Truth in Lending, 7658-7925 [2010-624]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 75, Number 34 (Monday, February 22, 2010)]
[Rules and Regulations]
[Pages 7658-7925]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-624]



[[Page 7657]]

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Part II





Federal Reserve System





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12 CFR Parts 226 and 227



Truth in Lending; Unfair or Deceptive Acts or Practices; Final Rules

Federal Register / Vol. 75 , No. 34 / Monday, February 22, 2010 / 
Rules and Regulations

[[Page 7658]]


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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: Final rule.

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SUMMARY: The Board is amending 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. The 
rule establishes 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 rule limits the application of increased rates to 
existing credit card balances, requires credit card issuers to consider 
a consumer's ability to make the required payments, establishes special 
requirements for extensions of credit to consumers who are under the 
age of 21, and limits the assessment of fees for exceeding the credit 
limit on a credit card account.

DATES: Effective date. The rule is effective February 22, 2010.
    Mandatory compliance dates. The mandatory compliance date for the 
portion of Sec.  226.5(a)(2)(iii) regarding use of the term ``fixed'' 
and for Sec. Sec.  226.5(b)(2)(ii), 226.7(b)(11), 226.7(b)(12), 
226.7(b)(13), 226.9(c)(2) (except for 226.9(c)(2)(iv)(D)), 226.9(e), 
226.9(g) (except for 226.9(g)(3)(ii)), 226.9(h), 226.10, 226.11(c), 
226.16(f), and Sec. Sec.  226.51-226.58 is February 22, 2010. The 
mandatory compliance date for all other provisions of this final rule 
is July 1, 2010.

FOR FURTHER INFORMATION CONTACT: Jennifer S. Benson or Stephen Shin, 
Attorneys, Amy Henderson, 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.

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 No. 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 periods in 
which these studies and reports must be completed.
    As is discussed further in the supplementary information to Sec.  
226.5(b)(2), on November 6, 2009, TILA Section 163 was further amended 
by the Credit CARD Technical Corrections Act of 2009 (Technical 
Corrections Act), which narrowed the application of the requirement 
regarding the time consumers receive to pay to credit card accounts. 
Public Law 111-93, 123 Stat. 2998 (Nov. 6, 2009). The Board is as 
adopting amendments to Sec.  226.5(b)(2) to conform to the requirements 
of TILA Section 163 as amended by the Technical Corrections Act.

Implementation of Credit Card Act

    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

[[Page 7659]]

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 has considered comments on the interim 
final rule in connection with this rule.
    On October 21, 2009 the Board published a proposed rule in the 
Federal Register to implement the provisions of the Credit Card Act 
that become effective February 22, 2010 (October 2009 Regulation Z 
Proposal). 74 FR 54124. The comment period on the October 2009 
Regulation Z Proposal closed on November 20, 2009. The Board received 
approximately 150 comments in response to the proposed rule, including 
comments from credit card issuers, trade associations, consumer groups, 
individual consumers, and a member of Congress. As discussed in more 
detail elsewhere in this supplementary information, the Board has 
considered comments received on the October 2009 Regulation Z Proposal 
in adopting this final rule.
    The Board is separately considering 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 intends 
to finalize implementing regulations 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. This final rule incorporates in substance 
those portions of the Board's January 2009 Regulation Z Rule that are 
unaffected by the Credit Card Act, except as specifically noted in V. 
Section-by-Section Analysis. Because the requirements of the Board's 
January 2009 Regulation Z and FTC Act Rules are incorporated in this 
rule, the Board is publishing elsewhere in this Federal Register two 
notices withdrawing the January 2009 Regulation Z Rule and its January 
2009 FTC Act Rule.

Provisions of January 2009 Regulation Z Rule Applicable to HELOCs

    The final rule incorporates 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 final rule includes new Sec. Sec.  226.6(a), 226.7(a) 
and 226.9(c)(1), which are identical to the analogous provisions 
adopted in the January 2009 Regulation Z Rule. 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). This final rule 
is not intended to amend or otherwise affect the August 2009 Regulation 
Z HELOC Proposal. However, the Board believes that these sections are 
necessary to give HELOC creditors clear guidance on how to comply with 
Regulation Z after the effective date of this rule but prior to the 
effective date of the forthcoming final rules directly addressing 
HELOCs.
    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.

Effective Date and Mandatory Compliance Dates

    As noted above, the effective date of the Board's January 2009 
Regulation Z Rule was July 1, 2010. However, the effective date of the 
provisions of the Credit Card Act implemented by this final rule is 
February 22, 2010. Many of the provisions of the Credit Card Act as 
implemented by this final rule are closely related to provisions of the 
January 2009 Regulation Z Rule. For example, 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.
    For consistency with the Credit Card Act, the Board is making the 
effective date for the final rule February 22, 2010. However, in the 
October 2009 Regulation Z Proposal, the Board solicited comment on 
whether compliance should be mandatory on February 22, 2010 for the 
provisions of the January 2009 Regulation Z Rule that are not directly 
affected by the Credit Card Act.
    Many industry commenters urged the Board to retain the original 
July 1, 2010 mandatory compliance date for amendments to Regulation Z 
that are not specifically required by the Credit Card Act. These 
commenters noted that there would be significant operational issues 
associated with accelerating the effective date for all of the 
revisions contained in the January 2009 Regulation Z Rule that are not 
specific requirements of the Credit Card Act. Commenters noted that 
they have already allocated resources and planned for a July 1, 2010 
mandatory compliance date for the January 2009 Regulation Z Rule and 
that it would be unworkable, if not impossible, to comply with all of 
the requirements of this final rule by February 22, 2010. The Board 
notes that this final rule is being issued less than two months prior 
to the February 22, 2010 effective date of the majority of the Credit 
Card Act requirements, and that an acceleration of the mandatory 
compliance date for provisions originally adopted in the January 2009 
Regulation Z Rule that are not directly impacted by the Credit Card Act 
would be extremely burdensome for creditors. For some creditors, it may 
be impossible to implement these provisions by February 22, 2010. 
Accordingly, the Board is generally retaining a July 1, 2010 mandatory 
compliance date for those provisions originally adopted in the January 
2009 Regulation Z Rule that are not requirements of the Credit Card 
Act.\1\
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    \1\ The Board notes that the provisions regarding advance notice 
of changes in terms and rate increases set forth in Sec.  
226.9(c)(2) and (g) apply to all open-end (not home-secured) plans. 
The Credit Card Act's requirements regarding advance notice of 
changes in terms and rate increases, as implemented in this final 
rule, apply only to credit card accounts under an open-end (not 
home-secured) consumer credit plan. In order to have one consistent 
rule for all open-end (not home-secured) plans, compliance with the 
requirements of Sec.  226.9(c)(2) and (g) (except for specific 
formatting requirements) is mandatory for all open-end (not home-
secured) plans on February 22, 2010.
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    Accordingly, as discussed further in VI. Mandatory Compliance 
Dates, the mandatory compliance date for the portion of Sec.  
226.5(a)(2)(iii) regarding use of the term ``fixed'' and for Sec. Sec.  
226.5(b)(2)(ii), 226.7(b)(11), 226.7(b)(12), 226.7(b)(13), 226.9(c)(2) 
(except for 226.9(c)(2)(iv)(D)), 226.9(e), 226.9(g) (except for 
226.9(g)(3)(ii)), 226.9(h), 226.10, 226.11(c), 226.16(f),

[[Page 7660]]

and Sec. Sec.  226.51-226.58 is February 22, 2010. The mandatory 
compliance date for all other provisions of this final rule is July 1, 
2010.

II. Summary of Major Revisions

A. Increases in Annual Percentage Rates

    Existing balances. Consistent with the Credit Card Act, the final 
rule prohibits credit card issuers 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 final rule permits the card issuer to increase 
that rate once the SCRA ceases to apply.
    New transactions. The final rule implements 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 final rule 
provides that a card issuer is permitted to increase the annual 
percentage rates that apply to new transactions so long as the issuer 
provides the consumer with 45 days advance notice of the increase.

B. Evaluation of Consumer's Ability To Pay

    General requirements. The Credit Card Act prohibits credit card 
issuers from opening a new credit card account or increasing the credit 
limit for an existing credit card account unless the issuer considers 
the consumer's ability to make the required payments 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 final 
rule requires card issuers to consider the consumer's ability to make 
the required minimum payments.
    However, because an issuer 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 Board proposed to require issuers 
to use a reasonable method for estimating a consumer's minimum payments 
and proposed a safe harbor that issuers could use to satisfy this 
requirement. For example, with respect to the opening of a new credit 
card account, the proposed safe harbor provided that it would be 
reasonable for an issuer to estimate minimum payments based on a 
consumer's utilization of the full credit line using the minimum 
payment formula employed by the issuer with respect to the credit card 
product for which the consumer is being considered.
    Based on comments received and further analysis, the final rule 
adopts these aspects of the proposal. In addition, the final rule 
provides that--if the applicable minimum payment formula includes fees 
and accrued interest--the estimated minimum payment must include 
mandatory fees and must include interest charges calculated using the 
annual percentage rate that will apply after any promotional or other 
temporary rate expires.
    The proposed rule would also have specified the types of factors 
card issuers should review in considering a consumer's ability to make 
the required minimum payments. Specifically, it provided that an 
evaluation of a consumer's ability to pay must include a review of the 
consumer's income or assets as well as 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, an issuer would have been permitted to 
rely on information provided by the consumer or information in a 
consumer's credit report.
    Based on comments received and further analysis, the final rule 
adopts these aspects of the proposal. In addition, when evaluating a 
consumer's ability to pay, the final rule requires issuers to consider 
the ratio of debt obligations to income, the ratio of debt obligations 
to assets, or the income the consumer will have after paying debt 
obligations (i.e., residual income). Furthermore, the final rule 
provides that it would be unreasonable for an issuer not to review any 
information about a consumer's income, assets, or current obligations, 
or to issue a credit card to a consumer who does not have any income or 
assets. Finally, in order to provide flexibility regarding 
consideration of income or assets, the final rule permits issuers to 
make a reasonable estimate of the consumer's income or assets based on 
empirically derived, demonstrably and statistically sound models.
    Specific requirements for underage consumers. Consistent with the 
Credit Card Act, the final 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) 
Information indicating that the underage consumer has the ability to 
make the required payments for the account; or (2) 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.

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 final rule contains official staff commentary to assist 
creditors in complying with these prohibitions. For example, the 
commentary clarifies 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 commentary also clarifies 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 commentary states 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 final rule also 
implements 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 final rule states 
that an institution may comply with this requirement by,

[[Page 7661]]

for example, posting the agreement on its Web site or by making the 
agreement available upon request.
    In addition, the final rule implements the provisions of the Credit 
Card Act requiring card issuers to make annual reports to the Board 
regarding any business, marketing, or promotional agreements between 
the issuer and an institution of higher education (or an affiliated 
organization) regarding the issuance of credit cards to students at 
that institution. The first report must provide information regarding 
the 2009 calendar year and must be submitted to the Board by February 
22, 2010.\2\
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    \2\ Technical specifications for these submissions are set forth 
in Attachment I to this Federal Register notice.
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D. Fees or Charges for Transactions That Exceed the Credit Limit

    Consumer consent requirement. Consistent with the Credit Card Act, 
the final rule requires credit card issuers to 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 issuer 
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 issuer 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 final rule applies these requirements to all consumers 
(including existing accountholders) if the issuer imposes a fee or 
charge for paying an over-the-limit transaction. Thus, after February 
22, 2010, issuers are 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 issuer'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 final rule would prohibit an issuer from 
imposing more than one over-the-limit fee or charge per billing cycle. 
In addition, an issuer 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 have prohibited issuers from assessing over-the-limit fees 
or charges that are caused by the issuer's failure to promptly 
replenish the consumer's available credit. The proposed rule would have 
also prohibited issuers 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 have prohibited the 
imposition of any over-the-limit fees or charges if the credit limit is 
exceeded solely because of the issuer's assessment of fees or charges 
(including accrued interest charges) on the consumer's account. The 
final rule adopts these prohibitions.

E. 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. In addition, 
the Credit Card Act provided that, when a balance on an account is 
subject to a deferred interest or similar program, excess payments must 
be allocated first to that balance during the last two billing cycles 
of the deferred interest period so that the consumer can pay the 
balance in full and avoid deferred interest charges.
    The final rule mirrors the statutory requirements. However, in 
order to provide consumers who utilize deferred interest programs with 
an additional means of avoiding deferred interest charges, the final 
rule also permits issuers to allocate excess payments in the manner 
requested by the consumer at any point during a deferred interest 
period. This exception allows issuers to retain existing programs that 
permit consumers to, for example, pay off a deferred interest balance 
in installments over the course of the deferred interest period. 
However, this provision applies only when a balance on an account is 
subject to a deferred interest or similar program.

F. Timely Settlement of Estates

    The Credit Card Act directs the Board to prescribe regulations 
requiring credit card issuers 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 have imposed two 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 issuer would have 
been required to disclose the amount of the balance in a timely manner. 
The final rule adopts this requirement. Second, once an administrator 
has requested the account balance, the proposed rule would have 
prohibited the issuer from imposing additional fees and charges on the 
account so that the amount of the balance does not increase while the 
administrator is arranging for payment. However, because the Board was 
concerned that a permanent moratorium on fees and interest charges 
could be unduly burdensome, the proposal solicited comment on whether a 
particular period of time would generally be sufficient to enable an 
administrator to arrange for payment.
    Based on comments received and further analysis, the Board believes 
that it would not be appropriate to permanently prohibit the accrual of 
interest on a credit card account once an administrator requests the 
account balance because interest will continue to accrue on other types 
of credit accounts that are part of the estate. Instead, the final rule 
provides that--if the administrator pays the balance stated by the 
issuer in full within 30 days--the issuer must waive any additional 
interest charges. However, the final rule retains the proposed 
prohibition on the imposition of additional fees so that the account is 
not, for example, assessed late payment fees or annual fees while the 
administrator is settling the estate.

G. On-Line Disclosure of Credit Card Agreements

    The Credit Card Act requires issuers 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.

[[Page 7662]]

    The final rule adopts the proposed requirement that issuers post on 
their Web sites or otherwise make available their credit card 
agreements with current cardholders. In addition, consistent with the 
Credit Card Act, the final rule generally requires that--no later than 
February 22, 2010--issuers submit to the Board for posting on its Web 
site all credit card agreements offered to the public as of December 
31, 2009. Subsequent submissions are due on August 2, 2010 and on a 
quarterly basis thereafter.\3\
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    \3\ Technical specifications for these submissions are set forth 
in Attachment I to this Federal Register notice.
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    However, the final rule also adopts certain exceptions to this 
submission requirement. First, the final rule adopts the proposed de 
minimis exception for issuers with fewer than 10,000 open credit card 
accounts. Because the overwhelming majority of credit card accounts are 
held by issuers 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. Similarly, based on 
comments received and further analysis, the final rule provides that 
issuers are not required to submit agreements for private label plans 
offered on behalf of a single merchant or a group of affiliated 
merchants or for plans that are offered in order to test a new credit 
card product so long as the plan involves no more than 10,000 credit 
card accounts.
    Second, the final rule adopts the proposed exception for 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 final 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.
    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 issuer from imposing finance 
charges on the portion of the balance that has been repaid.
    Fees for making payment. The Credit Card Act prohibits issuers from 
charging a fee for making a payment, except for payments involving an 
expedited service by a service representative of the issuer.
    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

General Rulemaking 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 final 
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.

Authority To Issue Final Rule With an Effective Date of February 22, 
2010

    Because the provisions of the Credit Card Act implemented by this 
final rule are effective on February 22, 2010,\4\ this final rule is 
also effective on February 22, 2010 (except as otherwise provided). The 
Administrative Procedure Act (5 U.S.C. 551 et seq.) (APA) generally 
requires that rules be published not less than 30 days before their 
effective date. See 15 U.S.C. 553(d). However, the APA provides an 
exception when ``otherwise provided by the agency for good cause found 
and published with the rule.'' Id. Sec.  553(d)(3). Although the Board 
is issuing this final rule more than 30 days before February 22, 2010, 
it is unclear whether it will be published in the Federal Register more 
than 30 days before that date.\5\ Accordingly, the Board finds that 
good cause exists to publish the final rule less than 30 days before 
the effective date.
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    \4\ See Credit Card Act Sec.  3.
    \5\ The date on which the Board's notice is published in the 
Federal Register depends on a number of variables that are outside 
the Board's control, including the number and size of other notices 
submitted to the Federal Register prior to the Board's notice.

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[[Page 7663]]

    Similarly, although 12 U.S.C. 4802(b)(1) generally requires that 
new regulations and amendments to existing regulations take effect on 
the first day of the calendar quarter which begins on or after the date 
on which the regulations are published in final form (in this case, 
April 1, 2010), the Board has determined that--in light of the 
statutory effective date--there is good cause for making this final 
rule effective on February 22, 2010. See 12 U.S.C. 4802(b)(1)(A) 
(providing an exception to the general requirement when ``the agency 
determines, for good cause published with the regulation, that the 
regulations should become effective before such time''). Furthermore, 
the Board believes that providing creditors with guidance regarding 
compliance before April 1, 2010 is consistent with 12 U.S.C. 
4802(b)(1)(C), which provides an exception to the general requirement 
when ``the regulation is required to take effect on a date other than 
the date determined under [12 U.S.C. 4802(b)(1)] pursuant to any other 
Act of Congress.''
    Finally, TILA Section 105(d) provides that any regulation of the 
Board (or any amendment or interpretation thereof) requiring any 
disclosure which differs from the disclosures previously required by 
Chapters 1, 4, or 5 of TILA (or by any regulation of the Board 
promulgated thereunder) shall have an effective date no earlier than 
``that October 1 which follows by at least six months the date of 
promulgation.'' However, even assuming that TILA Section 105(d) applies 
to this final rule, the Board believes that the specific provision in 
Section 3 of the Credit Card Act governing effective dates overrides 
the general provision in TILA Section 105(d).

IV. Applicability of 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 implemented in 
Regulation Z are applicable to which types of open-end credit products. 
In order to clarify the scope of the revisions to Regulation Z, the 
Board is providing the below table, which summarizes the applicability 
of each of the major revisions to Regulation Z.\6\
---------------------------------------------------------------------------

    \6\ 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 has not changed 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)(A).........  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.5(b)(2)(ii)(B).........  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 October 2009 Regulation Z Proposal would 
have further revised 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 have 
defined 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 Board proposed to move the definitions of ``credit 
card'' and ``charge card'' in the January 2009 Regulation Z Rule to 
Sec.  226.2(a)(15)(i) and (iii), respectively.
    The Board noted that the exclusion of credit cards that access a 
home-equity plan subject to Sec.  226.5b was consistent

[[Page 7664]]

with the approach adopted by the Board in the July 2009 Regulation Z 
Interim Final Rule. See 74 FR 36083. Specifically, in the interim final 
rule, 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 proposed to 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.\7\ The Board 
noted that this interpretation was 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. Commenters generally supported this exclusion, which is 
adopted in the final rule.
---------------------------------------------------------------------------

    \7\ 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 Sec.  226.9(c)(2), the implementation of new TILA 
Section 127(m) in Sec. Sec.  226.5(a)(2)(iii) and 226.16(f), and the 
implementation of new TILA Section 127(o)(2) in Sec.  226.10(d).
---------------------------------------------------------------------------

    The Board also proposed 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 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.\8\
---------------------------------------------------------------------------

    \8\ 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.\9\ 
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 proposed 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.
---------------------------------------------------------------------------

    \9\ 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) (``Changes in 
U.S. Family Finances from 2004 to 2007'').
---------------------------------------------------------------------------

    Commenters generally supported this exclusion, which is adopted in 
the final rule. Several industry commenters also requested that the 
Board exclude lines of credit accessed by a debit card that can be used 
only at automated teller machines and lines of credit accessed solely 
by account numbers. These commenters argued that--like overdraft lines 
of credit accessed by a debit card--these products are not 
``traditional'' credit cards and that creditors may be less willing to 
provide these products if they are required to comply with the 
provisions of the Credit Card Act. They also noted that the Board has 
excluded these products from the disclosure requirements for credit and 
charge cards in Sec.  226.5a and the definition of ``consumer credit 
card account'' in the January 2009 FTC Act Rule. See Sec.  
226.5a(a)(5); 12 CFR 227.21(c), 74 FR 5560.
    The Board believes that, as a general matter, Congress intended the 
Credit Card Act to apply broadly to products that meet the definition 
of a credit card. As discussed above, the Board's exclusion of HELOCs 
and overdraft lines of credit accessed by cards is based on the Board's 
determination that alternative forms of regulation exist that are 
better suited to protecting consumers from harm with respect to those 
products. No such alternative exists for lines of credit accessed 
solely by account numbers. Similarly, although the protections in 
Regulation E generally apply when a debit card is used at an automated 
teller machine to credit a deposit account with funds obtained from a 
line of credit,\10\

[[Page 7665]]

Regulation E generally does not apply when a debit card is used at an 
automated teller machine to obtain cash from the line of credit. 
Furthermore, because it appears that both type of credit lines are more 
likely to be used for long-term extensions of credit than overdraft 
lines, consumers are more likely to experience substantial harm if--for 
example--an increased annual percentage rate is applied to an 
outstanding balance.\11\ Thus, the Board does not believe that an 
exclusion is warranted for lines of credit accessed by a debit card 
that can be used only at automated teller machines or lines of credit 
accessed solely by account numbers.
---------------------------------------------------------------------------

    \10\ 12 CFR 205.3(a) (stating that Regulation E ``applies to any 
electronic fund transfer that authorizes a financial institution to 
debit or credit a consumer's account'').
    \11\ Commenters that supported an exclusion for lines of credit 
accessed by a debit card that can be used only at automated teller 
machines noted that--unlike most credit cards--the debit card cannot 
access the line of credit for purchases at point of sale. However, 
it appears that consumers can use the debit card to obtain 
extensions of credit either in the form of cash or a transfer of 
funds to a deposit account.
---------------------------------------------------------------------------

    Finally, the Board notes that the revisions to 226.2(a)(15) are 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.''

Section 226.5 General Disclosure Requirements

5(a) Form of Disclosures
5(a)(2) Terminology
    New TILA Section 127(m) (15) U.S.C. 1637(m)), as added by Section 
103 of the Credit Card Act, 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. 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. As discussed 
in the October 2009 Regulation Z Proposal, 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). Sections 226.5(a)(2)(iii) and 226.16(f) were therefore 
republished in the October 2009 Regulation Z Proposal to implement TILA 
Section 127(m). The Board did not receive any comments on Sec. Sec.  
226.5(a)(2)(iii) and 226.16(f), and they are adopted as proposed.
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 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, 
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 Sec.  226.55(d); 
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 has adopted 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 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 comment is not intended 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 further states 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.\12\
---------------------------------------------------------------------------

    \12\ 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.
---------------------------------------------------------------------------

    In the October 2009 Regulation Z Proposal, the Board solicited 
comment on whether additional facts and circumstances were relevant. 
The Board also solicited 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).
    On the one hand, consumer groups commenters stated that the Board's 
proposed approach was not sufficiently restrictive. They argued that 
Sec.  226.9(c)(2) should apply whenever a

[[Page 7666]]

credit card account is substituted or replaced with another credit card 
account so that consumers will always receive 45 days' notice before 
any significant new terms take effect. However, the Board is concerned 
that this strict approach may not be beneficial to consumers overall. 
As discussed above, when an existing cardholder has requested new 
features or benefits, the cardholder generally will not want to wait 45 
days to receive those features or benefits. Although a card issuer 
could provide the new features or benefits immediately, it may not be 
willing to do so if it cannot simultaneously compensate for the 
additional features or benefits by, for example, charging a higher 
annual percentage rate on new transactions or adding an annual fee.
    On the other hand, industry commenters stated that the Board's 
proposed