Title 12--Banks and Banking CHAPTER II--FEDERAL RESERVE SYSTEM PART 226--TRUTH IN LENDING (REGULATION Z) |
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Sec. 226.1 Authority,
purpose, coverage, organization, enforcement and liability. |
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Subpart A--General
(a) Authority. This regulation, known as Regulation Z, is issued by
the Board of Governors of the Federal Reserve System to implement the
Federal Truth in Lending Act, which is contained in title I of the
Consumer Credit Protection Act, as amended (15 U.S.C. 1601 et seq.).
This regulation also implements title XII, section 1204 of the
Competitive Equality Banking Act of 1987 (Pub. L. 100-86, 101 Stat.
552). Information-collection requirements contained in this regulation
have been approved by the Office of Management and Budget under the
provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB number
7100-0199.
(b) The purpose of this regulation is to promote the informed use of
consumer credit by requiring disclosures about its terms and cost. The
regulation gives consumers the right to cancel certain credit
transactions that involve a lien on a consumer's principal dwelling,
regulates certain credit card practices, and provides a means for fair
and timely resolution of credit billing disputes. The regulation does
not govern charges for consumer credit. The regulation requires a
maximum interest rate to be stated in variable-rate contracts secured by
the consumer's dwelling. It also imposes limitations on home equity
plans that are subject to the requirements of Sec. 226.5b and mortgages
that are subject to the requirements of Sec. 226.32.
(c) Coverage. (1) In general, this regulation applies to each
individual or
[[Page 214]]
business that offers or extends credit when four conditions are met: (i)
The credit is offered or extended to consumers; (ii) the offering or
extension of credit is done regularly;\1\ (iii) the credit is subject to
a finance charge or is payable by a written agreement in more than 4
installments; and (iv) the credit is primarily for personal, family, or
household purposes.
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\1\ The meaning of regularly is explained in the definition of
creditor in Sec. 226.2(a).
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(2) If a credit card is involved, however, certain provisions apply
even if the credit is not subject to a finance charge, or is not payable
by a written agreement in more than 4 installments, or if the credit
card is to be used for business purposes.
(3) In addition, certain requirements of Sec. 226.5b apply to
persons who are not creditors but who provide applications for home
equity plans to consumers.
(d) Organization. The regulation is divided into subparts and
appendices as follows:
(1) Subpart A contains general information. It sets forth: (i) The
authority, purpose, coverage, and organization of the regulation; (ii)
the definitions of basic terms; (iii) the transactions that are exempt
from coverage; and (iv) the method of determining the finance charge.
(2) Subpart B contains the rules for open-end credit. It requires
that initial disclosures and periodic statements be provided, as well as
additional disclosures for credit and charge card applications and
solicitations and for home equity plans subject to the requirements of
Secs. 226.5a and 226.5b, respectively.
(3) Subpart C relates to closed-end credit. It contains rules on
disclosures, treatment of credit balances, annual percentage rate
calculations, rescission requirements, and advertising.
(4) Subpart D contains rules on oral disclosures, Spanish language
disclosure in Puerto Rico, record retention, effect on state laws, state
exemptions, and rate limitations.
(5) Subpart E relates to mortgage transactions covered by
Sec. 226.32 and reverse mortgage transactions. It contains rules on
disclosures, fees, and total annual loan cost rates.
(6) Several appendices contain information such as the procedures
for determinations about state laws, state exemptions and issuance of
staff interpretations, special rules for certain kinds of credit plans,
a list of enforcement agencies, and the rules for computing annual
percentage rates in closed-end credit transactions and total annual loan
cost rates for reverse mortgage transactions.
(e) Enforcement and liability. Section 108 of the act contains the
administrative enforcement provisions. Sections 112, 113, 130, 131, and
134 contain provisions relating to liability for failure to comply with
the requirements of the act and the regulation. Section 1204(c) of title
XII of the Competitive Equality Banking Act of 1987, Pub. L. 100-86, 101
Stat. 552, incorporates by reference administrative enforcement and
civil liability provisions of sections 108 and 130 of the act.
[Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 52 FR 43181, Nov. 9,
1987; 54 FR 13865, Apr. 6, 1989; 54 FR 24686, June 9, 1989; 60 FR 15471,
Mar. 24, 1995]
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Subpart A--General
(a) Definitions. For purposes of this regulation, the following
definitions apply:
(1) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.).
(2) Advertisement means a commercial message in any medium that
promotes, directly or indirectly, a credit transaction.
(3) [Reserved] \2\
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\2\ [Reserved]
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(4) Billing cycle or cycle means the interval between the days or
dates of regular periodic statements. These intervals shall be equal and
no longer than a quarter of a year. An interval will be considered equal
if the number of days in the cycle does not vary more than 4 days from
the regular day or date of the periodic statement.
(5) Board means the Board of Governors of the Federal Reserve
System.
(6) Business day means a day on which the creditor's offices are
open to the public for carrying on substantially all of its business
functions. However, for purposes of rescission under Secs. 226.15
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and 226.23, and for purposes of Sec. 226.31, the term means all calendar
days except Sundays and the legal public holidays specified in 5 U.S.C.
6103(a), such as New Year's Day, the Birthday of Martin Luther King,
Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
(7) Card issuer means a person that issues a credit card or that
person's agent with respect to the card.
(8) Cardholder means a natural person to whom a credit card is
issued for consumer credit purposes, or a natural person who has agreed
with the card issuer to pay consumer credit obligations arising from the
issuance of a credit card to another natural person. For purposes of
Sec. 226.12(a) and (b), the term includes any person to whom a credit
card is issued for any purpose, including business, commercial, or
agricultural use, or a person who has agreed with the card issuer to pay
obligations arising from the issuance of such a credit card to another
person.
(9) Cash price means the price at which a creditor, in the ordinary
course of business, offers to sell for cash the property or service that
is the subject of the transaction. At the creditor's option, the term
may include the price of accessories, services related to the sale,
service contracts and taxes and fees for license, title, and
registration. The term does not include any finance charge.
(10) Closed-end credit means consumer credit other than open-end
credit as defined in this section.
(11) Consumer means a cardholder or a natural person to whom
consumer credit is offered or extended. However, for purposes of
rescission under Secs. 226.15 and 226.23, the term also includes a
natural person in whose principal dwelling a security interest is or
will be retained or acquired, if that person's ownership interest in the
dwelling is or will be subject to the security interest.
(12) Consumer credit means credit offered or extended to a consumer
primarily for personal, family, or household purposes.
(13) Consummation means the time that a consumer becomes
contractually obligated on a credit transaction.
(14) Credit means the right to defer payment of debt or to incur
debt and defer its payment.
(15) Credit card means any card, plate, coupon book, or other single
credit device that may be used from time to time to obtain credit.
Charge card means a credit card on an account for which no periodic rate
is used to compute a finance charge.
(16) Credit sale means a sale in which the seller is a creditor. The
term includes a bailment or lease (unless terminable without penalty at
any time by the consumer) under which the consumer:
(i) Agrees to pay as compensation for use a sum substantially
equivalent to, or in excess of, the total value of the property and
services involved; and
(ii) Will become (or has the option to become), for no additional
consideration or for nominal consideration, the owner of the property
upon compliance with the agreement.
(17) Creditor means: (i) A person (A) who regularly extends consumer
credit \3\ that is subject to a finance charge or is payable by written
agreement in more than 4 installments (not including a downpayment), and
(B) to whom the obligation is initially payable, either on the face of
the note or contract, or by agreement when there is no note or contract.
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\3\ A person regularly extends consumer credit only if it extended
credit (other than credit subject to the requirements of Sec. 226.32)
more than 25 times (or more than 5 times for transactions secured by a
dwelling) in the preceding calendar year. If a person did not meet these
numerical standards in the preceding calendar year, the numerical
standards shall be applied to the current calendar year. A person
regularly extends consumer credit if, in any 12-month period, the person
originates more than one credit extension that is subject to the
requirements of Sec. 226.32 or one or more such credit extensions
through a mortgage broker.
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(ii) For purposes of Secs. 226.4(c)(8) (discounts), 226.9(d)
(Finance charge imposed at time of transaction), and 226.12(e) (Prompt
notification of returns and crediting of refunds), a person that honors
a credit card.
(iii) For purposes of subpart B, any card issuer that extends either
open-end credit or credit that is not subject to a finance charge and is
not payable
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by written agreement in more than 4 installments.
(iv) For purposes of subpart B (except for the credit and charge
card disclosures contained in Secs. 226.5(a) and 226.9 (e) and (f), the
finance charge disclosures contained in Secs. 226.6(a) and 226.7 (d)
through (g) and the right of rescission set forth in Sec. 226.15) and
subpart C, any card issuer that extends closed-end credit that is
subject to a finance charge or is payable by written agreement in more
than 4 installments.
(18) Downpayment means an amount, including the value of any
property used as a trade-in, paid to a seller to reduce the cash price
of goods or services purchased in a credit sale transaction. A deferred
portion of a downpayment may be treated as part of the downpayment if it
is payable not later than the due date of the second otherwise regularly
scheduled payment and is not subject to a finance charge.
(19) Dwelling means a residential structure that contains 1 to 4
units, whether or not that structure is attached to real property. The
term includes an individual condominium unit, cooperative unit, mobile
home, and trailer, if it is used as a residence.
(20) Open-end credit means consumer credit extended by a creditor
under a plan in which:
(i) The creditor reasonably contemplates repeated transactions;
(ii) The creditor may impose a finance charge from time to time on
an outstanding unpaid balance; and
(iii) The amount of credit that may be extended to the consumer
during the term of the plan (up to any limit set by the creditor) is
generally made available to the extent that any outstanding balance is
repaid.
(21) Periodic rate means a rate of finance charge that is or may be
imposed by a creditor on a balance for a day, week, month, or other
subdivision of a year.
(22) Person means a natural person or an organization, including a
corporation, partnership, proprietorship, association, cooperative,
estate, trust, or government unit.
(23) Prepaid finance charge means any finance charge paid separately
in cash or by check before or at consummation of a transaction, or
withheld from the proceeds of the credit at any time.
(24) Residential mortgage transaction means a transaction in which a
mortgage, deed of trust, purchase money security interest arising under
an installment sales contract, or equivalent consensual security
interest is created or retained in the consumer's principal dwelling to
finance the acquisition or initial construction of that dwelling.
(25) Security interest means an interest in property that secures
performance of a consumer credit obligation and that is recognized by
State or Federal law. It does not include incidental interests such as
interests in proceeds, accessions, additions, fixtures, insurance
proceeds (whether or not the creditor is a loss payee or beneficiary),
premium rebates, or interests in after-acquired property. For purposes
of disclosure under Secs. 226.6 and 226.18, the term does not include an
interest that arises solely by operation of law. However, for purposes
of the right of rescission under Secs. 226.15 and 226.23, the term does
include interests that arise solely by operation of law.
(26) State means any state, the District of Columbia, the
Commonwealth of Puerto Rico, and any territory or possession of the
United States.
(b) Rules of construction. For purposes of this regulation, the
following rules of construction apply:
(1) Where appropriate, the singular form of a word includes the
plural form and plural includes singular.
(2) Where the words obligation and transaction are used in this
regulation, they refer to a consumer credit obligation or transaction,
depending upon the context. Where the word credit is used in this
regulation, it means consumer credit unless the context clearly
indicates otherwise.
(3) Unless defined in this regulation, the words used have the
meanings given to them by state law or contract.
(4) Footnotes have the same legal effect as the text of the
regulation.
[Reg. Z, 46 FR 20892, Apr. 7, 1981; 46 FR 29246, June 1, 1981, as
amended at 47 FR 7392, Feb. 19, 1982; 48 FR 14886, Apr. 6, 1983; 54 FR
13865, Apr. 6, 1989; 60 FR 15471, Mar. 24, 1995; 61 FR 49245, Sept. 19,
1996]
[[Page 217]]
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Subpart A--General
This regulation does not apply to the following:\4\
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\4\ The provisions in Sec. 226.12 (a) and (b) governing the issuance
of credit cards and the liability for their unauthorized use apply to
all credit cards, even if the credit cards are issued for use in
connection with extensions of credit that otherwise are exempt under
this section.
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(a) Business, commercial, agricultural, or organizational credit.
(1) An extension of credit primarily for a business, commercial or
agricultural purpose.
(2) An extension of credit to other than a natural person, including
credit to government agencies or instrumentalities.
(b) Credit over $25,000 not secured by real property or a dwelling.
An extension of credit not secured by real property, or by personal
property used or expected to be used as the principal dwelling of the
consumer, in which the amount financed exceeds $25,000 or in which there
is an express written commitment to extend credit in excess of $25,000.
(c) Public utility credit. An extension of credit that involves
public utility services provided through pipe, wire, other connected
facilities, or radio or similar transmission (including extensions of
such facilities), if the charges for service, delayed payment, or any
discounts for prompt payment are filed with or regulated by any
government unit. The financing of durable goods or home improvements by
a public utility is not exempt.
(d) Securities or commodities accounts. Transactions in securities
or commodities accounts in which credit is extended by a broker-dealer
registered with the Securities and Exchange Commission or the Commodity
Futures Trading Commission.
(e) Home fuel budget plans. An installment agreement for the
purchase of home fuels in which no finance charge is imposed.
(f) Student loan programs. Loans made, insured, or guaranteed
pursuant to a program authorized by title IV of the Higher Education Act
of 1965 (20 U.S.C. 1070 et seq.).
[46 FR 20892, Apr. 7, 1981, as amended at 48 FR 14886, Apr. 6, 1983; 49
FR 46991, Nov. 30, 1984]
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Sec. 226.4 Finance charge. |
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Subpart A--General
(a) Definition. The finance charge is the cost of consumer credit as
a dollar amount. It includes any charge payable directly or indirectly
by the consumer and imposed directly or indirectly by the creditor as an
incident to or a condition of the extension of credit. It does not
include any charge of a type payable in a comparable cash transaction.
(1) Charges by third parties. The finance charge includes fees and
amounts charged by someone other than the creditor, unless otherwise
excluded under this section, if the creditor:
(i) requires the use of a third party as a condition of or an
incident to the extension of credit, even if the consumer can choose the
third party; or
(ii) retains a portion of the third-party charge, to the extent of
the portion retained.
(2) Special rule; closing agent charges. Fees charged by a third
party that conducts the loan closing (such as a settlement agent,
attorney, or escrow or title company) are finance charges only if the
creditor:
(i) Requires the particular services for which the consumer is
charged;
(ii) Requires the imposition of the charge; or
(iii) Retains a portion of the third-party charge, to the extent of
the portion retained.
(3) Special rule; mortgage broker fees. Fees charged by a mortgage
broker (including fees paid by the consumer directly to the broker or to
the creditor for delivery to the broker) are finance charges even if the
creditor does not require the consumer to use a mortgage broker and even
if the creditor does not retain any portion of the charge.
(b) Example of finance charge. The finance charge includes the
following types of charges, except for charges specifically excluded by
paragraphs (c) through (e) of this section:
[[Page 218]]
(1) Interest, time price differential, and any amount payable under
an add-on or discount system of additional charges.
(2) Service, transaction, activity, and carrying charges, including
any charge imposed on a checking or other transaction account to the
extent that the charge exceeds the charge for a similar account without
a credit feature.
(3) Points, loan fees, assumption fees, finder's fees, and similar
charges.
(4) Appraisal, investigation, and credit report fees.
(5) Premiums or other charges for any guarantee or insurance
protecting the creditor against the consumer's default or other credit
loss.
(6) Charges imposed on a creditor by another person for purchasing
or accepting a consumer's obligation, if the consumer is required to pay
the charges in cash, as an addition to the obligation, or as a deduction
from the proceeds of the obligation.
(7) Premiums or other charges for credit life, accident, health, or
loss-of-income insurance, written in connection with a credit
transaction.
(8) Premiums or other charges for insurance against loss of or
damage to property, or against liability arising out of the ownership or
use of property, written in connection with a credit transaction.
(9) Discounts for the purpose of inducing payment by a means other
than the use of credit.
(10) Debt cancellation fees. Charges or premiums paid for debt
cancellation coverage written in connection with a credit transaction,
whether or not the debt cancellation coverage is insurance under
applicable law.
(c) Charges excluded from the finance charge. The following charges
are not finance charges:
(1) Application fees charged to all applicants for credit, whether
or not credit is actually extended.
(2) Charges for actual unanticipated late payment, for exceeding a
credit limit, or for delinquency, default, or a similar occurrence.
(3) Charges imposed by a financial institution for paying items that
overdraw an account, unless the payment of such items and the imposition
of the charge were previously agreed upon in writing.
(4) Fees charged for participation in a credit plan, whether
assessed on an annual or other periodic basis.
(5) Seller's points.
(6) Interest forfeited as a result of an interest reduction required
by law on a time deposit used as security for an extension of credit.
(7) Real-estate related fees. The following fees in a transaction
secured by real property or in a residential mortgage transaction, if
the fees are bona fide and reasonable in amount:
(i) Fees for title examination, abstract of title, title insurance,
property survey, and similar purposes.
(ii) Fees for preparing loan-related documents, such as deeds,
mortgages, and reconveyance or settlement documents.
(iii) Notary and credit report fees.
(iv) Property appraisal fees or fees for inspections to assess the
value or condition of the property if the service is performed prior to
closing, including fees related to pest infestation or flood hazard
determinations.
(v) Amounts required to be paid into escrow or trustee accounts if
the amounts would not otherwise be included in the finance charge.
(8) Discounts offered to induce payment for a purchase by cash,
check, or other means, as provided in section 167(b) of the Act.
(d) Insurance and debt cancellation coverage--(1) Voluntary credit
insurance premiums. Premiums for credit life, accident, health or loss-
of-income insurance may be excluded from the finance charge if the
following conditions are met:
(i) The insurance coverage is not required by the creditor, and this
fact is disclosed in writing.
(ii) The premium for the initial term of insurance coverage is
disclosed. If the term of insurance is less than the term of the
transaction, the term of insurance also shall be disclosed. The premium
may be disclosed on a unit-cost basis only in open-end credit
transactions, closed-end credit transactions by mail or telephone under
Sec. 226.17(g), and certain closed-end credit transactions involving an
insurance
[[Page 219]]
plan that limits the total amount of indebtedness subject to coverage.
(iii) The consumer signs or initials an affirmative written request
for the insurance after receiving the disclosures specified in this
paragraph. Any consumer in the transaction may sign or initial the
request.
(2) Premiums for insurance against loss of or damage to property, or
against liability arising out of the ownership or use of property,\5\
may be excluded from the finance charge if the following conditions are
met:
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\5\ This includes single interest insurance if the insurer waives
all right of subrogation against the consumer.
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(i) The insurance coverage may be obtained from a person of the
consumer's choice,\6\ and this fact is disclosed.
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\6\ A creditor may reserve the right to refuse to accept, for
reasonable cause, an insurer offered by the consumer.
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(ii) If the coverage is obtained from or through the creditor, the
premium for the initial term of insurance coverage shall be disclosed.
If the term of insurance is less than the term of the transaction, the
term of insurance shall also be disclosed. The premium may be disclosed
on a unit-cost basis only in open-end credit transactions, closed-end
credit transactions by mail or telephone under Sec. 226.17(g), and
certain closed-end credit transactions involving an insurance plan that
limits the total amount of indebtedness subject to coverage.
(3) Voluntary debt cancellation fees. (i) Charges or premiums paid
for debt cancellation coverage of the type specified in paragraph
(d)(3)(ii) of this section may be excluded from the finance charge,
whether or not the coverage is insurance, if the following conditions
are met:
(A) The debt cancellation agreement or coverage is not required by
the creditor, and this fact is disclosed in writing;
(B) The fee or premium for the initial term of coverage is
disclosed. If the term of coverage is less than the term of the credit
transaction, the term of coverage also shall be disclosed. The fee or
premium may be disclosed on a unit-cost basis only in open-end credit
transactions, closed-end credit transactions by mail or telephone under
Sec. 226.17(g), and certain closed-end credit transactions involving a
debt cancellation agreement that limits the total amount of indebtedness
subject to coverage;
(C) The consumer signs or initials an affirmative written request
for coverage after receiving the disclosures specified in this
paragraph. Any consumer in the transaction may sign or initial the
request.
(ii) Paragraph (d)(3)(i) of this section applies to fees paid for
debt cancellation coverage that provides for cancellation of all or part
of the debtor's liability for amounts exceeding the value of the
collateral securing the obligation, or in the event of the loss of life,
health, or income or in case of accident.
(e) Certain security interest charges. If itemized and disclosed,
the following charges may be excluded from the finance charge:
(1) Taxes and fees prescribed by law that actually are or will be
paid to public officials for determining the existence of or for
perfecting, releasing, or satisfying a security interest.
(2) The premium for insurance in lieu of perfecting a security
interest to the extent that the premium does not exceed the fees
described in paragraph (e)(1) of this section that otherwise would be
payable.
(3) Taxes on security instruments. Any tax levied on security
instruments or on documents evidencing indebtedness if the payment of
such taxes is a requirement for recording the instrument securing the
evidence of indebtedness.
(f) Prohibited offsets. Interest, dividends, or other income
received or to be received by the consumer on deposits or investments
shall not be deducted in computing the finance charge.
[Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 61 FR 49245, Sept. 19,
1996]
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Sec. 226.5 General disclosure
requirements. |
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Subpart B--Open-End Credit
(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\
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\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.
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(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\
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\9\ The terms need not be more conspicuous when used under
Sec. 226.5a generally for credit and charge card applications and
solicitations under Sec. 226.7(d) on periodic statements, under
Sec. 226.9(e) in credit and charge card renewal disclosures, and under
Sec. 226.16 in advertisements. (But see special rule for annual
percentage rate for purchases, Sec. 226.5a(b)(1).)
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(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.
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\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.
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(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
[[Page 221]]
of this regulation, although new disclosures may be required under
Sec. 226.9(c).
[Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 54 FR 13865, Apr. 6,
1989; 54 FR 24686, June 9, 1989; 65 FR 58908, Oct. 3, 2000]
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Sec. 226.5a Credit and charge card
applications and solicitations. |
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Subpart B--Open-End Credit
(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 (11) of this
section shall be provided either in the table containing the disclosures
in paragraphs (b)(1) through (7), or clearly and conspicuously elsewhere
on or with the application or solicitation.
(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 of the type subject to
the requirements of Sec. 226.5b; overdraft lines of credit tied to asset
accounts accessed by check-guarantee cards or by debit cards; or lines
of credit accessed by check-guarantee cards or by debit cards that can
be used only at automated teller machines.
(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 (11) of this section varies
from state to state, the card issuer may disclose the range of the fees
instead of the amount for each state, if the disclosure includes a
statement that the amount of the fee varies from state to state.
(b) Required disclosures. The card issuer shall disclose the items
in this paragraph on or with an application or a solicitation in
accordance with the requirements of paragraphs (c), (d), or (e) of this
section. A credit card issuer shall disclose all applicable items in
this paragraph except for paragraph (b)(7) of this section. A charge
card issuer shall disclose the applicable items in paragraphs (b)(2),
(4), and (7) through (11) of this section.
(1) Annual percentage rate. Each periodic rate that may be used to
compute the finance charge on an outstanding balance for purchases, a
cash advance, or a balance transfer, expressed as an annual percentage
rate (as determined by Sec. 226.14(b)). When more than one rate applies
for a category of transactions, the range of balances to which each rate
is applicable shall also be disclosed. The annual percentage rate for
purchases disclosed pursuant to this paragraph shall be in at least 18-
point type, except for the following: a temporary initial rate that is
lower than the rate that will apply after the temporary rate expires,
and a penalty rate that will apply upon the occurrence of one or more
specific events.
(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.
[[Page 222]]
(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.
(11) Balance transfer fee. Any fee imposed to transfer an
outstanding balance.
(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:
[[Page 223]]
(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.
[Reg. Z, 54 FR 13865, Apr. 6, 1989, as amended at 54 FR 24686, June 9,
1989; 54 FR 32954, Aug. 11, 1989; 65 FR 17131, Mar. 31, 2000; 65 FR
58908, Oct. 3, 2000]
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Sec. 226.5b Requirements for home equity
plans. |
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Subpart B--Open-End Credit
The requirements of this section apply to open-end credit plans
secured
[[Page 224]]
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\
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\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.
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(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.\10 a\
(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\
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\10b\ 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.
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[[Page 225]]
(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.
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\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 rate\10 c\ 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
[[Page 226]]
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
[[Page 227]]
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\
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\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.
[Reg. Z, 54 FR 24686, June 9, 1989, as amended at 55 FR 38312, Sept. 18,
1990; 55 FR 42148, Oct. 17, 1990; 57 FR 34681, Aug. 6, 1992; 60 FR
15471, Mar. 24, 1995]
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Sec. 226.6 Initial disclosure statement. |
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Subpart B--Open-End Credit
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.
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\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.
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(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.
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\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.
[[Page 228]]
(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.
[Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 54 FR 24688, June 9,
1989]
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Sec. 226.7 Periodic statement. |
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Subpart B--Open-End Credit
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.
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\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.
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(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).
[46 FR 20892, Apr. 7, 1981; 46 FR 29246, June 1, 1981]
[[Page 229]]
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Sec. 226.8 Identification of transactions. |
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Subpart B--Open-End Credit
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\
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\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.
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(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 identification \17\ of the property or services purchased.\18\
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\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).
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(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\
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\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.
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\20\ See Footnote 17.
[46 FR 20892, Apr. 7, 1981; 46 FR 29246, June 1, 1981]
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Sec. 226.9 Subsequent disclosure
requirements. |
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Subpart B--Open-End Credit
(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.
[[Page 230]]
(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
[[Page 231]]
apply if the account were renewed;\20a\ and
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\20a\ These disclosures need not be provided in tabular format or in
a prominent location.
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(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.
[Reg. Z, 46 FR 20892, Apr. 7, 1981; 46 FR 29246, June 1, 1981, as
amended at 54 FR 13867, Apr. 6, 1989; 54 FR 24688, June 9, 1989; 54 FR
32954, Aug. 11, 1989; 55 FR 38312, Sept. 18, 1990; 55 FR 42148, Oct. 17,
1990]
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Sec. 226.10
Prompt crediting of payments. |
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Subpart B--Open-End Credit
(a) General rule. A creditor shall credit a payment to the
consumer's account as of the date of receipt, except
[[Page 232]]
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.
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Sec. 226.11 Treatment of credit
balances. |
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Subpart B--Open-End Credit
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.
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| Sec. 226.12 Special credit card provisions. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subpart B--Open-End Credit
(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\
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\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.
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(b) Liability of cardholder for unauthorized use--(1) Limitation on
amount. The liability of a cardholder for unauthorized use \22\ 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.
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(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 notice \23\ 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
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\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.
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(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
[[Page 233]]
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
issuer \24\--(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\
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\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.
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(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\
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\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.
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(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
[[Page 234]]
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 (12 CFR part 226) or Regulation E (12
CFR part 205) applies in instances involving both credit and electronic
fund transfer aspects, refer to Regulation E, 12 CFR 205.12(a) regarding
issuance and 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.
[Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 65 FR 17131, Mar. 31,
2000]
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|
Sec. 226.13 Billing error resolution. |
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Subpart B--Open-End Credit
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\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.
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(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.
[[Page 235]]
(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).
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(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.
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\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.
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(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.
[[Page 236]]
(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:
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\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.
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(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.
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Sec. 226.14 Determination of annual
percentage rate. |
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Subpart B--Open-End Credit
(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\
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\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.
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[[Page 237]]
(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 applicable \32\ and multiplying the quotient (expressed as a
percentage) by the number of billing cycles in a year.\33\
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\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.
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(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\
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\34\ See appendix F regarding determination of the denominator of
the fraction under this paragraph.
\35\ See footnote 33.
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(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
[[Page 238]]
(2) By dividing the total finance charge by the sum of the daily
balances and multiplying the quotient by 365.
[Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 47 FR 756, Jan. 7,
1982; 48 FR 14886, Apr. 6, 1983; 54 FR 24688, June 9, 1989]
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Sec. 226.15 Right of rescission. |
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Subpart B--Open-End Credit
(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 ex | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||