Ryan S. Stinneford
March 31, 2009
Summary of Changes to Regulation Z
Open-End Credit Rules
I. BACKGROUND.
A. WHAT’S GOING ON?
3. Periodic Statement Disclosures. The Rules revise the
periodic statement disclosure requirements to provide
significant new content and formatting requirements, such as
by grouping fees and interest charges together and requiring
certain minimum payment disclosures on the periodic
statement. The Rules eliminate the requirement to disclose an
“effective APR” on the periodic statement.
On December 18, 2008, the Federal Reserve Board (“FRB”)
adopted final rules (the “Rules”) to revise the open-end credit
provisions of Regulation Z, which implements the federal
Truth-in-Lending Act.1
B. WHAT DO THE NEW RULES SAY?
4. Change in Terms Notices. The Rules expand the
circumstances under which a creditor must provide written
notice of changes in account terms, and increase the notice
period required before the change becomes effective.
Creditors must also adhere to new formatting requirements
with these notices.
The Rules represent a comprehensive effort by the FRB to
update and revise the provisions of Regulation Z applicable
to open-end credit that is not secured by residential real
estate. A complete analysis of all changes is beyond the
scope of this Summary; rather, this Summary provides an
overview of some of the more important changes:
5. Convenience Check Disclosures. The Rules impose new
disclosure requirements for convenience checks mailed after
account opening.
1. Application and Solicitation Disclosures. The Rules
require credit card issuers to include additional information
in the tabular application and solicitation disclosures for
credit cards, commonly called the “Schumer box.” The
revisions include new format requirements for the summary
table including rules pertaining to type size, use of boldface
type and the arrangement of information.
6. Cut-Off Times For Mailed Payments. The Rules
provide a safe harbor for the existing requirement that
creditors set reasonable cut-off hours for mailed payments to
be considered timely on the due date.
2. Account Opening Disclosures. The Rules provide new
formatting requirements pertaining to open-end account
opening disclosures, with the result that open-end creditors
will have to provide Schumer box disclosures at account
opening for all open-end credit accounts that are not homesecured.
7. Processing of Billing Errors. The Rules clarify the
timing requirements for completing the processing of billing
error inquiries.
C. WHEN ARE THE NEW RULES EFFECTIVE?
The Rules will become effective on July 1, 2010.
II. SCHUMER BOX DISCLOSURES FOR CREDIT CARDS.
A. GENERAL.
B. NEW RULES FOR DISCLOSURE OF APR
INFORMATION.
The Rules require format and content changes for the
Schumer box disclosures that must accompany applications
and solicitations for credit and charge cards, including rules
regarding type size, the use of bold type for certain key
terms, the placement of certain information, specific wording
requirements, and the use of cross-references.
1. General. The Rules require disclosure of all APRs that
may apply for purchases, cash advances and balance
transfers. The Rules provide that:
• The purchase APR must now be disclosed in at least 16point type, other than Penalty APR (discussed below).
• All APRs must be disclosed in bold type.
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• Over-the-limit fees;
• Periodic rates cannot be disclosed in the Schumer box.
• Balance transfer fees;
2. Introductory Rates. The Rules require issuers to use the
words “introductory” or “intro” to describe a discounted
initial rate offered in connection with opening a credit card
account. The word selected must be used in close proximity
to the disclosed rate. In addition, any card issuer subject to
the new credit card provisions of Regulation AA must
disclose any introductory rate in the Schumer box, along with
the “go to” rate.
• Returned-payment fees; and
• Fees for required insurance, debt-cancellation or debtsuspension coverage.
2. Bold Type Requirement. The dollar amount or
percentage amount of the fees listed above needs to be
disclosed in bold-face type. Bold-face type must not be used
for:
3. Variable Rate Information. The Rules attempt to
simplify the disclosure of information concerning variable
rates by requiring a single phrase “This APR will vary with
the market based on [INDEX].” The issuer must use a short
description of the index (e.g., “Prime rate”), and is prohibited
from including the following information in the Schumer box
variable rate disclosure:
• any other fees included in the table;
• maximum limits on fee amounts (other than fees that vary
by state); or
• the amount of any fee for issuance or availability that is not
annualized.
• details about how the index, such as the source used (e.g.,
Wall Street Journal), the date on which the issuer reads the
index, or the current index value;
3. Fees That Very By State. If an issuer imposes fees that
vary by state, the issuer may disclose the fees that will apply
to the consumer, or the range of fees together with a
statement that the fee varies by state and refers the consumer
to a disclosure of the state-specific fees which accompanies
the Schumer box. An issuer is not permitted to disclose fees
for multiple fees in the Schumer box.
• the amount of the margin or spread added to the index to
determine the APR; or
• any limitations on rate changes, such as rate floors or
ceilings.
4. Penalty APR Disclosures. The Rules require issuers to
use the words “Penalty APR” rather than “default rate” or
other terminology, and require disclosure in the Schumer box
of the following information about Penalty APRs:
D. NEW RULES FOR DISCLOSURE OF GRACE
PERIOD.
The Rules require the grace period disclosure to be captioned
“How to Avoid Paying Interest on Purchases” if the issuer
offers a grace period on all purchases, and “Paying Interest”
if the issuer does not offer a grace period on all purchases (or
offers no grace period at all).
• the specific actions that will trigger penalty APRs;
• the penalty APR that will apply; and
• the circumstances under which the penalty APR will
expire, or the fact that the penalty APR will apply
indefinitely.
E. NEW RULES FOR BALANCE COMPUTATION
DISCLOSURE.
The Rules require disclosure of the balance computation
method outside of the Schumer box. The disclosure can
simply list one of the following methods (or provide an
explanation of any other method used):
C. NEW RULES FOR DISCLOSURE OF FEES.
1. Fees In The Schumer Box. The Rules provide that the
following fees must be disclosed inside the Schumer box:
• Average daily balance (including new purchases);
• Fees for issuance or availability (e.g., annual fees);
• Average daily balance (excluding new purchases);
• Transaction charges for purchases imposed by the issuer
(including any foreign transaction fee assessed by the
issuer, or assessed by a card network and passed on to the
consumer by the issuer);
• Two-cycle average daily balance (including new
purchases);
• Cash advance fees;
• Two-cycle average daily balance (excluding new
purchases);
• Late fees;
• Adjusted balance;
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• Previous balance; or
• Daily balance.
• such amounts are financed with (debited to) the credit card
account; and
F. NEW CHARGE CARD DISCLOSURE.
• the total amount of such fees and/or deposit imposed when
the account is opened is 15% or more of the minimum
credit limit for the card.
The Rules require a new disclosure for charge cards that
charges incurred for use of the charge card are due when the
periodic statement is received.
3. Special Disclosures. If the triggers listed above are met,
the issuer must disclose the amount of available credit
remaining after such fees and/or deposit are deducted from
the minimum credit limit for the card.
G. NEW DISCLOSURES FOR FINANCED SECURITY
DEPOSITS OR FEES FOR ISSUANCE.
1. General. The Rules require issuers to include special
disclosures in the Schumer box concerning the financing of
fees for card issuance or credit availability and the financing
of security deposits.
H. NEW DISCLOSURE OF FRB WEB SITE.
The Rules require issuers to include in the Schumer box a
reference to a new site to be established by the FRB, and a
statement that consumers can obtain information about
shopping for and using credit cards on the site.
2. Triggers. The special disclosures are required if:
• the issuer imposes fees for issuance of the card or
availability of credit, or requires a security deposit;
III. ACCOUNT OPENING DISCLOSURES.
A. GENERAL.
(b) Triggers. The triggers for this special disclosure in the
account opening disclosures are same as the triggers
described in the preceding section of this Summary (with
respect to special security deposit and card issuance fee
disclosures in the Schumer box):
The disclosure requirements in Regulation Z for home equity
lines of credit are generally unchanged.
For all other types of open-end credit, the Rules now require
creditors to provide a table summarizing key account terms to
consumers at the time of account opening. The table is
intended to be substantially similar to the Schumer box
disclosure table, but must provide a summary of the terms
that will apply to the consumer receiving the disclosure (i.e.,
customer-specific pricing information).
• the card issuer imposes fees for the issuance of the card or
the availability of credit, or requires a security deposit for
the card;
• such amounts are financed with (debited to) the credit card
account; and
• the total amount of such fees and/or deposit imposed when
the account is opened is 15% or more of the minimum
credit limit for the card.
B. SUBSTITUTE FOR SCHUMER BOX.
The Rules permit a credit card issuer to provide the account
opening disclosures, rather than the Schumer box, with credit
card applications or solicitations. Because the account
opening disclosures must provide customer-specific pricing,
this option may be difficult.
(c) Special Disclosures. Assuming these triggers are met,
the issuer must provide the following information in the
account opening disclosures:
• The amount of available credit remaining after such fees
and/or deposit are deducted from the actual credit limit for
the customer (not the minimum credit limit for the
product); and
C. SPECIFIC DISCLOSURE REQUIREMENTS.
Some unique aspects of this new disclosure include:
1. Grace Period. Creditor must disclose whether or not any
grace period applies to each feature of the plan, not just
purchases.
2. Special Disclosures For Credit Card Accounts With
Financed Security Deposits And Fees For Card Issuance.
• A statement that the consumer can reject the plan and not
incur any obligation to pay the fees or security deposit at
any time until the consumer (i) uses the account, or
(ii) makes a payment on the account after receiving a
periodic statement.
(a) General. The Rules require credit card issuers to provide
special disclosures about financed security deposits and
issuance fees (discussed above), if certain triggers are met.
3. Billing Rights Disclosure. Unlike the Schumer box
disclosures, the account opening disclosures must include a
reference to the billing rights disclosure.
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• Taxes imposed on the credit transactions;
4. Disclosures Concerning Charges Imposed As Part Of
The Plan. The Rules require creditors to disclose the
circumstances under which charges may be imposed,
including the amount of the charge or explanation of how the
amount will be determined. For charges that are finance
charges, the disclosure must also include a statement of when
the charge begins to accrue, and whether or not any grace
period applies. For purposes of these disclosure
requirements, relevant charges include:
• Charges the payment or nonpayment of which would affect
access to the plan, duration of the plan, the amount of
credit extended, the period for which credit is extended, or
the timing or method of billing or payment (e.g.,
application fees, participation fees, fees to expedite card
delivery, and fees to expedite payment);
• Charges imposed for terminating a plan; and
• Finance charges;
• Charges for voluntary credit insurance, debt cancellation or
debt suspension.
• Charges resulting from any failure to use the credit plan as
agreed (other than collection costs, attorneys’ fees and
post-judgment interest);
IV. PERIODIC STATEMENT DISCLOSURES.
A. GENERAL.
• As an alternative to providing an explanation of how the
balance is determined, a creditor can provide just the name
of the balance computation method and a toll-free number
for consumers to call to obtain more information about the
balance computation method and how resulting interest
charges were calculated, provided that the creditor uses
one of the following methods:
The disclosure requirements in Regulation Z for periodic
statements for home equity lines of credit are generally
unchanged. For all other types of open-end credit, the Rules
now impose significant new periodic statement disclosure
requirements.
B. PERIODIC RATE DISCLOSURES.
¾ Average daily balance (including new purchases);
1. General. The Rules require disclosure of each rate that
may be used to compute interest charges, expressed as an
“Annual Percentage Rate,” along with the range of balances
to which the rate is applicable. Variable rates must be
identified as such on the statement.
¾ Average daily balance (excluding new purchases);
¾ Two-cycle average daily balance (including new
purchases);
¾ Two-cycle average daily balance (excluding new
purchases);
2. No More Periodic Rates. Creditors are no longer
required to disclose periodic rates that correspond to the
APRs.
¾ Adjusted balance;
3. No More “Effective APR.” Creditors no longer have to
disclose an “effective APR.”
¾ Previous balance; or
C. BALANCE DISCLOSURES.
¾ Daily balance.
D. DISCLOSURE OF INTEREST CHARGES.
1. General. The Rules require disclosure on the periodic
statement of the balance on which finances charges are
computed, and an explanation of how that balance was
determined.
1. Interest Charges. Finance charges attributable to periodic
interest rates must be grouped together under the heading
“Interest Charges,” and must be itemized and totaled by
transaction type (i.e., purchases, cash advances, balance
transfers).
2. Terminology. The Rules require creditors to use the term
“Balance Subject to Interest Rate” for these balances.
2. Total Interest. The statement must also provide a total for
all interest charges attributable to periodic interest rates, for
both the cycle and the calendar year to date, under the
heading “Total Interest.”
3. Methodology. The Rules for describing the method for
determining the balances provide that:
• If the balance is determined without first deducting credits
and payments made during the cycle, the creditor must
disclose this fact and provide the amount of credit and
payments.
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E. DISCLOSURE OF FEES.
4. Alternative Disclosures. The Rules provide two
alternative ways to provide the required disclosures:
1. Fees. All charges imposed as part of plan (other than
finance charges attributable to periodic interest rates) must be
grouped together under the heading “Fees,” and must be
identified consistent with the feature or transaction type, and
itemized.
(a) Provide Actual Payoff Information By Phone. A card
issuer may set up a toll-free telephone number to provide
customers with the actual number of months that it will take
consumers to repay their outstanding balance, rather than
providing an estimate based on the FRB’s table. A card
issuer that does so does not need to include the hypothetical
example on its periodic statements, but must disclose the
warning statement and the toll-free telephone number.
2. Total Fees. The statement must also provide a total for all
fees, for both the cycle and the calendar year to date, under
the heading “Fees.”
(b) Provide Actual Payoff Information On Periodic
Statement. Card issuers can also provide the actual
repayment disclosure on their periodic statements. A card
issuer that does so does not need to disclose the warning, the
hypothetical example and the toll-free telephone number on
the periodic statement, nor need they maintain a toll free
telephone number to provide repayment disclosures.
F. LATE PAYMENT DISCLOSURES.
The Rules require creditors to disclose the payment due date
on the front side of the periodic statement, and in close
proximity to the due date, the amount of any late payment fee
and/or any Penalty APR that could be triggered by late
payment.
G. MINIMUM PAYMENT DISCLOSURES.
5. Exceptions. These minimum payment disclosure
requirements do not apply to:
1. General. The Rules require credit card issuers to disclose
the effect of making only the minimum required payment on
the time to repay balances, as required by the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005.
• Home equity plans;
• Overdraft line of credit tied to asset accounts accessible by
check guarantee cards or debit cards;
2. Disclosure Requirements. Card issuers must provide the
following disclosures, in close proximity to the ending
balance and the minimum payment due:
• Lines of credit accessed by check guarantee cards or debit
cards that can only be used at ATMs;
• A statement that making only the minimum payment will
increase the interest the consumer pays and the time it
takes to repay the consumer's balance.
• Charge card accounts that require payment in full each
billing cycle;
• Credit card accounts with a fixed repayment period
disclosed in the account agreement, if the minimum
payments will amortize the existing balance by the end of
the repayment period;
• A hypothetical example of how long it would take to pay a
specified balance in full if the consumer makes only
minimum payments. The wording of the disclosure is
mandated by the Rules.
• A billing cycle where the entire outstanding balance is
subject to a fixed repayment period disclosed in the
account agreement, if the minimum payments applicable to
that balance will amortize the existing balance by the end
of the repayment period;
• A toll-free telephone number that consumers may call to
obtain an estimate of the time it would take to repay their
actual account balance using only the minimum payment.
The estimate would be based on a generic repayment
schedule to be created by the FRB
• A billing cycle immediately following two consecutive
billing cycles in which the customer paid the entire balance
in full, had an outstanding balance of zero, or had a credit
balance; and
3. Answering The Toll-Free Telephone Line. The FRB
must establish and maintain, for two years, a toll-free
telephone number for creditors that are depository institutions
having assets of $250 million or less, and the FTC must
maintain a similar toll-free telephone number for use by
customers of creditors that are not depository institutions.
Financial institutions have assets in excess of $250 million
will have to make their own arrangement to staff the
telephone line provided to their customers.
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• A billing cycle where the minimum payment is equal to the
outstanding account balance.
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V. CHANGE IN TERMS DISCLOSURES.
• an increase in interest rates due to the consumer's
delinquency or default or as a penalty.
A. GENERAL.
The Rules make significant changes to the provisions of
Regulation Z concerning change of terms notifications.
D. NEW FORMAT REQUIREMENTS.
B. NEW TIMING REQUIREMENT.
1. Tabular Format. If a changed term is one that must be
provided in the account opening disclosures, then creditors
must provide that change in a summary table in the changein-terms notice.
The Rules increase the notice period for changes in terms
from 15 days to 45 days.
C. BROADER DISCLOSURE REQUIREMENTS.
2. Notices In Periodic Statements. If a change in terms
notice enclosed with a periodic statement discusses a change
to a term that must be disclosed in the account-opening
disclosures, or announces that a penalty rate will be imposed
on the account, then a table summarizing the impending
change must appear on the front of the periodic statement.
Creditors generally must provide 45 days' advance notice
prior to:
• a change in any term required to be disclosed in the
account-opening disclosures; and
VI. ADVERTISING RESTRICTIONS.
A. ADVERTISEMENTS STATING PAYMENT
AMOUNTS.
B. ADVERTISEMENTS STATING “FIXED” RATES.
An advertisement may refer to an interest rate as “fixed” if
the advertisement states:
Advertisements that state a periodic payment amount for an
open-end credit plan (other than a home equity line of credit)
must also state, in equal prominence to the periodic payment
amount:
• the time period the rate will be fixed; and
• that the rate will not increase during that period.
• the time period required to pay the balance; and
If a time period is not specified, then an advertisement may
refer to an interest rate as “fixed” only if the rate will not
change while the plan is open.
• the total number of payments (assuming only periodic
payments are made).
VII. CONVENIENCE CHECK DISCLOSURES.
A. GENERAL.
B. NEW DISCLOSURES.
1. Scope Of Rule. The Rules impose new convenience
check disclosures that apply when:
1. Format. The disclosure must appear in a summary table
on the front of the page containing the convenience checks.
• convenience checks are provided to a consumer more than
30 days after account opening disclosures are mailed or
delivered; or
2. Content. The disclosure must include the following
information:
• Any discounted initial rate, and when that rate will expire,
if applicable.
• convenience checks are provided to a consumer within 30
days of the account opening disclosures, if the finance
charge terms for the checks differ from the terms disclosed
in the account opening disclosures.
• The date by which the checks must be used in order to
receive any discounted initial rate offered on the checks.
• If the creditor will honor the checks after such date but
charge a different rate, then the creditor must disclose this
fact and the type of rate that will be applied.
2. Exception. The new convenience check disclosure
requirements do not apply to home equity plans.
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• The type of rate (e.g., purchase rate, cash advance rate) that
will apply to the checks after expiration of any discounted
initial rate, and the applicable APR.
• Any transaction fees applicable to the checks.
• Whether a grace period applies, and if one does not apply,
a statement that interest will be charged immediately.
VIII. PAYMENT REQUIREMENTS.
A. SAFE HARBOR FOR CUT-OFF TIME.
B. PAYMENTS RECEIVED ON HOLIDAYS.
Regulation Z requires creditors to establish a reasonable time
of day after which payments will be considered to be
received the next business day. The Rules provide that a cutoff time of 5:00 PM or later is “reasonable.”
The Rules provide that if a creditor does not receive or accept
mail on the payment due date (e.g., because the payment due
date falls on a holiday), then a payment received on the next
business day cannot be considered late for any purpose.
IX. BILLING ERROR RESOLUTION.
A. TIME TO COMPLETE BILLING ERROR
INVESTIGATIONS.
B. NO REVERSAL OF PROVISIONAL CREDIT IF
LATE.
The Rules provide that creditors must complete billing error
investigations within two complete billing cycles (but in no
event later than 90 days) after receiving notice of the error.
If a creditor fails to complete its investigation in a timely
manner, the creditor is prohibited from reversing a
provisional credit if it determines no error occurred.
Because of its generality, the information provided in this summary may not be applicable to all situations and should not be acted upon
without specific advice from legal counsel. If you have any questions concerning this summary or how it applies to your financial
institution, please contact Ryan Stinneford by phone at (207) 791-1154 or email at rstinneford@pierceatwood.com.
© 2009 Pierce Atwood LLP
1
The Rules were published in the Federal Register on January 29, 2009 (74 Fed. Reg. 5244).
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