1. Clear and conspicuous. The clear and conspicuous standard requires that disclosures be in a reasonably understandable form. Except where otherwise provided, the standard does not require that disclosures be segregated from other material or located in any particular place on the disclosure statement, or that numerical amounts or percentages be in any particular type size. (But see comments 5a(a)(2)–1 and –2 for special rules concerning §226.5a disclosures for credit card applications and solicitations.) The standard does not prohibit:
• Adding to the required disclosures such items as contractual provisions, explanations of contract terms, state disclosures, and translations.
• Sending promotional material with the required disclosures.
• Using commonly accepted or readily understandable abbreviations (such as mo. for month or TX for Texas ) in making any required disclosures.
• Using codes or symbols such as APR (for annual percentage rate), FC (for finance charge), or Cr (for credit balance), so long as a legend or description of the code or symbol is provided on the disclosure statement.
2. Integrated document. The creditor may make both the initial disclosures (§226.6) and the periodic statement disclosures (§226.7) on more than one page, and use both the front and the reverse sides, so long as the pages constitute an integrated document. An integrated document would not include disclosure pages provided to the consumer at different times or disclosures interspersed on the same page with promotional material. An integrated document would include, for example:
• Multiple pages provided in the same envelope that cover related material and are folded together, numbered consecutively, or clearly labelled to show that they relate to one another.
• A brochure that contains disclosures and explanatory material about a range of services the creditor offers, such as credit, checking account, and electronic fund transfer features.
Paragraph 5(a)(2).
1. When disclosures must be more conspicuous. The term finance charge and annual percentage rate, when required to be used with a number, must be disclosed more conspicuously than other required disclosures, except in the cases provided in footnote 9. At the creditor's option, finance charge and annual percentage rate may also be disclosed more conspicuously than the other required disclosures even when the regulation does not so require. The following examples illustrate these rules:
• In disclosing the annual percentage rate as required by §226.6(a)(2), the term annual percentage rate is subject to the more conspicuous rule.
• In disclosing the amount of the finance charge, required by §226.7(f), the term finance charge is subject to the more conspicuous rule.
• Although neither finance charge nor annual percentage rate need be emphasized when used as part of general informational material or in textual descriptions of other terms, emphasis is permissible in such cases. For example, when the terms appear as part of the explanations required under §226.6(a) (3) and (4), they may be equally conspicuous as the disclosures required under §§226.6(a)(2) and 226.7(g).
2. Making disclosures more conspicuous. In disclosing the terms finance charge and annual percentage rate more conspicuously, only the words finance charge and annual percentage rate should be accentuated. For example, if the term total finance charge is used, only finance charge should be emphasized. The disclosures may be made more conspicuous by, for example:
• Capitalizing the words when other disclosures are printed in lower case.
• Putting them in bold print or a contrasting color.
• Underlining them.
• Setting them off with asterisks.
• Printing them in larger type.
3. Disclosure of figures—exception to more conspicuous rule. The terms annual percentage rate and finance charge need not be more conspicuous than figures (including, for example, numbers, percentages, and dollar signs).
5(b) Time of disclosures.
5(b)(1) Initial disclosures.
1. Disclosure before the first transaction. The rule that the initial disclosure statement must be furnished “before the first transaction” requires delivery of the initial disclosure statement before the consumer becomes obligated on the plan. For example, the initial disclosures must be given before the consumer makes the first purchase (such as when a consumer opens a credit plan and makes purchases contemporaneously at a retail store), receives the first advance, or pays any fees or charges under the plan other than an application fee or refundable membership fee (see below). The prohibition on the payment of fees other than application or refundable membership fees before initial disclosures are provided does not apply to home equity plans subject to §226.5b. See the commentary to §226.5b(h) regarding the collection of fees for home equity plans covered by §226.5b.
• If the consumer pays a membership fee before receiving the Truth in Lending disclosures, or the consumer agrees to the imposition of a membership fee at the time of application and the Truth in Lending disclosure statement is not given at that time, disclosures are timely as long as the consumer, after receiving the disclosures, can reject the plan. The creditor must refund the membership fee if it has been paid, or clear the account if it has been debited to the consumer's account.
• If the consumer receives a cash advance check at the same time the Truth in Lending disclosures are provided, disclosures are still timely if the consumer can, after receiving the disclosures, return the cash advance check to the creditor without obligation (for example, without paying finance charges).
• Initial disclosures need not be given before the imposition of an application fee under §226.4(c)(1).
• If, after receiving the disclosures, the consumer uses the account, pays a fee, or negotiates a cash advance check, the creditor may consider the account not rejected for purposes of this section.
2. Reactivation of suspended account. If an account is temporarily suspended (for example, because the consumer has exceeded a credit limit, or because a credit card is reported lost or stolen) and then is reactivated, no new initial disclosures are required.
3. Reopening closed account. If an account has been closed (for example, due to inactivity, cancellation, or expiration) and then is reopened, new initial disclosures are required. No new initial disclosures are required, however, when the account is closed merely to assign it a new number (for example, when a credit card is reported lost or stolen) and the new account then continues on the same terms.
4. Converting closed-end to open-end credit. If a closed-end credit transaction is converted to an open-end credit account under a written agreement with the consumer, the initial disclosures under §226.6 must be given before the consumer becomes obligated on the open-end credit plan. (See the commentary to §226.17 on converting open-end credit to closed-end credit.)
5. Balance transfers. A creditor that solicits the transfer by a consumer of outstanding balances from an existing account to a new open-end plan must comply with §226.6 before the balance transfer occurs. Card issuers that are subject to the requirements of §226.5a may establish procedures that comply with both sections in a single disclosure statement.
5(b)(2) Periodic statements.
Paragraph 5(b)(2)(i).
1. Periodic statements not required. Periodic statements need not be sent in the following cases:
• If the creditor adjusts an account balance so that at the end of the cycle the balance is less than $1—so long as no finance charge has been imposed on the account for that cycle.
• If a statement was returned as undeliverable. If a new address is provided, however, within a reasonable time before the creditor must send a statement, the creditor must resume sending statements. Receiving the address at least 20 days before the end of a cycle would be a reasonable amount of time to prepare the statement for that cycle. For example, if an address is received 22 days before the end of the June cycle, the creditor must send the periodic statement for the June cycle. (See §226.13(a)(7).)
2. Termination of credit privileges. When an open-end account is terminated without being converted to closed-end credit under a written agreement, the creditor must continue to provide periodic statements to those consumers entitled to receive them under §226.5(b)(2)((i) (for example, when an open-end credit plan ends and consumers are paying off outstanding balances) and must continue to follow all of the other open-end credit requirements and procedures in subpart B.
Paragraph 5(b)(2)(ii).
1. Reasonable procedures. A creditor is not required to determine the specific
date on which periodic statements are mailed or delivered to each individual consumer.
A creditor complies with § 226.5(b)(2)(ii) if it has adopted reasonable procedures
designed to ensure that periodic statements are mailed or delivered to consumers no later
than a certain number of days after the closing date of the billing cycle and adds that
number of days to the 21-day period required by § 226.5(b)(2)(ii) when determining the
payment due date and the date on which any grace period expires. For example, if a
creditor has adopted reasonable procedures designed to ensure that periodic statements
are mailed or delivered to consumers no later than three days after the closing date of the
billing cycle, the payment due date and the date on which any grace period expires must
be no less than 24 days after the closing date of the billing cycle.
2. Treating a payment as late for any purpose. Treating a payment as late for any
purpose includes increasing the annual percentage rate as a penalty, reporting the
consumer as delinquent to a credit reporting agency, or assessing a late fee or any other
fee based on the consumer’s failure to make a payment within a specified amount of time
or by a specified date. When an account is not eligible or ceases to be eligible for a grace
period, imposing a finance charge due to a periodic interest rate does not constitute
treating a payment as late for purposes of § 226.5(b)(2)(ii).
3. Payment due date. For purposes of § 226.5(b)(2)(ii), “payment due date”
means the date by which the creditor requires the consumer to make the required
minimum periodic payment in order to avoid being treated as late for any purpose, except
as set forth in paragraphs i. and ii. below.
i. Courtesy period following payment due date. Although the terms of the
account agreement may require that payment be made by a certain date, some creditors
provide an additional period of time after that date during which a late payment fee will
not be assessed. In some cases, this period is set forth in the account agreement while in
others it is provided as an informal policy or practice. Regardless, for purposes of
§ 226.5(b)(2)(ii), the payment due date is the due date according to the legal obligation
between the parties, not the end of the additional period of time. For example, if an
account agreement for a home equity plan subject to the requirements of § 226.5b
provides that payment is due on the first day of the month but a late payment fee will not
be assessed if the payment is received by the fifteenth day of the month, the payment due
date for purposes of § 226.5(b)(2)(ii) is the first day of the month. Similarly, if a
cardholder agreement provides that payment is due on the fifteenth day of the month but,
under the creditor’s informal “courtesy” period, a late payment fee will not be assessed if
the payment is received by the eighteenth day of the month, the payment due date for
purposes of § 226.5(b)(2)(ii) is the fifteenth day of the month.
ii. Laws affecting assessment of late payment and other fees. Some state or other
laws require that a certain number of days must elapse following a due date before a late
payment or other fee may be imposed. For example, assume that the account agreement
provides that payment is due on the fifteenth day of the month but, under state law, the
creditor is prohibited from assessing a late payment fee until the twenty-sixth day of the
month. For purposes of § 226.5(b)(2)(ii), the payment due date is the due date according
to the legal obligation between the parties (the fifteenth day of the month), not the date
before which state law prohibits the imposition of a late payment fee (the twenty-sixth
day of the month).
4. Definition of grace period. For purposes of § 226.5(b)(2)(ii), “grace period”
means a period within which any credit extended may be repaid without incurring a
finance charge due to a periodic interest rate. A deferred interest or similar promotional
program under which the consumer is not obligated to pay interest that accrues on a
balance if that balance is paid in full prior to the expiration of a specified period of time is
not a grace period for purposes of § 226.5(b)(2)(ii). Similarly, a courtesy period
following the payment due date is not a grace period for purposes of § 226.5(b)(2)(ii).
See comment 5(b)(2)(ii)-3.i.
5. Consumer request to pick up periodic statements. When a consumer initiates a
request, the creditor may permit, but may not require, the consumer to pick up periodic
statements. If the consumer wishes to pick up a statement, the statement must be made
available in accordance with § 226.5(b)(2)(ii).
6. Deferred-payment transactions. See comment 7-3.iv.
5(c) Basis of disclosures and use of estimates.
1. Legal obligation. The disclosures should reflect the credit terms to which the parties are legally bound at the time of giving the disclosures.
• The legal obligation is determined by applicable state or other law.
• The fact that a term or contract may later be deemed unenforceable by a court on the basis of equity or other grounds does not, by itself, mean that disclosures based on that term or contract did not reflect the legal obligation.
• The legal obligation normally is presumed to be contained in the contract that evidences the agreement. But this may be rebutted if another agreement between the parties legally modifies that contract.
2. Estimates—obtaining information. Disclosures may be estimated when the exact information is unknown at the time disclosures are made. Information is unknown if it is not reasonably available to the creditor at the time disclosures are made. The reasonably available standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information. In using estimates, the creditor is not required to disclose the basis for the estimated figures, but may include such explanations as additional information. The creditor normally may rely on the representations of other parties in obtaining information. For example, the creditor might look to insurance companies for the cost of insurance.
3. Estimates—redisclosure. If the creditor makes estimated disclosures, redisclosure is not required for that consumer, even though more accurate information becomes available before the first transaction. For example, in an open-end plan to be secured by real estate, the creditor may estimate the appraisal fees to be charged; such an estimate might reasonably be based on the prevailing market rates for similar appraisals. If the exact appraisal fee is determinable after the estimate is furnished but before the consumer receives the first advance under the plan, no new disclosure is necessary.
4. Deferred payment transactions. See comment 7–3(iv).
5(d) Multiple creditors; multiple consumers.
1. Multiple creditors. Under §226.5(d):
• Creditors must choose which of them will make the disclosures.
• A single, complete set of disclosures must be provided, rather than partial disclosures from several creditors.
• All disclosures for the open-end credit plan must be given, even if the disclosing creditor would not otherwise have been obligated to make a particular disclosure.
• In some open-end credit programs involving multiple creditors, the consumer has the option (for example, at the end of a billing cycle) to pay creditor A directly or to transfer to creditor B all or part of the amount owing. If the consumer elects the latter option, the consumer no longer is obligated to creditor A for the specific amount(s) transferred. In such a case, creditor A and creditor B may send separate periodic statements that reflect the separate obligations owed to each.
2. Multiple consumers. Disclosures may be made to either obligor on a joint account. Disclosure responsibilities are not satisfied by giving disclosures to only a surety or guarantor for a principal obligor or to an authorized user. In rescindable transactions, however, separate disclosures must be given to each consumer who has the right to rescind under §226.15.
5(e) Effect of subsequent events.
1. Events causing inaccuracies. Inaccuracies in disclosures are not violations if attributable to events occurring after disclosures are made. For example, when the consumer fails to fulfill a prior commitment to keep the collateral insured and the creditor then provides the coverage and charges the consumer for it, such a change does not make the original disclosures inaccurate. The creditor may, however, be required to provide a new disclosure(s) under §226.9(c).
2. Use of inserts. When changes in a creditor's plan affect required disclosures, the creditor may use inserts with outdated disclosure forms. Any insert:
• Should clearly refer to the disclosure provision it replaces.
• Need not be physically attached or affixed to the basic disclosure statement.
• May be used only until the supply of outdated forms is exhausted.
References
Statute: Sections 121 (a) through (c), 122 (a) and (b), 124, 127 (a) and (b), and 163(a).
Other sections: Sections 226.6, 226.7, and 226.9.
Previous regulation: Sections 226.6 (a) and (c) through (g), and 226.7 (a) through (c).
1981 changes: Section 226.5 implements amendments to the act and reflects several simplifying changes to the regulation. The use of required terminology, except for finance charge and annual percentage rate, is no longer required. Type size requirements have been deleted. Initial and periodic statement disclosures may be multi-page, so long as they constitute an integrated statement. New rules are provided for the basis of disclosures and for the use of estimates. The rules for credit plans involving multiple creditors or multiple consumers now provide that only one creditor need make the disclosures and that the disclosures need be made to only one primarily liable consumer.
The following is the revision to this section of the Official Staff Interpretations, effective 2/22/2010:
Subpart B—Open–End Credit
Section 226.5—General Disclosure Requirements
5(a) Form of disclosures .
5(a)(1) General .
1. Clear and conspicuous standard. The “clear and conspicuous” standard
generally requires that disclosures be in a reasonably understandable form. Disclosures
for credit card applications and solicitations under § 226.5a, highlighted account-opening
disclosures under § 226.6(b)(1), highlighted disclosure on checks that access a credit card
under § 226.9(b)(3), highlighted change-in-terms disclosures under § 226.9(c)(2)(iv)(D),
and highlighted disclosures when a rate is increased due to delinquency, default or for a
penalty under § 226.9(g)(3)(ii) must also be readily noticeable to the consumer.
2. Clear and conspicuous—reasonably understandable form. Except where
otherwise provided, the reasonably understandable form standard does not require that
disclosures be segregated from other material or located in any particular place on the
disclosure statement, or that numerical amounts or percentages be in any particular type
size. For disclosures that are given orally, the standard requires that they be given at a
speed and volume sufficient for a consumer to hear and comprehend them. (See
comment 5(b)(1)(ii)-1.) Except where otherwise provided, the standard does not
prohibit:
i. Pluralizing required terminology (“finance charge” and “annual percentage
rate”).
ii. Adding to the required disclosures such items as contractual provisions,
explanations of contract terms, state disclosures, and translations.
iii. Sending promotional material with the required disclosures.
iv. Using commonly accepted or readily understandable abbreviations (such as
“mo.” for “month” or “Tx.” for “Texas”) in making any required disclosures.
v. Using codes or symbols such as “APR” (for annual percentage rate), “FC” (for
finance charge), or “Cr” (for credit balance), so long as a legend or description of the
code or symbol is provided on the disclosure statement.
3. Clear and conspicuous—readily noticeable standard. To meet the readily
noticeable standard, disclosures for credit card applications and solicitations under
§ 226.5a, highlighted account-opening disclosures under § 226.6(b)(1), highlighted
disclosures on checks that access a credit card account under § 226.9(b)(3), highlighted
change-in-terms disclosures under § 226.9(c)(2)(iv)(D), and highlighted disclosures when
a rate is increased due to delinquency, default or penalty pricing under § 226.9(g)(3)(ii)
must be given in a minimum of 10-point font. (See special rule for font size requirements
for the annual percentage rate for purchases under §§ 226.5a(b)(1) and 226.6(b)(2)(i).)
4. Integrated document. The creditor may make both the account-opening
disclosures (§ 226.6) and the periodic-statement disclosures (§ 226.7) on more than one
page, and use both the front and the reverse sides, except where otherwise indicated, so
long as the pages constitute an integrated document. An integrated document would not
include disclosure pages provided to the consumer at different times or disclosures
interspersed on the same page with promotional material. An integrated document would
include, for example:
i. Multiple pages provided in the same envelope that cover related material and
are folded together, numbered consecutively, or clearly labeled to show that they relate to
one another; or
ii. A brochure that contains disclosures and explanatory material about a range of
services the creditor offers, such as credit, checking account, and electronic fund transfer
features.
5. Disclosures covered. Disclosures that must meet the “clear and conspicuous”
standard include all required communications under this subpart. Therefore, disclosures
made by a person other than the card issuer, such as disclosures of finance charges
imposed at the time of honoring a consumer’s credit card under § 226.9(d), and notices,
such as the correction notice required to be sent to the consumer under § 226.13(e), must
also be clear and conspicuous.
Paragraph 5(a)(1)(ii)(A).
1. Electronic disclosures. Disclosures that need not be provided in writing under
§ 226.5(a)(1)(ii)(A) may be provided in writing, orally, or in electronic form. If the
consumer requests the service in electronic form, such as on the creditor’s Web site, the
specified disclosures may be provided in electronic form without regard to the consumer
consent or other provisions of the Electronic Signatures in Global and National
Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
Paragraph 5(a)(1)(iii).
1. Disclosures not subject to E-Sign Act. See the commentary to
§ 226.5(a)(1)(ii)(A) regarding disclosures (in addition to those specified under
§ 226.5(a)(1)(iii)) that may be provided in electronic form without regard to the consumer
consent or other provisions of the E-Sign Act.
5(a)(2) Terminology.
1. When disclosures must be more conspicuous. For home-equity plans subject
to § 226.5b, the terms finance charge and annual percentage rate, when required to be
used with a number, must be disclosed more conspicuously than other required
disclosures, except in the cases provided in § 226.5(a)(2)(ii). At the creditor’s option,
finance charge and annual percentage rate may also be disclosed more conspicuously
than the other required disclosures even when the regulation does not so require. The
following examples illustrate these rules:
i. In disclosing the annual percentage rate as required by § 226.6(a)(1)(ii), the
term annual percentage rate is subject to the more conspicuous rule.
ii. In disclosing the amount of the finance charge, required by § 226.7(a)(6)(i),
the term finance charge is subject to the more conspicuous rule.
iii. Although neither finance charge nor annual percentage rate need be
emphasized when used as part of general informational material or in textual descriptions
of other terms, emphasis is permissible in such cases. For example, when the terms
appear as part of the explanations required under § 226.6(a)(1)(iii) and (a)(1)(iv), they
may be equally conspicuous as the disclosures required under §§ 226.6(a)(1)(ii) and
226.7(a)(7).
2. Making disclosures more conspicuous. In disclosing the terms finance charge
and annual percentage rate more conspicuously for home-equity plans subject to
§ 226.5b, only the words finance charge and annual percentage rate should be
accentuated. For example, if the term total finance charge is used, only finance charge
should be emphasized. The disclosures may be made more conspicuous by, for example:
i. Capitalizing the words when other disclosures are printed in lower case.
ii. Putting them in bold print or a contrasting color.
iii. Underlining them.
iv. Setting them off with asterisks.
v. Printing them in larger type.
3. Disclosure of figures—exception to more conspicuous rule. For home-equity
plans subject to § 226.5b, the terms annual percentage rate and finance charge need not
be more conspicuous than figures (including, for example, numbers, percentages, and
dollar signs).
4. Consistent terminology. Language used in disclosures required in this subpart
must be close enough in meaning to enable the consumer to relate the different
disclosures; however, the language need not be identical.
5(b) Time of disclosures.
5(b)(1) Account-opening disclosures.
5(b)(1)(i) General rule.
1. Disclosure before the first transaction. When disclosures must be furnished
“before the first transaction,” account-opening disclosures must be delivered before the
consumer becomes obligated on the plan. Examples include:
i. Purchases. The consumer makes the first purchase, such as when a consumer
opens a credit plan and makes purchases contemporaneously at a retail store, except when
the consumer places a telephone call to make the purchase and opens the plan
contemporaneously. (See commentary to § 226.5(b)(1)(iii) below.)
ii. Advances. The consumer receives the first advance. If the consumer receives
a cash advance check at the same time the account-opening disclosures are provided,
disclosures are still timely if the consumer can, after receiving the disclosures, return the
cash advance check to the creditor without obligation (for example, without paying
finance charges).
2. Reactivation of suspended account. If an account is temporarily suspended
(for example, because the consumer has exceeded a credit limit, or because a credit card
is reported lost or stolen) and then is reactivated, no new account-opening disclosures are
required.
3. Reopening closed account. If an account has been closed (for example, due to
inactivity, cancellation, or expiration) and then is reopened, new account-opening
disclosures are required. No new account-opening disclosures are required, however,
when the account is closed merely to assign it a new number (for example, when a credit
card is reported lost or stolen) and the “new” account then continues on the same terms.
4. Converting closed-end to open-end credit. If a closed-end credit transaction is
converted to an open-end credit account under a written agreement with the consumer,
account-opening disclosures under § 226.6 must be given before the consumer becomes
obligated on the open-end credit plan. (See the commentary to § 226.17 on converting
open-end credit to closed-end credit.)
5. Balance transfers. A creditor that solicits the transfer by a consumer of
outstanding balances from an existing account to a new open-end plan must furnish the
disclosures required by § 226.6 so that the consumer has an opportunity, after receiving
the disclosures, to contact the creditor before the balance is transferred and decline the
transfer. For example, assume a consumer responds to a card issuer’s solicitation for a
credit card account subject to § 226.5a that offers a range of balance transfer annual
percentage rates, based on the consumer’s creditworthiness. If the creditor opens an
account for the consumer, the creditor would comply with the timing rules of this section
by providing the consumer with the annual percentage rate (along with the fees and other
required disclosures) that would apply to the balance transfer in time for the consumer to
contact the creditor and withdraw the request. A creditor that permits consumers to
withdraw the request by telephone has met this timing standard if the creditor does not
effect the balance transfer until 10 days after the creditor has sent account-opening
disclosures to the consumer, assuming the consumer has not contacted the creditor to
withdraw the request. Card issuers that are subject to the requirements of § 226.5a may
establish procedures that comply with both §§ 226.5a and 226.6 in a single disclosure
statement.
6. Substitution or replacement of credit card accounts.
i. Generally. When a card issuer substitutes or replaces an existing credit card
account with another credit card account, the card issuer must either provide notice of the
terms of the new account consistent with § 226.6(b) or provide notice of the changes in
the terms of the existing account consistent with § 226.9(c)(2). Whether a substitution or
replacement results in the opening of a new account or a change in the terms of an
existing account for purposes of the disclosure requirements in §§ 226.6(b) and
226.9(c)(2) is determined in light of all the relevant facts and circumstances. For
additional requirements and limitations related to the substitution or replacement of credit
card accounts, see §§ 226.12(a) and 226.55(d) and comments 12(a)(1)-1 through -8,
12(a)(2)-1 through -9, 55(b)(3)-3, and 55(d)-1 through -3.
ii. Relevant facts and circumstances. Listed below are facts and circumstances
that are relevant to whether a substitution or replacement results in the opening of a new
account or a change in the terms of an existing account for purposes of the disclosure
requirements in §§ 226.6(b) and 226.9(c)(2). When most of the facts and circumstances
listed below are present, the substitution or replacement likely constitutes the opening of
a new account for which § 226.6(b) disclosures are appropriate. When few of the facts
and circumstances listed below are present, the substitution or replacement likely
constitutes a change in the terms of an existing account for which § 226.9(c)(2)
disclosures are appropriate.
A. Whether the card issuer provides the consumer with a new credit card;
B. Whether the card issuer provides the consumer with a new account number;
C. Whether the account provides new features or benefits after the substitution or
replacement (such as rewards on purchases);
D. Whether the account can be used to conduct transactions at a greater or lesser
number of merchants after the substitution or replacement (such as when a retail card is
replaced with a cobranded general purpose credit card that can be used at a wider number
of merchants);
E. Whether the card issuer implemented the substitution or replacement on an
individualized basis (such as in response to a consumer’s request); and
F. Whether the account becomes a different type of open-end plan after the
substitution or replacement (such as when a charge card is replaced by a credit card).
iii. Replacement as a result of theft or unauthorized use. Notwithstanding
paragraphs i. and ii. above, a card issuer that replaces a credit card or provides a new
account number because the consumer has reported the card stolen or because the
account appears to have been used for unauthorized transactions is not required to
provide a notice under §§ 226.6(b) or 226.9(c)(2) unless the card issuer has changed a
term of the account that is subject to §§ 226.6(b) or 226.9(c)(2).
5(b)(1)(ii) Charges imposed as part of an open-end (not home-secured) plan.
1. Disclosing charges before the fee is imposed. Creditors may disclose charges
imposed as part of an open-end (not home-secured) plan orally or in writing at any time
before a consumer agrees to pay the fee or becomes obligated for the charge, unless the
charge is specified under § 226.6(b)(2). (Charges imposed as part of an open-end (not
home-secured plan) that are not specified under § 226.6(b)(2) may alternatively be
disclosed in electronic form; see the commentary to § 226.5(a)(1)(ii)(A).) Creditors must
provide such disclosures at a time and in a manner that a consumer would be likely to
notice them. For example, if a consumer telephones a card issuer to discuss a particular
service, a creditor would meet the standard if the creditor clearly and conspicuously
discloses the fee associated with the service that is the topic of the telephone call orally to
the consumer. Similarly, a creditor providing marketing materials in writing to a
consumer about a particular service would meet the standard if the creditor provided a
clear and conspicuous written disclosure of the fee for that service in those same
materials. A creditor that provides written materials to a consumer about a particular
service but provides a fee disclosure for another service not promoted in such materials
would not meet the standard. For example, if a creditor provided marketing materials
promoting payment by Internet, but included the fee for a replacement card on such
materials with no explanation, the creditor would not be disclosing the fee at a time and
in a manner that the consumer would be likely to notice the fee.
5(b)(1)(iii) Telephone purchases.
1. Return policies. In order for creditors to provide disclosures in accordance
with the timing requirements of this paragraph, consumers must be permitted to return
merchandise purchased at the time the plan was established without paying mailing or
return-shipment costs. Creditors may impose costs to return subsequent purchases of
merchandise under the plan, or to return merchandise purchased by other means such as a
credit card issued by another creditor. A reasonable return policy would be of sufficient
duration that the consumer is likely to have received the disclosures and had sufficient
time to make a decision about the financing plan before his or her right to return the
goods expires. Return policies need not provide a right to return goods if the consumer
consumes or damages the goods, or for installed appliances or fixtures, provided there is
a reasonable repair or replacement policy to cover defective goods or installations. If the
consumer chooses to reject the financing plan, creditors comply with the requirements of
this paragraph by permitting the consumer to pay for the goods with another reasonable
form of payment acceptable to the merchant and keep the goods although the creditor
cannot require the consumer to do so.
5(b)(1)(iv) Membership fees.
1. Membership fees. See § 226.5a(b)(2) and related commentary for guidance on
fees for issuance or availability of a credit or charge card.
2. Rejecting the plan. If a consumer has paid or promised to pay a membership
fee including an application fee excludable from the finance charge under § 226.4(c)(1)
before receiving account-opening disclosures, the consumer may, after receiving the
disclosures, reject the plan and not be obligated for the membership fee, application fee,
or any other fee or charge. A consumer who has received the disclosures and uses the
account, or makes a payment on the account after receiving a billing statement, is deemed
not to have rejected the plan.
3. Using the account. A consumer uses an account by obtaining an extension of
credit after receiving the account-opening disclosures, such as by making a purchase or
obtaining an advance. A consumer does not “use” the account by activating the account.
A consumer also does not “use” the account when the creditor assesses fees on the
account (such as start-up fees or fees associated with credit insurance or debt cancellation
or suspension programs agreed to as a part of the application and before the consumer
receives account-opening disclosures). For example, the consumer does not “use” the
account when a creditor sends a billing statement with start-up fees, there is no other
activity on the account, the consumer does not pay the fees, and the creditor subsequently
assesses a late fee or interest on the unpaid fee balances. A consumer also does not “use”
the account by paying an application fee excludable from the finance charge under
§ 226.4(c)(1) prior to receiving the account-opening disclosures.
4. Home-equity plans. Creditors offering home-equity plans subject to the
requirements of § 226.5b are subject to the requirements of § 226.5b(h) regarding the
collection of fees.
5(b)(2) Periodic statements.
Paragraph 5(b)(2)(i).
1. Periodic statements not required. Periodic statements need not be sent in the
following cases:
i. If the creditor adjusts an account balance so that at the end of the cycle the
balance is less than $1—so long as no finance charge has been imposed on the account
for that cycle.
ii. If a statement was returned as undeliverable. If a new address is provided,
however, within a reasonable time before the creditor must send a statement, the creditor
must resume sending statements. Receiving the address at least 20 days before the end of
a cycle would be a reasonable amount of time to prepare the statement for that cycle. For
example, if an address is received 22 days before the end of the June cycle, the creditor
must send the periodic statement for the June cycle. (See § 226.13(a)(7).)
2. Termination of draw privileges. When a consumer’s ability to draw on an
open-end account is terminated without being converted to closed-end credit under a
written agreement, the creditor must continue to provide periodic statements to those
consumers entitled to receive them under § 226.5(b)(2)(i), for example, when the draw
period of an open-end credit plan ends and consumers are paying off outstanding
balances according to the account agreement or under the terms of a workout agreement
that is not converted to a closed-end transaction. In addition, creditors must continue to
follow all of the other open-end credit requirements and procedures in subpart B.
3. Uncollectible accounts. An account is deemed uncollectible for purposes of
§ 226.5(b)(2)(i) when a creditor has ceased collection efforts, either directly or through a
third party.
4. Instituting collection proceedings. Creditors institute a delinquency collection
proceeding by filing a court action or initiating an adjudicatory process with a third party.
Assigning a debt to a debt collector or other third party would not constitute instituting a
collection proceeding.
Paragraph 5(b)(2)(ii).
1. Mailing or delivery of periodic statements. A creditor is not required to
determine the specific date on which a periodic statement is mailed or delivered to an
individual consumer for purposes of § 226.5(b)(2)(ii). A creditor complies with
§ 226.5(b)(2)(ii) if it has adopted reasonable procedures designed to ensure that periodic
statements are mailed or delivered to consumers no later than a certain number of days
after the closing date of the billing cycle and adds that number of days to the 21-day
period required by § 226.5(b)(2)(ii) when determining the payment due date and the date
on which any grace period expires for purposes of § 226.5(b)(2)(ii)(A)(1) and
(b)(2)(ii)(B)(1). For example, if a creditor has adopted reasonable procedures designed to
ensure that periodic statements are mailed or delivered to consumers no later than three
days after the closing date of the billing cycle, the payment due date and the date on
which any grace period expires must be no less than 24 days after the closing date of the
billing cycle. Similarly, in these circumstances, the limitations in § 226.5(b)(2)(ii)(A)(2)
and (b)(2)(ii)(B)(2) on treating a payment as late and imposing finance charges apply for
24 days after the closing date of the billing cycle.
2. Treating a payment as late for any purpose. Treating a payment as late for any
purpose includes increasing the annual percentage rate as a penalty, reporting the
consumer as delinquent to a credit reporting agency, assessing a late fee or any other fee,
initiating collection activities, or terminating benefits (such as rewards on purchases)
based on the consumer’s failure to make a payment within a specified amount of time or
by a specified date. The prohibition in § 226.5(b)(2)(ii)(A)(2) on treating a payment as
late for any purpose applies only during the 21-day period following mailing or delivery
of the periodic statement stating the due date for that payment and only if the required
minimum periodic payment is received within that period. For example:
i. Assume that a periodic statement mailed on April 4 states that a required
minimum periodic payment of $50 is due on April 25. If the card issuer does not receive
any payment on or before April 25, § 226.5(b)(2)(ii)(A)(2) does not prohibit the card
issuer from treating the required minimum periodic payment as late.
ii. Same facts as in paragraph i. above. On April 20, the card issuer receives a
payment of $30 and no additional payment is received on or before April 25. Section
226.5(b)(2)(ii)(A)(2) does not prohibit the card issuer from treating the required
minimum periodic payment as late.
iii. Same facts as in paragraph i. above. On May 4, the card issuer has not
received the $50 required minimum periodic payment that was due on April 25. The
periodic statement mailed on May 4 states that a required minimum periodic payment of
$150 is due on May 25. Section 226.5(b)(2)(ii)(A)(2) does not permit the card issuer to
treat the $150 required minimum periodic payment as late until April 26. However, the
card issuer may continue to treat the $50 required minimum periodic payment as late
during this period.
3. Grace periods.
i. Definition of grace period. For purposes of § 226.5(b)(2)(ii)(B), “grace period”
means a period within which any credit extended may be repaid without incurring a
finance charge due to a periodic interest rate. A deferred interest or similar promotional
program under which the consumer is not obligated to pay interest that accrues on a
balance if that balance is paid in full prior to the expiration of a specified period of time is
not a grace period for purposes of § 226.5(b)(2)(ii)(B). Similarly, a period following the
payment due date during which a late payment fee will not be imposed is not a grace
period for purposes of § 226.5(b)(2)(ii)(B). See comments 7(b)(11)-1, 7(b)(11)-2, and
54(a)(1)-2.
ii. Applicability of § 226.5(b)(2)(ii)(B). Section 226.5(b)(2)(ii)(B) applies if an
account is eligible for a grace period when the periodic statement is mailed or delivered.
Section 226.5(b)(2)(ii)(B) does not require the creditor to provide a grace period or
prohibit the creditor from placing limitations and conditions on a grace period to the
extent consistent with § 226.5(b)(2)(ii)(B) and § 226.54. See comment 54(a)(1)-1.
Furthermore, the prohibition in § 226.5(b)(2)(ii)(B)(2) applies only during the 21-day
period following mailing or delivery of the periodic statement and applies only when the
creditor receives a payment within that 21-day period that satisfies the terms of the grace
period.
iii. Example. Assume that the billing cycles for an account begin on the first day
of the month and end on the last day of the month and that the payment due date for the
account is the twenty-fifth of the month. Assume also that, under the terms of the
account, the balance at the end of a billing cycle must be paid in full by the following
payment due date in order for the account to remain eligible for the grace period. At the
end of the April billing cycle, the balance on the account is $500. The grace period
applies to the $500 balance because the balance for the March billing cycle was paid in
full on April 25. Accordingly, § 226.5(b)(2)(ii)(B)(1) requires the creditor to have
reasonable procedures designed to ensure that the periodic statement reflecting the $500
balance is mailed or delivered on or before May 4. Furthermore, § 226.5(b)(2)(ii)(B)(2)
requires the creditor to have reasonable procedures designed to ensure that the creditor
does not impose finance charges as a result of the loss of the grace period if a $500
payment is received on or before May 25. However, if the creditor receives a payment of
$300 on April 25, § 226.5(b)(2)(ii)(B)(2) would not prohibit the creditor from imposing
finance charges as a result of the loss of the grace period (to the extent permitted by
§ 226.54).
4. Application of § 226.5(b)(2)(ii) to charge card and charged-off accounts.
i. Charge card accounts. For purposes of § 226.5(b)(2)(ii)(A)(1), the payment
due date is the date the card issuer is required to disclose on the periodic statement
pursuant to § 226.7(b)(11)(i)(A). Because § 226.7(b)(11)(ii) provides that
§ 226.7(b)(11)(i) does not apply to periodic statements provided solely for charge card
accounts, § 226.5(b)(2)(ii)(A)(1) also does not apply to the mailing or delivery of
periodic statements provided solely for such accounts. However, in these circumstances,
§ 226.5(b)(2)(ii)(A)(2) requires the card issuer to have reasonable procedures designed to
ensure that a payment is not treated as late for any purpose during the 21-day period
following mailing or delivery of the statement. Section 226.5(b)(2)(ii)(B) does not apply
to charge card accounts because, for purposes of § 226.5(b)(2)(ii)(B), a grace period is a
period within which any credit extended may be repaid without incurring a finance
charge due to a periodic interest rate and, consistent with § 226.2(a)(15)(iii), charge card
accounts do not impose a finance charge based on a periodic rate.
ii. Charged-off accounts. For purposes of § 226.5(b)(2)(ii)(A)(1), the payment
due date is the date the card issuer is required to disclose on the periodic statement
pursuant to § 226.7(b)(11)(i)(A). Because § 226.7(b)(11)(ii) provides that
§ 226.7(b)(11)(i) does not apply to periodic statements provided for charged-off accounts
where full payment of the entire account balance is due immediately,
§ 226.5(b)(2)(ii)(A)(1) also does not apply to the mailing or delivery of periodic
statements provided solely for such accounts. Furthermore, although
§ 226.5(b)(2)(ii)(A)(2) requires the card issuer to have reasonable procedures designed to
ensure that a payment is not treated as late for any purpose during the 21-day period
following mailing or delivery of the statement, § 226.5(b)(2)(ii)(A)(2) does not prohibit
a card issuer from continuing to treat prior payments as late during that period.
See comment 5(b)(2)(ii)-2. Section 226.5(b)(2)(ii)(B) does not apply to charged-off
accounts where full payment of the entire account balance is due immediately because
such accounts do not provide a grace period.
5. Consumer request to pick up periodic statements. When a consumer initiates a
request, the creditor may permit, but may not require, the consumer to pick up periodic
statements. If the consumer wishes to pick up a statement, the statement must be made
available in accordance with § 226.5(b)(2)(ii).
6. Deferred interest and similar promotional programs. See comment 7(b)-1.iv.
Paragraph 5(b)(2)(iii).
1. Computer malfunction. The exceptions identified in § 226.5(b)(2)(iii) of this
section do not extend to the failure to provide a periodic statement because of computer
malfunction.
5(c) Basis of disclosures and use of estimates.
1. Legal obligation. The disclosures should reflect the credit terms to which the
parties are legally bound at the time of giving the disclosures.
i. The legal obligation is determined by applicable state or other law.
ii. The fact that a term or contract may later be deemed unenforceable by a court
on the basis of equity or other grounds does not, by itself, mean that disclosures based on
that term or contract did not reflect the legal obligation.
iii. The legal obligation normally is presumed to be contained in the contract that
evidences the agreement. But this may be rebutted if another agreement between the
parties legally modifies that contract.
2. Estimates—obtaining information. Disclosures may be estimated when the
exact information is unknown at the time disclosures are made. Information is unknown
if it is not reasonably available to the creditor at the time disclosures are made. The
reasonably available standard requires that the creditor, acting in good faith, exercise due
diligence in obtaining information. In using estimates, the creditor is not required to
disclose the basis for the estimated figures, but may include such explanations as
additional information. The creditor normally may rely on the representations of other
parties in obtaining information. For example, the creditor might look to insurance
companies for the cost of insurance.
3. Estimates—redisclosure. If the creditor makes estimated disclosures,
redisclosure is not required for that consumer, even though more accurate information
becomes available before the first transaction. For example, in an open-end plan to be
secured by real estate, the creditor may estimate the appraisal fees to be charged; such an
estimate might reasonably be based on the prevailing market rates for similar appraisals.
If the exact appraisal fee is determinable after the estimate is furnished but before the
consumer receives the first advance under the plan, no new disclosure is necessary.
5(d) Multiple creditors; multiple consumers.
1. Multiple creditors. Under § 226.5(d):
i. Creditors must choose which of them will make the disclosures.
ii. A single, complete set of disclosures must be provided, rather than partial
disclosures from several creditors.
iii. All disclosures for the open-end credit plan must be given, even if the
disclosing creditor would not otherwise have been obligated to make a particular
disclosure.
2. Multiple consumers. Disclosures may be made to either obligor on a joint
account. Disclosure responsibilities are not satisfied by giving disclosures to only a
surety or guarantor for a principal obligor or to an authorized user. In rescindable
transactions, however, separate disclosures must be given to each consumer who has the
right to rescind under § 226.15.
3. Card issuer and person extending credit not the same person. Section
127(c)(4)(D) of the Truth in Lending Act (15 U.S.C. 1637(c)(4)(D)) contains rules
pertaining to charge card issuers with plans that allow access to an open-end credit plan
that is maintained by a person other than the charge card issuer. These rules are not
implemented in Regulation Z (although they were formerly implemented in § 226.5a(f)).
However, the statutory provisions remain in effect and may be used by charge card
issuers with plans meeting the specified criteria.
5(e) Effect of subsequent events.
1. Events causing inaccuracies. Inaccuracies in disclosures are not violations if
attributable to events occurring after disclosures are made. For example, when the
consumer fails to fulfill a prior commitment to keep the collateral insured and the creditor
then provides the coverage and charges the consumer for it, such a change does not make
the original disclosures inaccurate. The creditor may, however, be required to provide a
new disclosure(s) under § 226.9(c).
2. Use of inserts. When changes in a creditor’s plan affect required disclosures,
the creditor may use inserts with outdated disclosure forms. Any insert:
i. Should clearly refer to the disclosure provision it replaces.
ii. Need not be physically attached or affixed to the basic disclosure statement.
iii. May be used only until the supply of outdated forms is exhausted.
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