Truth in Lending, 54124-54332 [E9-23733]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 74, Number 202 (Wednesday, October 21, 2009)]
[Proposed Rules]
[Pages 54124-54332]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-23733]



[[Page 54123]]

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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. 202 / Wednesday, October 21, 2009 / 
Proposed Rules

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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1370]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Board proposes to amend Regulation Z, which implements the 
Truth in Lending Act, and the staff commentary to the regulation in 
order to implement provisions of the Credit Card Accountability 
Responsibility and Disclosure Act of 2009 that are effective on 
February 22, 2010. This proposal would establish a number of new 
substantive and disclosure requirements to establish fair and 
transparent practices pertaining to open-end consumer credit plans, 
including credit card accounts. In particular, the proposed rule would 
limit the application of increased rates to existing credit card 
balances, require credit card issuers to consider a consumer's ability 
to make the required payments, establish special requirements for 
extensions of credit to consumers who are under the age of 21, and 
limit the assessment of fees for exceeding the credit limit on a credit 
card account.

DATES: Comments must be received on or before November 20, 2009.

ADDRESSES: You may submit comments, identified by Docket No. R-1370, 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: Jennifer S. Benson or Stephen Shin, 
Attorneys, Amy Burke, Benjamin K. Olson, or Vivian Wong, Senior 
Attorneys, or Krista Ayoub or Ky Tran-Trong, 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 and Implementation of the Credit Card Act

January 2009 Regulation Z and FTC Act Rules

    On December 18, 2008, the Board adopted two final rules pertaining 
to open-end (not home-secured) credit. These rules were published in 
the Federal Register on January 29, 2009. The first rule makes 
comprehensive changes to Regulation Z's provisions applicable to open-
end (not home-secured) credit, including amendments that affect all of 
the five major types of required disclosures: credit card applications 
and solicitations, account-opening disclosures, periodic statements, 
notices of changes in terms, and advertisements. See 74 FR 5244 
(January 2009 Regulation Z Rule). The second is a joint rule published 
with the Office of Thrift Supervision (OTS) and the National Credit 
Union Administration (NCUA) under the Federal Trade Commission Act (FTC 
Act) to protect consumers from unfair acts or practices with respect to 
consumer credit card accounts. See 74 FR 5498 (January 2009 FTC Act 
Rule). The effective date for both rules is July 1, 2010.
    On May 5, 2009, the Board published proposed clarifications and 
technical amendments to the January 2009 Regulation Z Rule (May 2009 
Regulation Z Proposed Clarifications) in the Federal Register. See 74 
FR 20784. The Board, the OTS, and the NCUA (collectively, the Agencies) 
concurrently published proposed clarifications and technical amendments 
to the January 2009 FTC Act Rule. See 74 FR 20804 (May 2009 FTC Act 
Rule Proposed Clarifications). In both cases, as stated in the Federal 
Register, these proposals were intended to clarify and facilitate 
compliance with the consumer protections contained in the January 2009 
final rules and not to reconsider the need for--or the extent of--those 
protections. The comment period on both of these proposed sets of 
amendments ended on June 4, 2009. Where relevant, the Board has 
considered the comments submitted in preparing this proposed rule and 
is republishing the proposed amendments with several revisions as 
discussed in V. Section-by-Section Analysis. The Board intends to 
finalize the amendments, with revisions as appropriate, in connection 
with this rulemaking.

The Credit Card Act

    On May 22, 2009, the Credit Card Accountability Responsibility and 
Disclosure Act of 2009 (Credit Card Act) was signed into law. Public 
Law 111-24, 123 Stat. 1734 (2009). The Credit Card Act primarily amends 
the Truth in Lending Act (TILA) and establishes a number of new 
substantive and disclosure requirements to establish fair and 
transparent practices pertaining to open-end consumer credit plans. 
Several of the provisions of the Credit Card Act are similar to 
provisions in the Board's January 2009 Regulation Z and FTC Act Rules, 
while other portions of the Credit Card Act address practices or 
mandate disclosures that were not addressed in the Board's rules.
    The requirements of the Credit Card Act that pertain to credit 
cards or other open-end credit for which the Board has rulemaking 
authority become effective in three stages. First, provisions generally 
requiring that consumers receive 45 days' advance notice of interest 
rate increases and significant changes in terms (new TILA Section 
127(i)) and provisions regarding the amount of time that consumers have 
to make payments (revised TILA Section 163) became effective on August 
20, 2009 (90 days after enactment of the Credit Card Act). A majority 
of the requirements under the Credit Card Act for which the Board has 
rulemaking authority, including, among other things, provisions 
regarding interest rate increases (revised TILA Section 171), over-the-
limit transactions (new TILA Section 127(k)), and student cards (new 
TILA Sections 127(c)(8), 127(p), and 140(f)) become effective on 
February 22, 2010 (9 months after enactment). Finally, two provisions 
of the Credit Card Act addressing the reasonableness and 
proportionality of penalty fees and charges (new TILA Section 149) and 
re-evaluation by creditors of rate increases (new TILA Section 148) are 
effective on August 22, 2010 (15 months after enactment). The Credit 
Card Act also requires the Board to conduct several studies and to make 
several reports to Congress, and sets forth differing time

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periods in which these studies and reports must be completed.

Implementation Plan

    On July 22, 2009, the Board published an interim final rule to 
implement those provisions of the Credit Card Act that became effective 
on August 20, 2009 (July 2009 Regulation Z Interim Final Rule). See 74 
FR 36077. As discussed in the supplementary information to the July 
2009 Regulation Z Interim Final Rule, the Board is implementing the 
provisions of the Credit Card Act in stages, consistent with the 
statutory timeline established by Congress. Accordingly, the interim 
final rule implemented those provisions of the statute that became 
effective August 20, 2009, primarily addressing change-in-terms notice 
requirements and the amount of time that consumers have to make 
payments. The Board issued rules in interim final form based on its 
determination that, given the short implementation period established 
by the Credit Card Act and the fact that similar rules were already the 
subject of notice-and-comment rulemaking, it would be impracticable and 
unnecessary to issue a proposal for public comment followed by a final 
rule. The Board solicited comment on the interim final rule; the 
comment period ended on September 21, 2009. The Board intends to 
consider comments on the interim final rule when finalizing this 
rulemaking implementing those provisions of the Credit Card Act that 
become effective February 22, 2010.\1\
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    \1\ The Board has already begun consideration of the comment 
letters received on the July 2009 Regulation Z Interim Final Rule. 
However, the review of the comment letters is ongoing, and 
accordingly the supplementary information to this proposal does not 
discuss the comments received. The Board anticipates addressing the 
comments in their entirety when it issues a final rule based on this 
proposal.
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    The Board intends to separately consider the two remaining 
provisions under the Credit Card Act regarding reasonable and 
proportional penalty fees and charges and the re-evaluation of rate 
increases, and to finalize implementing regulations in accordance with 
the timeline established by Congress, upon notice and after giving the 
public an opportunity to comment.
    To the extent appropriate, the Board has used its January 2009 
rules and the underlying rationale as the basis for its rulemakings 
under the Credit Card Act. The Board also intends to retain those 
portions of its January 2009 Regulation Z Rule that are unaffected by 
the Credit Card Act. The Board is not withdrawing any provisions of the 
January 2009 Regulation Z Rule or its January 2009 FTC Act Rule at this 
time. The Board anticipates that in connection with finalizing this 
proposed rule for those provisions of the Credit Card Act that are 
effective February 22, 2010, it will amend or withdraw those portions 
of the January 2009 Regulation Z Rule that are inconsistent with the 
requirements of the Credit Card Act. In addition, as discussed further 
in V. Section-by-Section Analysis, the Board is proposing to move the 
requirements in its January 2009 FTC Act Rule into Regulation Z and 
intends to withdraw the requirements adopted under Regulation AA, 
consistent with Congress's approach of amending the Truth in Lending 
Act.\2\ Finally, except as otherwise noted, the Board is considering 
comments received on the May 2009 Regulation Z Proposed Clarifications 
and plans to incorporate those final clarifications, to the extent 
appropriate, when it promulgates final rules pursuant to this proposal.
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    \2\ See also OTS Memorandum for Chief Executive Officers: Credit 
CARD Act: Interest Rate Increases and Rules on Unfair Practices 
(issued July 13, 2009) (available at https://files.ots.treas.gov/25312.pdf); NCUA Press Release: Working with Other Regulators on 
Credit CARD Act and UDAP Rule (issued July 1, 2009) (available at 
https://www.ncua.gov/news/press_releases/2009/MR09-0701.htm).
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Republication of Provisions of January 2009 Regulation Z Rule

    The Board has published four proposed or final rules in 2009 that 
amend or propose to amend Regulation Z's provisions applicable to open-
end (not home-secured) credit: the January 2009 Regulation Z Rule, the 
May 2009 Regulation Z Proposed Clarifications, the July 2009 Regulation 
Z Interim Final Rule, and the present proposal. The Board is aware that 
the existence of multiple concurrent Regulation Z rulemakings 
pertaining to open-end (not home-secured) credit has the potential to 
cause confusion. In particular, the Board understands that it may be 
difficult for interested parties to ascertain how the four proposed or 
final rules will read as an integrated whole once all final rules are 
adopted and effective.
    In order to more clearly illustrate the cumulative changes in the 
four proposed or final rules, the Board is republishing in this 
proposal all sections of Regulation Z from the four proposed or final 
rules that pertain to open-end (not home-secured) credit. As discussed 
further in this supplementary information, the requirements of the 
Board's January 2009 FTC Act Rule are also being incorporated into this 
proposal under Regulation Z, with proposed amendments as necessary to 
conform to the requirements of the Credit Card Act. The Board believes 
that this is the clearest way to present the proposed and final 
revisions to Regulation Z in an integrated format. The Board thinks 
that it is important that commenters be able to consider the changes 
included in this proposal in light of the complete package of changes 
effected by the Board's recent rulemakings pertaining to open-end (not 
home-secured) credit.
    The Board is not reconsidering the need for or the extent of the 
January 2009 Regulation Z Rule, except to the extent that it is 
inconsistent with the requirements of the Credit Card Act. Accordingly, 
although the Board is republishing the provisions of Regulation Z that 
pertain to open-end (not home-secured) credit in their entirety, the 
Board is requesting that interested parties limit the scope of their 
comments to the proposed changes, which are discussed in the 
supplementary information. As necessary, the Board has made technical 
and conforming changes to the regulatory text from the January 2009 
Regulation Z Rule in order to conform with the proposed regulations 
implementing the Credit Card Act. These changes are not substantive in 
nature and are therefore not discussed in detail in V. Section-by-
Section Analysis.
    The Board is not republishing in connection with this proposal 
several sections of the January 2009 Regulation Z Rule that are 
applicable only to home-equity lines of credit subject to the 
requirements of Sec.  226.5b (HELOCs). In particular, the Board is not 
republishing Sec. Sec.  226.6(a), 226.7(a) and 226.9(c)(1). These 
sections, as discussed in the supplementary information to the January 
2009 Regulation Z Rule, are intended to preserve the existing 
requirements of Regulation Z for home-equity lines of credit until the 
Board's ongoing review of the rules that apply to HELOCs is completed. 
On August 26, 2009, the Board published proposed revisions to those 
portions of Regulation Z affecting HELOCs in the Federal Register. See 
74 FR 43428 (August 2009 Regulation Z HELOC Proposal). In order to 
clarify that this proposed rule is not intended to amend or otherwise 
affect the August 2009 Regulation Z HELOC Proposal, the Board is not 
republishing several sections of the January 2009 Regulation Z Rule 
that apply only to HELOCs in this Federal Register notice.
    The Board anticipates, however, that a final rule will be issued 
with regard to this proposal prior to completion of

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final rules regarding HELOCs. Therefore, the Board anticipates that it 
will include Sec. Sec.  226.6(a), 226.7(a), and 226.9(c)(1), as adopted 
in the January 2009 Regulation Z Rule, in its final rulemaking based on 
this proposal, to give HELOC creditors clear guidance as to the 
applicable Regulation Z requirements between the effective date of this 
rule and the effective date of the forthcoming HELOC final rules.
    The Board is, however, republishing several provisions of general 
applicability to all credit subject to Regulation Z that were included 
in the January 2009 Regulation Z Rule, such as the definitions in Sec.  
226.2 and the rules regarding finance charges in Sec.  226.4. The Board 
notes that these provisions, and any other provisions applicable to 
HELOCs, could be subject to revision in connection with finalizing the 
August 2009 Regulation Z HELOC Proposal. In addition, on August 26, 
2009, the Board also published in the Federal Register proposed 
revisions to Regulation Z's provisions addressing closed-end credit 
secured by real property or a consumer's dwelling. 74 FR 43232 (August 
2009 Regulation Z Closed-End Credit Proposal). Among other things, the 
August 2009 Regulation Z Closed-End Credit Proposal includes several 
proposed revisions to Sec.  226.4, which addresses finance charges. 
This proposal is not intended to affect or withdraw any proposed 
changes to such provisions of general applicability included in either 
the August 2009 Regulation Z HELOC Proposal or the August 2009 
Regulation Z Closed-End Credit Proposal.
    Finally, the Board has incorporated in the regulatory text and 
commentary for Sec. Sec.  226.1, 226.2, and 226.3 several changes that 
were adopted in the Board's recent rulemaking pertaining to private 
education loans. See 74 FR 41194 (August 14, 2009) for further 
discussion of these changes. The Board is not soliciting comment on 
these amendments.
    When publishing a proposed rule for comment under Regulation Z, the 
Board generally denotes regulatory and commentary text proposed to be 
deleted by use of bolded brackets. Similarly, the Board generally 
denotes the proposed insertion of text with bolded arrows. For this 
proposal, the Board is not displaying proposed insertions and deletions 
of text using brackets and arrows. As noted above, the Board has 
published four proposed or final rules pertaining to open-end (not 
home-secured) credit under Regulation Z in 2009, many of which impact 
the same provisions, and therefore the Board believes that the use of 
brackets and arrows for just those changes introduced in this proposal 
could cause confusion.

Effective Date

    As noted above, the effective date of the Board's January 2009 
Regulation Z Rule is July 1, 2010. However, the effective date of the 
provisions of the Credit Card Act implemented by this proposal is 
February 22, 2010. Many of the provisions of the Credit Card Act as 
implemented by this proposal are closely related to provisions of the 
January 2009 Regulation Z Rule. For example, proposed Sec.  
226.9(c)(2)(ii), which describes ``significant changes in terms'' for 
which 45 days' advance notice is required, cross-references Sec.  
226.6(b)(1) and (b)(2) as adopted in the January 2009 Regulation Z 
Rule. In order to implement the Credit Card Act in a manner consistent 
with the January 2009 Regulation Z Rule, the Board intends to make the 
effective date for the final rule pursuant to this proposal February 
22, 2010. The Board is considering whether this effective date should 
apply to both the provisions of the January 2009 Regulation Z Rule that 
are not directly affected by the Credit Card Act that are included in 
the proposed rule as well as new and amended requirements proposed 
pursuant to the Credit Card Act.
    The Board recognizes that there are certain provisions of the 
January 2009 Regulation Z Rule that impose substantial operational 
burdens on creditors that are not directly required by the Credit Card 
Act. For such provisions, the Board is considering retaining the 
original mandatory compliance date of July 1, 2010, consistent with the 
effective date it adopted when the January 2009 Regulation Z Rule was 
issued. In particular, the Board is considering whether the original 
mandatory compliance date of July 1, 2010 would be appropriate for 
certain tabular or other formatting requirements applicable to account-
opening disclosures under Sec.  226.6(b), portions of the periodic 
statement under Sec.  226.7(b),\3\ disclosures provided with checks 
that access a credit card account under Sec.  226.9(b)(3), change-in-
terms notices provided pursuant to Sec.  226.9(c)(2), and notices of a 
rate increase due to a consumer's default, delinquency, or as a penalty 
pursuant to Sec.  226.9(g). The Board understands that creditors are 
already in the process of updating their systems in order to provide 
these disclosures in the appropriate tabular format by the July 1, 2010 
effective date of the January 2009 Regulation Z Rule, and that 
retaining a July 1, 2010 effective date for the formatting requirements 
associated with such disclosures may be appropriate. The Board solicits 
comment on this approach, as well as whether there are other provisions 
of this proposed rule that are not directly required by the Credit Card 
Act for which a mandatory compliance date of July 1, 2010 would also be 
appropriate. The Board also seeks comment on appropriate transition 
rules for the proposed amendments to Regulation Z.
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    \3\ The Board notes that the Credit Card Act does, however, 
require a tabular format for the repayment disclosures under 
proposed Sec.  226.7(b)(12), and accordingly does not intend to 
provide a July 1, 2010 mandatory compliance date for such formatting 
requirements.
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II. Summary of Major Proposed Revisions

A. Increases in Annual Percentage Rates

    Existing balances. Consistent with the Credit Card Act, the 
proposed rule would prohibit creditors from applying increased annual 
percentage rates and certain fees and charges to existing credit card 
balances, except in the following circumstances: (1) When a temporary 
rate lasting at least six months expires; (2) when the rate is 
increased due to the operation of an index (i.e., when the rate is a 
variable rate); (3) when the minimum payment has not been received 
within 60 days after the due date; and (4) when the consumer 
successfully completes or fails to comply with the terms of a workout 
arrangement. In addition, when the annual percentage rate on an 
existing balance has been reduced pursuant to the Servicemembers Civil 
Relief Act (SCRA), the proposed rule would permit the creditor to 
increase that rate once the SCRA ceases to apply.
    New transactions. The proposed rule would implement the Credit Card 
Act's prohibition on increasing an annual percentage rate during the 
first year after an account is opened. After the first year, the 
proposed rule would provide that creditors are permitted to increase 
the annual percentage rates that apply to new transactions so long as 
the creditor complies with the Credit Card Act's 45-day advance notice 
requirement, which was implemented in the July 2009 Regulation Z 
Interim Final Rule.

B. Evaluation of Consumer's Ability To Pay

    General requirements. The Credit Card Act prohibits creditors from 
opening a new credit card account or increasing the credit limit for an 
existing credit card account unless the creditor considers the 
consumer's ability to make the required payments

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under the terms of the account. Because credit card accounts typically 
require consumers to make a minimum monthly payment that is a 
percentage of the total balance (plus, in some cases, accrued interest 
and fees), the proposed rule would require creditors to consider the 
consumer's ability to make the required minimum payments.
    However, because a creditor will not know the exact amount of a 
consumer's minimum payments at the time it is evaluating the consumer's 
ability to make those payments, the proposal would require creditors to 
use a reasonable method for estimating a consumer's minimum payments 
and would provide a safe harbor that creditors could use to satisfy 
this requirement. For example, with respect to the opening of a new 
credit card account, the safe harbor would provide that it would be 
reasonable for a creditor to estimate minimum payments based on a 
consumer's utilization of the full credit line using the minimum 
payment formula employed by the creditor with respect to the credit 
card product for which the consumer is being considered.
    The proposed rule would also clarify the types of factors creditors 
should review in considering a consumer's ability to make the required 
minimum payments. Specifically, an evaluation of a consumer's ability 
to pay must include a review of the consumer's income or assets as well 
as the consumer's current obligations, and a creditor must establish 
reasonable policies and procedures for considering that information. 
When considering a consumer's income or assets and current obligations, 
a creditor would be permitted to rely on information provided by the 
consumer or information in a consumer's credit report.
    Specific requirements for underage consumers. Consistent with the 
Credit Card Act, the proposed rule prohibits a creditor from issuing a 
credit card to a consumer who has not attained the age of 21 unless the 
consumer has submitted a written application that meets certain 
requirements. Specifically, the application must include either: (1) 
The signature of a cosigner who has attained the age of 21, who has the 
means to repay debts incurred by the underage consumer in connection 
with the account, and who assumes joint liability for such debts; or 
(2) information indicating that the underage consumer has the ability 
to make the required payments for the account.

C. Marketing to Students

    Prohibited inducements. The Credit Card Act limits a creditor's 
ability to offer a student at an institution of higher education any 
tangible item to induce the student to apply for or open an open-end 
consumer credit plan offered by the creditor. Specifically, the Credit 
Card Act prohibits such offers: (1) On the campus of an institution of 
higher education; (2) near the campus of an institution of higher 
education; or (3) at an event sponsored by or related to an institution 
of higher education.
    The proposed commentary would provide guidance to assist creditors 
in complying with the rule. For example, the proposed commentary would 
clarify that ``tangible item'' means a physical item (such as a gift 
card, t-shirt, or magazine subscription) and does not include non-
physical items (such as discounts, rewards points, or promotional 
credit terms). The proposed commentary would also clarify that a 
location that is within 1,000 feet of the border of the campus of an 
institution of higher education (as defined by the institution) is 
considered near the campus of that institution. Finally, consistent 
with guidance recently adopted by the Board with respect to certain 
private education loans, the proposed commentary would state that an 
event is related to an institution of higher education if the marketing 
of such event uses words, pictures, or symbols identified with the 
institution in a way that implies that the institution endorses or 
otherwise sponsors the event.
    Disclosure and reporting requirements. The proposed rule would also 
implement the provisions of the Credit Card Act requiring institutions 
of higher education to publicly disclose agreements with credit card 
issuers regarding the marketing of credit cards. The proposal would 
state that an institution may comply with this requirement by, for 
example, posting the agreement on its Web site or by making the 
agreement available upon request.

D. Fees or Charges for Transactions That Exceed the Credit Limit

    Consumer consent requirement. Consistent with the Credit Card Act, 
the proposed rule would require that a creditor obtain a consumer's 
express consent (or opt-in) before imposing any fees on a consumer's 
credit card account for making an extension of credit that exceeds the 
account's credit limit. Prior to obtaining this consent, the creditor 
must disclose, among other things, the dollar amount of any fees or 
charges that will be assessed for an over-the-limit transaction as well 
as any increased rate that may apply if the consumer exceeds the credit 
limit. In addition, if the consumer consents, the creditor is also 
required to provide a notice of the consumer's right to revoke that 
consent on any periodic statement that reflects the imposition of an 
over-the-limit fee or charge.
    The proposed rule would apply these requirements to all consumers 
(including existing account holders) if the creditor imposes a fee or 
charge for paying an over-the-limit transaction. Thus, after the 
February 22, 2010 effective date, creditors would be prohibited from 
assessing any over-the-limit fees or charges on an account until the 
consumer consents to the payment of transactions that exceed the credit 
limit.
    Prohibited practices. Even if the consumer has affirmatively 
consented to the creditor's payment of over-the-limit transactions, the 
Credit Card Act prohibits certain practices in connection with the 
assessment of over-the-limit fees or charges. Consistent with these 
statutory prohibitions, the proposed rule would prohibit a creditor 
from imposing more than one over-the-limit fee or charge per billing 
cycle. In addition, a creditor could not impose an over-the-limit fee 
or charge on the account for the same over-the-limit transaction in 
more than three billing cycles.
    The Credit Card Act also directs the Board to prescribe regulations 
that prevent unfair or deceptive acts or practices in connection with 
the manipulation of credit limits designed to increase over-the-limit 
fees or other penalty fees. Pursuant to this authority, the proposed 
rule would prohibit a creditor from assessing an over-the-limit fee or 
charge that is caused by the creditor's failure to promptly replenish 
the consumer's available credit. The proposed rule would also prohibit 
creditors from conditioning the amount of available credit on the 
consumer's consent to the payment of over-the-limit transactions. 
Finally, the proposed rule would prohibit the imposition of any over-
the-limit fees or charges if the credit limit is exceeded solely 
because of the creditor's assessment of fees or charges (including 
accrued interest charges) on the consumer's account.

E. Timely Settlement of Estates

    The Credit Card Act directs the Board to prescribe regulations 
requiring creditors to establish procedures ensuring that any 
administrator of an estate can resolve the outstanding credit card 
balance of a deceased accountholder in a timely manner. The proposed 
rule would impose two

[[Page 54128]]

specific requirements designed to enable administrators to determine 
the amount of and pay a deceased consumer's balance in a timely manner. 
First, upon request by the administrator, the creditor would be 
required to disclose the amount of the balance in a timely manner. 
Second, once an administrator has made such a request, the creditor 
would be required to cease the imposition of fees and charges on the 
account (including the accrual of interest) so that the amount of the 
balance does not increase while the administrator is arranging for 
payment.

F. On-line Disclosure of Credit Card Agreements

    The Credit Card Act requires creditors to post credit card 
agreements on their Web sites and to submit those agreements to the 
Board for posting on its Web site. The Credit Card Act further provides 
that the Board may establish exceptions to these requirements in any 
case where the administrative burden outweighs the benefit of increased 
transparency, such as where a credit card plan has a de minimis number 
of accountholders.
    The proposed rule would require a creditor to post on its Web site 
or otherwise make available its credit card agreements with its current 
cardholders. However, the proposed rule would establish two limitations 
with respect to the submission of agreements to the Board. First, the 
proposed rule would establish a de minimis exception for creditors with 
fewer than 10,000 open credit card accounts. Because the overwhelming 
majority of credit card accounts are held by creditors that have more 
than 10,000 open accounts, the information provided through the Board's 
Web site would still reflect virtually all of the terms available to 
consumers.
    Second, creditors would not be required to submit agreements that 
are not currently offered to the public. The Board believes that the 
primary purpose of the information provided through the Board's Web 
site is to assist consumers in comparing credit card agreements offered 
by different issuers when shopping for a new credit card. Including 
agreements that are no longer offered to the public would not 
facilitate comparison shopping by consumers. In addition, including 
such agreements could create confusion regarding which terms are 
currently available.

G. Additional Provisions

    The proposed rule also implements the following provisions of the 
Credit Card Act, all of which go into effect on February 22, 2010.
    Limitations on fees. The Board's January 2009 FTC Act Rule 
prohibited banks from charging to a credit card account during the 
first year after account opening certain account-opening and other fees 
that, in total, constituted the majority of the initial credit limit. 
The Credit Card Act contains a similar provision, except that it 
applies to all fees (other than fees for late payments, returned 
payments, and exceeding the credit limit) and limits the total fees to 
25% of the initial credit limit.
    Payment allocation. When different rates apply to different 
balances on a credit card account, the Board's January 2009 FTC Act 
Rule required banks to allocate payments in excess of the minimum first 
to the balance with the highest rate or pro rata among the balances. 
The Credit Card Act contains a similar provision, except that excess 
payments must always be allocated first to the balance with the highest 
rate.
    Double-cycle billing. The Board's January 2009 FTC Act Rule 
prohibited banks from imposing finance charges on balances for days in 
previous billing cycles as a result of the loss of a grace period (a 
practice sometimes referred to as ``double-cycle billing''). The Credit 
Card Act contains a similar prohibition. In addition, when a consumer 
pays some but not all of a balance prior to expiration of a grace 
period, the Credit Card Act prohibits the creditor from imposing 
finance charges on the portion of the balance that has been repaid.
    Fees for making payment. The Credit Card Act prohibits creditors 
from charging a fee for making a payment, except for payments involving 
an expedited service by a service representative of the creditor.
    Minimum payments. The Board's January 2009 Regulation Z Rule 
implemented provisions of the Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2005 requiring creditors to provide a toll-free 
telephone number where consumers could receive an estimate of the time 
to repay their account balances if they made only the required minimum 
payment each month. The Credit Card Act substantially revised the 
statutory requirements for these disclosures. In particular, the Credit 
Card Act requires the following new disclosures on the periodic 
statement: (1) The amount of time and the total cost (interest and 
principal) involved in paying the balance in full making only minimum 
payments; and (2) the monthly payment amount required to pay off the 
balance in 36 months and the total cost (interest and principal) of 
repaying the balance in 36 months.

III. Statutory Authority

    Section 2 of the Credit Card Act states that the Board ``may issue 
such rules and publish such model forms as it considers necessary to 
carry out this Act and the amendments made by this Act.'' This proposed 
rule implements several sections of the Credit Card Act, which amend 
TILA. TILA mandates that the Board prescribe regulations to carry out 
its purposes and 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.
    For the reasons discussed in this notice, the Board is using its 
specific authority under TILA and the Credit Card Act, in concurrence 
with other TILA provisions, to effectuate the purposes of TILA, to 
prevent the circumvention or evasion of TILA, and to facilitate 
compliance with the act.

IV. Applicability of Proposed Provisions

    While several provisions under the Credit Card Act apply to all 
open-end credit, others apply only to certain types of open-end credit, 
such as credit card accounts under open-end consumer credit plans. As a 
result, the Board understands that some additional clarification may be 
helpful as to which provisions of the Credit Card Act as proposed to be 
implemented in Regulation Z are applicable to which types of open-end 
credit products. In order to clarify the scope of the

[[Page 54129]]

proposed revisions to Regulation Z, the Board is providing the below 
table, which summarizes the applicability of each of the major 
revisions to Regulation Z.\4\
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    \4\ This table summarizes the applicability only of those new 
paragraphs or provisions added to Regulation Z in order to implement 
the Credit Card Act, as well as the applicability of proposed 
provisions addressing deferred interest or similar offers. The Board 
notes that it is not proposing to change the applicability of 
provisions of Regulation Z amended by the January 2009 Regulation Z 
Rule or May 2009 Regulation Z Proposed Clarifications.

----------------------------------------------------------------------------------------------------------------
                              Provision                                              Applicability
----------------------------------------------------------------------------------------------------------------
Sec.   226.5(a)(2)(iii).............................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.5(b)(2)(ii)..............................................  All open-end consumer credit plans.
Sec.   226.7(b)(11).................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.7(b)(12).................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.7(b)(14).................................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.9(c)(2)..................................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.9(e).....................................................  Credit or charge card accounts subject to
                                                                       Sec.   226.5a.
Sec.   226.9(g).....................................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.9(h).....................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.10(b)(2)(ii).............................................  All open-end consumer credit plans.
Sec.   226.10(b)(3).................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.10(d)....................................................  All open-end consumer credit plans.
Sec.   226.10(e)....................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.10(f)....................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.11(c)....................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.16(f)....................................................  All open-end consumer credit plans.
Sec.   226.16(h)....................................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.51.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.52.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.53.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.54.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.55.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.56.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.57.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan,
                                                                       except that Sec.   226.57(c) applies to
                                                                       all open-end consumer credit plans.
Sec.   226.58.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
----------------------------------------------------------------------------------------------------------------

V. Section-by-Section Analysis

Section 226.2 Definitions and Rules of Construction

2(a) Definitions
2(a)(15) Credit Card
    In the January 2009 Regulation Z Rule, the Board revised Sec.  
226.2(a)(15) to read as follows: ``Credit card means any card, plate, 
or other single credit device that may be used from time to time to 
obtain credit. Charge card means a credit card on an account for which 
no periodic rate is used to compute a finance charge.'' 74 FR 5257. In 
order to clarify the application of certain provisions of the Credit 
Card Act that apply to ``credit card account[s] under an open end 
consumer credit plan,'' the Board proposes to further revise Sec.  
226.2(a)(15) by adding a definition of ``credit card account under an 
open-end (not home-secured) consumer credit plan.'' Specifically, 
proposed Sec.  226.2(a)(15)(ii) would define this term to mean any 
credit account accessed by a credit card except a credit card that 
accesses a home-equity plan subject to the requirements of Sec.  226.5b 
or an overdraft line of credit accessed by a debit card. The 
definitions of ``credit card'' and ``charge card'' in the January 2009 
Regulation Z Rule would be moved to proposed Sec.  226.2(a)(15)(i) and 
(iii), respectively.
    The exclusion of credit cards that access a home-equity plan 
subject to Sec.  226.5b is consistent with the approach adopted by the 
Board in the July 2009 Regulation Z Interim Final Rule. See 74 FR 
36083. Specifically, the Board used its authority under TILA Section 
105(a) and Sec.  2 of the Credit Card Act to interpret the term 
``credit card account under an open-end consumer credit plan'' in new 
TILA Section 127(i) to exclude home-equity lines of credit subject to 
Sec.  226.5b, even if those lines could be accessed by a credit card. 
Instead, the Board applied the disclosure requirements in current Sec.  
226.9(c)(2)(i) and (g)(1) to ``credit card accounts under an open-end 
(not home-secured) consumer credit plan.'' See 74 FR 36094-36095. For 
consistency with the interim final rule, the Board would generally use 
its authority under TILA Section 105(a) and Sec.  2 of the Credit Card 
Act to apply the same interpretation to other provisions of the Credit 
Card Act that apply to a ``credit card account under an open end 
consumer credit plan.'' See, e.g., revised TILA Sec.  127(j), (k), (l), 
(n); revised TILA Sec.  171; new TILA Sec. Sec.  140A, 148, 149, 
172.\5\ This interpretation is also consistent with the Board's 
historical treatment of HELOC accounts accessible by a credit card 
under TILA; for example, the credit and charge card application and 
solicitation disclosure requirements under Sec.  226.5a expressly do 
not apply to home-equity plans accessible by a credit card that are 
subject to Sec.  226.5b. See current Sec.  226.5a(a)(3); revised Sec.  
226.5a(a)(5)(i), 74 FR 5403. The Board has issued the August 2009 
Regulation Z HELOC Proposal to address changes to Regulation Z that it 
believes are necessary and appropriate for HELOCs and will consider any 
appropriate revisions to the requirements for HELOCs in connection with 
that review.
---------------------------------------------------------------------------

    \5\ In certain cases, the Board has applied a statutory 
provision that refers to ``credit card accounts under an open end 
consumer credit plan'' to a wider range of products. Specifically, 
see the discussion below regarding the implementation of new TILA 
Section 127(i) in proposed Sec.  226.9(c)(2), the implementation of 
new TILA Section 127(m) in proposed Sec. Sec.  226.5(a)(2)(iii) and 
226.16(f), and the implementation of new TILA Section 127(o) in 
proposed Sec.  226.10(d).
---------------------------------------------------------------------------

    The Board also proposes to interpret the term ``credit card account 
under an open end consumer credit plan'' to exclude a debit card that 
accesses an overdraft line of credit. Although such cards are ``credit 
cards'' under current

[[Page 54130]]

Sec.  226.2(a)(15), the Board has generally excluded them from the 
provisions of Regulation Z that specifically apply to credit cards. For 
example, as with credit cards that access HELOCs, the provisions in 
Sec.  226.5a regarding credit and charge card applications and 
solicitations do not apply to overdraft lines of credit tied to asset 
accounts accessed by debit cards. See current Sec.  226.5a(a)(3); 
revised Sec.  226.5a(a)(5)(ii), 74 FR 5403.
    Instead, Regulation E (Electronic Fund Transfers) generally governs 
debit cards that access overdraft lines of credit. See 12 CFR part 205. 
For example, Regulation E generally governs the issuance of debit cards 
that access an overdraft line of credit, although Regulation Z's 
issuance provisions apply to the addition of a credit feature (such as 
an overdraft line) to a debit card. See 12 CFR 205.12(a)(1)(ii) and 
(a)(2)(i). Similarly, when a transaction that debits a checking or 
other asset account also draws on an overdraft line of credit, 
Regulation Z treats the extension of credit as incident to an 
electronic fund transfer and the error resolution provisions in 
Regulation E generally govern the transaction. See 12 CFR 205.12 
comment 12(a)-1.i.\6\
---------------------------------------------------------------------------

    \6\ However, the error resolution provisions in Sec.  226.13(d) 
and (g) do apply to such transactions. See 12 CFR 205.12 comment 
12(a)-1.ii.D; see also current Sec. Sec.  226.12(g) and 13(i); 
current comments 12(c)(1)-1 and 13(i)-3; new comment 12(c)-3, 74 FR 
5488; revised comment 12(c)(1)-1.iv., 74 FR 5488. In addition, if 
the transaction solely involves an extension of credit and does not 
include a debit to a checking or other asset account, the liability 
limitations and error resolution requirements in Regulation Z apply. 
See 12 CFR 205.12(a)-1.i.
---------------------------------------------------------------------------

    Consistent with this approach, the Board believes that debit cards 
that access overdraft lines of credit should not be subject to the 
regulations implementing the provisions of the Credit Card Act that 
apply to ``credit card accounts under an open end consumer credit 
plan.'' As discussed in the January 2009 Regulation Z Rule, the Board 
understands that overdraft lines of credit are not in wide use.\7\ 
Furthermore, as a general matter, the Board understands that creditors 
do not generally engage in the practices addressed in the relevant 
provisions of the Credit Card Act with respect to overdraft lines of 
credit. For example, as discussed in the January 2009 Regulation Z 
Rule, overdraft lines of credit are not typically promoted as--or used 
for--long-term extensions of credit. See 74 FR 5331. Therefore, because 
proposed Sec.  226.9(c)(2) would require a creditor to provide 45 days' 
notice before increasing an annual percentage rate for an overdraft 
line of credit, a creditor is unlikely to engage in the practices 
prohibited by revised TILA Section 171 with respect to the application 
of increased rates to existing balances. Similarly, because creditors 
generally do not apply different rates to different balances or provide 
grace periods with respect to overdraft lines of credit, the provisions 
in proposed Sec. Sec.  226.53 and 226.54 would not provide any 
meaningful protection. Accordingly, the Board proposes to use its 
authority under TILA Section 105(a) and Sec.  2 of the Credit Card Act 
to create an exception for debit cards that access an overdraft line of 
credit. The Board notes this proposed definition is not intended to 
alter the scope or coverage of provisions of Regulation Z that refer 
generally to credit cards or open-end credit rather than the new 
defined term ``credit card account under an open-end (not home-secured 
consumer credit plan.''
---------------------------------------------------------------------------

    \7\ The 2007 Survey of Consumer Finances data indicates that few 
families (1.7 percent) had a balance on lines of credit other than a 
home-equity line or credit card at the time of the interview. In 
comparison, 73 percent of families had a credit card, and 60.3 
percent of these families had a credit card balance at the time of 
the interview. See Brian Bucks, et al., Changes in U.S. Family 
Finances from 2004 to 2007: Evidence from the Survey of Consumer 
Finances, Federal Reserve Bulletin (February 2009).
---------------------------------------------------------------------------

Section 226.5 General Disclosure Requirements

5(a) Form of Disclosures
5(a)(2) Terminology
    Section 103 of the Credit Card Act creates a new TILA Section 
127(m) (15 U.S.C. 1637(m)), which states that with respect to the terms 
of any credit card account under an open-end consumer credit plan, the 
term ``fixed,'' when appearing in conjunction with a reference to the 
APR or interest rate applicable to such account, may only be used to 
refer to an APR or interest rate that will not change or vary for any 
reason over the period specified clearly and conspicuously in the terms 
of the account. 15 U.S.C. 1637(m). In the January 2009 Regulation Z 
Rule, the Board had adopted Sec. Sec.  226.5(a)(2)(iii) and 226.16(f) 
to restrict the use of the term ``fixed,'' or any similar term, to 
describe a rate disclosed in certain required disclosures and in 
advertisements only to instances when that rate would not increase 
until the expiration of a specified time period. If no time period is 
specified, then the term ``fixed,'' or any similar term, may not be 
used to describe the rate unless the rate will not increase while the 
plan is open.
    The Board believes that Sec. Sec.  226.5(a)(2)(iii) and 226.16(f), 
as adopted in the January 2009 Regulation Z Rule, would be consistent 
with new TILA Section 127(m). Therefore, the Board is not proposing any 
changes to these rules.
    While TILA Section 127(m) applies only to credit card accounts 
under an open-end consumer credit plan, Sec.  226.5(a)(2)(iii) applies 
to all open-end (not home-secured) plans and Sec.  226.16(f) applies to 
all open-end plans. The Board continues to believe this scope is 
appropriate, so consumers of non-credit card products that are open-end 
(not home-secured) plans will still benefit from the protections of 
this requirement. The Board accordingly proposes to use its TILA 
Section 105(a) authority to apply the requirements of Sec.  
226.5(a)(2)(iii) to all open-end (not home-secured) plans and Sec.  
226.16(f) to all open-end plans. Furthermore, although TILA Section 
127(m) only references the term ``fixed,'' Sec. Sec.  226.5(a)(2)(iii) 
and 226.16(f) restrict use of the word ``fixed'' as well as other 
similar terms. The Board believes this interpretation is necessary to 
prevent creditors from circumventing the rule by using different 
terminology that would essentially have the same meaning as ``fixed'' 
in the minds of consumers. As a result, the Board proposes to use its 
authority under TILA Section 105(a) to apply the provision to other 
terms similar to the term ``fixed.''
    Also, TILA Section 127(m) implies that a time period for which the 
rate is fixed must be specified in the account terms. While most 
creditors will likely state a term for the which the rate is fixed, the 
Board believes the rule should address instances when a rate is 
described as ``fixed'' but no time period is provided. The Board, 
therefore, proposes to use its authority under TILA Section 105(a) to 
provide that if a creditor describes a rate as ``fixed,'' but does not 
disclose a time period for which the rate will be fixed, the rate must 
not increase while the plan is open. Finally, TILA Section 127(m) 
states that a rate described as ``fixed'' may not change or vary for 
any reason. The Board believes, however, that it would be beneficial to 
consumers to permit a creditor to decrease a rate described as 
``fixed.'' Accordingly, the Board proposes to use its authority under 
TILA Section 105(a) to provide that a rate described as ``fixed'' may 
not be increased.
5(b) Time of Disclosures
5(b)(1) Account-Opening Disclosures
5(b)(1)(i) General Rule
    In certain circumstances, a creditor may substitute or replace one 
credit card account with another credit card account. For example, if 
an existing

[[Page 54131]]

cardholder requests additional features or benefits (such as rewards on 
purchases), the creditor may substitute or replace the existing credit 
card account with a new credit card account that provides those 
features or benefits. The Board also understands that creditors often 
charge higher annual percentage rates or annual fees to compensate for 
additional features and benefits. As discussed below, proposed Sec.  
226.55 and its commentary address the application of the general 
prohibitions on increasing annual percentage rates, fees, and charges 
during the first year after account opening and on applying increased 
rates to existing balances in these circumstances. See proposed Sec.  
226.55(d); proposed comments 55(b)(3)-3 and 55(d)-1 through -3.
    In order to clarify the application of the disclosure requirements 
in Sec. Sec.  226.6(b) and 226.9(c)(2) when one credit card account is 
substituted or replaced with another, the Board proposes to adopt 
comment 5(b)(1)(i)-6, which states that, when a card issuer substitutes 
or replaces an existing credit card account with another credit card 
account, the card issuer must either provide notice of the terms of the 
new account consistent with Sec.  226.6(b) or provide notice of the 
changes in the terms of the existing account consistent with Sec.  
226.9(c)(2). The Board understands that, when an existing cardholder 
requests new features or benefits, disclosure of the new terms pursuant 
to Sec.  226.6(b) may be preferable because the cardholder generally 
will not want to wait 45 days for the new terms to take effect (as 
would be the case if notice were provided pursuant to Sec.  
226.9(c)(2)). Thus, this comment is intended to provide card issuers 
with some flexibility regarding whether to treat the substitution or 
replacement as the opening of a new account (subject to Sec.  226.6(b)) 
or a change in the terms of an existing account (subject to Sec.  
226.9(c)(2)).
    However, the Board does not intend to permit card issuers to 
circumvent the disclosure requirements in Sec.  226.9(c)(2) by treating 
a change in terms as the opening of a new account. Accordingly, the 
comment would further state that whether a substitution or replacement 
results in the opening of a new account or a change in the terms of an 
existing account for purposes of the disclosure requirements in 
Sec. Sec.  226.6(b) and 226.9(c)(2) is determined in light of all the 
relevant facts and circumstances.
    The comment provides the following list of relevant facts and 
circumstances: (1) Whether the card issuer provides the consumer with a 
new credit card; (2) whether the card issuer provides the consumer with 
a new account number; (3) whether the account provides new features or 
benefits after the substitution or replacement (such as rewards on 
purchases); (4) whether the account can be used to conduct transactions 
at a greater or lesser number of merchants after the substitution or 
replacement; (5) whether the card issuer implemented the substitution 
or replacement on an individualized basis; and (6) whether the account 
becomes a different type of open-end plan after the substitution or 
replacement (such as when a charge card is replaced by a credit card). 
The comment states that, when most of these facts and circumstances are 
present, the substitution or replacement likely constitutes the opening 
of a new account for which Sec.  226.6(b) disclosures are appropriate. 
However, the comment also states that, when few of these facts and 
circumstances are present, the substitution or replacement likely 
constitutes a change in the terms of an existing account for which 
Sec.  226.9(c)(2) disclosures are appropriate.\8\
---------------------------------------------------------------------------

    \8\ The comment also provides cross-references to other 
provisions in Regulation Z and its commentary that address the 
substitution or replacement of credit card accounts.
---------------------------------------------------------------------------

    The Board solicits comment on whether additional facts and 
circumstances are relevant. The Board also solicits comment on 
alternative approaches to determining whether a substitution or 
replacement results in the opening of a new account or a change in the 
terms of an existing account for purposes of the disclosure 
requirements in Sec. Sec.  226.6(b) and 226.9(c)(2).
5(b)(2) Periodic Statements
    The Board is proposing to amend comment 5(b)(2)(ii)-2 in several 
respects in order to clarify the consequences of a failure to comply 
with the requirement in Sec.  226.5(b)(2)(ii) that creditors adopt 
reasonable procedures designed to ensure that periodic statements for 
open-end credit plans are mailed or delivered at least 21 days before 
the payment due date and the date on which any grace period expires. 
First, the title of the comment would be amended to cover both treating 
a payment as late for any purpose and collecting any finance or other 
charge. Second, because Sec.  226.5(b)(2)(ii) only prohibits the 
creditor from treating a payment as late for any purpose or collecting 
any finance or other charge as a result of a failure to comply with the 
general 21-day requirement, the comment would be amended to clarify 
that the prohibition in Sec.  226.5(b)(2)(ii) on treating a payment as 
late for any purpose or collecting finance or other charges applies 
only during the 21-day period following mailing or delivery of the 
periodic statement. Thus, if a creditor does not receive a payment 
within 21 days of mailing or delivery of the periodic statement, the 
prohibition does not apply and the creditor may, for example, impose a 
late payment fee.
    Third, for similar reasons, the amended comment would clarify that, 
when an account is not eligible for a grace period, a creditor may 
impose a finance charge due to a periodic interest rate without 
treating a payment as late or collecting finance or other charges as a 
result of a failure to comply with Sec.  226.5(b)(2)(ii).
    The Board is also proposing to amend the cross-reference in comment 
5(b)(2)(ii)-6 to reflect the restructuring of the commentary to Sec.  
226.7.

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 
interest or similar plans proposed in Sec. Sec.  226.7(b) and 226.16(h) 
in the May 2009 Regulation Z Proposed Clarifications, the Board also 
proposed a new comment 5a(b)(1)-9 to clarify that an issuer offering a 
deferred interest or similar plan may not disclose a rate as 0% due to 
the possibility that the consumer may not be obligated for interest 
regarding the deferred interest or similar transaction. 74 FR 20797. 
The Board is republishing proposed comment 5a(b)(1)-9 in this Federal 
Register notice.

Section 226.7 Periodic Statement

7(b) Rules Affecting Open-End (Not Home-Secured) Plans
7(b)(11) Due Date; Late Payment Costs
    In 2005, the Bankruptcy Act amended TILA to add Section 127(b)(12), 
which required creditors that charge a late payment fee to disclose on 
the periodic statement (1) the payment due date or, if the due date 
differs from when a late payment fee would be charged, the earliest 
date on which the late payment fee may be charged, and (2) the amount 
of the late payment fee. See 15 U.S.C. 1637(b)(12). In the January 2009 
Regulation Z Rule, the Board implemented this section of TILA f