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Regulation
Z
Truth in Lending Act
Subpart B--Open-End Credit
Section 226.5 - General disclosure requirements.
Section 226.5a - Credit and charge card applications
and solicitations.
Section 226.5b - Requirements for home equity
plans.
Section 226.6 - Initial disclosure statement.
Section 226.7 - Periodic statement.
Section 226.8 - Identification of transactions.
Section 226.9 - Subsequent disclosure requirements.
Section 226.10 - Prompt crediting of payments.
Section 226.11 - Treatment of credit balances.
Section 226.12 - Special credit card provisions.
Section 226.13 - Billing error resolution.
Section 226.14 - Determination of annual percentage
rate.
Section 226.15 - Right of rescission.
Section 226.16 - Advertising.
Subpart B--Open-End Credit
Sec. 226.5 General disclosure requirements.
(a) Form of disclosures. (1) The creditor
shall make the disclosures required by this subpart clearly and
conspicuously in writing,7 in a form that the consumer
may keep.8
7 The disclosure required by Sec. 226.9(d) when a finance
charge is imposed at the time of a transaction need not be written.
8 The disclosures required under Sec. 226.5a for credit
and charge card applications and solicitations, the home equity
disclosures required under Sec. 226.5b(d), the alternative summary
billing rights statement provided for in Sec. 226.9(a)(2), the
credit and charge card renewal disclosures required under Sec.
226.9(e), and the disclosures made under Sec. 226.10(b) about
payment requirements need not be in a form that the consumer can
keep.
(2) The terms finance charge and annual
percentage rate, when required to be disclosed with a corresponding
amount or percentage rate, shall be more conspicuous than any
other required disclosure.9
9 The terms need not be more conspicuous when used under Sec.
226.5a 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.
(3) Certain disclosures required under
Sec. 226.5a for credit and charge card applications and solicitations
must be provided in a tabular format or in a prominent location
in accordance with the requirements of that section.
(4) For rules governing the form of disclosures
for home equity plans, see Sec. 226.5b(a).
(b) Time of disclosures. (1) Initial
disclosures. The creditor shall furnish the initial disclosure
statement required by Sec. 226.6 before the first transaction
is made under the plan.
(2) Periodic statements. (i) The creditor
shall mail or deliver a periodic statement as required by Sec.
226.7 for each billing cycle at the end of which an account has
a debit or credit balance of more than $1 or on which a finance
charge has been imposed. A periodic statement need not be sent
for an account if the creditor deems it uncollectible, or if delinquency
collection proceedings have been instituted, or if furnishing
the statement would violate Federal law.
(ii) The creditor shall mail or deliver
the periodic statement at least 14 days prior to any date or the
end of any time period required to be disclosed under Sec. 226.7(j)
in order for the consumer to avoid an additional finance or other
charge.10 A creditor that fails to meet this requirement
shall not collect any finance or other charge imposed as a result
of such failure.
10 This timing requirement does not apply if the creditor
is unable to meet the requirement because of an act of God, war,
civil disorder, natural disaster, or strike.
(3) Credit and charge card application
and solicitation disclosures. The card issuer shall furnish the
disclosures for credit and charge card applications and solicitations
in accordance with the timing requirements of Sec. 226.5a.
(4) Home equity plans. Disclosures for
home equity plans shall be made in accordance with the timing
requirements of Sec. 226.5b(b).
(c) Basis of disclosures and use of estimates.
Disclosures shall reflect the terms of the legal obligation between
the parties. If any information necessary for accurate disclosure
is unknown to the creditor, it shall make the disclosure based
on the best information reasonably available and shall state clearly
that the disclosure is an estimate.
(d) Multiple creditors; multiple consumers.
If the credit plan involves more than one creditor, only one set
of disclosures shall be given, and the creditors shall agree among
themselves which creditor must comply with the requirements that
this regulation imposes on any or all of them. If there is more
than one consumer, the disclosures may be made to any consumer
who is primarily liable on the account. If the right of rescission
under Sec. 226.15 is applicable, however, the disclosures required
by Secs. 226.6 and 226.15(b) shall be made to each consumer having
the right to rescind.
(e) Effect of subsequent events. If a
disclosure becomes inaccurate because of an event that occurs
after the creditor mails or delivers the disclosures, the resulting
inaccuracy is not a violation of this regulation, although new
disclosures may be required under Sec. 226.9(c).
Sec. 226.5a Credit and charge card applications
and solicitations.
(a) General rules. The card issuer shall
provide the disclosures required under this section on or with
a solicitation or an application to open a credit or charge card
account.
(1) Definition of solicitation. For purposes
of this section, the term solicitation means an offer by the card
issuer to open a credit or charge card account that does not require
the consumer to complete an application.
(2) Form of disclosures. (i) The disclosures
in paragraphs (b) (1) through (7) of this section shall be provided
in a prominent location on or with an application or a solicitation,
or other applicable document, and in the form of a table with
headings, content, and format substantially similar to any of
the applicable tables found in appendix G.
(ii) The disclosures in paragraphs (b)
(8) through (10) 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.
(iii) The disclosure required under paragraph
(b)(5) of this section shall contain the term grace period.
(iv) The terminology in the disclosures
under paragraph (b) of this section shall be consistent with that
to be used in the disclosures under Secs. 226.6 and 226.7.
(3) Exceptions. This section does not
apply to home equity plans accessible by a credit or charge card
that are subject to the requirements of Sec. 226.5b;
(4) Fees based on a percentage. If the
amount of any fee required to be disclosed under this section
is determined on the basis of a percentage of another amount,
the percentage used and the identification of the amount against
which the percentage is applied may be disclosed instead of the
amount of the fee.
(5) Certain fees that vary by state.
If the amount of any fee referred to in paragraphs (b) (8) through
(10) 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 (10) 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, expressed as an annual percentage rate
(as determined by Sec. 226.14(b)). When more than one rate applies,
the range of balances to which each rate is applicable shall also
be disclosed.
(i) If the account has a variable rate,
the card issuer shall also disclose the fact that the rate may
vary and how the rate is determined.
(ii) When variable rate disclosures are
provided under paragraph (c) of this section, an annual percentage
rate disclosure is accurate if the rate was in effect within 60
days before mailing the disclosures. When variable rate disclosures
are provided under paragraph (e) of this section, an annual percentage
rate disclosure is accurate if the rate was in effect within 30
days before printing the disclosures.
(2) Fees for issuance or availability.
Any annual or other periodic fee, expressed as an annualized amount,
or any other fee that may be imposed for the issuance or availability
of a credit or charge card, including any fee based on account
activity or inactivity.
(3) Minimum finance charge. Any minimum
or fixed finance charge that could be imposed during a billing
cycle.
(4) Transaction charges. Any transaction
charge imposed for the use of the card for purchases.
(5) Grace period. The date by which or
the period within which any credit extended for purchases may
be repaid without incurring a finance charge. If no grace period
is provided, that fact must be disclosed. If the length of the
grace period varies, the card issuer may disclose the range of
days, the minimum number of days, or the average number of days
in the grace period, if the disclosure is identified as a range,
minimum, or average.
(6) Balance computation method. The name
of the balance computation method listed in paragraph (g) of this
section that is used to determine the balance for purchases on
which the finance charge is computed, or an explanation of the
method used if it is not listed. The explanation may appear outside
the table if the table contains a reference to the explanation.
In determining which balance computation method to disclose, the
card issuer shall assume that credit extended for purchases will
not be repaid within the grace period, if any.
(7) Statement on charge card payments.
A statement that charges incurred by use of the charge card are
due when the periodic statement is received.
(8) Cash advance fee. Any fee imposed
for an extension of credit in the form of cash.
(9) Late payment fee. Any fee imposed
for a late payment.
(10) Over-the-limit fee. Any fee imposed
for exceeding a credit limit.
(c) Direct mail applications and solicitations.
The card issuer shall disclose the applicable items in paragraph
(b) of this section on or with an application or solicitation
that is mailed to consumers.
(d) Telephone applications and solicitations--(1)
Oral disclosure. The card issuer shall orally disclose the information
in paragraphs (b) (1) through (7) of this section, to the extent
applicable, in a telephone application or solicitation initiated
by the card issuer.
(2) Alternative disclosure. The oral
disclosure under paragraph (d)(1) of this section need not be
given if the card issuer either does not impose a fee described
in paragraph (b)(2) of this section or does not impose such a
fee unless the consumer uses the card, and the card issuer discloses
in writing within 30 days after the consumer requests the card
(but in no event later than the delivery of the card) the following:
(i) The applicable information in paragraph
(b) of this section; and
(ii) The fact that the consumer need
not accept the card or pay any fee disclosed unless the consumer
uses the card.
(e) Applications and solicitations made
available to general public. The card issuer shall provide disclosures,
to the extent applicable, on or with an application or solicitation
that is made available to the general public, including one contained
in a catalog, magazine, or other generally available publication.
The disclosures shall be provided in accordance with paragraph
(e) (1), (2) or (3) of this section.
(1) Disclosure of required credit information.
The card issuer may disclose in a prominent location on the application
or solicitation the following:
(i) The applicable information in paragraph
(b) of this section;
(ii) The date the required information
was printed, including a statement that the required information
was accurate as of that date and is subject to change after that
date; and
(iii) A statement that the consumer should
contact the card issuer for any change in the required information
since it was printed, and a toll-free telephone number or a mailing
address for that purpose.
(2) Inclusion of certain initial disclosures.
The card issuer may disclose on or with the application or solicitation
the following:
(i) The disclosures required under Sec.
226.6 (a) through (c); and
(ii) A statement that the consumer should
contact the card issuer for any change in the required information,
and a toll-free telephone number or a mailing address for that
purpose.
(3) No disclosure of credit information.
If none of the items in paragraph (b) of this section is provided
on or with the application or solicitation, the card issuer may
state in a prominent location on the application or solicitation
the following:
(i) There are costs associated with the
use of the card; and
(ii) The consumer may contact the card
issuer to request specific information about the costs, along
with a toll-free telephone number and a mailing address for that
purpose.
(4) Prompt response to requests for information.
Upon receiving a request for any of the information referred to
in this paragraph, the card issuer shall promptly and fully disclose
the information requested.
(f) Special charge card rule--card issuer
and person extending credit not the same person. If a cardholder
may by use of a charge card access an open-end credit plan that
is not maintained by the charge card issuer, the card issuer need
not provide the disclosures in paragraphs (c), (d) or (e) of this
section for the open-end credit plan if the card issuer states
on or with an application or a solicitation the following:
(1) The card issuer will make an independent
decision whether to issue the card;
(2) The charge card may arrive before
the decision is made about extending credit under the open-end
credit plan; and
(3) Approval for the charge card does
not constitute approval for the open-end credit plan.
(g) Balance computation methods defined.
The following methods may be described by name. Methods that differ
due to variations such as the allocation of payments, whether
the finance charge begins to accrue on the transaction date or
the date of posting the transaction, the existence or length of
a grace period, and whether the balance is adjusted by charges
such as late fees, annual fees and unpaid finance charges do not
constitute separate balance computation methods.
(1)(i) Average daily balance (including
new purchases). This balance is figured by adding the outstanding
balance (including new purchases and deducting payments and credits)
for each day in the billing cycle, and then dividing by the number
of days in the billing cycle.
(ii) Average daily balance (excluding
new purchases). This balance is figured by adding the outstanding
balance (excluding new purchases and deducting payments and credits)
for each day in the billing cycle, and then dividing by the number
of days in the billing cycle.
(2)(i) Two-cycle average daily balance
(including new purchases). This balance is the sum of the average
daily balances for two billing cycles. The first balance is for
the current billing cycle, and is figured by adding the outstanding
balance (including new purchases and deducting payments and credits)
for each day in the billing cycle, and then dividing by the number
of days in the billing cycle. The second balance is for the preceding
billing cycle.
(ii) Two-cycle average daily balance
(excluding new purchases). This balance is the sum of the average
daily balances for two billing cycles. The first balance is for
the current billing cycle, and is figured by adding the outstanding
balance (excluding new purchases and deducting payments and credits)
for each day in the billing cycle, and then dividing by the number
of days in the billing cycle. The second balance is for the preceding
billing cycle.
(3) Adjusted balance. This balance is
figured by deducting payments and credits made during the billing
cycle from the outstanding balance at the beginning of the billing
cycle.
(4) Previous balance. This balance is
the outstanding balance at the beginning of the billing cycle.
Sec. 226.5b Requirements for home equity
plans.
The requirements
of this section apply to open-end credit plans secured by the
consumer's dwelling. For purposes of this section, an annual percentage
rate is the annual percentage rate corresponding to the periodic
rate as determined under Sec. 226.14(b).
(a) Form of disclosures--(1) General.
The disclosures required by paragraph (d) of this section shall
be made clearly and conspicuously and shall be grouped together
and segregated from all unrelated information. The disclosures
may be provided on the application form or on a separate form.
The disclosure described in paragraph (d)(4)(iii), the itemization
of third-party fees described in paragraph (d)(8), and the variable-rate
information described in paragraph (d)(12) of this section may
be provided separately from the other required disclosures.
(2) Precedence of certain disclosures.
The disclosures described in paragraph (d)(1) through (4)(ii)
of this section shall precede the other required disclosures.
(b) Time of disclosures. The disclosures
and brochure required by paragraphs (d) and (e) of this section
shall be provided at the time an application is provided to the
consumer.10a
10a The disclosures and the brochure may be delivered or
placed in the mail not later than three business days following
receipt of a consumer's application in the case of applications
contained in magazines or other publications, or when the application
is received by telephone or through an intermediary agent or broker.
(c) Duties of third parties. Persons
other than the creditor who provide applications to consumers
for home equity plans must provide the brochure required under
paragraph (e) of this section at the time an application is provided.
If such persons have the disclosures required under paragraph
(d) of this section for a creditor's home equity plan, they also
shall provide the disclosures at such time.10a
(d) Content of disclosures. The creditor
shall provide the following disclosures, as applicable:
(1) Retention of information. A statement
that the consumer should make or otherwise retain a copy of the
disclosures.
(2) Conditions for disclosed terms. (i)
A statement of the time by which the consumer must submit an application
to obtain specific terms disclosed and an identification of any
disclosed term that is subject to change prior to opening the
plan.
(ii) A statement that, if a disclosed
term changes (other than a change due to fluctuations in the index
in a variable-rate plan) prior to opening the plan and the consumer
therefore elects not to open the plan, the consumer may receive
a refund of all fees paid in connection with the application.
(3) Security interest and risk to home.
A statement that the creditor will acquire a security interest
in the consumer's dwelling and that loss of the dwelling may occur
in the event of default.
(4) Possible actions by creditor. (i)
A statement that, under certain conditions, the creditor may terminate
the plan and require payment of the outstanding balance in full
in a single payment and impose fees upon termination; prohibit
additional extensions of credit or reduce the credit limit; and,
as specified in the initial agreement, implement certain changes
in the plan.
(ii) A statement that the consumer may
receive, upon request, information about the conditions under
which such actions may occur.
(iii) In lieu of the disclosure required
under paragraph (d)(4)(ii) of this section, a statement of such
conditions.
(5) Payment terms. The payment terms
of the plan, including:
(i) The length of the draw period and
any repayment period.
(ii) An explanation of how the minimum
periodic payment will be determined and the timing of the payments.
If paying only the minimum periodic payments may not repay any
of the principal or may repay less than the outstanding balance,
a statement of this fact, as well as a statement that a balloon
payment may result.10b
10
b A balloon payment results if paying the minimum periodic
payments does not fully amortize the outstanding balance by a
specified date or time, and the consumer must repay the entire
outstanding balance at such time.
(iii) An example, based on a $10,000
outstanding balance and a recent annual percentage rate,10c
showing the minimum periodic payment, any balloon payment, and
the time it would take to repay the $10,000 outstanding balance
if the consumer made only those payments and obtained no additional
extensions of credit.
10c
For fixed-rate plans, a recent annual percentage rate is a rate
that has been in effect under the plan within the twelve months
preceding the date the disclosures are provided to the consumer.
For variable-rate plans, a recent annual percentage rate is the
most recent rate provided in the historical example described
in paragraph (d)(12)(xi) of this section or a rate that has been
in effect under the plan since the date of the most recent rate
in the table.
If different payment terms may apply to the draw and any repayment
period, or if different payment terms may apply within either
period, the disclosures shall reflect the different payment terms.
(6) Annual percentage rate. For fixed-rate
plans, a recent annual percentage rate10c imposed under
the plan and a statement that the rate does not include costs
other than interest.
(7) Fees imposed by creditor. An itemization
of any fees imposed by the creditor to open, use, or maintain
the plan, stated as a dollar amount or percentage, and when such
fees are payable.
(8) Fees imposed by third parties to
open a plan. A good faith estimate, stated as a single dollar
amount or range, of any fees that may be imposed by persons other
than the creditor to open the plan, as well as a statement that
the consumer may receive, upon request, a good faith itemization
of such fees. In lieu of the statement, the itemization of such
fees may be provided.
(9) Negative amortization. A statement
that negative amortization may occur and that negative amortization
increases the principal balance and reduces the consumer's equity
in the dwelling.
(10) Transaction requirements. Any limitations
on the number of extensions of credit and the amount of credit
that may be obtained during any time period, as well as any minimum
outstanding balance and minimum draw requirements, stated as dollar
amounts or percentages.
(11) Tax implications. A statement that
the consumer should consult a tax advisor regarding the deductibility
of interest and charges under the plan.
(12) Disclosures for variable-rate plans.
For a plan in which the annual percentage rate is variable, the
following disclosures, as applicable:
(i) The fact that the annual percentage
rate, payment, or term may change due to the variable-rate feature.
(ii) A statement that the annual percentage
rate does not include costs other than interest.
(iii) The index used in making rate adjustments
and a source of information about the index.
(iv) An explanation of how the annual
percentage rate will be determined, including an explanation of
how the index is adjusted, such as by the addition of a margin.
(v) A statement that the consumer should
ask about the current index value, margin, discount or premium,
and annual percentage rate.
(vi) A statement that the initial annual
percentage rate is not based on the index and margin used to make
later rate adjustments, and the period of time such initial rate
will be in effect.
(vii) The frequency of changes in the
annual percentage rate.
(viii) Any rules relating to changes
in the index value and the annual percentage rate and resulting
changes in the payment amount, including, for example, an explanation
of payment limitations and rate carryover.
(ix) A statement of any annual or more
frequent periodic limitations on changes in the annual percentage
rate (or a statement that no annual limitation exists), as well
as a statement of the maximum annual percentage rate that may
be imposed under each payment option.
(x) The minimum periodic payment required
when the maximum annual percentage rate for each payment option
is in effect for a $10,000 outstanding balance, and a statement
of the earliest date or time the maximum rate may be imposed.
(xi) An historical example, based on
a $10,000 extension of credit, illustrating how annual percentage
rates and payments would have been affected by index value changes
implemented according to the terms of the plan. The historical
example shall be based on the most recent 15 years of index values
(selected for the same time period each year) and shall reflect
all significant plan terms, such as negative amortization, rate
carryover, rate discounts, and rate and payment limitations, that
would have been affected by the index movement during the period.
(xii) A statement that rate information
will be provided on or with each periodic statement.
(e) Brochure. The home equity brochure
published by the Board or a suitable substitute shall be provided.
(f) Limitations on home equity plans.
No creditor may, by contract or otherwise:
(1) Change the annual percentage rate
unless:
(i) Such change is based on an index
that is not under the creditor's control; and
(ii) Such index is available to the general
public.
(2) Terminate a plan and demand repayment
of the entire outstanding balance in advance of the original term
(except for reverse mortgage transactions that are subject to
paragraph (f)(4) of this section) unless:
(i) There is fraud or material misrepresentation
by the consumer in connection with the plan;
(ii) The consumer fails to meet the repayment
terms of the agreement for any outstanding balance;
(iii) Any action or inaction by the consumer
adversely affects the creditor's security for the plan, or any
right of the creditor in such security; or
(iv) Federal law dealing with credit
extended by a depository institution to its executive officers
specifically requires that as a condition of the plan the credit
shall become due and payable on demand, provided that the creditor
includes such a provision in the initial agreement.
(3) Change any term, except that a creditor
may:
(i) Provide in the initial agreement
that it may prohibit additional extensions of credit or reduce
the credit limit during any period in which the maximum annual
percentage rate is reached. A creditor also may provide in the
initial agreement that specified changes will occur if a specified
event takes place (for example, that the annual percentage rate
will increase a specified amount if the consumer leaves the creditor's
employment).
(ii) Change the index and margin used
under the plan if the original index is no longer available, the
new index has an historical movement substantially similar to
that of the original index, and the new index and margin would
have resulted in an annual percentage rate substantially similar
to the rate in effect at the time the original index became unavailable.
(iii) Make a specified change if the
consumer specifically agrees to it in writing at that time.
(iv) Make a change that will unequivocally
benefit the consumer throughout the remainder of the plan.
(v) Make an insignificant change to terms.
(vi) Prohibit additional extensions of
credit or reduce the credit limit applicable to an agreement during
any period in which:
(A) The value of the dwelling that secures
the plan declines significantly below the dwelling's appraised
value for purposes of the plan;
(B) The creditor reasonably believes
that the consumer will be unable to fulfill the repayment obligations
under the plan because of a material change in the consumer's
financial circumstances;
(C) The consumer is in default of any
material obligation under the agreement;
(D) The creditor is precluded by government
action from imposing the annual percentage rate provided for in
the agreement;
(E) The priority of the creditor's security
interest is adversely affected by government action to the extent
that the value of the security interest is less than 120 percent
of the credit line; or
(F) The creditor is notified by its regulatory
agency that continued advances constitute an unsafe and unsound
practice.
(4) For reverse mortgage transactions
that are subject to Sec. 226.33, terminate a plan and demand repayment
of the entire outstanding balance in advance of the original term
except:
(i) In the case of default;
(ii) If the consumer transfers title
to the property securing the note;
(iii) If the consumer ceases using the
property securing the note as the primary dwelling; or
(iv) Upon the consumer's death.
(g) Refund of fees. A creditor shall
refund all fees paid by the consumer to anyone in connection with
an application if any term required to be disclosed under paragraph
(d) of this section changes (other than a change due to fluctuations
in the index in a variable-rate plan) before the plan is opened
and, as a result, the consumer elects not to open the plan.
(h) Imposition of nonrefundable fees.
Neither a creditor nor any other person may impose a nonrefundable
fee in connection with an application until three business days
after the consumer receives the disclosures and brochure required
under this section.10d
10d If the disclosures and brochure are mailed to the consumer,
the consumer is considered to have received them three business
days after they are mailed.
Sec. 226.6 Initial disclosure statement.
The creditor
shall disclose to the consumer, in terminology consistent with
that to be used on the periodic statement, each of the following
items, to the extent applicable:
(a) Finance charge. The circumstances
under which a finance charge will be imposed and an explanation
of how it will be determined, as follows:
(1) A statement of when finance charges
begin to accrue, including an explanation of whether or not any
time period exists within which any credit extended may be repaid
without incurring a finance charge. If such a time period is provided,
a creditor may, at its option and without disclosure, impose no
finance charge when payment is received after the time period's
expiration.
(2) A disclosure of each periodic rate
that may be used to compute the finance charge, the range of balances
to which it is applicable,11 and the corresponding
annual percentage rate.12 When different periodic rates
apply to different types of transactions, the types of transactions
to which the periodic rates apply shall also be disclosed.
11 A creditor is not required to adjust the range of balances
disclosure to reflect the balance below which only a minimum charge
applies.
12 If a creditor is offering a variable rate plan, the
creditor shall also disclose: (1) The circumstances under which
the rate(s) may increase; (2) any limitations on the increase;
and (3) the effect(s) of an increase.
(3) An explanation of the method used
to determine the balance on which the finance charge may be computed.
(4) An explanation of how the amount
of any finance charge will be determined,13 including
a description of how any finance charge other than the periodic
rate will be determined.
13 If no finance charge is imposed when the outstanding
balance is less than a certain amount, no disclosure is required
of that fact or of the balance below which no finance charge will
be imposed.
(b) Other charges. The amount of any
charge other than a finance charge that may be imposed as part
of the plan, or an explanation of how the charge will be determined.
(c) Security interests. The fact that
the creditor has or will acquire a security interest in the property
purchased under the plan, or in other property identified by item
or type.
(d) Statement of billing rights. A statement
that outlines the consumer's rights and the creditor's responsibilities
under Secs. 226.12(c) and 226.13 and that is substantially similar
to the statement found in appendix G.
(e) Home equity plan information. The
following disclosures described in Sec. 226.5b(d), as applicable:
(1) A statement of the conditions under
which the creditor may take certain action, as described in Sec.
226.5b(d)(4)(i), such as terminating the plan or changing the
terms.
(2) The payment information described
in Sec. 226.5b(d)(5) (i) and (ii) for both the draw period and
any repayment period.
(3) A statement that negative amortization
may occur as described in Sec. 226.5b(d)(9).
(4) A statement of any transaction requirements
as described in Sec. 226.5b(d)(10).
(5) A statement regarding the tax implications
as described in Sec. 226.5b(d)(11).
(6) A statement that the annual percentage
rate imposed under the plan does not include costs other than
interest as described in Secs. 226.5b(d)(6) and (d)(12)(ii).
(7) The variable-rate disclosures described
in Sec. 226.5b(d)(12) (viii), (x), (xi), and (xii), as well as
the disclosure described in Sec. 226.5b(d)(5)(iii), unless the
disclosures provided with the application were in a form the consumer
could keep and included a representative payment example for the
category of payment option chosen by the consumer.
Sec. 226.7 Periodic statement.
The creditor
shall furnish the consumer with a periodic statement that discloses
the following items, to the extent applicable:
(a) Previous balance. The account balance
outstanding at the beginning of the billing cycle.
(b) Identification of transactions. An
identification of each credit transaction in accordance with Sec.
226.8.
(c) Credits. Any credit to the account
during the billing cycle, including the amount and the date of
crediting. The date need not be provided if a delay in crediting
does not result in any finance or other charge.
(d) Periodic rates. Each periodic rate
that may be used to compute the finance charge, the range of balances
to which it is applicable,14 and the corresponding
annual percentage rate.15 If different periodic rates
apply to different types of transactions, the types of transactions
to which the periodic rates apply shall also be disclosed.
14 See Footnotes 11 and 13.
15 If a variable rate plan is involved, the creditor shall
disclose the fact that the periodic rate(s) may vary.
(e) Balance on which finance charge
computed. The amount of the balance to which a periodic rate was
applied and an explanation of how that balance was determined.
When a balance is determined without first deducting all credits
and payments made during the billing cycle, that fact and the
amount of the credits and payments shall be disclosed.
(f) Amount of finance charge. The amount
of any finance charge debited or added to the account during the
billing cycle, using the term finance charge. The components of
the finance charge shall be individually itemized and identified
to show the amount(s) due to the appliction of any periodic rates
and the amount(s) of any other type of finance charge. If there
periodic rate, the amount of the finance charge attributable to
each rate need not be separately itemized and identified.
(g) Annual percentage rate. When a finance
charge is imposed during the billing cycle, the annual percentage
rate(s) determined under Sec. 226.14, using the term annual percentage
rate.
(h) Other charges. The amounts, itemized
and identified by type, of any charges other than finance charges
debited to the account during the billing cycle.
(i) Closing date of billing cycle; new
balance. The closing date of the billing cycle and the account
balance outstanding on that date.
(j) Free-ride period. The date by which
or the time period within which the new balance or any portion
of the new balance must be paid to avoid additional finance charges.
If such a time period is provided, a creditor may, at its option
and without disclosure, impose no finance charge when payment
is received after the time period's expiration.
(k) Address for notice of billing errors.
The address to be used for notice of billing errors. Alternatively,
the address may be provided on the billing rights statement permitted
by Sec. 226.9(a)(2).
Sec. 226.8 Identification of transactions.
The creditor
shall identify credit transactions on or with the first periodic
statement that reflects the transaction by furnishing the following
information, as applicable.16
16 Failure to disclose the information required by this
section shall not be deemed a failure to comply with the regulation
if: (1) The creditor maintains procedures reasonably adapted to
obtain and provide the information; and (2) the creditor treats
an inquiry for clarification or documentation as a notice of a
billing error, including correcting the account in accordance
with Sec. 226.13(e). This applies to transactions that take place
outside a state, as defined in Sec. 226.2(a), whether or not the
creditor maintains procedures reasonably adapted to obtain the
required information.
(a) Sale credit. For each credit transaction
involving the sale of property or services, the following rules
shall apply:
(1) Copy of credit document provided.
When an actual copy of the receipt or other credit document is
provided with the first periodic statement reflecting the transaction,
the transaction is sufficiently identified if the amount of the
transaction and either the date of the transaction or the date
of debiting the transaction to the consumer's account are disclosed
on the copy or on the periodic statement.
(2) Copy of credit document not provided--creditor
and seller same or related person(s). When the creditor and the
seller are the same person or related persons, and an actual copy
of the receipt or other credit document is not provided with the
periodic statement, the creditor shall disclose the amount and
date of the transaction, and a brief identification17
of the property or services purchased.18
17 As an alternative to the brief identification, the creditor
may disclose a number or symbol that also appears on the receipt
or other credit document given to the consumer, if the number
or symbol reasonably identifies that transaction with that creditor,
and if the creditor treats an inquiry for clarification or documentation
as a notice of a billing error, including correcting the account
in accordance with Sec. 226.13(e).
18 An identification of property or services may be replaced
by the seller's name and location of the transaction when: (1)
The creditor and the seller are the same person; (2) the creditor's
open-end plan has fewer than 15,000 accounts; (3) the creditor
provides the consumer with point-of-sale documentation for that
transaction; and (4) the creditor treats an inquiry for clarification
or documentation as a notice of a billing error, including correcting
the account in accordance with Sec. 226.13(e).
(3) Copy of credit document not provided--creditor
and seller not same or related person(s). When the creditor and
seller are not the same person or related persons, and an actual
copy of the receipt or other credit document is not provided with
the periodic statement, the creditor shall disclose the amount
and date of the transaction; the seller's name; and the city,
and state or foreign country where the transaction took place.19
19 The creditor may omit the address or provide any suitable
designation that helps the consumer to identify the transaction
when the transaction (1) took place at a location that is not
fixed; (2) took place in the consumer's home; or (3) was a mail
or telephone order.
(b) Nonsale credit. A nonsale credit
transaction is sufficiently identified if the first periodic statement
reflecting the transaction discloses a brief identification of
the transaction;20 the amount of the transaction; and
at least one of the following dates: the date of the transaction,
the date of debiting the transaction to the consumer's account,
or, if the consumer signed the credit document, the date appearing
on the document. If an actual copy of the receipt or other credit
document is provided and that copy shows the amount and at least
one of the specified dates, the brief identification may be omitted.
20 See Footnote 17.
Sec. 226.9 Subsequent disclosure requirements.
(a) Furnishing statement of billing
rights--(1) Annual statement. The creditor shall mail or deliver
the billing rights statement required by Sec. 226.6(d) at least
once per calendar year, at intervals of not less than 6 months
nor more than 18 months, either to all consumers or to each consumer
entitled to receive a periodic statement under Sec. 226.5(b)(2)
for any one billing cycle.
(2) Alternative summary statement. As
an alternative to paragraph (a)(1) of this section, the creditor
may mail or deliver, on or with each periodic statement, a statement
substantially similar to that in appendix G.
(b) Disclosures for supplemental credit
devices and additional features--(1) If a creditor, within 30
days after mailing or delivering the initial disclosures under
Sec. 226.6(a), adds a credit feature to the consumer's account
or mails or delivers to the consumer a credit device for which
the finance charge terms are the same as those previously disclosed,
no additional disclosures are necessary. After 30 days, if the
creditor adds a credit feature or furnishes a credit device (other
than as a renewal, resupply, or the original issuance of a credit
card) on the same finance charge terms, the creditor shall disclose,
before the consumer uses the feature or device for the first time,
that it is for use in obtaining credit under the terms previously
disclosed.
(2) Whenever a credit feature is added
or a credit device is mailed or delivered, and the finance charge
terms for the feature or device differ from disclosures previously
given, the disclosures required by Sec. 226.6(a) that are applicable
to the added feature or device shall be given before the consumer
uses the feature or device for the first time.
(c) Change in terms--(1) Written notice
required. Whenever any term required to be disclosed under Sec.
226.6 is changed or the required minimum periodic payment is increased,
the creditor shall mail or deliver written notice of the change
to each consumer who may be affected. The notice shall be mailed
or delivered at least 15 days prior to the effective date of the
change. The 15-day timing requirement does not apply if the change
has been agreed to by the consumer, or if a periodic rate or other
finance charge is increased because of the consumer's delinquency
or default; the notice shall be given, however, before the effective
date of the change.
(2) Notice not required. No notice under
this section is required when the change involves late payment
charges, charges for documentary evidence, or over-the-limit charges;
a reduction of any component of a finance or other charge; suspension
of future credit privileges or termination of an account or plan;
or when the change results from an agreement involving a court
proceeding, or from the consumer's default or delinquency (other
than an increase in the periodic rate or other finance charge).
(3) Notice for home equity plans. If
a creditor prohibits additional extensions of credit or reduces
the credit limit applicable to a home equity plan pursuant to
Sec. 226.5b(f)(3)(i) or Sec. 226.5b(f)(3)(vi), the creditor shall
mail or deliver written notice of the action to each consumer
who will be affected. The notice must be provided not later than
three business days after the action is taken and shall contain
specific reasons for the action. If the creditor requires the
consumer to request reinstatement of credit privileges, the notice
also shall state that fact.
(d) Finance charge imposed at time of
transaction. (1) Any person, other than the card issuer, who imposes
a finance charge at the time of honoring a consumer's credit card,
shall disclose the amount of that finance charge prior to its
imposition.
(2) The card issuer, if other than the
person honoring the consumer's credit card, shall have no responsibility
for the disclosure required by paragraph (d)(1) of this section,
and shall not consider any such charge for purposes of Secs. 226.5a,
226.6 and 226.7.
(e) Disclosures upon renewal of credit
or charge card. (1) Notice prior to renewal. Except as provided
in paragraph (e)(2) of this section, a card issuer that imposes
any annual or other periodic fee to renew a credit or charge card
account of the type subject to Sec. 226.5a, including any fee
based on account activity or inactivity, shall mail or deliver
written notice of the renewal to the cardholder. The notice shall
be provided at least 30 days or one billing cycle, whichever is
less, before the mailing or the delivery of the periodic statement
on which the renewal fee is initially charged to the account.
The notice shall contain the following information:
(i) The disclosures contained in Sec.
226.5a(b) (1) through (7) that would apply if the account were
renewed;20a and
20 a These disclosures need not be provided in tabular
format or in a prominent location.
(ii) How and when the cardholder may
terminate credit availability under the account to avoid paying
the renewal fee.
(2) Delayed notice. The disclosures required
by paragraph (e)(1) of this section may be provided later than
the time in paragraph (e)(1) of this section, but no later than
the mailing or the delivery of the periodic statement on which
the renewal fee is initially charged to the account, if the card
issuer also discloses at that time that:
(i) The cardholder has 30 days from the
time the periodic statement is mailed or delivered to avoid paying
the fee or to have the fee recredited if the cardholder terminates
credit availability under the account; and
(ii) The cardholder may use the card
during the interim period without having to pay the fee.
(3) Notification on periodic statements.
The disclosures required by this paragraph may be made on or with
a periodic statement. If any of the disclosures are provided on
the back of a periodic statement, the card issuer shall include
a reference to those disclosures on the front of the statement.
(f) Change in credit card account insurance
provided--(1) Notice prior to change. If a credit card issuer
plans to change the provider of insurance for repayment of all
or part of the outstanding balance of an open-end credit card
account of the type subject to Sec. 226.5a, the card issuer shall
mail or deliver the cardholder written notice of the change not
less than 30 days before the change in providers occurs. The notice
shall also include the following items, to the extent applicable:
(i) Any increase in the rate that will
result from the change;
(ii) Any substantial decrease in coverage
that will result from the change; and
(iii) A statement that the cardholder
may discontinue the insurance.
(2) Notice when change in provider occurs.
If a change described in paragraph (f)(1) of this section occurs,
the card issuer shall provide the cardholder with a written notice
no later than 30 days after the change, including the following
items, to the extent applicable:
(i) The name and address of the new insurance
provider;
(ii) A copy of the new policy or group
certificate containing the basic terms of the insurance, including
the rate to be charged; and
(iii) A statement that the cardholder
may discontinue the insurance.
(3) Substantial decrease in coverage.
For purposes of this paragraph, a substantial decrease in coverage
is a decrease in a significant term of coverage that might reasonably
be expected to affect the cardholder's decision to continue the
insurance. Significant terms of coverage include, for example,
the following:
(i) Type of coverage provided;
(ii) Age at which coverage terminates
or becomes more restrictive;
(iii) Maximum insurable loan balance,
maximum periodic benefit payment, maximum number of payments,
or other term affecting the dollar amount of coverage or benefits
provided;
(iv) Eligibility requirements and number
and identity of persons covered;
(v) Definition of a key term of coverage
such as disability;
(vi) Exclusions from or limitations on
coverage; and
(vii) Waiting periods and whether coverage
is retroactive.
(4) Combined notification. The notices
required by paragraph (f) (1) and (2) of this section may be combined
provided the timing requirement of paragraph (f)(1) of this section
is met. The notices may be provided on or with a periodic statement.
Sec. 226.10 Prompt crediting of payments.
(a) General rule. A creditor shall credit
a payment to the consumer's account as of the date of receipt,
except when a delay in crediting does not result in a finance
or other charge or except as provided in paragraph (b) of this
section.
(b) Specific requirements for payments.
If a creditor specifies, on or with the periodic statement, requirements
for the consumer to follow in making payments, but accepts a payment
that does not conform to the requirements, the creditor shall
credit the payment within 5 days of receipt.
(c) Adjustment of account. If a creditor
fails to credit a payment, as required by paragraphs (a) and (b)
of this section, in time to avoid the imposition of finance or
other charges, the creditor shall adjust the consumer's account
so that the charges imposed are credited to the consumer's account
during the next billing cycle.
Sec. 226.11 Treatment of credit balances.
When a credit
balance in excess of $1 is created on a credit account (through
transmittal of funds to a creditor in excess of the total balance
due on an account, through rebates of unearned finance charges
or insurance premiums, or through amounts otherwise owed to or
held for the benefit of a consumer), the creditor shall:
(a) Credit the amount of the credit balance
to the consumer's account;
(b) Refund any part of the remaining
credit balance within 7 business days from receipt of a written
request from the consumer; and
(c) Make a good faith effort to refund
to the consumer by cash, check, or money order, or credit to a
deposit account of the consumer, any part of the credit balance
remaining in the account for more than 6 months. No further action
is required if the consumer's current location is not known to
the creditor and cannot be traced through the consumer's last
known address or telephone number.
Sec. 226.12 Special credit card provisions.
(a) Issuance of credit cards. Regardless
of the purpose for which a credit card is to be used, including
business, commercial, or agricultural use, no credit card shall
be issued to any person except:
(1) In response to an oral or written
request or application for the card; or
(2) As a renewal of, or substitute for,
an accepted credit card.21 ---------------------------------------------------------------------------
21 For purposes of this section, accepted credit card means
any credit card that a cardholder has requested or applied for
and received, or has signed, used, or authorized another person
to use to obtain credit. Any credit card issued as a renewal or
substitute in accordance with this paragraph becomes an accepted
credit card when received by the cardholder.
(b) Liability of cardholder for unauthorized
use--(1) Limitation on amount. The liability of a cardholder for
unauthorized use22 of a credit card shall not exceed
the lesser of $50 or the amount of money, property, labor, or
services obtained by the unauthorized use before notification
to the card issuer under paragraph (b)(3) of this section.
22 Unauthorized use means the use of a credit card by a
person, other than the cardholder, who does not have actual, implied,
or apparent authority for such use, and from which the cardholder
receives no benefit.
(2) Conditions of liability. A cardholder
shall be liable for unauthorized use of a credit card only if:
(i) The credit card is an accepted credit
card;
(ii) The card issuer has provided adequate
notice23 of the cardholder's maximum potential liability
and of means by which the card issuer may be notified of loss
or theft of the card. The notice shall state that the cardholder's
liability shall not exceed $50 (or any lesser amount) and that
the cardholder may give oral or written notification, and shall
describe a means of notification (for example, a telephone number,
an address, or both); and
23 Adequate notice means a printed notice to a cardholder
that sets forth clearly the pertinent facts so that the cardholder
may reasonably be expected to have noticed it and understood its
meaning. The notice may be given by any means reasonably assuring
receipt by the cardholder.
(iii) The card issuer has provided a
means to identify the cardholder on the account or the authorized
user of the card.
(3) Notification to card issuer. Notification
to a card issuer is given when steps have been taken as may be
reasonably required in the ordinary course of business to provide
the card issuer with the pertinent information about the loss,
theft, or possible unauthorized use of a credit card, regardless
of whether any particular officer, employee, or agent of the card
issuer does, in fact, receive the information. Notification may
be given, at the option of the person giving it, in person, by
telephone, or in writing. Notification in writing is considered
given at the time of receipt or, whether or not received, at the
expiration of the time ordinarily required for transmission, whichever
is earlier.
(4) Effect of other applicable law or
agreement. If state law or an agreement between a cardholder and
the card issuer imposes lesser liability than that provided in
this paragraph, the lesser liability shall govern.
(5) Business use of credit cards. If
10 or more credit cards are issued by one card issuer for use
by the employees of an organization, this section does not prohibit
the card issuer and the organization from agreeing to liability
for unauthorized use without regard to this section. However,
liability for unauthorized use may be imposed on an employee of
the organization, by either the card issuer or the organization,
only in accordance with this section.
(c) Right of cardholder to assert claims
or defenses against card issuer24--(1) General rule.
When a person who honors a credit card fails to resolve satisfactorily
a dispute as to property or services purchased with the credit
card in a consumer credit transaction, the cardholder may assert
against the card issuer all claims (other than tort claims) and
defenses arising out of the transaction and relating to the failure
to resolve the dispute. The cardholder may withhold payment up
to the amount of credit outstanding for the property or services
that gave rise to the dispute and any finance or other charges
imposed on that amount.25
24 This paragraph does not apply to the use of a check
guarantee card or a debit card in connection with an overdraft
credit plan, or to a check guarantee card used in connection with
cash advance checks.
25 The amount of the claim or defense that the cardholder
may assert shall not exceed the amount of credit outstanding for
the disputed transaction at the time the cardholder first notifies
the card issuer or the person honoring the credit card of the
existence of the claim or defense. To determine the amount of
credit outstanding for purposes of this section, payments and
other credits shall be applied to: (1) Late charges in the order
of entry to the account; then to (2) finance charges in the order
of entry to the account; and then to (3) any other debits in the
order of entry to the account. If more than one item is included
in a single extension of credit, credits are to be distributed
pro rata according to prices and applicable taxes.
(2) Adverse credit reports prohibited.
If, in accordance with paragraph (c)(1) of this section, the cardholder
withholds payment of the amount of credit outstanding for the
disputed transaction, the card issuer shall not report that amount
as delinquent until the dispute is settled or judgment is rendered.
(3) Limitations. The rights stated in
paragraphs (c)(1) and (2) of this section apply only if:
(i) The cardholder has made a good faith
attempt to resolve the dispute with the person honoring the credit
card; and
(ii) The amount of credit extended to
obtain the property or services that result in the assertion of
the claim or defense by the cardholder exceeds $50, and the disputed
transaction occurred in the same state as the cardholder's current
designated address or, if not within the same state, within 100
miles from that address.26
26 The limitations stated in paragraph (c)(3)(ii) of this
section shall not apply when the person honoring the credit card:
(1) Is the same person as the card issuer; (2) is controlled by
the card issuer directly or indirectly; (3) is under the direct
or indirect control of a third person that also directly or indirectly
controls the card issuer; (4) controls the card issuer directly
or indirectly; (5) is a franchised dealer in the card issuer's
products or services; or (6) has obtained the order for the disputed
transaction through a mail solicitation made or participated in
by the card issuer.
(d) Offsets by card issuer prohibited.
(1) A card issuer may not take any action, either before or after
termination of credit card privileges, to offset a cardholder's
indebtedness arising from a consumer credit transaction under
the relevant credit card plan against funds of the cardholder
held on deposit with the card issuer.
(2) This paragraph does not alter or
affect the right of a card issuer acting under state or Federal
law to do any of the following with regard to funds of a cardholder
held on deposit with the card issuer if the same procedure is
constitutionally available to creditors generally: obtain or enforce
a consensual security interest in the funds; attach or otherwise
levy upon the funds; or obtain or enforce a court order relating
to the funds.
(3) This paragraph does not prohibit
a plan, if authorized in writing by the cardholder, under which
the card issuer may periodically deduct all or part of the cardholder's
credit card debt from a deposit account held with the card issuer
(subject to the limitations in Sec. 226.13(d)(1)).
(e) Prompt notification of returns and
crediting of refunds. (1) When a creditor other than the card
issuer accepts the return of property or forgives a debt for services
that is to be reflected as a credit to the consumer's credit card
account, that creditor shall, within 7 business days from accepting
the return or forgiving the debt, transmit a credit statement
to the card issuer through the card issuer's normal channels for
credit statements.
(2) The card issuer shall, within 3 business
days from receipt of a credit statement, credit the consumer's
account with the amount of the refund.
(3) If a creditor other than a card issuer
routinely gives cash refunds to consumers paying in cash, the
creditor shall also give credit or cash refunds to consumers using
credit cards, unless it discloses at the time the transaction
is consummated that credit or cash refunds for returns are not
given. This section does not require refunds for returns nor does
it prohibit refunds in kind.
(f) Discounts; tie-in arrangements. No
card issuer may, by contract or otherwise:
(1) Prohibit any person who honors a
credit card from offering a discount to a consumer to induce the
consumer to pay by cash, check, or similar means rather than by
use of a credit card or its underlying account for the purchase
of property or services; or
(2) Require any person who honors the
card issuer's credit card to open or maintain any account or obtain
any other service not essential to the operation of the credit
card plan from the card issuer or any other person, as a condition
of participation in a credit card plan. If maintenance of an account
for clearing purposes is determined to be essential to the operation
of the credit card plan, it may be required only if no service
charges or minimum balance requirements are imposed.
(g) Relation to Electronic Fund Transfer
Act and Regulation E. For guidance on whether Regulation Z or
Regulation E applies in instances involving both credit and electronic
fund transfer aspects, refer to Regulation E, 12 CFR 205.5(c)
regarding issuance and 205.6(d) regarding liability for unauthorized
use. On matters other than issuance and liability, this section
applies to the credit aspects of combined credit/electronic fund
transfer transactions, as applicable.
Sec. 226.13 Billing error resolution.27
27 A creditor shall
not accelerate any part of the consumer's indebtedness or restrict
or close a consumer's account solely because the consumer has
exercised in good faith rights provided by this section. A creditor
may be subject to the forfeiture penalty under section 161(e)
of the Act for failure to comply with any of the requirements
of this section.
(a) Definition of billing error. For
purposes of this section, the term billing error means:
(1) A reflection on or with a periodic
statement of an extension of credit that is not made to the consumer
or to a person who has actual, implied, or apparent authority
to use the consumer's credit card or open-end credit plan.
(2) A reflection on or with a periodic
statement of an extension of credit that is not identified in
accordance with the requirements of Secs. 226.7(b) and 226.8.
(3) A reflection on or with a periodic
statement of an extension of credit for property or services not
accepted by the consumer or the consumer's designee, or not delivered
to the consumer or the consumer's designee as agreed.
(4) A reflection on a periodic statement
of the creditor's failure to credit properly a payment or other
credit issued to the consumer's account.
(5) A reflection on a periodic statement
of a computational or similar error of an accounting nature that
is made by the creditor.
(6) A reflection on a periodic statement
of an extension of credit for which the consumer requests additional
clarification, including documentary evidence.
(7) The creditor's failure to mail or
deliver a periodic statement to the consumer's last known address
if that address was received by the creditor, in writing, at least
20 days before the end of the billing cycle for which the statement
was required.
(b) Billing error notice.28
A billing error notice is a written notice 29 from
a consumer that:
28 The creditor need not comply with the requirements of
paragraphs (c) through (g) of this section if the consumer concludes
that no billing error occurred and voluntarily withdraws the billing
error notice.
29 The creditor may require that the written notice not
be made on the payment medium or other material accompanying the
periodic statement if the creditor so stipulates in the billing
rights statement required by Secs. 226.6(d) and 226.9(a).
(1) Is received by a creditor at the
address disclosed under Sec. 226.7(k) no later than 60 days after
the creditor transmitted the first periodic statement that reflects
the alleged billing error;
(2) Enables the creditor to identify
the consumer's name and account number; and
(3) To the extent possible, indicates
the consumer's belief and the reasons for the belief that a billing
error exists, and the type, date, and amount of the error.
(c) Time for resolution; general procedures.
(1) The creditor shall mail or deliver written acknowledgment
to the consumer within 30 days of receiving a billing error notice,
unless the creditor has complied with the appropriate resolution
procedures of paragraphs (e) and (f) of this section, as applicable,
within the 30-day period; and
(2) The creditor shall comply with the
appropriate resolution procedures of paragraphs (e) and (f) of
this section, as applicable, within 2 complete billing cycles
(but in no event later than 90 days) after receiving a billing
error notice.
(d) Rules pending resolution. Until a
billing error is resolved under paragraph (e) or (f) of this section,
the following rules apply:
(1) Consumer's right to withhold disputed
amount; collection action prohibited. The consumer need not pay
(and the creditor may not try to collect) any portion of any required
payment that the consumer believes is related to the disputed
amount (including related finance or other charges).30
If the cardholder maintains a deposit account with the card issuer
and has agreed to pay the credit card indebtedness by periodic
deductions from the cardholder's deposit account, the card issuer
shall not deduct any part of the disputed amount or related finance
or other charges if a billing error notice is received any time
up to 3 business days before the scheduled payment date.
30 A creditor is not prohibited from taking action to collect
any undisputed portion of the item or bill; from deducting any
disputed amount and related finance or other charges from the
consumer's credit limit on the account; or from reflecting a disputed
amount and related finance or other charges on a periodic statement,
provided that the creditor indicates on or with the periodic statement
that payment of any disputed amount and related finance or other
charges is not required pending the creditor's compliance with
this section.
(2) Adverse credit reports prohibited.
The creditor or its agent shall not (directly or indirectly) make
or threaten to make an adverse report to any person about the
consumer's credit standing, or report that an amount or account
is delinquent, because the consumer failed to pay the disputed
amount or related finance or other charges.
(e) Procedures if billing error occurred
as asserted. If a creditor determines that a billing error occurred
as asserted, it shall within the time limits in paragraph (c)(2)
of this section:
(1) Correct the billing error and credit
the consumer's account with any disputed amount and related finance
or other charges, as applicable; and
(2) Mail or deliver a correction notice
to the consumer.
(f) Procedures if different billing error
or no billing error occurred. If, after conducting a reasonable
investigation,31 a creditor determines that no billing
error occurred or that a different billing error occurred from
that asserted, the creditor shall within the time limits in paragraph
(c)(2) of this section:
31 If a consumer submits a billing error notice alleging
either the nondelivery of property or services under paragraph
(a)(3) of this section or that information appearing on a periodic
statement is incorrect because a person honoring the consumer's
credit card has made an incorrect report to the card issuer, the
creditor shall not deny the assertion unless it conducts a reasonable
investigation and determines that the property or services were
actually delivered, mailed, or sent as agreed or that the information
was correct.
(1) Mail or deliver to the consumer
an explanation that sets forth the reasons for the creditor's
belief that the billing error alleged by the consumer is incorrect
in whole or in part;
(2) Furnish copies of documentary evidence
of the consumer's indebtedness, if the consumer so requests; and
(3) If a different billing error occurred,
correct the billing error and credit the consumer's account with
any disputed amount and related finance or other charges, as applicable.
(g) Creditor's rights and duties after
resolution. If a creditor, after complying with all of the requirements
of this section, determines that a consumer owes all or part of
the disputed amount and related finance or other charges, the
creditor:
(1) Shall promptly notify the consumer
in writing of the time when payment is due and the portion of
the disputed amount and related finance or other charges that
the consumer still owes;
(2) Shall allow any time period disclosed
under Secs. 226.6(a)(1) and 226.7(j), during which the consumer
can pay the amount due under paragraph (g)(1) of this section
without incurring additional finance or other charges;
(3) May report an account or amount as
delinquent because the amount due under paragraph (g)(1) of this
section remains unpaid after the creditor has allowed any time
period disclosed under Secs. 226.6(a)(1) and 266.7(j) or 10 days
(whichever is longer) during which the consumer can pay the amount;
but
(4) May not report that an amount or
account is delinquent because the amount due under paragraph (g)(1)
of the section remains unpaid, if the creditor receives (within
the time allowed for payment in paragraph (g)(3) of this section)
further written notice from the consumer that any portion of the
billing error is still in dispute, unless the creditor also:
(i) Promptly reports that the amount
or account is in dispute;
(ii) Mails or delivers to the consumer
(at the same time the report is made) a written notice of the
name and address of each person to whom the creditor makes a report;
and
(iii) Promptly reports any subsequent
resolution of the reported delinquency to all persons to whom
the creditor has made a report.
(h) Reassertion of billing error. A creditor
that has fully complied with the requirements of this section
has no further responsibilities under this section (other than
as provided in paragraph (g)(4) of this section) if a consumer
reasserts substantially the same billing error.
(i) Relation to Electronic Fund Transfer
Act and Regulation E. If an extension of credit is incident to
an electronic fund transfer, under an agreement between a consumer
and a financial institution to extend credit when the consumer's
account is overdrawn or to maintain a specified minimum balance
in the consumer's account, the creditor shall comply with the
requirements of Regulation E, 12 CFR 205.11 governing error resolution
rather than those of paragraphs (a), (b), (c), (e), (f), and (h)
of this section.
Sec. 226.14 Determination of annual percentage
rate.
(a) General rule. The annual percentage
rate is a measure of the cost of credit, expressed as a yearly
rate. An annual percentage rate shall be considered accurate if
it is not more than \1/8\ of 1 percentage point above or below
the annual percentage rate determined in accordance with this
section.31a
31a An error in disclosure of the annual percentage rate
or finance charge shall not, in itself, be considered a violation
of this regulation if: (1) The error resulted from a corresponding
error in a calculation tool used in good faith by the creditor;
and (2) upon discovery of the error, the creditor promptly discontinues
use of that calculation tool for disclosure purposes, and notifies
the Board in writing of the error in the calculation tool.
(b) Annual percentage rate for Secs.
226.5a and 226.5b disclosures, for initial disclosures and for
advertising purposes. Where one or more periodic rates may be
used to compute the finance charge, the annual percentage rate(s)
to be disclosed for purposes of Secs. 226.5a, 226.5b, 226.6, and
226.16 shall be computed by multiplying each periodic rate by
the number of periods in a year.
(c) Annual percentage rate for periodic
statements. The annual percentage rate(s) to be disclosed for
purposes of Sec. 226.7(d) shall be computed by multiplying each
periodic rate by the number of periods in a year and, for purposes
of Sec. 226.7(g), shall be determined as follows:
(1) If the finance charge is determined
solely by applying one or more periodic rates, at the creditor's
option, either:
(i) By multiplying each periodic rate
by the number of periods in a year; or
(ii) By dividing the total finance charge
for the billing cycle by the sum of the balances to which the
periodic rates were applied and multiplying the quotient (expressed
as a percentage) by the number of billing cycles in a year.
(2) If the finance charge imposed during
the billing cycle is or includes a minimum, fixed, or other charge
not due to the application of a periodic rate, other than a charge
with respect to any specific transaction during the billing cycle,
by dividing the total finance charge for the billing cycle by
the amount of the balance(s) to which it is applicable32
and multiplying the quotient (expressed as a percentage) by the
number of billing cycles in a year.33
32 If there is no balance to which the finance charge is
applicable, an annual percentage rate cannot be determined under
this section.
33 Where the finance charge imposed during the billing
cycle is or includes a loan fee, points, or similar charge that
relates to the opening of the account, the amount of such charge
shall not be included in the calculation of the annual percentage
rate.
(3) If the finance charge imposed during
the billing cycle is or includes a charge relating to a specific
transaction during the billing cycle (even if the total finance
charge also includes any other minimum, fixed, or other charge
not due to the application of a periodic rate), by dividing the
total finance charge imposed during the billing cycle by the total
of all balances and other amounts on which a finance charge was
imposed during the billing cycle without duplication, and multiplying
the quotient (expressed as a percentage) by the number of billing
cycles in a year,34 except that the annual percentage
rate shall not be less than the largest rate determined by multiplying
each periodic rate imposed during the billing cycle by the number
of periods in a year.35
34 See appendix F regarding determination of the denominator
of the fraction under this paragraph.
35 See footnote 33.
(4) If the finance charge imposed during
the billing cycle is or includes a minimum, fixed, or other charge
not due to the application of a periodic rate and the total finance
charge imposed during the billing cycle does not exceed 50 cents
for a monthly or longer billing cycle, or the pro rata part of
50 cents for a billing cycle shorter than monthly, at the creditor's
option, by multiplying each applicable periodic rate by the number
of periods in a year, notwithstanding the provisions of paragraphs
(c)(2) and (3) of this section.
(d) Calculations where daily periodic
rate applied. If the provisions of paragraph (c)(1)(ii) or (2)
of this section apply and all or a portion of the finance charge
is determined by the application of one or more daily periodic
rates, the annual percentage rate may be determined either:
(1) By dividing the total finance charge
by the average of the daily balances and multiplying the quotient
by the number of billing cycles in a year; or
(2) By dividing the total finance charge
by the sum of the daily balances and multiplying the quotient
by 365.
Sec. 226.15 Right of rescission.
(a) Consumer's right to rescind. (1)(i)
Except as provided in paragraph (a)(1)(ii) of this section, in
a credit plan in which a security interest is or will be retained
or acquired in a consumer's principal dwelling, each consumer
whose ownership interest is or will be subject to the security
interest shall have the right to rescind: each credit extension
made under the plan; the plan when the plan is opened; a security
interest when added or increased to secure an existing plan; and
the increase when a credit limit on the plan is increased.
(ii) As provided in section 125(e) of
the Act, the consumer does not have the right to rescind each
credit extension made under the plan if such extension is made
in accordance with a previously established credit limit for the
plan.
(2) To exercise the right to rescind,
the consumer shall notify the creditor of the rescission by mail,
telegram, or other means of written communication. Notice is considered
given when mailed, or when filed for telegraphic transmission,
or, if sent by other means, when delivered to the creditor's designated
place of business.
(3) The consumer may exercise the right
to rescind until midnight of the third business day following
the occurrence described in paragraph (a)(1) of this section that
gave rise to the right of rescission, delivery of the notice required
by paragraph (b) of this section, or delivery of all material
disclosures,36 whichever occurs last. If the required
notice and material disclosures are not delivered, the right to
rescind shall expire 3 years after the occurrence giving rise
to the right of rescission, or upon transfer of all of the consumer's
interest in the property, or upon sale of the property, whichever
occurs first. In the case of certain administrative proceedings,
the rescission period shall be extended in accordance with section
125(f) of the Act.
36 The term material disclosures means the information
that must be provided to satisfy the requirements in Sec. 226.6
with regard to the method of determining the finance charge and
the balance upon which a finance charge will be imposed, the annual
percentage rate, the amount or method of determining the amount
of any membership or participation fee that may be imposed as
part of the plan, and the payment information described in Sec.
226.5b(d)(5)(i) and (ii) that is required under Sec. 226.6(e)(2).
(4) When more than one consumer has
the right to rescind, the exercise of the right by one consumer
shall be effective as to all consumers.
(b) Notice of right to rescind. In any
transaction or occurrence subject to rescission, a creditor shall
deliver 2 copies of the notice of the right to rescind to each
consumer entitled to rescind. The notice shall identify the transaction
or occurrence and clearly and conspicuously disclose the following:
(1) The retention or acquisition of a
security interest in the consumer's principal dwelling.
(2) The consumer's right to rescind,
as described in paragraph (a)(1) of this section.
(3) How to exercise the right to rescind,
with a form for that purpose, designating the address of the creditor's
place of business.
(4) The effects of rescission, as described
in paragraph (d) of this section.
(5) The date the rescission period expires.
(c) Delay of creditor's performance.
Unless a consumer waives the right to rescind under paragraph
(e) of this section, no money shall be disbursed other than in
escrow, no services shall be performed, and no materials delivered
until after the rescission period has expired and the creditor
is reasonably satisfied that the consumer has not rescinded. A
creditor does not violate this section if a third party with no
knowledge of the event activating the rescission right does not
delay in providing materials or services, as long as the debt
incurred for those materials or services is not secured by the
property subject to rescission.
(d) Effects of rescission. (1) When a
consumer rescinds a transaction, the security interest giving
rise to the right of rescission becomes void, and the consumer
shall not be liable for any amount, including any finance charge.
(2) Within 20 calendar days after receipt
of a notice of rescission, the creditor shall return any money
or property that has been given to anyone in connection with the
transaction and shall take any action necessary to reflect the
termination of the security interest.
(3) If the creditor has delivered any
money or property, the consumer may retain possession until the
creditor has met its obligation under paragraph (d)(2) of this
section. When the creditor has complied with that paragraph, the
consumer shall tender the money or property to the creditor or,
where the latter would be impracticable or inequitable, tender
its reasonable value. At the consumer's option, tender of property
may be made at the location of the property or at the consumer's
residence. Tender of money must be made at the creditor's designated
place of business. If the creditor does not take possession of
the money or property within 20 calendar days after the consumer's
tender, the consumer may keep it without further obligation.
(4) The procedures outlined in paragraphs
(d)(2) and (3) of this section may be modified by court order.
(e) Consumer's waiver of right to rescind.
(1) The consumer may modify or waive the right to rescind if the
consumer determines that the extension of credit is needed to
meet a bona fide personal financial emergency. To modify or waive
the right, the consumer shall give the creditor a dated written
statement that describes the emergency, specifically modifies
or waives the right to rescind, and bears the signature of all
the consumers entitled to rescind. Printed forms for this purpose
are prohibited, except as provided in paragraph (e)(2) of this
section.
(2) The need of the consumer to obtain
funds immediately shall be regarded as a bona fide personal financial
emergency provided that the dwelling securing the extension of
credit is located in an area declared during June through September
1993, pursuant to 42 U.S.C. 5170, to be a major disaster area
because of severe storms and flooding in the Midwest. In this
instance, creditors may use printed forms for the consumer to
waive the right to rescind. This exemption to paragraph (e)(1)
of this section shall expire one year from the date an area was
declared a major disaster.
(3) The consumer's need to obtain funds
immediately shall be regarded as a bona fide personal financial
emergency provided that the dwelling securing the extension of
credit is located in an area declared during June through September
1994 to be a major disaster area, pursuant to 42 U.S.C. 5170,
because of severe storms and flooding in the South. In this instance,
creditors may use printed forms for the consumer to waive the
right to rescind. This exemption to paragraph (e)(1) of this section
shall expire one year from the date an area was declared a major
disaster.
(4) The consumer's need to obtain funds
immediately shall be regarded as a bona fide personal financial
emergency provided that the dwelling securing the extension of
credit is located in an area declared during October 1994 to be
a major disaster area, pursuant to 42 U.S.C. 5170, because of
severe storms and flooding in Texas. In this instance, creditors
may use printed forms for the consumer to waive the right to rescind.
This exemption to paragraph (e)(1) of this section shall expire
one year from the date an area was declared a major disaster.
(f) Exempt transactions. The right to
rescind does not apply to the following:
(1) A residential mortgage transaction.
(2) A credit plan in which a state agency
is a creditor.
Sec. 226.16 Advertising.
(a) Actually available terms. If an
advertisement for credit states specific credit terms, it shall
state only those terms that actually are or will be arranged or
offered by the creditor.
(b) Advertisement of terms that require
additional disclosures. If any of the terms required to be disclosed
under Sec. 226.6 is set forth in an advertisement, the advertisement
shall also clearly and conspicuously set forth the following:36d
36d The disclosures given in accordance with Sec. 226.5a
do not constitute advertising terms for purposes of the requirements
of this section.
(1) Any minimum, fixed, transaction,
activity or similar charge that could be imposed.
(2) Any periodic rate that may be applied
expressed as an annual percentage rate as determined under Sec.
226.14(b). If the plan provides for a variable periodic rate,
that fact shall be disclosed.
(3) Any membership or participation fee
that could be imposed.
(c) Catalogs and multiple-page advertisements.
(1) If a catalog or other multiple-page advertisement gives information
in a table or schedule in sufficient detail to permit determination
of the disclosures required by paragraph (b) of this section,
it shall be considered a single advertisement if:
(i) The table or schedule is clearly
and conspicuously set forth; and
(ii) Any statement of terms set forth
in Sec. 226.6 appearing anywhere else in the catalog or advertisement
clearly refers to that page on which the table or schedule begins.
(2) A catalog or multiple-page advertisement
complies with this paragraph if the table or schedule of terms
includes all appropriate disclosures for a representative scale
of amounts up to the level of the more commonly sold higher-priced
property or services offered.
(d) Additional requirements for home
equity plans--(1) Advertisement of terms that require additional
disclosures. If any of the terms required to be disclosed under
Sec. 226.6(a) or (b) or the payment terms of the plan are set
forth, affirmatively or negatively, in an advertisement for a
home equity plan subject to the requirements of Sec. 226.5b, the
advertisement also shall clearly and conspicuously set forth the
following:
(i) Any loan fee that is a percentage
of the credit limit under the plan and an estimate of any other
fees imposed for opening the plan, stated as a single dollar amount
or a reasonable range.
(ii) Any periodic rate used to compute
the finance charge, expressed as an annual percentage rate as
determined under section Sec. 226.14(b).
(iii) The maximum annual percentage rate
that may be imposed in a variable-rate plan.
(2) Discounted and premium rates. If
an advertisement states an initial annual percentage rate that
is not based on the index and margin used to make later rate adjustments
in a variable-rate plan, the advertisement also shall state the
period of time such rate will be in effect, and, with equal prominence
to the initial rate, a reasonably current annual percentage rate
that would have been in effect using the index and margin.
(3) Balloon payment. If an advertisement
contains a statement about any minimum periodic payment, the advertisement
also shall state, if applicable, that a balloon payment may result.36e,
36 e See footnote 10b.
(4) Tax implications. An advertisement
that states that any interest expense incurred under the home
equity plan is or may be tax deductible may not be misleading
in this regard.
(5) Misleading terms. An advertisement
may not refer to a home equity plan as ``free money'' or contain
a similarly misleading term.
SubPart A - General
SubPart C - Closed-End Credit
SubPart D - Miscellaneous
Subpart E - Special Rules
for Certain Home Mortgage Transactions
Appendices A - L
Credit And Banking
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