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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

 

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