Truth in Lending, 22948-23040 [2011-8843]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 76, Number 79 (Monday, April 25, 2011)]
[Rules and Regulations]
[Pages 22948-23040]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8843]



[[Page 22947]]

Vol. 76

Monday,

No. 79

April 25, 2011

Part II





Federal Reserve System





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12 CFR Part 226



Truth in Lending; Final Rule

Federal Register / Vol. 76 , No. 79 / Monday, April 25, 2011 / Rules 
and Regulations

[[Page 22948]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1393]
RIN 7100-AD55


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: On February 22, 2010 and June 29, 2010, the Board published in 
the Federal Register final rules amending Regulation Z's provisions 
that apply to open-end (not home-secured) credit plans, in each case in 
order to implement provisions of the Credit Card Accountability 
Responsibility and Disclosure Act of 2009. The Board believes that 
clarification is needed regarding compliance with certain aspects of 
the final rules. Accordingly, to facilitate compliance, the Board is 
further amending specific portions of the regulations and official 
staff commentary.

DATES: Effective Date: October 1, 2011. Mandatory Compliance Date: 
October 1, 2011. Creditors may, at their option, comply with this rule 
prior to October 1, 2011.

FOR FURTHER INFORMATION CONTACT: Stephen Shin, Attorney, or Amy 
Henderson or Benjamin K. Olson, 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

The Credit Card Act

    The Credit Card Accountability Responsibility and Disclosure Act of 
2009 (Credit Card Act) was signed into law on May 22, 2009. Public Law 
111-24, 123 Stat. 1734 (2009). The Credit Card Act primarily amended 
the Truth in Lending Act (TILA) and instituted a number of new 
substantive and disclosure requirements to establish fair and 
transparent practices pertaining to open-end consumer credit plans.
    The requirements of the Credit Card Act that pertain to credit 
cards or other open-end credit for which the Board has rulemaking 
authority became effective in three stages. First, provisions generally 
requiring that consumers receive 45 days' advance notice of interest 
rate increases and significant changes in terms (TILA Section 127(i)) 
and provisions regarding the amount of time that consumers have to make 
payments (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 (TILA Section 171), over-the-limit 
transactions (TILA Section 127(k)), and student cards (TILA Sections 
127(c)(8), 127(p), and 140(f)) became 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 (TILA Section 149) and re-evaluation by creditors of rate 
increases (TILA Section 148) became effective on August 22, 2010 (15 
months after enactment).

Implementation of Credit Card Act

    The Board issued rules to implement the provisions of the Credit 
Card Act in stages, consistent with the statutory timeline established 
by Congress. On July 22, 2009, the Board published an interim final 
rule to implement the provisions of the Credit Card Act that became 
effective on August 20, 2009. See 74 FR 36077 (July 2009 Interim Final 
Rule). On January 12, 2010, the Board issued a final rule adopting in 
final form the requirements of the July 2009 interim final rule and 
implementing the provisions of the Credit Card Act that became 
effective on February 22, 2010. See 75 FR 7658 (February 2010 Final 
Rule). Independent of the Credit Card Act, this rule also incorporated 
the Board's comprehensive changes to the Regulation Z provisions 
applicable to open-end (not home-secured) credit, including amendments 
that affected 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. Finally, on June 29, 2010, the Board published a final 
rule implementing the provisions of the Credit Card Act that became 
effective on August 22, 2010. See 75 FR 37526 (June 2010 Final Rule).
    Since publication of the February 2010 and June 2010 Final Rules, 
the Board has become aware that clarification is needed to resolve 
confusion regarding how institutions must comply with particular 
aspects of those rules. In order to provide guidance and facilitate 
compliance with the final rules, the Board published proposed 
amendments to portions of the regulation and the accompanying staff 
commentary on November 2, 2010. See 75 FR 67458 (November 2010 Proposed 
Rule).
    In response to the proposed rule, the Board received approximately 
200 comment letters from members of Congress, credit card issuers and 
their employees, consumer groups and individual consumers, trade 
associations, and others. Based on a review of these comments and on 
its own analysis, the Board is adopting this final rule. The provisions 
of this rule are discussed in detail in Section III of this 
supplementary information. In the proposed rule, the Board encouraged 
commenters to limit their submissions to the issues addressed in the 
proposal, emphasizing that the purpose of this rulemaking is to clarify 
and facilitate compliance with the consumer protections contained in 
the February 2010 and June 2010 Final Rules, not to reconsider the need 
for--or the extent of--the protections in those rules. Accordingly, to 
the extent that commenters raised issues that are beyond the scope of 
the proposed rule, those issues are not addressed in this final rule.

II. Statutory Authority

    In the supplementary information for the February 2010 and June 
2010 Final Rules, the Board set forth the sources of its statutory 
authority under the Truth in Lending Act and the Credit Card Act. See 
75 FR 7662 and 75 FR 37528. For purposes of this final rule, the Board 
continues to rely on this legal authority.

III. Section-by-Section Analysis

Section 226.2 Definitions and Rules of Construction

2(a) Definitions

2(a)(15) Credit Card

2(a)(15)(ii) Credit Card Account Under an Open-End (Not Home-Secured) 
Consumer Credit Plan

    In the February 2010 Final Rule, the Board retained the pre-
existing definition of ``credit card'' as any card, plate, or other 
single credit device that may be used from time to time to obtain 
credit. See Sec.  226.2(a)(15)(i). However, the Board also added a new, 
somewhat narrower definition in order to implement the provisions of 
the Credit Card Act that apply to ``credit card account[s] under an 
open end consumer credit plan.'' Specifically, in a new Sec.  
226.2(a)(15)(ii), the Board defined ``credit card account under an 
open-end (not home-secured) consumer credit plan'' to mean any open-end 
credit account accessed by a credit card except: (1) A home-equity plan 
subject to the requirements of Sec.  226.5b that is

[[Page 22949]]

accessed by a credit card; or (2) an overdraft line of credit that is 
accessed by a debit card. This term is generally used in the provisions 
of Regulation Z that implement the Credit Card Act.
    The Board's February 2010 Final Rule declined requests from 
industry commenters to exempt all lines of credit accessed solely by an 
account number from the definition in Sec.  226.2(a)(15)(ii), noting 
Congress' apparent intent that the Credit Card Act apply broadly to all 
products that meet the definition of ``credit card.'' See 75 FR 7664-
7665. However, the Board understands that this determination has caused 
uncertainty about whether all credit products accessed by an account 
number are subject to TILA's credit card provisions.
    In particular, some institutions offer general purpose open-end 
lines of credit that are linked to a checking or other asset account 
with the same institution. The consumer can use the line's account 
number to request an extension of credit, which is then deposited into 
the asset account. The Board understands that there has been some 
confusion as to whether, in these circumstances, the account number is 
a ``credit card'' for purposes of Sec.  226.2(a)(15)(i) and therefore a 
``credit card account under an open-end (not home-secured) consumer 
credit plan'' for purposes of Sec.  226.2(a)(15)(ii). Because most if 
not all credit accounts can be accessed in some fashion by an account 
number, the Board does not believe that Congress generally intended to 
treat account numbers that access a credit account as credit cards for 
purposes of TILA. However, the Board is concerned that, when an account 
number can be used to access an open-end line of credit to purchase 
goods or services, it would be inconsistent with the purposes of the 
Credit Card Act to exempt the line of credit from the protections 
provided for credit card accounts. For example, creditors may offer 
open-end credit accounts designed for online purchases that function 
like a traditional credit card account but can only be accessed using 
an account number. In these circumstances, the Board believes that 
TILA's credit card protections should apply.
    Accordingly, the Board proposed to clarify the application of Sec.  
226.2(a)(15)(i) and (a)(15)(ii) to account numbers by amending comment 
2(a)(15)-2, which provides illustrative examples of credit devices that 
are and are not credit cards. Specifically, the Board proposed to add 
an additional example clarifying that an account number that accesses a 
credit account is not a credit card, unless the account number can 
access an open-end line of credit to purchase goods or services. The 
comment would further clarify that, if, for example, a creditor 
provides a consumer with an open-end line of credit that can be 
accessed by an account number in order to transfer funds into another 
account (such as an asset account with the same creditor), the account 
number is not a credit card for purposes of Sec.  226.2(a)(15)(i). 
However, if the account number can also access the line of credit in 
order to purchase goods or services (such as an account number that can 
be used to purchase goods or services on the Internet), the account 
number is a credit card for purposes of Sec.  226.2(a)(15)(i). 
Furthermore, if the line of credit can also be accessed by a card (such 
as a debit card or prepaid card), then that card is a credit card for 
purposes of Sec.  226.2(a)(15)(i).
    Consistent with this treatment of account numbers, the Board also 
proposed to amend Sec.  226.2(a)(15)(ii)(B)--which currently excludes 
overdraft lines of credit accessed by a debit card from the definition 
of ``credit card account under an open-end (not home-secured) consumer 
credit plan''--to also exclude overdraft lines of credit accessed by an 
account number (such as when a debit card number or checking account 
number is used to make an online purchase that overdraws the asset 
account). In addition, the Board proposed to adopt a new comment 
2(a)(15)-4, which clarifies the test used for determining whether an 
account is a credit card account under an open-end (not home-secured) 
consumer credit plan for purposes of Sec.  226.2(a)(15)(ii). Finally, 
for clarity and consistency, the Board proposed additional non-
substantive revisions to the exception for home-equity plans in Sec.  
226.2(a)(15)(ii)(A).
    Except as discussed below, the revisions to Sec.  226.2(a)(15)(ii) 
and the commentary to Sec.  226.2(a)(15) are adopted as proposed. While 
industry commenters generally supported or did not oppose this aspect 
of the proposal, comments from the prepaid card industry strongly 
objected to the reference to prepaid cards in the proposed example in 
comment 2(a)(15)-2. As discussed above, the Board's proposed amendments 
to comment 2(a)(15)-2 were intended to clarify Sec.  226.2(a)(15)(i)'s 
definition of ``credit card'' with respect to account numbers that 
access lines of credit, not prepaid cards that access lines of credit. 
Accordingly, the Board has revised the proposed example in comment 
2(a)(15)-2 to remove the specific reference to prepaid cards. However, 
a prepaid card is a credit card for purposes of Regulation Z if it 
falls within the general definition of ``credit card'' set forth in 
Sec.  226.2(a)(15) and the accompanying commentary.
    Consumer group commenters objected to the proposed revisions to 
comment 2(a)(15)-2, which could--in their view--create an incentive for 
creditors to develop new products designed to circumvent the Credit 
Card Act. However, the proposed revisions are intended to prevent 
circumvention by clarifying that an account number that accesses an 
open-end line of credit to purchase goods or services is generally 
treated as a credit card for purposes of Regulation Z. To the extent 
that additional products emerge that raise concerns regarding 
circumvention, further revisions to Regulation Z may be appropriate. 
Nevertheless, the Board has revised comment 2(a)(15)-2 to clarify that, 
when an account number can access an open-end line of credit to 
purchase goods or services, a creditor cannot evade Regulation Z's 
credit card provisions by treating the purchases as cash advances or as 
some other type of transaction.

2(a)(15)(iii) Charge Card

    The Board understands that there has been some confusion as to 
whether a charge card is a ``credit card account under an open-end (not 
home-secured) consumer credit plan,'' as defined in Sec.  
226.2(a)(15)(ii). Section 226.2(a)(15)(iii) defines a ``charge card'' 
as a credit card on an account for which no periodic rate is used to 
compute a finance charge. The Board has historically applied the same 
requirements to credit and charge cards, unless otherwise stated. See 
Sec.  226.2(a)(15); comment 2(a)(15)-3. Therefore, as discussed in the 
February 2010 Final Rule, the Board adopted a similar approach when 
implementing the provisions of the Credit Card Act. See 75 FR 7672-
7673. Nevertheless, for clarity and consistency, the Board proposed to 
amend comment 2(a)(15)-3 to state that references to a credit card 
account under an open-end (not home-secured) consumer credit plan in 
Subpart B (Open-End Credit) and Subpart G (Special Rules Applicable to 
Credit Card Accounts and Open-End Credit Offered to Students) include 
charge cards unless otherwise stated.
    The Board also proposed to update the list of provisions in comment 
2(a)(15)-3 that distinguish charge cards from credit cards. In 
addition, the Board proposed to remove the statement in the comment 
that, when the term ``credit card'' is used in the listed provisions, 
it

[[Page 22950]]

refers to credit cards other than charge cards. While generally 
accurate, this statement may be overbroad in certain circumstances. For 
example, the exemption in Sec.  226.7(b)(12)(v)(A) and the safe harbor 
in Sec.  226.52(b)(1)(ii)(C) are limited to charge card accounts that 
require payment of outstanding balances in full at the end of each 
billing cycle. Accordingly, the applicability of a particular provision 
should be determined based on a review of that provision and the 
relevant staff commentary.
    The Board did not receive significant comment on the proposed 
revisions to comment 2(a)(15)-3. Accordingly, that comment is revised 
as proposed.

Section 226.5 General Disclosure Requirements

5(b) Time of Disclosures

5(b)(2) Periodic Statements

    Prior to enactment of the Credit Card Act, TILA Section 163 
generally required creditors to send periodic statements for open-end 
consumer credit plans at least 14 days before the expiration of any 
period within which any credit extended may be repaid without incurring 
a finance charge (i.e., a ``grace period''). See 15 U.S.C. 1666b 
(2008). The Board's Regulation Z, however, extended this 14-day 
requirement to apply even if no grace period was provided. 
Specifically, prior to the 2009 amendments implementing the Credit Card 
Act, Sec.  226.5(b)(2)(ii) required that creditors mail or deliver 
periodic statements at least 14 days before the date by which payment 
was due for purposes of avoiding not only finance charges as a result 
of the loss of a grace period but also any other charges (such as late 
payment fees). See also former comment 5(b)(2)(ii)-1 (2008). Thus, 
before the Credit Card Act, creditors were generally required to 
provide consumers with at least 14 days to make payments for all open-
end consumer credit accounts.
    Effective August 20, 2009, the Credit Card Act amended TILA Section 
163 to generally prohibit a creditor from treating a payment as late or 
imposing additional finance charges with respect to open-end consumer 
credit plans unless the creditor mailed or delivered the periodic 
statement at least 21 days before the payment due date and the 
expiration of any grace period. See Credit Card Act Sec.  106(b)(1). 
The Board's July 2009 interim final rule made corresponding amendments 
to Sec.  226.5(b)(2)(ii) and the accompanying official staff 
commentary. See 74 FR 36077 (July 22, 2009). Because amended TILA 163 
required that periodic statements be mailed at least 21 days before the 
payment due date for all open-end consumer credit accounts even if no 
grace period was provided, the amendments to Sec.  226.5(b)(2)(ii) 
removed the pre-existing 14-day requirement as unnecessary.
    However, in November 2009, the Credit CARD Technical Corrections 
Act of 2009 (Technical Corrections Act) further amended TILA Section 
163. Pub. L. 111-93, 123 Stat. 2998 (Nov. 6, 2009). The Technical 
Corrections Act narrowed the requirement in TILA Section 163(a) that 
statements be mailed or delivered at least 21 days before the payment 
due date to apply only to credit card accounts, rather than to all 
open-end consumer credit plans. However, open-end consumer credit plans 
that provide a grace period remain subject to the 21-day requirement in 
TILA Section 163(b). In its February 2010 Final Rule, the Board 
narrowed the application of Sec.  226.5(b)(2)(ii) for consistency with 
the Technical Corrections Act. However, in doing so, the Board 
inadvertently failed to reinsert the 14-day requirement for open-end 
consumer credit plans without a grace period.
    The Board believes that it would be inconsistent with the purposes 
of the Credit Card Act for consumers to receive less time to make 
payments after its implementation than they did beforehand. 
Accordingly, pursuant to its authority under Section 105(a) of TILA and 
Section 2 of the Credit Card Act, the Board proposed to amend Sec.  
226.5(b)(2)(ii) to reinsert the 14-day requirement for open-end 
consumer credit plans that are not subject to the Credit Card Act's 21-
day requirements.
    Specifically, the Board proposed to revise Sec.  226.5(b)(2)(ii) to 
provide that, in these circumstances, the creditor must adopt 
reasonable procedures designed to ensure that: (1) Periodic statements 
are mailed or delivered at least 14 days prior to the date on which the 
required minimum periodic payment must be made to avoid being treated 
as late; and (2) payments received on or prior to that date are not 
treated as late for any purpose. The Board also proposed corresponding 
revisions to the commentary to Sec.  226.5(b)(2)(ii). Comments from 
industry and consumer groups supported these revisions, which are 
generally adopted as proposed. However, based on further analysis the 
Board has revised Sec.  226.5(b)(2)(ii)(B) to clarify that the 14-day 
requirement applies regardless of whether a grace period applies to the 
account. In other words, the fact that a grace period applies to an 
account does not permit the creditor to treat a payment as late during 
the 14-day period, even if that payment does not satisfy the 
requirements of the grace period.
    The Board also proposed to delete comment 5(b)(2)(iii)-1, which 
provided guidance regarding the pre-Credit Card Act versions of TILA 
Section 163 and Sec.  226.5(b)(2) and was inadvertently retained in the 
February 2010 Final Rule. Prior to enactment of the Credit Card Act, 
TILA Section 163(b) stated that the 14-day mailing requirement did not 
apply ``in any case where a creditor has been prevented, delayed, or 
hindered in making timely mailing or delivery of [the] periodic 
statement within the time specified * * * because of an act of God, 
war, natural disaster, strike, or other excusable or justifiable cause. 
* * *'' Comment 5(b)(2)(iii)-1 clarified that these exceptions did not 
extend to the failure to provide a periodic statement because of a 
computer malfunction. Consumer groups opposed the deletion of this 
comment, arguing that the Board should reaffirm that a computer 
malfunction never excuses a creditor from providing periodic statements 
in a timely manner.
    The Credit Card Act and the Board's final rules replaced the 
exceptions in TILA Section 163(b) with a requirement that creditors 
adopt ``reasonable procedures'' for ensuring that periodic statements 
are mailed or delivered consistent with the appropriate timelines. In 
the February 2010 Final Rule, the Board noted that the Credit Card 
Act's removal of the statutory exceptions was consistent with the 
adoption of a ``reasonable procedures'' standard insofar as a 
creditor's procedures for responding to any of the situations listed in 
prior TILA Section 163(b) will now be evaluated for reasonableness. See 
75 FR 7667. Similarly, the Board believes that it is appropriate to 
evaluate a creditor's procedures for responding to a computer 
malfunction for reasonableness. Accordingly, the final rule deletes 
comment 5(b)(2)(iii)-1.

Section 226.5a Credit and Charge Card Applications and Solicitations

5a(b) Required Disclosures

5a(b)(1) Annual Percentage Rate

Limitations on Rate Decreases
    Section 226.5a(b)(1) requires that the tabular disclosure provided 
with credit and charge card applications and solicitations state each 
periodic rate that may be used to compute the finance charge on an 
outstanding balance for purchases, a cash advance, or a balance 
transfer, expressed as an annual percentage rate. Section 
226.5a(b)(1)(i)

[[Page 22951]]

clarifies this disclosure requirement when a rate is a variable rate. 
In part, Sec.  226.5a(b)(1)(i) provides that a card issuer may not 
disclose any applicable limitations on rate increases or decreases in 
the table.
    Section 226.55 sets forth limitations on rate increases applicable 
to credit card accounts under an open-end (not home-secured) consumer 
credit plan. Section 226.55(b)(2) provides that a card issuer may 
increase an annual percentage rate when (1) the rate varies according 
to an index that is not under the card issuer's control and is 
available to the general public, and (2) the rate increase is due to an 
increase in that index. In the February 2010 Final Rule, the Board 
adopted comment 55(b)(2)-2 that clarified that a card issuer exercises 
control over the operation of an index if the variable rate based on 
that index is subject to a fixed minimum rate or similar requirement 
that does not permit the variable rate to decrease consistent with 
reductions in the index.
    In November 2010, the Board proposed to amend Sec.  226.5a(b)(1)(i) 
for conformity with comment 55(b)(2)-2. The Board is aware that, as a 
practical matter, Sec.  226.55(b)(2) and comment 55(b)(2)-2 preclude 
card issuers from imposing a variable rate that is subject to a fixed 
minimum rate. Accordingly, the Board proposed to delete as unnecessary 
language in Sec.  226.5a(b)(1)(i) providing that a card issuer may not 
disclose any applicable limitations on rate decreases in the table. The 
Board received no comment on this change, which is adopted as proposed.
    In the supplementary information to the November 2010 Proposed 
Rule, the Board noted that Sec.  226.6(b)(2)(i)(A) contains analogous 
language regarding limitations on rate decreases. However, Sec.  
226.55(b)(2) applies only to credit card accounts under an open-end 
(not home-secured) consumer credit plan while Sec.  226.6(b) applies to 
all open-end (not home-secured) credit. Therefore, the Board did not 
propose to delete the reference to limitations on rate decreases from 
Sec.  226.6(b)(2)(i)(A). But see Sec.  226.9(c)(2)(v)(C) regarding the 
notice requirements that apply to an open-end (not home-secured) plan 
with a variable rate that is subject to a fixed minimum rate.
Loss of Employee Preferential Rates
    If a rate may increase as a penalty for one or more events 
specified in the account agreement, Sec.  226.5a(b)(1)(iv) requires 
that the card issuer disclose the increased rate that may apply, a 
brief description of the event or events that may result in the 
increased rate, and a brief description of how long the increased rate 
will remain in effect. This disclosure generally must appear in the 
Sec.  226.5a table; however, Sec.  226.5a(b)(1)(iv)(B) provides that, 
for introductory rates as defined in Sec.  226.16(g)(2)(ii), the card 
issuer must briefly disclose directly beneath the table the 
circumstances, if any, under which the introductory rate may be 
revoked, and the type of rate that will apply after the introductory 
rate is revoked. The Board adopted this format requirement for the 
disclosure regarding loss of an introductory rate in part due to 
concerns that including this information in the tabular disclosure 
could lead to ``information overload.'' See 74 FR 5244, 5286.
    The Board noted in the November 2010 Proposed Rule that some 
issuers may offer preferential or reduced rates at account opening that 
are not ``introductory rates'' as defined in Sec.  226.16(g)(2)(ii). 
For example, an issuer may offer a preferential rate to its employees. 
Eligibility for the preferential or reduced rate is conditioned upon 
the consumer's continued employment with the issuer. Accordingly, if 
the consumer's employment is terminated, the contract provides that the 
rate will increase from the reduced preferential rate to a higher rate, 
such as the standard rate on the account.\1\
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    \1\ The Board notes that 45 days' advance notice is required 
pursuant to Sec.  226.9(g) prior to imposition of the higher rate. 
See 74 FR 5346. In addition, the limitations set forth in Sec.  
226.55 apply.
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    In the November 2010 Proposed Rule, the Board proposed to adopt a 
new Sec.  226.5a(b)(1)(iv)(C), which would require that disclosures 
regarding the loss of an employee preferential rate be placed directly 
below the tabular disclosure. Proposed Sec.  226.5a(b)(1)(iv)(C) 
generally mirrored Sec.  226.5a(b)(1)(iv)(B) and provided that if a 
card issuer discloses in the table a preferential annual percentage 
rate for which only employees of the creditor or employees of a third 
party are eligible, the card issuer must briefly disclose directly 
beneath the table the circumstances under which such preferential rate 
may be revoked, and the rate that will apply after such preferential 
rate is revoked. The Board also proposed a new Sec.  
226.6(b)(2)(i)(D)(3) that would mirror proposed Sec.  
226.5a(b)(1)(iv)(C) and would require that brief disclosures regarding 
the loss of an employee preferential rate be placed directly below the 
tabular disclosure provided at account opening. The Board also proposed 
conforming amendments to the formatting requirements set forth in 
Sec. Sec.  226.5a(a)(2)(iii) and 226.6(b)(1)(ii). For ease of 
reference, this section of supplementary information addresses both 
proposed Sec.  226.5a(b)(1)(iv)(C) and Sec.  226.6(b)(2)(i)(D)(3).
    The Board also proposed a new comment 5a(b)(1)-5.iv to provide 
guidance regarding the disclosure below the table of the circumstances 
under which an employee preferential rate may be revoked. Proposed 
comment 5a(b)(1)-5.iv generally mirrored relevant portions of the 
guidance set forth in comment 5a(b)(1)-5.ii regarding the revocation of 
introductory rates. In addition, proposed comment 5a(b)(1)-5.iv 
clarified that the description of the circumstances in which an 
employee preferential rate could be revoked should be brief. For 
example, if an issuer may increase an employee preferential rate based 
upon termination of the employee's employment relationship with the 
issuer or a third party, the proposed comment clarified that an issuer 
may describe this circumstance as ``if your employment with [issuer or 
third party] ends.''
    Several industry commenters expressed concerns that the proposal 
would add new disclosure requirements for employee preferred rates. One 
commenter stated that when a creditor offers an employee rate it is not 
usually disclosed in the tabular disclosures provided pursuant to 
Sec. Sec.  226.5a and 226.6(b). This commenter stated that the tabular 
disclosures are drafted for general use and, if an employee applies, 
the account terms are subsequently amended to provide for the employee 
preferred rate. The commenter asked the Board to clarify that the 
proposal would not require creditors to disclose employee preferential 
rates in the tables provided pursuant to Sec. Sec.  226.5a and 
226.6(b). Two other industry commenters expressed concerns that the 
proposal would require a new disclosure to be included in application 
and account-opening disclosures relating to the potential loss of an 
employee preferred rate. These commenters argued that such disclosure 
requirements, particularly when paired with the advance notice 
requirements of Sec.  226.9 and the limitations on rate increases in 
Sec.  226.55, could result in reduced availability of beneficial 
employee rate programs, because issuers would be required to provide 
special disclosures to employees who receive preferred employee rates, 
while at the same time the advance notice requirements and limitations 
on rate increases would apply when the consumer's employment ends. 
These commenters recommended that the temporary rate exception be 
expanded

[[Page 22952]]

to permit issuers to increase rates, or fees where appropriate, based 
on termination of a consumer's employment, without being subject to 45-
day advance notice or the limitations in Sec.  226.55.
    The Board notes that proposed Sec. Sec.  226.5a(b)(1)(iv)(C) and 
226.6(b)(2)(i)(D)(3) were not intended to impose any new disclosure 
requirements regarding employee preferential rates, but were rather 
intended to clarify the placement requirements for disclosures that are 
already required under Regulation Z. Sections 226.5a(b)(1) and 
226.6(b)(2)(i) currently require disclosure of each periodic rate that 
may be used to compute the finance charge on an outstanding balance for 
purchases, a cash advance, or a balance transfer. Thus, the Board 
believes that under current Regulation Z requirements, employee 
preferential rates must be included in the tabular disclosures provided 
pursuant to Sec. Sec.  226.5a and 226.6(b), if they are, or will be, 
included in the initial account agreement.\2\ In addition, Sec. Sec.  
226.5a(b)(1)(iv)(A) and 226.6(b)(2)(i)(D) currently require that 
certain additional disclosures be provided if a rate may increase as a 
penalty for one or more events specified in the account agreement. As 
stated in the supplementary information to its final rule published on 
January 29, 2009, the Board believes that an increase in rate due to 
the termination of a consumer's employment is a type of rate increase 
as a penalty, even if the circumstances under which the change may 
occur are set forth in the account agreement. See 74 FR 5244, 5346 
(January 2009 Final Rule). Accordingly, the Board believes that 
Sec. Sec.  226.5a(b)(1)(iv)(A) and 226.6(b)(2)(i)(D) currently require 
disclosures regarding the revocation of an employee preferential rate 
that is offered at account opening.
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    \2\ If an employee preferential rate is not included in the 
initial account agreement, but is instead added by an amendment to 
the agreement after account opening, such a rate is not required to 
be disclosed in the tabular disclosures pursuant to Sec. Sec.  
226.5a and 226.6(b). But see Sec.  226.9(c)(2) and (g) for other 
disclosure requirements that may apply.
---------------------------------------------------------------------------

    The Board noted in the proposal that the proposed placement 
requirement would be appropriate in order to prevent ``information 
overload'' and to focus consumers' attention on the disclosures that 
they find the most important. The Board continues to believe that it is 
appropriate to require that disclosures regarding the revocation of an 
employee preferential rate be provided with the tabular disclosures 
provided with credit card applications and solicitations and at account 
opening. However, the Board is concerned that including this 
information, which is likely relevant only to a limited subset of 
consumers, in the tabular disclosure may distract other consumers from 
other key disclosures. Accordingly, the Board is adopting Sec. Sec.  
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) generally as proposed.
    One industry commenter stated that the Board also should apply 
proposed Sec. Sec.  226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) to 
situations in which a preferential rate is offered to a bank's 
insiders, such as executive officers, directors, or principal 
shareholders. The commenter noted that applicable regulations may 
permit preferential rates to be offered to such individuals, but that 
such preferential rates might not be covered by proposed Sec. Sec.  
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) because insiders such as 
executive officers, directors, or principal shareholders are not 
employees of the creditor. The Board believes that it is appropriate to 
extend the guidance in Sec. Sec.  226.5a(b)(1)(iv)(C) and 
226.6(b)(2)(i)(D)(3) to apply to individuals who, while not technically 
employees of the card issuer or third party, have a similar affiliation 
to such entities. The Board believes that, as with employee 
preferential rates, requiring that disclosures regarding the revocation 
of preferential rates offered to such insiders be placed in the tabular 
disclosure may distract some consumers from other key disclosures and 
contribute to information overload. Thus, as adopted, Sec. Sec.  
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) would apply if a card 
issuer or creditor discloses in the table a preferential annual 
percentage rate for which only employees of the card issuer or 
creditor, employees of a third party, or other individuals with similar 
affiliations with the card issuer, creditor, or third party, such as 
executive officers, directors, or principal shareholders, are eligible.
    Consumer group commenters agreed with the Board's statement that 
termination of an employee preferential rate is not a promotional rate 
but is in fact a contingent rate increase. These commenters supported 
the inclusion of footnote 1 in the supplementary information to the 
proposal, which noted that 45 days' advance notice is required pursuant 
to Sec.  226.9(g) prior to imposition of a higher rate upon loss of an 
employee promotional rate and that the limitations set forth in Sec.  
226.55 apply to the rate increase. Consumer groups requested that the 
substance of this footnote be incorporated into the commentary and that 
comment 55(b)(1)-4 be amended to expressly prohibit application of a 
rate increase due to loss of an employee preferential rate to existing 
balances on the account. For the reasons stated in the supplementary 
information to the January 2009 Final Rule and February 2010 Final 
Rule, the Board believes that rate increases that occur upon expiration 
of an employee preferential rate should continue to be subject to the 
advance notice requirements of Sec.  226.9(g) and the substantive 
limitations in Sec.  226.55. See, e.g., 74 FR 5346, 75 FR 7736. 
However, the Board believes that Regulation Z already clearly provides 
that rate increases upon loss of an employee preferential rate require 
45 days' advance notice under Sec.  226.9(g) and are subject to the 
limitations in Sec.  226.55.
    Proposed Sec. Sec.  226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) 
would have applied only to loss of employee preferential rates. The 
Board solicited comment on whether there are other types of 
preferential or reduced rates that are not introductory rates as 
defined in Sec.  226.16(g)(2)(ii) but for which similar treatment under 
Sec.  226.5a would be appropriate. Several industry commenters 
identified other scenarios in which creditors or card issuers may offer 
preferred rates that do not meet the definition of ``introductory 
rates'' in Sec.  226.16(g)(2)(ii). For example, an issuer or creditor 
may offer preferred rates for making payments automatically via 
electronic recurring payments or payroll deduction. Other creditors may 
offer preferred rates as relationship rewards, for example for 
maintaining a deposit account with the creditor or for maintaining a 
minimum balance in a deposit account with the creditor. If the consumer 
fails to continue to meet the conditions associated with the 
preferential rate, the preferential rate will be revoked and a higher 
rate will be imposed.\3\
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    \3\ Similar to employee preferential rates, the Board notes that 
45 days' advance notice is required pursuant to Sec.  226.9(g) prior 
to imposition of the higher rate when the consumer ceases to meet 
the conditions for such preferential rates. In addition, the 
limitations set forth in Sec.  226.55 apply.
---------------------------------------------------------------------------

    At this time, the Board is not extending the guidance in Sec. Sec.  
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) to address the loss of 
preferred rates offered in other circumstances, such as preferred rates 
offered to consumers who make automatic payments or preferred rates 
otherwise offered as relationship rewards. Unlike employee preferred 
rates, which are likely relevant only to a subset of an issuer or 
creditor's

[[Page 22953]]

consumers, the Board believes that relationship rewards or a discount 
for making automatic payments may be relevant to a much larger portion 
of a creditor's customer base. In addition, the Board believes that 
creditors may be more likely to market credit products on the basis of 
preferred rates based on automatic payments or other relationship 
rewards than on the basis of discounted rates that are available only 
if the consumer is employed with the creditor or another specific third 
party. Accordingly, the Board is concerned that permitting disclosures 
regarding the loss of preferential rate programs made available to the 
general public, such as those based upon automatic payments or as other 
types of relationship rewards, to be placed below the Sec. Sec.  226.5a 
and 226.6 tables may detract from consumers' awareness and 
understanding of the circumstances under which such preferred rates can 
be terminated by the creditor.
Disclosure of How Long a Penalty Rate Will Remain in Effect
    If a rate may increase as a penalty for one or more events 
specified in the account agreement, Sec.  226.5a(b)(1)(iv) requires 
that the card issuer disclose the increased rate that may apply, a 
brief description of the event or events that may result in the 
increased rate, and a brief description of how long the increased rate 
will remain in effect. The Board understands that, in light of several 
provisions of the Credit Card Act, there is confusion regarding how 
issuers must disclose the period for which the penalty rate will remain 
in effect. The Board understands that historically some issuers' card 
agreements provided that penalty rates, once triggered, could remain in 
effect indefinitely. However, the enactment of the Credit Card Act 
established certain circumstances in which a card issuer must reduce 
the rate even after penalty pricing has been triggered. In particular, 
Sec.  226.55(b)(4) requires a card issuer to reduce a rate that was 
raised based upon a delinquency of more than 60 days, if the consumer 
makes the first six required minimum payments on time following the 
effective date of the rate increase. In addition, Sec.  226.59 requires 
a card issuer to periodically review accounts on which a rate increase 
has been imposed and, where appropriate based on the review, reduce the 
rate applicable to the account.
    As a consequence of Sec. Sec.  226.55(b)(4) and 226.59, the Board 
understands that it may be unclear how issuers should disclose the 
duration for which a penalty rate will be in effect, for example if the 
contract provides that the penalty rate may remain in effect 
indefinitely, except to the extent otherwise required by Sec. Sec.  
226.55(b)(4) and 226.59. Accordingly, the Board proposed to amend 
comment 5a(b)(1)-5.i to clarify that a card issuer may not disclose in 
the table any limitations imposed by Sec. Sec.  226.55(b)(4) and 226.59 
on the duration of increased rates. Proposed comment 5a(b)(1)-5.i set 
forth two examples. First, the proposed comment provided that if a card 
issuer reserves the right to apply the increased rate to any balances 
indefinitely, the issuer should disclose that the penalty rate may 
apply indefinitely, even though Sec. Sec.  226.55(b)(4) and 226.59 may 
impose limitations on the continued application of a penalty rate to 
certain balances. The second example provided that if the issuer 
generally provides that the increased rate will apply until the 
consumer makes twelve timely consecutive required minimum periodic 
payments, the issuer should disclose that the penalty rate will apply 
until the consumer makes twelve consecutive timely minimum payments, 
even though Sec. Sec.  226.55(b)(4) and 226.59 may impose limitations 
on the continued application of a penalty rate to certain balances.\4\
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    \4\ The Board notes that the second example in proposed comment 
5a(b)(1)-5.i erroneously referred to Sec.  226.54(b)(4) instead of 
Sec.  226.55(b)(4). This typographical error has been corrected in 
the final rule.
---------------------------------------------------------------------------

    One industry commenter supported the proposed changes to comment 
5a(b)(1)-5.i. However, two other industry commenters expressed concerns 
regarding this aspect of the proposal. These commenters stated that 
comment 5a(b)(1)-5.i could contribute to consumer confusion and reduce 
a card issuer's incentive to implement practices that are more 
beneficial to consumers than the minimum requirements of Regulation Z. 
The commenters expressed concern that if an issuer discloses a practice 
that is more beneficial to consumers than the requirements of 
Sec. Sec.  226.55(b)(4) and 226.59--for example, that the issuer will 
lower the rate if the consumer makes three consecutive timely minimum 
payments--consumers will assume that the disclosed practice is 
detrimental to their interests.
    The Board notes that Sec.  226.5a(b)(1)(iv) requires issuers to 
disclose a brief description of how long a penalty rate will remain in 
effect. While the proposed clarification provided that a card issuer 
may not disclose in the table any limitations imposed by Sec. Sec.  
226.55(b)(4) and 226.59 on the duration of increased rates, Sec.  
226.5a(b)(1)(iv) nonetheless requires a card issuer to provide a 
disclosure regarding the duration of penalty rates. For example, if an 
issuer's account agreement generally provides for no automatic cure for 
penalty rates (except as required pursuant to Sec.  226.55(b)(4)), the 
issuer would be required to disclose that the penalty rate may remain 
in effect indefinitely. Similarly, if the account agreement provides 
for a more advantageous cure for penalty rates than is required 
pursuant to Sec.  226.55(b)(4), for example that penalty rates will be 
reduced if the consumer makes three consecutive timely payments, the 
issuer would disclose that fact. Accordingly, the Board believes that 
consumers will be able to compare the practices of different issuers 
and that a disclosure of an automatic penalty pricing cure based upon 
three consecutive timely payments will compare favorably with the 
disclosure provided by an issuer who offers no cure for penalty pricing 
except to the extent required under Sec. Sec.  226.55(b)(4) and 226.59.
    Accordingly, the Board is adopting the changes to comment 5a(b)(1)-
5.i as proposed. The Board believes more complex disclosures explaining 
the applicability of the rules in Sec. Sec.  226.55(b)(4) and 226.59 
would be confusing to consumers, and would be of limited assistance in 
shopping for credit, given that those provisions apply to all issuers. 
In addition, consumers to whose accounts the cure right under Sec.  
226.55(b)(4) applies will be notified of that right when they receive a 
notice under Sec.  226.9(c)(2) or (g) disclosing the associated rate 
increase.

Other Amendments to Sec.  226.5a(b)(1)

    The Board also proposed an amendment to comment 5a(b)(1)-5.ii to 
correct a technical error. As discussed above, pursuant to Sec.  
226.5a(b)(1)(iv)(B), information regarding the revocation of an 
introductory rate is required to be disclosed directly beneath the 
table. Comment 5a(b)(1)-5.ii, which discusses the disclosures regarding 
the revocation of an introductory rate, contained an erroneous 
reference to a disclosure in, rather than beneath, the table. 
Accordingly, the Board proposed a technical amendment to comment 
5a(b)(1)-5.ii for conformity with the placement requirements in Sec.  
226.5a(b)(1)(iv)(B). The Board received no comments on this technical 
correction, which is adopted as proposed.

5a(b)(2) Fees for Issuance or Availability

    Comment 5a(b)(2)-4 states that, if fees required to be disclosed 
are waived or reduced for a limited time, the introductory fees or the 
fact of fee

[[Page 22954]]

waivers may be disclosed in the table in addition to the required fees 
if the card issuer also discloses how long the reduced fees or waivers 
will remain in effect. For the reasons discussed below, the Board has 
revised this comment to clarify that the card issuer must comply with 
the disclosure requirements in Sec. Sec.  226.9(c)(2)(v)(B) and 
226.55(b)(1).

5a(b)(5) Grace Period

    Section 226.5a(b)(5) requires that the tabular disclosure provided 
with credit and charge card applications and solicitations state the 
date by which or the period within which any credit extended for 
purchases may be repaid without incurring a finance charge due to a 
periodic interest rate and any conditions on the availability of the 
grace period. If no grace period is provided, that fact must be 
disclosed.
    Comment 5a(b)(5)-1 states that an issuer that offers a grace period 
on all purchases and conditions the grace period on the consumer paying 
his or her outstanding balance in full by the due date each billing 
cycle, or on the consumer paying the outstanding balance in full by the 
due date in the previous and/or the current billing cycle(s) will be 
deemed to meet the requirements in Sec.  226.5a(b)(5) by providing the 
following disclosure, as applicable: ``Your due date is [at least] ----
-- days after the close of each billing cycle. We will not charge you 
any interest on purchases if you pay your entire balance by the due 
date each month.'' This model language was developed through extensive 
consumer testing.
    In the February 2010 Final Rule, the Board adopted comment 
5a(b)(5)-4, which clarifies that Sec.  226.5a(b)(5) does not require a 
card issuer to disclose the limitations on the imposition of finance 
charges in Sec.  226.54. Implementing the Credit Card Act, Sec.  226.54 
provides that, when a consumer pays some but not all of the balance 
subject to a grace period prior to the expiration of the grace period, 
the card issuer is prohibited from imposing finance charges on the 
portion of the balance paid. In adopting comment 5a(b)(5)-4, the Board 
was concerned that the inclusion of language attempting to describe the 
limitations set forth in Sec.  226.54 could reduce the effectiveness of 
the grace period disclosure in the table. The Board also stated its 
belief that a disclosure of the limitations set forth in Sec.  226.54 
is not necessary insofar as the model language set forth in comment 
5a(b)(5)-1 accurately states that a consumer generally will not be 
charged any interest on purchases if the entire balance is paid by the 
due date each month. Thus, although Sec.  226.54 limits the imposition 
of finance charges if the consumer pays less than the entire balance 
shown on the periodic statement, the model language achieves its 
intended purpose of explaining succinctly how a consumer can avoid all 
interest charges on purchases.
    Many issuers offer a grace period on all purchases under which no 
interest will be charged on purchases shown on a periodic statement if 
a consumer pays his or her outstanding balance shown on the periodic 
statement in full by the due date in the previous and/or the current 
billing cycle(s). Many of these issuers are using the model language 
set forth in comment 5a(b)(5)-1, or substantially similar language, to 
describe the grace period and the conditions on its availability. 
Nonetheless, other issuers have chosen not to use the model language 
set forth in comment 5a(b)(5)-1, even though the issuers would be 
permitted to do so. Some of the issuers that have chosen not to use the 
model language are disclosing the grace period in more technical 
detail, including a discussion of the limitations on imposition of 
finance charges under Sec.  226.54, and the impact of payment 
allocation on whether interest will be charged on purchases due to the 
loss of a grace period. Other issuers are including detailed language 
to explain the conditions on the grace period, such as an explanation 
that the consumer will not be charged any interest on new purchases, or 
any portion of a new purchase, paid by the due date on the consumer's 
current billing statement if the consumer paid his or her entire 
balance on the previous billing statement in full by the due date on 
that statement.
    Thus, in the November 2010 Proposed Rule, the Board proposed to 
revise comment 5a(b)(5)-1 to clarify that issuers must not disclose in 
the table required by Sec.  226.5a the limitations on the imposition of 
finance charges as a result of a loss of a grace period in Sec.  
226.54, or the impact of payment allocation on whether interest is 
charged on purchases as a result of a loss of a grace period. However, 
issuers would not have been prohibited from disclosing this information 
outside the table. Comment 5a(b)(5)-4, which states that card issuers 
are not required to disclose the limitations set forth in Sec.  226.54, 
would have been deleted. As discussed above, the Board believed the 
inclusion of language attempting to describe the limitations set forth 
in Sec.  226.54 or the impact of payment allocation on whether interest 
will be charged on purchases due to the loss of a grace period could 
reduce the effectiveness of the grace period disclosure in the table.
    In addition, the Board proposed to revise comment 5a(b)(5)-1 to 
clarify that, for purposes of the tabular disclosures required by Sec.  
226.5a, certain issuers must use the disclosure language set forth in 
proposed comment 5a(b)(5)-1. Specifically, proposed comment 5a(b)(5)-1 
noted that some issuers may offer a grace period on all purchases under 
which interest will not be charged on purchases if the consumer pays 
the outstanding balance shown on a periodic statement in full by the 
due date shown on that statement for one or more billing cycles. The 
proposed comment would have clarified that in these circumstances, 
Sec.  226.5a(b)(5) requires that the issuer disclose the grace period 
and the conditions for its applicability using the following language, 
or substantially similar language, as applicable: ``Your due date is 
[at least] ---- days after the close of each billing cycle. We will not 
charge you any interest on purchases if you pay your entire balance by 
the due date each month.'' As discussed above, this disclosure language 
was developed through extensive consumer testing, and the Board 
believed this disclosure language achieves its intended purpose of 
explaining succinctly how a consumer can avoid all interest charges on 
purchases.
    The Board recognized that some issuers may structure their grace 
periods differently than as described above, and the disclosure 
language described above may not be accurate for those issuers. 
Proposed comment 5a(b)(5)-1 noted that some issuers may offer a grace 
period on all purchases under which interest may be charged on 
purchases even if the consumer pays the outstanding balance shown on a 
periodic statement in full by the due date shown on that statement each 
billing cycle. As an example, the proposal noted that an issuer may 
charge interest on purchases if the consumer uses the account for a 
cash advance, regardless of whether the outstanding balance shown on 
the periodic statement is paid in full by the due date shown on that 
statement. In these circumstances, proposed comment 5a(b)(5)-1 
clarified that Sec.  226.5a(b)(5) requires the issuer to amend the 
above disclosure language to describe accurately the conditions on the 
applicability of the grace period. Nonetheless, under the proposal, 
these issuers in disclosing the grace period and the conditions on its 
availability in the Sec.  226.5a table still would not have been 
allowed to disclose the limitations on the imposition of finance 
charges as a result of a loss of a grace period in

[[Page 22955]]

Sec.  226.54, or the impact of payment allocation on whether interest 
is charged on purchases as a result of a loss of a grace period.
    Consumer group commenters objected to the proposed example in 
comment 5a(b)(5)-1, arguing that, when a consumer pays the outstanding 
balance shown on a periodic statement in full by the due date shown on 
that statement, a card issuer should not be permitted to charge 
interest on purchases based on the consumer's use of the account for a 
cash advance. As discussed below, these commenters requested that the 
Board ban this and other issuer practices related to grace periods 
using its authority under the Federal Trade Commission Act (FTC Act). 
In revising comment 5a(b)(5)-1, the Board intended to clarify the 
requirements for disclosing grace periods, not to opine on whether 
particular grace period practices are permissible. Accordingly, the 
final version of comment 5a(b)(5)-1 does not include the proposed 
example.
    One industry commenter opposed the proposed modifications to 
comment 5a(b)(5)-1 that would prohibit a card issuer from disclosing in 
the table any limitations on the imposition of finance charges as a 
result of a loss of a grace period in Sec.  226.54, or the impact of 
payment allocation on whether interest is charged on purchases as a 
result of a loss of a grace period. The commenter believes the impact 
of payment allocation on whether interest is charged on purchases as 
the result of a loss of a grace period is very important information 
for an applicant attempting to determine the cost of a credit program 
based on how they intend to use various features of the account. For 
example, if a customer must pay one credit feature in full (due to 
payment allocation requirements) before payments are applied to a 
second credit feature nearing the end of its grace period, the 
commenter believed that the consumer should be alerted to such a 
situation in the table because it could require a significant 
commitment of resources by the consumer to avoid paying interest on the 
second credit feature. The commenter requested that the Board adopt 
model language that would address this situation, such as the following 
language: ``We will not charge you interest if you pay the full balance 
of credit feature 1 and any balance in credit feature 2 in full by the 
due date each billing period.''
    Except as discussed above, comment 5a(b)(5)-1 is adopted as 
proposed. As noted earlier, the Board believes the inclusion of 
language attempting to describe the limitations set forth in Sec.  
226.54 or the impact of payment allocation on whether interest will be 
charged on purchases due to the loss of a grace period could reduce the 
effectiveness of the grace period disclosure in the table. Under 
comment 5a(b)(5)-1, an issuer must use the following language to 
describe the grace period as applicable: ``Your due date is [at least] 
---- days after the close of each billing cycle. We will not charge you 
any interest on purchases if you pay your entire balance by the due 
date each month.'' This language achieves its intended purpose of 
explaining succinctly how a consumer can avoid all interest charges on 
purchases, namely by paying the entire balance by the due date each 
month.
    Ban on certain types of grace periods. In response to the November 
2010 Proposed Rule, several consumer groups requested that the Board 
develop model language for different types of grace periods and require 
the use of such model language for all issuers. In addition, the 
consumer groups requested that the Board use its authority under the 
FTC Act to limit issuers to the types of grace period for which there 
is model language. These consumer groups believe that some issuers are 
making grace period disclosures, and structuring grace periods 
themselves, in a manner that is confusing, deceptive, or unfair. In the 
November 2010 Proposed Rule, the Board did not propose to use its FTC 
Act authority to ban issuers from using certain types of grace periods, 
and is not adopting such a ban as part of the final rule.
    Conditions on the grace period for certain future promotional 
offers. One industry commenter requested that the Board revise proposed 
comment 5a(b)(5)-1 to clarify that an issuer is not required to 
disclose in the table any conditions that a future promotional offer 
might place on the grace period. Specifically, this commenter indicated 
that some promotional offers place limitations on the grace period. For 
example, a promotional offer may provide that the grace period is 
eliminated for purchases under that offer, even if the customer pays 
his or her balance in full. The commenter argued that if the promotion 
is part of the account-opening offer, it is appropriate to include the 
specific limitations in the account-opening table. The commenter 
argued, however, that if the promotion is not offered at account-
opening, it would not be appropriate to include the specific 
limitations in the account-opening table because they may never apply. 
The commenter believed that such disclosure would be confusing to 
consumers and potentially incorrect and misleading. In this case, the 
commenter believed that the applicable grace period disclosures should 
be given with the promotional materials.
    To avoid consumer confusion, the Board believes that issuers should 
not include in the table any conditions that a future promotional offer 
might place on the grace period. The Board believes that it is more 
appropriate for issuers to treat any conditions that a future 
promotional offer might place on the grace period as a change to the 
grace period under Sec.  226.9(c)(2), or under Sec.  226.9(b)(3) if the 
change is applicable only to checks that access a credit card account. 
The Board notes that if the change in the grace period is applicable 
only to checks that access a credit card account, the issuer is not 
required to provide a disclosure pursuant to Sec.  226.9(c)(2) 
(including the 45-day notice requirement), so long as the issuer 
complies with the disclosure requirements in Sec.  226.9(b)(3). See 
comment 9(c)(2)-4. The Board recognizes that comment 9(c)(2)-1 
indicates that no notice of a change in terms need be given under Sec.  
226.9(c)(2) if the specific change is set forth initially. For comment 
9(c)(2)-1 to apply, however, both the triggering event and the 
resulting modification must be stated with specificity. The Board 
believes that comment 9(c)(2)-1 is not applicable in these situations. 
The Board believes that creditors are not able to identify with 
sufficient specificity at account opening which future promotional 
offers would trigger the additional conditions on the grace period in a 
way that consumers would understand.
    Other grace period disclosures. The proposal provides that the 
Sec.  226.54 limitations on imposition of finance charges must not be 
disclosed when describing a grace period in the disclosure table under 
Sec.  226.5a(b)(5), or in the account-opening table under Sec.  
226.6(b)(2)(v). One industry commenter suggested that the Board clarify 
that the Sec.  226.54 limitations on imposition of finance charges must 
not be disclosed with respect to any grace period disclosure required 
by the regulation, such as the disclosure of any grace period related 
to checks that access credit card accounts under Sec.  
226.9(b)(3)(i)(D), on the periodic statement under Sec.  226.7(b)(8), 
or on the renewal notice under Sec.  226.9(e).
    1. Grace period disclosure for checks that access a credit card 
account. Section 226.9(b)(3)(i)(D) provides that with respect to checks 
that access a credit card account, creditors generally must disclose on 
the front of the page containing those checks whether or not

[[Page 22956]]

any grace period will apply to the check transactions. This grace 
period disclosure must be disclosed in a table, along with other 
disclosures relating to the checks. Comment 9(b)(3)(i)(D)-1 currently 
provides that creditors may use the following language to describe a 
grace period on check transactions: ``Your due date is [at least] ----
---- days after the close of each billing cycle. We will not charge you 
interest on check transactions if you pay your entire balance by the 
due date each month.'' Creditors may use the following language to 
describe that no grace period on check transactions is offered, as 
applicable: ``We will begin charging interest on these checks on the 
transaction date.''
    As discussed above, one industry commenter suggested that the Board 
clarify that the Sec.  226.54 limitations on imposition of finance 
charges must not be disclosed with respect to the disclosure of any 
grace period related to checks that access credit card accounts under 
Sec.  226.9(b)(3)(i)(D), consistent with proposed guidance in comment 
5a(b)(5)-1 and comments 6(b)(2)(v)-1 and -3. For the reasons discussed 
below, the final rule revises comment 9(b)(3)(i)(D)-1 to be consistent 
with guidance adopted under comment 5a(b)(5)-1 and comments 6(b)(2)(v)-
1 and -3. Specifically, revised comment 9(b)(3)(i)(D)-1 clarifies that 
creditors in disclosing any grace period related to checks that access 
a credit card under Sec.  226.9(b)(3)(i)(D) must not disclose the 
limitations on the imposition of finance charges as a result of a loss 
of a grace period in Sec.  226.54, or the impact of payment allocation 
on whether interest is charged on transactions as a result of a loss of 
a grace period. The revised comment notes that some creditors may offer 
a grace period on credit extended by the use of an access check under 
which interest will not be charged on the check transactions if the 
consumer pays the outstanding balance shown on a periodic statement in 
full by the due date shown on that statement for one or more billing 
cycles. In these circumstances, comment 9(b)(3)(i)(D)-1 clarifies that 
Sec.  226.9(b)(3)(i)(D) requires that the creditor disclose the grace 
period using the following language, or substantially similar language, 
as applicable: ``Your due date is [at least] ---- days after the close 
of each billing cycle. We w