

    \3\ For ease of reference, the supplementary information to 
proposed Sec.  226.16(h) refers generically to these terms as 
``deferred interest triggering terms.''
---------------------------------------------------------------------------

16(h)(1) Scope

    The new requirements for deferred or waived interest offers under 
proposed Sec.  226.16(h) would apply to any advertisement of such 
offers for open-end (not home-secured) plans, and would not be limited 
to credit card plans. In addition, the rules would apply to promotional 
materials accompanying applications or solicitations made available by 
direct mail or electronically, as well as applications or solicitations 
that are publicly available. The Board believes that the proposed 
disclosures under this section would be beneficial to consumers whether 
the offer is applicable to a consumer credit card account or any other 
open-end (not home-secured) plan.

16(h)(2) Definitions

    The Board proposes to define ``deferred or waived interest'' in new 
Sec.  226.16(h)(2) as finance charges on balances or transactions that 
a consumer is not obligated to pay if those balances or transactions 
are paid in full by a specified date. The term would not, however, 
include finance charges the creditor allows a consumer to avoid in 
connection with a recurring grace period. Therefore, an advertisement 
including information on a recurring grace period that could 
potentially apply each billing period, would not be subject to the 
additional disclosure requirements under Sec.  226.16(h). Proposed 
comment 16(h)-1 clarifies that deferred or waived interest offers also 
do not include offers that allow a consumer to defer payments during a 
specified time period, and under which the consumer is not obligated 
under any circumstances for any interest or other finance charges that 
could be attributable to that period. The comment also clarifies that 
skip payment programs that allow a consumer to avoid making a minimum 
payment for one or more billing cycles but where interest continues to 
accrue and be imposed during that period are not deferred or waived 
interest offers. Furthermore, proposed comment 16(h)-2 specifies that 
deferred or waived interest offers do not include zero percent APR 
offers where a consumer is not obligated under any circumstances for 
interest attributable to the time period the zero percent APR was in 
effect, although such offers may be considered promotional rates under 
Sec.  226.16(g)(2)(i).
    Furthermore, the Board proposes to define the ``deferred or waived 
interest period'' for purposes of proposed Sec.  226.16(h) as the 
maximum period from the date the consumer becomes obligated for the 
balance or transaction until the specified date that the consumer must 
pay the balance or transaction in full in order to avoid finance 
charges on such balance or transaction. To clarify the meaning of 
deferred or waived interest period, the Board is proposing to include a 
new comment 16(h)-3 to state that the advertisement need not include 
the end of an informal ``courtesy period'' in disclosing the deferred 
or waived interest period. For example, an advertisement may state that 
the deferred interest period is six months, even if the creditor in 
practice extends that period by several days, for example, to coincide 
with the payment due date for other transactions that are not subject 
to a deferred interest plan.

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

    General rule. The Board is proposing a new Sec.  226.16(h)(3) to 
require that advertisements of deferred or waived interest plans 
disclose the deferred or waived interest period clearly and 
conspicuously in immediate proximity to each statement of a deferred 
interest triggering term. New Sec.  226.16(h)(3) also would require 
such advertisements that use the phrase ``no interest'' or similar term 
to describe the possible avoidance of interest obligations under the 
deferred or waived interest program to state ``if paid in full'' in a 
clear and conspicuous manner preceding the disclosure of the deferred 
or waived interest period. For example, as described in proposed 
comment 16(h)-7, an advertisement might state ``no interest if paid in 
full within 6 months'' or ``no interest if paid in full by December 31, 
2010.'' The Board is proposing to require these disclosures because of 
concerns that the statement ``no interest,'' in the absence of 
additional details about the applicable conditions of the offer may 
confuse consumers who might not understand that they need to pay their 
balances in

[[Page 20790]]

full by a certain date in order to avoid the obligation to pay 
interest.
    Immediate proximity. Proposed comment 16(h)-4 provides guidance on 
the meaning of ``immediate proximity'' by establishing a safe harbor 
for disclosures made in the same phrase. Therefore, if the deferred or 
waived interest period is disclosed in the same phrase as each 
statement of a deferred interest triggering term (for example, ``no 
interest if paid in full within 12 months'' or ``no interest if paid in 
full by December 1, 2010'' the deferred or waived interest period would 
be deemed to be in immediate proximity to the statement.
    Clear and conspicuous standard. The Board proposes to amend comment 
16-2.ii to provide that advertisements clearly and conspicuously 
disclose the deferred or waived interest period only if the information 
is equally prominent to each statement of a deferred interest 
triggering term. Proposed comment 16-2.ii states that if the disclosure 
of the deferred or waived interest period is the same type size as the 
statement of the deferred interest triggering term, it will be deemed 
to be equally prominent. The Board believes that requiring equal 
prominence for the disclosure of the deferred or waived interest period 
will call attention to the nature and significance of that information 
by ensuring that the information is at least as significant as the 
terms to which it relates. Furthermore, applying an equally prominent 
standard would be consistent with the treatment of certain disclosures 
related to promotional rates.
    The Board also proposes to clarify in comment 16-2.ii that the 
equally prominent standard applies only to written and electronic 
advertisements. This approach is consistent with the treatment of 
written and electronic advertisements of promotional rates. Because 
equal prominence is a difficult standard to measure outside the context 
of written and electronic advertisements, the Board believes that the 
guidance on clear and conspicuous disclosures set forth in proposed 
comment 16-2.ii, should apply solely to written and electronic 
advertisements. Disclosure of the deferred or waived interest period 
under Sec.  226.16(h)(3) for non-written, non-electronic 
advertisements, while not required to meet the specific clear and 
conspicuous standard in comment 16-2.ii would nonetheless be subject to 
the general clear and conspicuous standard set forth in comment 16-1.

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

    In order to ensure that consumers are informed of the terms 
applicable to a deferred or waived interest offer, the proposal would 
require disclosure of key terms of such an offer in a prominent 
location closely proximate to the first listing of a statement of a 
deferred interest triggering term. First, the Board proposes to require 
a statement that if the balance or transaction is not paid within the 
deferred or waived interest period, interest will be charged from the 
date the consumer became obligated for the balance or transaction. 
Second, the Board also proposes to require a statement, if applicable, 
that interest can also be charged from the date the consumer became 
obligated for the balance or transaction if the consumer's account is 
in default prior to the end of the deferred or waived interest period.
    To facilitate compliance with this provision, the Board proposes 
model language in Sample G-22 in Appendix G. Proposed Sec.  
226.16(h)(4) would require that advertisements of deferred or waived 
interest offers use language similar to Sample G-22. The Board is 
proposing that language be ``similar,'' rather than ``substantially 
similar,'' in recognition of the fact that creditors may need to modify 
or supplement the model language to accurately describe the terms of a 
particular promotion. For issuers subject to the January 2009 FTC Act 
Rule or similar law, the proposed language would reflect that interest 
can be charged from the date the consumer became obligated for the 
balance or transaction only if the consumer fails to pay the balance 
subject to the deferred or waived interest program in full or makes a 
payment that is more than 30 days late.\4\ For creditors that are not 
subject to the January 2009 FTC Act Rule or similar law, such as a 
creditor that offers a deferred or waived interest program in 
connection with a line of credit, the Board proposes separate model 
language.
---------------------------------------------------------------------------

    \4\ This statement is intended to be consistent with substantive 
restrictions in the January 2009 FTC Act Rule and FTC Act Proposed 
Clarifications which would not permit an issuer to revoke a deferred 
or waived interest program unless the consumer's payment is more 
than 30 days late.
---------------------------------------------------------------------------

    While most advertisements of deferred or waived interest offers 
describe the conditions required to take advantage of the offer, the 
conditions may be placed in a location that is not easily noticed or 
stated in terms that are not easily understood. Thus, as discussed 
below, the proposal would require this information to be in a prominent 
location closely proximate to the first listing of a statement of ``no 
interest,'' ``no payments,'' ``deferred interest'' or similar term 
regarding interest and payments under the deferred interest period.
    Prominent location closely proximate. The Board is proposing 
guidance on the meaning of ``prominent location closely proximate to 
the first listing'' in comments 16(h)-5 and 16(h)-6. This guidance is 
similar to, and intended to be consistent with, the provisions in Sec.  
226.16(g) that apply to advertisements of promotional rates. Proposed 
comment 16(h)-5 would provide that if the additional disclosures 
required under proposed Sec.  226.16(h)(4) are in the same paragraph as 
the first listing of a deferred interest triggering term, they would be 
deemed to be in a prominent location closely proximate to the 
statement. Information appearing in a footnote would not be deemed to 
be in a prominent location closely proximate to the statement. The 
Board believes that the safe harbor under proposed comment 16(h)-5 is, 
and should be, more flexible than the safe harbor for ``immediate 
proximity'' under proposed comment 16(h)-4 above.
    First listing. Proposed comment 16(h)-6 provides that the first 
listing of a statement of a deferred interest triggering term is the 
most prominent listing of one of these statements (on the front side of 
the first page of the principal promotional document). Consistent with 
the rules for promotional rates in Sec.  226.16(g), the proposed 
comment borrows the concept of ``principal promotional document'' from 
the FTC's definition of the term under its regulations promulgated 
under the FCRA. 16 CFR Sec.  642.2(b). Under the proposal, if none of 
these statements is listed on the principal promotional document or 
there is no principal promotional document, the first listing of one of 
these statements would be deemed to be the most prominent listing of 
the statement on the front side of the first page of each document 
containing one of these statements. The Board also proposes that the 
listing with the largest type size be a safe harbor for determining 
which listing is the most prominent. The proposed comment notes that a 
catalog or other multiple-page advertisement would be considered one 
document for these purposes, consistent with comment 16(c)-1.
    Because both the rules for advertising of promotional rates in 
Sec.  226.16(g) and proposed Sec.  226.16(h)(4) require disclosures 
closely proximate to the ``first listing'' of a rate or a statement, 
respectively, the Board believes that the

[[Page 20791]]

guidance on what constitutes the ``first listing'' should be consistent 
for both rules.
    Segregation. The Board also proposes comment 16(h)-7 to clarify 
that the information required under proposed Sec.  226.16(h)(4) need 
not be segregated from other information the advertisement discloses 
about the deferred or waived interest offer. This may include triggered 
terms that the advertisement is required to disclose under Sec.  
226.16(b). The comment is consistent with the Board's approach on many 
other required disclosures under Regulation Z. See comment 5(a)-2. 
Moreover, the Board believes flexibility is warranted to allow 
advertisers to provide other information that may be essential for the 
consumer to evaluate the offer, such as a minimum purchase amount to 
qualify for the deferred or waived interest offer.
    Clear and conspicuous disclosure. The Board is proposing to amend 
comment 16-2.ii to require equal prominence only for the disclosure of 
the information required under Sec.  226.16(h)(3). Therefore, 
disclosures under proposed Sec.  226.16(h)(4) would not be required to 
be equally prominent to the first listing of the deferred interest 
triggering statement. Because of the amount of information the Board is 
proposing to require under Sec.  226.16(h)(4)(i) and (ii), the Board 
believes that requiring equal prominence to the triggering statement 
for this information would render the advertisement difficult to read 
and confusing to consumers.
    Non-written, non-electronic advertisements. The Board believes 
providing flexibility in how advertisers may present information to 
consumers in a non-written, non-electronic context is appropriate due 
to the time and space constraints of such media. Therefore, consistent 
with the approach adopted for advertisements of promotional rate offers 
in the January 2009 Regulation Z Rule and the approach in proposed 
Sec.  226.16(h)(3) discussed above, the Board is proposing that only 
written or electronic advertisements be subject to the requirement to 
provide the disclosures required by proposed Sec.  226.16(h)(4) in a 
prominent location closely proximate to the first listing of a deferred 
interest triggering term. For non-written, non-electronic 
advertisements, the information required under Sec.  226.16(h)(4)(i), 
and (ii) would be included in the advertisement, but would not be 
subject to any proximity or formatting requirements other than the 
general requirement that information be clear and conspicuous, as 
contemplated under comment 16-1.

16(h)(5) Envelope Excluded

    The Board proposes to exclude envelopes or other enclosures in 
which an application or solicitation is mailed, or banner 
advertisements or pop-up advertisements linked to an electronic 
application or solicitation from the requirements of proposed Sec.  
226.16(h)(4). This proposed exception is consistent with the approach 
adopted for promotional rate advertisements in the January 2009 
Regulation Z Rule. Interested consumers generally look at the contents 
of an envelope or click on the link in a banner advertisement or pop-up 
advertisement in order to learn more about an offer instead of relying 
solely on the information on an envelope, banner advertisement, or pop-
up advertisement. Given the limited space that envelopes, banner 
advertisements, and pop-up advertisements have to convey information, 
the Board believes the burden of providing the information proposed 
under Sec.  226.16(h)(4) on these types of communications would likely 
exceed any benefit to consumers.

Appendix G--Open-End Model Forms and Clauses

    The Board proposes to revise Model Form G-10(A) to insert a row 
disclosing any grace period on purchases applicable to the account, in 
accordance with the requirements set forth in Sec.  226.5a(b)(5). This 
row was inadvertently omitted from Model Form G-10(A) as published in 
the Federal Register on January 29, 2009.
    The Board also proposes to revise the minimum payment warning set 
forth on Sample Form G-18(G) for conformity with Sample Clause G-18(C), 
without any intended substantive change to the requirements of the 
final rule.
    As discussed in the supplementary information to Sec. Sec.  
226.7(b)(14) and 226.16(h), the Board proposes to adopt model language 
for the disclosures required to be given in connection with deferred or 
waived interest programs as Samples G-18(H) and G-22. The Board notes 
that proposed Sample G-22 contains two model clauses, one for use by 
credit card issuers subject to 12 CFR 227.24 or similar law and one for 
other creditors. The model clause for issuers subject to 12 CFR 227.24 
reflects the fact that, under those rules, an issuer may only revoke a 
deferred or waived interest program if the consumer's payment is more 
than 30 days late. The Board proposes to add a new comment App. G-12 to 
clarify which creditors should use each of the model clauses in 
proposed Sample G-22.
    The Board also proposes a technical correction to comment App. G-
5.v.C. As adopted in the January 2009 Regulation Z Rule, comment App. 
G-5.v.C refers to cross-references in the samples of the table provided 
on or with applications and solicitations and the table provided at 
account opening. However, cross-references were not included in those 
samples because they are not a disclosure required by the January 2009 
Regulation Z Rule. Accordingly, the Board proposes to delete the 
examples mentioning cross-references from comment App. G-5.v.C.

IV. Regulatory Flexibility Analysis

    Section VIII of the supplementary information to the January 2009 
Regulation Z Rule sets forth the Board's analysis under the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.). The Board notes that the 
amendments in this proposed rulemaking would require small entities 
that offer deferred or waived interest programs to comply with new 
disclosure requirements for periodic statements and advertisements, as 
discussed in the supplementary information to the amendments to 
Sec. Sec.  226.7 and 226.16. Because the proposed amendments are a 
continuation of the January 2009 Regulation Z Rule and would not, if 
adopted, alter the analysis and determination accompanying the January 
2009 Regulation Z Rule, the Board continues to rely on that analysis 
and determination for purposes of this rulemaking.

V. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the 
proposed rule under the authority delegated to the Board by the Office 
of Management and Budget (OMB). The collection of information that is 
required by this proposed rule is found in 12 CFR part 226. The Federal 
Reserve may not conduct or sponsor, and an organization is not required 
to respond to, this information collection unless the information 
collection displays a currently valid OMB control number. The OMB 
control number is 7100-0199.
    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Federal 
Reserve does not collect any information, no issue of confidentiality 
arises. The respondents/recordkeepers are creditors and other entities 
subject to Regulation Z, including for-profit financial institutions 
and small businesses.

[[Page 20792]]

    TILA and Regulation Z are intended to ensure effective disclosure 
of the costs and terms of credit to consumers. For open-end credit, 
creditors are required to, among other things, disclose information 
about the initial costs and terms and to provide periodic statements of 
account activity, notice of changes in terms, and statements of rights 
concerning billing error procedures. Regulation Z requires specific 
types of disclosures for credit and charge card accounts and home 
equity plans. For closed-end loans, such as mortgage and installment 
loans, cost disclosures are required to be provided prior to 
consummation. Special disclosures are required in connection with 
certain products, such as reverse mortgages, certain variable-rate 
loans, and certain mortgages with rates and fees above specified 
thresholds. TILA and Regulation Z also contain rules concerning credit 
advertising. Creditors are required to retain evidence of compliance 
for twenty-four months (Sec.  226.25), but Regulation Z does not 
specify the types of records that must be retained.
    Under the PRA, the Federal Reserve accounts for the paperwork 
burden associated with Regulation Z for the state member banks and 
other creditors supervised by the Federal Reserve that engage in 
lending covered by Regulation Z and, therefore, are respondents under 
the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: State member banks, branches and agencies of 
foreign banks (other than federal branches, federal agencies, and 
insured state branches of foreign banks), commercial lending companies 
owned or controlled by foreign banks, and organizations operating under 
section 25 or 25A of the Federal Reserve Act. Other federal agencies 
account for the paperwork burden imposed on the entities for which they 
have administrative enforcement authority. The current total annual 
burden to comply with the provisions of Regulation Z is estimated to be 
688,607 hours for the 1,138 Federal Reserve-regulated institutions that 
are deemed to be respondents for the purposes of the PRA. To ease the 
burden and cost of complying with Regulation Z (particularly for small 
entities), the Federal Reserve provides model forms, which are appended 
to the regulation.
    The proposed rule would impose a one-time increase in the total 
annual burden under Regulation Z for all respondents regulated by the 
Federal Reserve by 27,312 hours, from 688,607 hours to 715,919 hours.
    The total estimated burden increase, as well as the estimates of 
the burden increase associated with each major section of the proposed 
rule as set forth below, represents averages for all respondents 
regulated by the Federal Reserve. The Federal Reserve expects that the 
amount of time required to implement each of the proposed changes for a 
given institution may vary based on the size and complexity of the 
respondent. Furthermore, the burden estimate for this rulemaking does 
not include the burden addressing provisions from the Mortgage 
Disclosure Improvement Act of 2008 (Docket No. R-1340) or Higher 
Education Opportunity Act (Docket No. R-1353) announced in separate 
proposed rulemakings.
    The Federal Reserve estimates that 1,138 respondents regulated by 
the Federal Reserve would take, on average, 16 hours (two business 
days) to update their systems for periodic statements to comply with 
the proposed disclosure requi