[Federal Register: October 3, 2000 (Volume 65, Number 192)]
[Rules and Regulations]
[Page 58903-58911]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03oc00-4]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1070]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is adopting a final rule amending Regulation Z,
which implements the Truth in Lending Act, to revise the disclosure
requirements for credit and charge card solicitations and applications.
The act requires disclosure of the annual percentage rate (APR) and
other cost information in direct mail and other applications and
solicitations to open card accounts. The amendments to Regulation Z are
intended to enhance consumers' ability to notice and understand this
cost information that generally must be provided in the form of a
table. Under the final rule, disclosures must be in a readily
understandable form and readily noticeable to consumers. The APR
disclosed for purchase transactions must be in 18-point type. Cash
advance and balance transfer APRs must be included in the table and any
balance transfer fee must be disclosed either in or outside of the
table. Additional guidance is provided on the requirement that the card
solicitation and application disclosures be prominently located, and on
the level of detail about cost information required or permitted in the
table.
DATES: The rule is effective September 27, 2000; compliance is
mandatory as of October 1, 2001.
FOR FURTHER INFORMATION CONTACT: Deborah Stipick, Attorney, 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 Janice Simms
at (202) 872-4984.
SUPPLEMENTARY INFORMATION:
I. Background
The purpose of the Truth in Lending Act (TILA), 15 U.S.C. 1601 et
seq., is to promote the informed use of consumer credit by requiring
disclosures about its
[[Page 58904]]
terms and cost. The Board's Regulation Z (12 CFR part 226) implements
the act. The act requires creditors to disclose the cost of credit as a
dollar amount (the finance charge) and as an annual percentage rate
(the APR). Uniformity in creditors' disclosures is intended to assist
consumers in comparison-shopping.
The Fair Credit and Charge Card Disclosure Act of 1988 (1988 Act)
amended TILA generally to require that the APR and certain other terms
(primarily applicable to purchase transactions) be disclosed in direct
mail and certain other solicitations and applications to open credit
and charge card accounts. The purpose of the 1988 Act was to ensure
that consumers receive key cost information about credit and charge
cards early enough to have the opportunity to comparison shop for such
cards. The 1988 Act generally requires that card application and
solicitation disclosures be provided in the form of a table (commonly
referred to as the ``Schumer box'' after the law's chief sponsor) with
headings for each item of information. The terms required to be in the
table include: the name of the method used for calculating finance
charges on an outstanding balance, any minimum finance charge per
billing cycle, transaction fee, annual fee, grace period, and the APR
for purchase transactions. The card issuer also must disclose any cash
advance fee, late payment fee, or fee for exceeding a credit limit.
These items may be either in the required table or clearly and
conspicuously elsewhere. The applicable disclosures must also be
provided for charge cards, which do not have a periodic rate that is
used to compute a finance charge.
As with all TILA disclosures, the table is subject to the ``clear
and conspicuous'' standard. Currently, the table meets the ``clear and
conspicuous'' standard if the disclosures are in a ``readily
understandable form.'' There are no type-size requirements associated
with this standard. The table is also required to be in a ``prominent
location'' on or with the application or solicitation. Under the
existing rules, this requirement is met if the table is ``readily
noticeable to the consumer'' but the table need not be in any
particular location to satisfy the requirement.
Over the years, the pricing of credit card programs has changed,
and the cost disclosures accompanying card issuers' solicitations and
applications have become more complex. Multiple APRs may apply to a
single program. There may be a temporary introductory rate, a fixed or
variable rate for all purchases after the introductory period expires,
and one or more ``penalty rates'' that apply if, for example, the
consumer makes late payments. There may also be separate rates that
apply to cash advances and balance transfers.
As interest rates and other account features have become more
complex, and disclosures longer, some card issuers have compensated by
using reduced type sizes for the table instead of allocating additional
space for the disclosures. In such cases, consumers may have difficulty
in using the table to readily identify key costs and terms. In
contrast, the promotional materials that accompany the credit card
application or solicitation may highlight a low introductory APR in a
large, easy to read type size; oftentimes without the expiration date
in close proximity. The APR in effect after the introductory rate
expires typically is disclosed much less prominently--in a smaller type
size--and it may only appear in the disclosure table and not at all in
the promotional materials. The table may be in a location that is less
likely to capture the consumer's attention, for example, on the reverse
side of an application or on the last page of a multi-page
solicitation.
Even with the format requirements, the current regulatory framework
allows substantial flexibility in how and where disclosures are
presented. While some card issuers' disclosures are fairly
straightforward, other card issuers have created disclosures that are
difficult for consumers to use. Accordingly, changes to the current
regulatory scheme appear necessary to ensure that consumers receive
meaningful disclosures on a more consistent basis, for comparison-
shopping.
II. The Proposed Revisions
On May 24, 2000, the Board published proposed revisions to
Regulation Z and the accompanying commentary to revise the disclosure
requirements for credit and charge card solicitations and applications
(65 FR 33499). The proposal was issued pursuant to the Board's
authority under the 1988 Act to require disclosure of additional
information or to modify disclosures required by the statute if the
Board determines that such action is necessary to carry out the
purposes of, or prevent evasions of the 1988 Act. See 15 U.S.C.
1637(c)(5). The proposed revisions were also issued under the Board's
authority under section 105(a) of TILA to prescribe regulations to
effectuate the purposes of TILA, to prevent circumvention or evasion,
or to facilitate compliance. See 15 U.S.C. 1604(a).
Under the proposal, the APR applicable to purchase transactions
would be subject to a type-size requirement, to highlight this
information. It would be in 18-point type and would appear with any
introductory rate under a separate heading from other APRs, such as the
penalty rate. The proposal also more strictly construes the requirement
that disclosures be clear and conspicuous by requiring that information
in the table be ``readily noticeable,'' in addition to being reasonably
understandable. As to type size, disclosures in at least 12-point type
were deemed readily noticeable.
The proposal gave additional guidance on satisfying the current
requirements that disclosures be prominently located. Under the
proposal, disclosures would be prominently located if, for example,
they are on the same page as an application or solicitation reply form,
or on a separate insert with a reference to the insert on the
application or reply form.
To avoid clutter, guidance was proposed to reduce the level of
detail required or permitted in the table, and to promote the use of
more concise language. For example, card issuers must disclose the
penalty rate APR and the conditions under which a rate may be imposed
such as when payments are late. Under the proposal, only the rate could
be included in the table; all explanatory information must be located
elsewhere. The Board also solicited comment on whether additional rates
and fees should be disclosed in the table.
The Board received more than 250 comment letters. More than half of
the comment letters were from consumers that addressed issues outside
of the scope of the proposal. More than 80 comment letters were
received regarding the proposed revisions. Most of these comments were
from financial institutions and their representatives; about one-fourth
were from individual consumers.
In general, most commenters supported the Board's effort to improve
disclosures for credit and charge card applications and solicitations.
Most industry commenters, however, objected to specific aspects of the
proposal or requested clarification of the rules. In particular,
industry commenters objected to the use of type-size requirements and
stated that the use of italics, bolding, or similar means of making
disclosures clear and conspicuous is preferable. They raised concerns
about the prominent location standard and requested more flexibility in
locating the table within an
[[Page 58905]]
application or solicitation. Most industry commenters were supportive
of efforts to decrease clutter and use more concise language, and these
commenters supported the removal of the penalty rate explanation from
the table. They also opposed the inclusion of additional rates and fees
in the table. A few industry commenters objected to the Board's
proposal to remove the penalty rate explanation from the table and
suggested that the disclosure might be overlooked if it were outside
the table.
Consumers were generally supportive of the proposal including the
stricter clear and conspicuous standard. Consumers that commented
generally favored including in one location all rates and fees along
with any explanation of how the rates and fees are charged. In
particular, they favored including in the table the rate and fee for
balance transfers and the cash advance APR.
III. Summary of Final Rule
As discussed below, the Board is adopting the revisions
substantially as proposed in order to effectuate the purposes of the
1988 Act and promote more effective disclosure of the costs and terms
in credit and charge card applications and solicitations. Some
revisions have been made for clarity or in response to commenters'
requests for guidance.
Under the final rules, the APR for purchases must be in at least
18-point type and must appear under a separate heading from other APRs,
such as the penalty rates. The disclosures must be ``readily
noticeable,'' as well as in a ``reasonably understandable form.'' As to
type size, disclosures in at least 12-point type would be deemed
readily noticeable. Additional guidance is provided for electronic
communications to clarify that card issuers comply with the rules if
disclosures are provided in the required form even though the consumer
may view the disclosures in a different form.
The final rule provides additional guidance on the current
requirement that disclosures be prominently located but has been
modified from the proposal to provide additional flexibility.
Disclosures are sufficiently prominent, for example, if they are on the
same page as an application or solicitation reply form. If located
elsewhere, the disclosures still would be considered prominently
located if the application or solicitation reply form contains a clear
and conspicuous reference to the location of the disclosures.
As proposed, guidance is provided on the level of detail required
or permitted in the table. Under existing rules, the table must include
any increased penalty APR that will apply upon the occurrence of one or
more specific events, such as a late payment or an extension of credit
exceeding the credit limit. Card issuers must also provide a
description of the specific events that can trigger an increase. To
simplify the table, the existing commentary is revised so that only the
penalty rates can appear inside the table; the explanatory information
must appear outside the table.
Currently the regulation only requires disclosure of the APR for
purchase transactions in the table. The final rule also requires
disclosure of the APRs for cash advances and balance transfers in the
table and the disclosure of balance transfer fees either in or outside
the table, as is currently the case for cash advance, late payment, and
over-the-limit fees.
Generally, updates to the Board's staff commentary are effective
within 30 days of publication. Consistent with the requirements of
section 105(d) of TILA, however, the Board typically provides an
implementation period of six months or longer. During that period,
compliance with the published update is optional so that creditors may
adjust documents to accommodate TILA's disclosure requirements.
Accordingly, compliance with the revised credit card provisions is
mandatory as of October 1, 2001.
IV. Section-by-Section Analysis of the Final Rule
Subpart B--Open-End Credit
Section 226.5--General Disclosure Requirements
5(a) Form of Disclosures
Section 226.5(a)(1) states the general rule that TILA disclosures
for open-end credit plans must be made clearly and conspicuously.
Existing comment 5(a)(1)-1 interprets this standard to require
disclosures to be in a ``reasonably understandable form.'' Under the
final rule, as proposed, this standard is more strictly construed for
purposes of the disclosures required under Sec. 226.5a for credit and
charge card applications and solicitations. Accordingly, comment
5(a)(1)-1 is revised to reflect this fact, by including a cross-
reference to the special rules for Sec. 226.5a disclosures. See
comments 5a(a)(2)-1 and -2.
Section 226.5(a)(2) n.9 provides that the APRs under Sec. 226.5a
need not be more conspicuous than other disclosures. Footnote 9 is
revised by adding a cross-reference to reflect the special type-size
rule under Sec. 226.5a for purchases APRs. Comment 5(a)(2)-1 is also
revised to make a technical correction.
Section 226.5a--Credit and Charge Card Applications and
Solicitations
5a(a) General Rules
5a(a)(2) Form of Disclosures
Disclosures that are required by Sec. 226.5a must be clear and
conspicuous and prominently located on or with an application or
solicitation or other applicable document. Certain of these disclosures
also are required to be in a table format. As proposed, comment
5a(a)(2)-1 is added to establish a stricter standard for satisfying the
``clear and conspicuous'' standard with respect to credit or charge
card application or solicitation disclosures. Comment 5a(a)(2)-2
provides additional interpretative guidance on the requirement that
certain disclosures be prominently located. Because the interpretations
differ somewhat from those currently provided, they are intended to
apply prospectively.
Currently, disclosures meet the ``clear and conspicuous''
requirement if they are reasonably understandable. To ensure that
consumers receive meaningful disclosures on a consistent basis, comment
5a(a)(2)-1 provides that disclosures are clear and conspicuous if they
are both reasonably understandable and readily noticeable.
Industry commenters that opposed the revision cited a variety of
reasons including the belief that a court might apply the stricter
construction of the clear and conspicuous standard under Sec. 226.5a to
other sections of Regulation Z. Consumers and their representatives
generally favored the stricter construction and thought the revisions
would assist consumers in comparison-shopping for credit and charge
cards by making disclosures more noticeable.
Many commenters representing financial institutions expressed a
belief that the stricter construction of the ``clear and conspicuous''
standard is unnecessary and the same result could be achieved through
more rigorous enforcement of the existing standard. These commenters
generally objected to the proposal's use of particular type-size
examples. Under the final rule, comment 5a(a)(2)-1 provides, as
proposed, that as to type size, disclosures are deemed to be readily
noticeable if they are in at least 12-point type. A number of
commenters stated that using the example of 12-point type to satisfy
the standard would have the effect of establishing a minimum type-size
requirement. Accordingly, some commenters suggested that the final rule
[[Page 58906]]
use 10-point type as the example of a conspicuous type size, or that
the final rule includes additional language clarifying that some
disclosures smaller than 12-point may also satisfy the rule. To address
commenters concerns, the comment states that disclosures printed in
less than 12-point type do not automatically violate the standard.
Disclosures in less than 8-point type, however, would likely be too
small to satisfy the standard.
Some commenters requested further guidance on whether the new
``clear and conspicuous standard'' would apply only to information
required to be disclosed in a tabular format, or to all disclosures
required under Sec. 226.5a. In response to the comment received,
comment 226.5a(a)(2)-1 provides that the stricter clear and conspicuous
standard applies to all Sec. 226.5a disclosures.
Comment 5a(a)(2)-2 addresses the requirement that certain
disclosures be prominently located. Currently, the standard does not
require disclosures to be located in any particular location. For
example, card issuers may locate disclosures that are required to be in
a tabular format on the reverse side of an application or on the last
page of a multi-page solicitation. Consumers may see the promotional
materials and fill out the application without being aware that there
is additional cost information elsewhere following the application.
Under the proposal, the table would have been deemed to be
prominently located, for example, if it appeared on the same page as
the application or solicitation reply form, or on a separate insert
with a reference to the insert on the application or reply form. Many
commenters, including both consumers and some financial institution
representatives suggested that card issuers might favor the use of
inserts instead of locating the table on the application or reply form.
These commenters were concerned that inserts might be overlooked by
consumers and they urged that the Board grant flexibility to card
issuers that cannot fit their disclosures on the same page as the
application. Commenters also requested additional guidance. For
example, some suggested that disclosures on the reverse side of a one-
page application might be considered to be on the same page as the
application. (They would not; each side would be considered a separate
page.)
In response to commenters' concerns, comment 5(a)(2)-2 provides
additional flexibility. Disclosures that do not appear on the same page
as the application or solicitation reply form will also be considered
prominently located if a clear and conspicuous reference to the
location of the disclosures is on the application or solicitation reply
form indicating that they contain additional information about rates,
fees, and other costs, as applicable.
The revised comment clarifies that the tabular disclosures required
under Sec. 226.5a(b) must all appear on the same page. Disclosures
required under Sec. 226.5a(b)(8)-(11) that appear outside the table
must start on the same page as the table but may continue on subsequent
pages.
Electronic Disclosures--In September 1999, the Board published a
proposal that would amend Regulation Z to authorize creditors to use
electronic communication to deliver required disclosures. 64 FR 49722
(September 14, 1999). On June 30, 2000, the Electronic Signatures in
Global and National Commerce Act was signed into law, which authorizes
the use of electronic records to provide written disclosures to
consumers. Pub. L. 106-229, 114 Stat. 464. That law is effective
October 1, 2000.
The Board's proposal specifically requested comment on any guidance
that may be needed when credit and charge card applications and
solicitations are provided by electronic communication. The majority of
commenters requested that the Board provide guidance in the final rule
on the use of electronic disclosures for credit and charge card
applications and solicitations. Some commenters requested clarification
that electronically transmitting or posting the APR disclosures in the
required type size is sufficient in light of the consumer's ability to
alter the appearance of information received electronically. In
response to commenters' concerns, comment 5a(a)(2)-1 indicates that if
disclosures required by Sec. 226.5a(b) are provided by electronic
communication, they are judged for purposes of the clear and
conspicuous standard based on the form in which they are provided even
though they may be viewed by consumers in a different format.
Commenters also requested guidance on complying with the
requirement that certain disclosures be ``prominently located'' when
electronic media are used. This guidance has been provided in comment
5a(a)(2)-2. Electronic disclosures are deemed to be prominently located
if they are posted on a web site and the application or solicitation
reply form is linked to the disclosures in a manner that prevents the
consumer from by-passing the disclosures before submitting the
application or reply form, or they are located on the same page as an
application or solicitation reply form that contains a clear and
conspicuous reference to the location of the disclosures and indicates
that they contain rate, fee, and other cost information as applicable.
5a(b) Required Disclosures
Disclosure of Additional Rates and Fees--The table required under
Sec. 226.5a provides consumers with key cost information, grouped
together in one place to facilitate consumers' use of the information
for comparison-shopping. These disclosures are not intended to be as
detailed as disclosures provided to consumers at account opening. At
the time the 1988 Act was adopted, the primary focus was on cost
disclosures for purchase transactions. Thus, under the current rules
the APR and transaction fees for purchases must be disclosed in the
table, but not the APR for cash advances.
Because the services and features offered with credit and charge
cards have evolved in recent years, the disclosures required by the
1988 Act do not capture costs that are commonly assessed on such cards,
such as the APR assessed on a balance transfer (which the card issuer
may characterize as a cash advance). Accordingly, the Board solicited
comment on whether consumers would be aided in comparison-shopping by
having additional rates and fees disclosed in the table. In particular,
commenters were asked to address whether the APR and transaction fee
for balance transfers and the APR for cash advances should be included
in the table.
Many of the consumers and consumer advocates supported the
inclusion of additional rate and fee information. These commenters
generally favored including the APR and transaction fee for balance
transfers and the APR for cash advances. They noted that these card
features are common and that disclosure of these terms aids consumers
in more effective comparison-shopping. Industry commenters generally
opposed the inclusion of new fees and rates. They believe that the
application and solicitation disclosures are more likely to be
effective if they are simpler. They are also concerned that adding new
disclosures based on card issuer's current program features is likely
to lead to further expansion of the disclosures in response to new
trends in future industry card programs.
On balance, the Board believes that consumers seeking to
comparison-shop would benefit from having the APR and
[[Page 58907]]
transaction fee for balance transfers and the APR for cash advances
provided in a consistent and uniform manner along with other key cost
information. Balance transfer features have become common and cash
advance features are an integral part of many card programs.
Frequently, these features are prominently listed by card issuers in
their promotional materials, sometimes as part of an introductory offer
that expires after several months. Consumers' ability to understand the
offered terms is likely to be enhanced by more uniform disclosure of
these terms, particularly as consumers become familiar with the new
format. Accordingly, Sec. 226.5a(b)(1) has been revised to include the
APR for cash advances and balance transfers in the tabular disclosures.
Under the final rule, Sec. 226.5a(b)(11) has also been added to provide
that a balance transfer fee must also be disclosed, either in the
table, or clearly or conspicuously elsewhere.
APR for Purchase Transactions--Section 226.5a(b)(1) requires card
issuers to disclose in the table each periodic rate that may be used to
compute the finance charge on an outstanding balance for purchases,
expressed as an APR. The final rule is being adopted, as proposed, to
require the APR for purchases to be disclosed in the table in at least
18-point type. This type-size requirement does not apply to temporary
initial rates, that are lower than the APR that will apply after the
temporary rate expires (to the extent such programs exist), or to
penalty rates that result upon the occurrence of one or more specific
events (such as a late payment or an extension of credit that exceeds
the credit limit). See comment 5a(b)(1)-6. The APR for purchases must
also appear with any introductory rate under a separate heading from
other APRs, such as penalty rates, or rates for cash advances.
The Board proposed the use of this larger type size to highlight
the significance of this information, particularly in light of the
larger type sizes typically used by card issuers to promote
introductory rates. Under existing rules, the APR information is often
obscured due to the amount of other information provided in the table
and the small type size used by some card issuers.
Consumers and consumer advocates generally believed that the type-
size requirement is appropriate to ensure that the APR for purchases is
clear and conspicuous. Industry commenters generally opposed the type-
size requirement. Many of these commenters stated that the larger type
size would place too much emphasis on the APR for purchases even though
consumers may have differing opinions regarding which disclosures are
most important. Many industry commenters suggested that highlighting
the APR for purchases in this manner would diminish the effectiveness
of other disclosures in the table.
Some financial institutions contend that an increase in type size
will increase paper and production costs, although few institutions
attempted to quantify the cost. One financial institution estimated
that under the new rule its paper costs would increase 7% annually.
Some credit unions expressed concern regarding increased costs;
however, many indicated that the increased costs could be avoided if
the final rule does not become effective for at least six months
thereby, permitting them to use their existing stock of disclosures.
Overall, the benefits of requiring 18-point type in disclosing the
APR for purchases seem to outweigh any potential adverse effects. Even
though some consumers comparison-shop for credit and charge cards based
on a variety of features, the APR for purchases remains one of the key
features that consumers consider. Moreover, many card issuers use
larger than 18-point type to promote introductory APRs and other
features in their credit and charge card promotional materials. Also,
to aid consumers in better understanding the rates being imposed on a
card account, card issuers are encouraged to disclose, in close
proximity with any introductory rate being promoted, the period of time
that the rate is in effect, and the post-introductory APR for
purchases.
Rules to Simplify the Table--Card issuers are required to disclose
``penalty rates'' in the table, along with a description of the
specific events that can trigger a rate increase and any index or
margin used to determine the penalty rate. Under existing comment
5a(b)(1)-7, card issuers have the option of including this information
inside the table or elsewhere. To simplify the table, the comment has
been revised to provide that only the penalty rate should appear inside
the table; the explanatory information must appear outside the table.
Card issuers must use an asterisk or other means to direct the consumer
to the additional information.
Most commenters believed that removing the explanatory information
from the table would decrease clutter and promote the use of concise
language in the table. A few consumers, however, stated that the
significant impact of penalty rates justifies leaving the explanation
in the table to prevent it from being overlooked. The Board has
determined that consumers are more likely to notice the penalty APRs if
the table is uncluttered by removing the explanatory information.
Moreover, the stricter interpretation of the ``clear and conspicuous''
standard should ensure that the explanatory information appears outside
in a readily noticeable form.
Appendices G and H to Part 226--Open-end and Closed-End Model Forms
and Clauses
Revisions to comment App. G and H-1 are adopted, as proposed, to
clarify that there are special rules for disclosures required under
Sec. 226.5a for applications and solicitations for credit and charge
cards.
Appendix G to Part 226--Open-end Model Forms and Clauses
The Board provides model forms to aid compliance with the
disclosure requirements of Sec. 226.5a(b). See Appendix G-10(A)-(C).
Model form G-10(A) is revised and model form G-10(B) has been removed
as unnecessary. A new sample form G-10(B) is added to illustrate an
account with an introductory rate and a penalty rate. The forms also
reflect the inclusion of the cash advance APR, balance transfer APR,
and the balance transfer fee. Also comment G-5 is revised to clarify
that there are format and sequence requirements for certain Sec. 226.5a
disclosures.
V. Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act,
the Board has reviewed the amendments to Regulation Z. The amendments
require creditors to use a specific type size for the APR for
purchases, to add the APR and fee for balance transfers and the APR for
cash advances; to provide supplemental information about penalty rates
outside the table; and to locate the table on the same page as the
application or solicitation reply form, or elsewhere with a reference
in the application or reply form to the location and content of the
disclosures.
Some smaller financial institutions, particularly credit unions,
expressed concerns that the need to revise disclosures to comply would
increase costs; however, costs could be minimized by delaying the
mandatory compliance date for at least six months thereby permitting
them to utilize existing stocks of disclosures. Since the mandatory
compliance date is October 1, 2001, the amendments do not have any
significant impact on small entities beyond these initial revisions.
[[Page 58908]]
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under the
authority delegated to the Board by the Office of Management and
Budget. The Federal Reserve may not conduct or sponsor, and an
organization is not required to respond to, this information collection
unless it displays a currently valid OMB control number. The OMB
control number is 7100-0199.
The collection of information that is revised by this rulemaking is
found in 12 CFR part 226 and in Appendices F, G, H, J, K, and L. This
information is mandatory (15 U.S.C. 1601 et seq.) to evidence
compliance with the requirements of Regulation Z and the Truth in
Lending Act (TILA). The respondents/recordkeepers are for-profit
financial institutions, including small businesses. Institutions are
required to retain records for twenty-four months. This regulation
applies to all types of creditors, not just state member banks;
however, under Paperwork Reduction Act regulations, the Federal Reserve
accounts for the burden of the paperwork associated with the regulation
only for state member banks. Other agencies account for the paperwork
burden on their respective constituencies under this regulation.
The revisions require creditors to revise disclosures for credit
card solicitations and applications by: (1) Requiring an 18-point type-
size for the APR for purchase transactions, (2) requiring creditors to
provide supplemental information about penalty rates outside the table,
(3) requiring disclosure of the APR and fee for balance transfers and
cash advance APR, and (4) requiring that such table be located on the
same page as the application or solicitation reply form or elsewhere
with a reference to the location on the application or reply form.
Although the final rule adds these requirements, it is expected that
these revisions would not significantly increase the paperwork burden
of creditors. With respect to state member banks, it is estimated that
there are 988 respondent/recordkeepers and an average frequency of
136,294 responses per respondent each year. Therefore, the current
amount of annual burden is estimated to be 1,863,754 hours. Because
these revisions modify preexisting tables, there is estimated to be no
additional annual cost burden and no capital or start-up cost.
Because the records would be maintained at state member banks and
the notices are not provided to the Federal Reserve, no issue of
confidentiality under the Freedom of Information Act arises; however,
any information obtained by the Federal Reserve may be protected from
disclosure under exemptions (b)(4), (6), and (8) of the Freedom of
Information Act (5 U.S.C. 522 (b)(4), (6) and (8)). The disclosures and
information about error allegations are confidential between creditors
and the customer.
The Federal Reserve has a continuing interest in the public's
opinion of our collections of information. At any time, comments
regarding the burden estimates, or any other aspect of this collection
of information, including suggestions for reducing the burden estimate,
may be sent to: Secretary, Board of Governors of the Federal Reserve
System, 20th and C Streets, N.W., Washington, DC 20551; and to the
Office of Management and Budget, Paperwork Reduction Project (7100-
0199), Washington, DC 20503.
List of Subjects in 12 CFR Part 226
Advertising, Federal Reserve System, Mortgages, Reporting and
recordkeeping requirements, Truth in lending.
For the reasons set forth in the preamble, the Board amends
Regulation Z, 12 CFR part 226, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
1. The authority citation for part 226 continues to read as
follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).
Subpart B--Open-End Credit
2. Section 226.5 is amended by revising footnote 9 to read as
follows:
Section 226.5 General disclosure requirements.
* * * * *
\9\ The terms need not be more conspicuous when used under
Sec. 226.5a generally for credit and charge card applications and
solicitations under Sec. 226.7(d) on periodic statements, under
Sec. 226.9(e) in credit and charge card renewal disclosures, and
under Sec. 226.16 in advertisements. (But see special rule for
annual percentage rate for purchases, Sec. 226.5a(b)(1).)
3. Section 226.5a is amended by:
a. Revising paragraphs (a)(2)(ii), (a)(5), (b) introductory text
and (b)(1) introductory text; and
b. Adding a new paragraph (b)(11).
Sec. 226.5a Credit and charge card applications and solicitations.
* * * * *
(a) * * *
(a)(2) Form of disclosures. * * *
(ii) The disclosures in paragraphs (b)(8) through (11) of this
section shall be provided either in the table containing the
disclosures in paragraphs (b)(1) through (7), or clearly and
conspicuously elsewhere on or with the application or solicitation.
* * * * *
(a)(5) Certain fees that vary by state. If the amount of any fee
referred to in paragraphs (b)(8) through (11) of this section varies
from state to state, the card issuer may disclose the range of the fees
instead of the amount for each state, if the disclosure includes a
statement that the amount of the fee varies from state to state.
(b) Required disclosures. The card issuer shall disclose the items
in this paragraph on or with an application or a solicitation in
accordance with the requirements of paragraphs (c), (d), or (e) of this
section. A credit card issuer shall disclose all applicable items in
this paragraph except for paragraph (b)(7) of this section. A charge
card issuer shall disclose the applicable items in paragraphs (b)(2),
(4), and (7) through (11) of this section.
(1) Annual percentage rate. 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 (as determined by Sec. 226.14(b)). When more than one rate applies
for a category of transactions, the range of balances to which each
rate is applicable shall also be disclosed. The annual percentage rate
for purchases disclosed pursuant to this paragraph shall be in at least
18-point type, except for the following: a temporary initial rate that
is lower than the rate that will apply after the temporary rate
expires, and a penalty rate that will apply upon the occurrence of one
or more specific events.
* * * * *
(11) Balance transfer fee. Any fee imposed to transfer an
outstanding balance.
* * * * *
4. Appendix G to Part 226 is amended by:
a. Revising the table of contents at the beginning of the appendix;
b. Revising Model G-10(A); and
c. Removing Model G-10(B) and adding a new Sample G-10(B) in its
place.
Appendix G To Part 226--Open-End Model Forms and Clauses
G-1 Balance-Computation Methods Model Clauses (Secs. 226.6 and
226.7)
G-2 Liability for Unauthorized Use Model Clause (Sec. 226.12)
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G-3 Long-Form Billing-Error Rights Model Form (Secs. 226.6 and
226.9)
G-4 Alternative Billing-Error Rights Model Form (Sec. 226.9)
G-5 Rescission Model Form (When Opening an Account) (Sec. 226.15)
G-6 Rescission Model Form (For Each Transaction) (Sec. 226.15)
G-7 Rescission Model Form (When Increasing the Credit Limit)
(Sec. 226.15)
G-8 Rescission Model Form (When Adding a Security Interest)
(Sec. 226.15)
G-9 Rescission Model Form (When Increasing the Security)
(Sec. 226.15)
G-10(A) Applications and Solicitations Model Forms (Credit Cards)
(Sec. 226.5a(b))
G-10(B) Applications and Solicitations Sample (Credit Card)
(Sec. 226.5a(b))
G-10(C) Applications and Solicitations Model Form (Charge Cards)
(Sec. 226.5a(b))
G-11 Applications and Solicitations Made Available to General
Public Model Clauses (Sec. 226.5a(e))
G-12 Charge Card Model Clause (When Access to Plan Offered by
Another) (Sec. 226.5a(f))
G-13(A) Change in Insurance Provider Model Form (Combined Notice)
(Sec. 226.9(f))
G-13(B) Change in Insurance Provider Model Form (Sec. 226.9(f)(2))
G-14A Home Equity Sample
G-14B Home Equity Sample
G-15 Home Equity Model Clauses
* * * * *
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5. In Supplement I to Part 226, MAKE the following amendments:
a. Under Section 226.5--General Disclosure Requirements, under
Paragraph 5(a)(1), paragraph 1. introductory text is revised;
b. Under Section 226.5--General Disclosure Requirements, under
Paragraph 5(a)(2), the first sentence in paragraph 1 is revised;
c. Under Section 226.5a--Credit and Charge Card Applications and
Solicitations, under 5a(a)(2) Form of Disclosures, paragraph 1 through
paragraph 6 are redesignated as paragraph 2 through paragraph 7
respectively, a new paragraph 1 is added, and newly designated
paragraph 2 is revised.
d. Under Section 226.5a--Credit and Charge Card Applications and
Solicitations, under 5a(b)(1) Annual Percentage Rate, paragraphs 6 and
7 are revised.
e. Under Appendices G and H--Open-End and Closed-End Model Forms
and Clauses, a new sentence is added after the second sentence in
paragraph 1.
f. Under Appendix G--Open-end Model Forms and Clauses, paragraph 5
is revised.
SUPPLEMENT I TO PART 226--OFFICIAL STAFF INTERPRETATIONS
* * * * *
Subpart B--End Credit
Sec. 226.5--General Disclosure Requirements
5(a) Form of disclosures.
Paragraph 5(a)(1).
1. Clear and conspicuous. The clear and conspicuous standard
requires that disclosures be in a reasonably understandable form.
Except where otherwise provided, the standard does not require that
disclosures be segregated from other material or located in any
particular place on the disclosure statement, or that numerical
amounts or percentages be in any particular type size. (But see
comments 5a(a)(2)-1 and -2 for special rules concerning Sec. 226.5a
disclosures for credit card applications and solicitations.) The
standard does not prohibit:
* * * * *
Paragraph 5(a)(2).
1. When disclosures must be more conspicuous. The term finance
charge and annual percentage rate, when required to be used with a
number, must be disclosed more conspicuously than other required
disclosures, except in the cases provided in footnote 9. * * *
* * * * *
Section 226.5a--Credit and Charge Card Applications and
Solicitations
* * * * *
5a(a) General Rules
5a(a)(2) Form of Disclosures
1. Clear and conspicuous standard. For purposes of Sec. 226.5a
disclosures, clear and
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conspicuous means in a reasonably understandable form and readily
noticeable to the consumer. As to type size, disclosures in 12-point
type are deemed to be readily noticeable for purposes of
Sec. 226.5a. Disclosures printed in less than 12-point type do not
automatically violate the standard; however, disclosures in less
than 8-point type would likely be too small to satisfy the standard.
Disclosures that are transmitted by electronic communication are
judged for purposes of the clear and conspicuous standard based on
the form in which they are provided even though they may be viewed
by the consumer in a different form.
2. Prominent location. i. Generally. Certain of the required
disclosures provided on or with an application or solicitation must
be prominently located. Disclosures are deemed to be prominently
located, for example, if the disclosures are on the same page as an
application or solicitation reply form. If the disclosures appear
elsewhere, they are deemed to be prominently located if the
application or solicitation reply form contains a clear and
conspicuous reference to the location of the disclosures and
indicates that they contain rate, fee, and other cost information,
as applicable. Disclosures required by Sec. 226.5a(b) that are
placed outside the table must begin on the same page as the table
but need not end on the same page.
ii. Electronic disclosures. Electronic disclosures are deemed to
be prominently located if:
A. They are posted on a web site and the application or
solicitation reply form is linked to the disclosures in a manner
that prevents the consumer from by-passing the disclosures before
submitting the application or reply form; or
B. They are located on the same page as an application or
solicitation reply form, that contains a clear and conspicuous
reference to the location of the disclosures and indicates that they
contain rate, fee, and other cost information, as applicable.
* * * * *
5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
* * * * *
6. Introductory rates--premium rates. If the initial rate is
temporary and is higher than the permanently applicable rate, the
card issuer must disclose the initial rate in the table. The initial
rate must be in at least 18-point type unless the issuer also
discloses in the table the permanently applicable rate. The issuer
may disclose in the table the permanently applicable rate that would
otherwise apply if the issuer also discloses the time period during
which the initial rate will remain in effect. In that case, the
permanently applicable rate must be in at least 18-point type.
7. Increased penalty rates. If the initial rate may increase
upon the occurrence of one or more specific events, such as a late
payment or an extension of credit that exceeds the credit limit, the
card issuer must disclose in the table the initial rate and the
increased penalty rate that may apply. If the penalty rate is based
on an index and an increased margin, the issuer must also disclose
in the table the index and the margin as well as the specific event
or events that may result in the increased rate, such as ``applies
to accounts 60 days late.'' If the penalty rate cannot be determined
at the time disclosures are given, the issuer must provide an
explanation of the specific event or events that may result in
imposing an increased rate. In describing the specific event or
events that may result in an increased rate, issuers need not be as
detailed as for the disclosures required under Sec. 226.6(a)(2). For
issuers using a tabular format, the specific event or events must be
placed outside the table and an asterisk or other means shall be
used to direct the consumer to the additional information. At its
option, the issuer may include in the explanation of the penalty
rate the period for which the increased rate will remain in effect,
such as ``until you make three timely payments.'' The issuer need
not disclose an increased rate that is imposed when credit
privileges are permanently terminated.
* * * * *
Appendices G and H--Open-End and Closed-End Model Forms and Clauses
1. Permissible changes. * * * (But see Appendix G comment 5 for
special rules concerning certain disclosures required under
Sec. 226.5a for credit and charge card applications and
solicitations). * * *
* * * * *
APPENDIX G--OPEN-END MODEL FORMS AND CLAUSES
* * * * *
5. Model G-10(A), Sample G-10(B) and Model G-10(C). i. Model G-
10(A) and Sample G-10(B) illustrate, in the tabular format, all of
the disclosures required under Sec. 226.5a for applications and
solicitations for credit cards other than charge cards. Model G-
10(B) is a sample disclosure illustrating an account with a lower
introductory rate and penalty rate. Model G-10(C) illustrates the
tabular format disclosure for charge card applications and
solicitations and reflects all of the disclosures in the table.
ii. Except as otherwise permitted, disclosures must be
substantially similar in sequence and format to model forms G-10(A)
and (C). The disclosures may, however, be arranged vertically or
horizontally and need not be highlighted aside from being included
in the table. While proper use of the model forms will be deemed in
compliance with the regulation, card issuers are permitted to use
headings and disclosures other than those in the forms (with an
exception relating to the use of ``grace period'') if they are clear
and concise and are substantially similar to the headings and
disclosures contained in model forms. For further discussion of
requirements relating to form, see the commentary to
Sec. 226.5a(a)(2).
* * * * *
By order of the Board of Governors of the Federal Reserve
System, September 27, 2000.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 00-25316 Filed 10-2-00; 8:45 am]
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