SECTION 1 – TRUTH IN LENDING ACT AND REGULATION Ztraining.cuna.org/self_study/regtrac/member_regtrac/download/M3... · ... TRUTH IN LENDING ACT AND ... • The Fair Credit Reporting

© 2018 CUNA CONSUMER LENDING REGULATIONS 1-1

SECTION 1 – TRUTH IN LENDING ACT AND

REGULATION Z


The Importance of Knowing Applicable Laws and Regulations

Prior to the 1960s, there were few federal laws regulating the relationship between lenders and consumer borrow-ers. There were no requirements regard-ing the disclosure of loan terms, the tak-ing of a security in a consumer’s proper-ty, or the reporting of credit information. Likewise, there were no requirements or limitations regarding related issues such as the prevention of discrimination in the regulated lending industry. Thus in 1968, Congress passed the Consumer Credit Protection Act (CPA). The CPA is a sweeping and extensive law governing virtually every aspect of the relationship between a consumer borrower and regu-lated lenders.

Various federal regulators have been given authority to interpret and enforce the CPA. In addition there are extensive regulations and official commentaries which provide further instruction that lenders must understand to insure they are “in compliance.”

The primary laws and regulations aris-ing from the CPA are:

• The Equal Credit Opportunity Act (15 USC §1691, et al.), Regulation B (12 CFR Part 1002, et al.) and 12 CFR §701.31 (NCUA).

• The Fair Credit Reporting Act (15 USC §1681, et al.).

• The Truth In Lending Act (15 USC §1601, et al.), Regulation Z (12 CFR Part 1026, et al.) and The Fair Credit Billing Act (15 USC §1666).

In addition, the following federal laws and regulations also govern the lending process:

• The Federal Trade Commission Act and 12 CFR §706 (NCUA).

• Important NCUA Regulations such as §§701.21, 701.31 and 723.

• The Consumer Leasing Act and Regulation M (15 USC §1667, et al.) and (12 CFR Part 1013, et al.).

• The Soldiers’ and Sailors’ Civil Relief Act (50 USC §501, et al.).

• The Fair Debt Collection Practices Act (15 USC §1692, et al.).

State Laws

Generally, federal law preempts con-trary state laws. This means the matters described in this book generally govern and contrary state laws have no affect. However, many states have adopted vari-ous laws and/or regulations that place additional disclosure requirements or other burdens on a creditor. Due to the fact that there is no uniformity as to all such laws and regulations, they cannot be addressed in a general work such as this book.

As a general rule, the matters

Section 1 – Truth in Lending Act and Regulation Z


SECTION 1 – TRUTH IN LENDING ACT AND REGULATION Z

discussed here will govern credit unions’ relationships with members. Nonetheless, every credit union should consult with local legal counsel in each state in which it does business to insure that it is aware of and complies with any additional “state” requirements.

This book provides a detailed analy-sis of the regulations addressed, dis-cusses relevant cases, and provides tips to assist your credit union in main-taining compliance. Where appropri-ate, compliance checklists have been provided to assist you in the process of “self-assessment.”

Truth In Lending Act and Regulation Z

Purpose — full and fair disclosure of credit terms

The Truth In Lending Act (TILA) is the mother of all consumer protec-tion laws. TILA and Regulation Z were adopted to “promote the informed use of consumer credit by requiring dis-closures about its terms and cost” in clear and conspicuous disclosures. Unfortunately, this law has evolved into an extremely complex set of rules that are difficult to understand. Illustrating this is the fact that various regulatory agencies reported in 1994 that 50 per-cent of the institutions they examined had significantly violated Regulation Z. In 1974, Congress passed the Fair Credit Billing Act, which among other things, added to Regulation Z a set of error resolution rules that creditors must follow regarding claims of errors on cred-it card accounts.

Scope and exemptions

The Truth In Lending Act and Regulation Z apply to credit offered or extended to a consumer primarily for personal, family or household purposes. It also applies to all creditors who regu-larly (for example, more than 25 times per year) extend credit that is either sub-ject to a finance charge or is payable in more than four installments.

The following types of credit are exempt from Regulation Z:

• Nonconsumer credit (for example, credit extended to other than a natu-ral person or extended primarily for a business, commercial or agricultural purpose).

• Credit where the amount financed is more than the applicable threshold as determined under 1026.3(b). This threshold will be adjusted annually by any increase in the Consumer Price Index (for Urban Wage earners and Clerical Workers) and also applies to Consumer Leases under Regulation M.

• Certain student loans that are made, insured, or guaranteed pursuant to a program authorized under the Higher Education Act of 1965.

If exempt, document the exemp-tion well. Maddox v. St. Joe Papermakers Federal Credit Union, 572 So. 2d 961 (Fla. App. 1990). Maddox was a co-maker on a note with five others. When the principal defaulted, the credit union filed a complaint against all makers and co-makers. The credit union did not pro-vide appropriate Truth In Lending dis-closures (apparently due to the fact that the loan was intended as a “business”



loan, which is exempt from TILA and Regulation Z). This was not documented in the loan file presented by the credit union; and Maddox claimed the loan was for a consumer purpose. Therefore, the credit union’s failure to provide the disclosures or properly document the nature of the loan resulted in Maddox’s ability to assert a counterclaim against the credit union by way of offset against the amount of the loan.

Payday loans

The Regulation Z Commentary, Section 1026.2 at 2(a)(14), was clarified that transactions commonly known as “payday loans” constitute credit and are covered under TILA. Typically in payday loans, a cash advance is made to a member in exchange for the member’s personal check, or the member’s authorization to debit his or her share account electronical-ly. The member typically pays a fee in con-nection with the advance. Either the mem-ber’s check is not cashed or deposited for collection until a future date, or the share account is not debited until a designated future date. A fee charged in connec-tion with a payday loan may be a finance charge for purposes of Section 1026.4, regardless of how the fee is defined under state law. Where the fee charged con-stitutes a finance charge under Section 1026.4, the credit union is required to provide Regulation Z disclosures.

Overdraft protection /bounce protection programs

The Interagency Guidance on Overdraft Protection Programs issued by the OCC, FRB, FDIC, and NCUA indi-cates that fees for paying overdraft items

are not considered finance charges and subject to Regulation Z if the credit union has not agreed in writing to pay overdrafts. Even where the credit union agrees in writing to pay overdrafts as part of the membership account agree-ment, fees assessed against a check-ing account for overdraft protection are finance charges subject to Regulation Z only to the extent the fees exceed the charges imposed for paying or returning overdrafts on a similar account that does not have overdraft or bounce protection.

Closed-end loans offered to members who are unable to repay their overdrafts and bring their accounts to a positive balance within a specified time, will require Regulation Z disclosures, if the loan is payable by written agreement in more than four installments. Regulation Z disclosures will also be required when such closed-end loans are subject to a finance charge.

Liability provisions

The Truth In Lending Act contains a criminal liability provision for willful violations of the Act and provisions that provide for civil liability and restitution.

Criminal liability

Under the Truth In Lending Act, any person who willfully and knowingly does one or more of the following could be fined up to $5,000, imprisoned for up to one year, or both:

• Gives false or inaccurate informa-tion, or fails to provide information required to be disclosed under the Act or Regulation Z.

• Uses any chart or table in a man-



ner that consistently understates the annual percentage rate (APR).

• Fails to comply with any of the require-ments imposed under the Act.

Civil liability and restitution

Creditors that violate the Truth In Lending Act or Regulation Z are subject to penalties, monetary damages and res-titution, which are more fully explained in this section.

Civil Liability — Generally. The Truth In Lending Act authorizes a member to commence legal action against your credit union for a failure to comply with the rules for:

• providing disclosures in connection with a credit transaction.

• following prescribed procedures when handling billing error claims.

In an individual action, noncompli-ance with any of the above will make your credit union liable for the sum of:

• the amount of actual damages sus-tained by that person as the result of the failure to comply.

• an additional amount equal to twice the amount of any finance charge, in an action involving a consumer credit transaction, but with a $500 minimum and $5,000 maximum.

• if the matter goes to court, the costs of the action plus reasonable attorneys’ fees.

Minor technical violations of TILA are sufficient to allow a consumer to recover statutory damages. The terms “annual percentage rate” and “finance charge” appeared in the same type print and identical boxes as “amount financed” and “total of payments.” As a result the court awarded $1,000, plus attorneys’ fees to a debtor in a bankruptcy case. See In re: Pittman, No 91-5-717-1-JS (Bkrtcy. MD. 3-17-94).

In a successful action brought on behalf of a class (for example, a “class action” on behalf of all members), the claimants can recover:

• The amount of actual damages.

• An additional amount, with no statu-tory minimum, but with a maximum of $1,000,000 or an amount equal to 1% of your credit union’s net worth, whichever is less.

Two relatively minor violations = $500,000+ in damages. A court imposed the maximum class-action damages for two minor violations of Regulation Z in Jones v. Goodyear Tire & Rubber Co., 442 F. Supp. 1157 (ED La. 1977). In this case, the class rep-resentative purchased a television set pursuant to a retail installment sales contract. The defendant failed to dis-close the type of security interest it retained in the television; and it did not disclose the finance charge and APR more conspicuously than other terms. The disclosures were similarly defective for at least 1,372 other class members as well.

• If the matter goes to court, the costs of the action plus reasonable attorneys’ fees.



Supreme Court Rules On Truth In Lending Damage Issue

Much to lenders’ relief, the U.S. Supreme Court ruled in 2004 that the $1,000 cap on damages for violations of the Truth in Lending Act (TILA, 15 USC 1601) was still valid. The high court’s decision reversed an earlier ruling by the Fourth Circuit Court of Appeals, which had held that Congress in 1995 had limited the $1,000 cap to apply only in cases involving consumer leases.

The case before the court arose when a used-car deal went wrong in a number of ways. The car buyer sued the dealer/lender for TILA violations and numer-ous other claims. The jury awarded $24,192.80 (double the finance charge) in TILA damages.

The jury verdict was entered despite TILA appearing to impose a cap of $1,000 on such damages. As first enacted, the law (15 USC 1640(a)(2)(A)) generally limited damages to “twice the amount of the finance charge in connec-tion with the transaction, except that the liability under this paragraph shall not be less than $100 nor greater than $1,000.”

Confusing StatuteThe trouble is, the paragraph in the

law that includes the damage cap has been amended several times. These amendments set a $2,000 ceiling for damages in real estate loans, created separate rules for damages in class action lawsuits, and extended TILA’s coverage to include consumer leases. With all due respect to Congress, these amendments were clumsily drafted.

By the time Congress was done, one reading the statute might conclude that the damage cap applied only to the clause dealing with leases. That would

mean lenders violating TILA’s provisions could be assessed damages up to double the amount of the finance charge with no limitation — even though comparable lease transactions would be subject to the $1,000 cap.

The Fourth Circuit Court of Appeals upheld the jury’s verdict. That appeals court simply read the statute, declared its meaning to be perfectly clear, and refused to inquire as to what Congress might have intended. The appeals court could find no ambiguity or confusion in what the law said so it could see no reason to look behind the words to find Congress’ true intent.

But the Supreme Court disagreed. In an opinion by Justice Ruth Bader Ginsburg, the court observed that any attempt by Congress to deliberately repeal the $1,000 cap would have been very controversial and would have led to extensive debate. The fact that Congress had not even discussed repealing the damages cap suggested that no such repeal had been intended.

Also, Ginsburg observed, it would be “passing strange” to read the statute as providing a relatively low cap on damages in cases involving mortgages and none at all for consumer loans — especially when Congress said it was raising the damage ceiling for violations involving mortgages to $2,000 to provide greater protection for mortgage borrowers.

The Supreme Court reversed the Fourth Circuit’s ruling, reducing the plaintiff’s TILA damage award to just $1,000. So lenders have successfully dodged a bullet. The TILA limits on damages remain unchanged. Koons Buick Pontiac GMC v. Bradley Nigh, 543 U.S. 50 (2004).



Exceptions to liability provisions

The Truth In Lending Act relieves a credit union from liability where a viola-tion results from a bona fide error that occurs despite the maintenance of pro-cedures adopted to avoid such an error. This does not include an error in legal judgment.

A credit union has no liability if it acts in reliance on any rule, regulation, or interpretation of the Consumer Financial Protection Bureau (CFPB), or acts in conformity with an interpretation or approval of an CFPB official or employee who is authorized to issue an interpreta-tion or give an approval. This provision does not protect you, however, when you rely on an opinion given by a general staff member of the CFPB.

Unintentional Error — Good Faith. A court noted numerous contacts by the defendant with the FTC and Federal Reserve Board in a sincere effort to comply with the TILA. Taking these circumstances into account, the court disallowed any damages. See Welmaker v. WT Grant Co., 365 F. Supp. 533 (N.D. Ga. 1972).

Corrective action

You also have no liability when you discover an error, notify the affected member, and make appropriate adjust-ments within 60 days after the dis-covery, before any legal action is com-menced against you, and before any member gives written notice of the error.

Note: Insure that you notify your bond or insurance provider within the time periods required by your contract (usu-ally within 20 days of discovery of the error).

Sample Notice A sample notice is shown in figure 1.1.

Limitation of Actions

Weston vs. Ameribank, 265 F.3d 366 (6th Cir. 2001).

Overview: Plaintiff alleged that a $350 document preparation fee violated the TILA because it was not properly disclosed. The court found that the claim was barred by the TILA’s one-year statute of limitations.

Title 15 U.S.C. §1640(e) states that, “Any action under this section may be brought in any United States district court, or in any other court of compe-tent jurisdiction, within one year from the date of the occurrence of the viola-tion…”

Regulatory restitution policy

TILA requires federal regulatory agen-cies to enforce compliance with the re-quirements of the Act and Regulation Z,particularly those requiring accurate dis-closure of an APR and finance charge. If a credit union has inaccurately disclosed these, restitution to ensure that the affected members will not be required to pay a finance charge in excess of the one actually disclosed or the dollar equiva-lent of the APR disclosed (whichever is lower), after consideration of the toler-ance for accuracy provided in the Truth In Lending Act, may be required.

Key definitions

The terms defined below are fun-damental to numerous provisions and re key to understanding the Truth In Lending Act and Regulation Z.



Business Day

A business day is any day the credi-tor’s offices are open to the public for carrying on substantially all of its busi-ness functions. However, for certain home-secured loan disclosures, a busi-ness day is every calendar day except Sunday and the legal public holidays listed 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.

Closed-end credit

Closed-end credit is defined sim-ply to encompass all credit that is not open-end credit. Most closed-end loans involve a one-time advance of funds with a fixed repayment schedule. This type of credit traditionally is extended at a fixed rate, although now there are closed-end credit products with adjustable rates, and other variations.

Figure 1.1 Sample Notice

Dear _________________:

Date:______________

On _________________, a loan was made to you in the principal amount of $________________. At that time, the ANNUAL PERCENTAGE RATE was er-roneously disclosed to you as ______ percent.

Given the complexities of the Consumer Credit Protection Act and the disclosures required thereby, we just discovered this typographical error. We thus are advising you, herewith, that the correct figure is _______ percent. That this is the correct ANNUAL PERCENTAGE RATE is borne out by the rest of the disclosure terms, as disclosed to you prior to consummation of the loan transaction.

We maintain procedures calculated to avoid errors of this sort. However, unintentional errors are inevitable. Please accept our apologies and this notification of the error, which is corrected hereby.

Very truly yours,

(Signature)



Credit

The term is defined as the right to defer payment of debt or to incur debt and defer its payment. Regulation Z Commentary, Section 1026.2 at 2(a)(14), states that transactions commonly known as “payday loans” constitute credit and are covered under TILA.

Open-end credit

Open-end credit is consumer credit extended under a plan that includes the following three criteria:

1. The creditor reasonably contemplates

there will be repeated transactions.

2. The creditor has the right to impose a finance charge from time to time on the outstanding unpaid balance.

3. The limit on the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent the outstanding balance is repaid.

Electronic Communication

Electronic communication is defined as a message transmitted electronically between a creditor and a consumer in

No Liability under TILA Where Consumer Did Not Read DisclosuresTurner v. Beneficial Corp., 242 F. 3d 1023 (11th Cir. 2001)

Overview: Prompted by a newspaper ad, plaintiff bought a satellite dish system what was to be financed by defendant bank through a credit card agreement. When the dish was delivered, the invoice reflected a higher monthly bill than the newspa-per ad had reflected, and the credit card had an additional balance. The credit card came with a disclosure statement, but plaintiff alleged defendant failed to provide a disclosure statement that complied with the requirements of the law under the Truth in Lending Act (TILA).

On review, the circuit court held that detrimental reliance is an element of a TILA claim for actual damages, and that plaintiff failed to present evidence to establish a causal link between the bank’s noncompliance and her damages. It found that plaintiff conceded that she did not read defendant’s disclosure statements at the time of receipt, and therefore did not rely on them.

The court held that plaintiffs must demonstrate detrimental reliance in order to be entitled to actual damages under TILA. The legislative history behind the 1995 amendments to TILA supports this reading of the actual damages provision. It states:

Section 130(a) of TILA allows a consumer to recover both actual and statutory damages in connection with TILA violations. Congress provided for statutory dam-ages because actual damages in most cases would be nonexistent or extremely dif-ficult to prove. To recover actual damages, consumers must show that they suffered a loss because they relied on an inaccurate or incomplete disclosure.

The legislative history emphasizes that TILA provides for statutory remedies on proof of simple TILA violations and requires the more difficult showing of detrimen-tal reliance to prevail on a claim for actual damages.



a format that allows visual text to be displayed on equipment such as a per-sonal computer monitor.

Finance charge

Regulation Z states that the finance charge is the cost of consumer credit as a dollar amount. This includes any charge that is payable either directly or indirectly by the member, if the charge is imposed either directly or indirectly by the credit union as an incident to or a condition of the extension of credit.

The finance charge includes any amounts that are charged by someone other than the credit union, if the credit union:

• Requires the use of a third party as a condition of or incident to an exten-sion of credit, even if the member can choose the third party.

• Retains a portion of the third-party charge, to the extent of the amount retained by the credit union.

Special Rules for Charges by Third Parties. The CFPB’s definition of “finance charge” provides two special rules regarding charges by third parties and one for charges by a person who conducts the loan closing.

Closing agent charges. Fees charged by a person who conducts a loan closing are considered finance charges if any of the fol-lowing apply:

• The credit union requires the particu-lar services for which the member is charged.

• The credit union requires the imposi-tion of the charge.

• The credit union retains a portion of

the closing party’s charge but only to the extent of the amount retained by the credit union.

Charges Included in the Finance Charge. Regulation Z provides a list of the types of charges you must consider as components of a finance charge. This list includes the following for open-end credit:

• Interest, any time/price differential, or any amount payable under an add-on or discount system of additional charges.

• Service fees, transaction fees, activ-ity charges, and carrying charges. Any charge imposed on a checking or other type of transaction account must be included in the finance charge if and to the extent that the charge exceeds the charge imposed on similar accounts that do not include a credit feature.

• Points, loan fees, assumption fees, finder’s fees, and similar charges. This category of charges is the subject of frequent violations of Regulation Z and warrants a further description:

Points. The fee customarily referred to in the financing industry as “points” is an interest charge that is a percent-age of a loan amount. One point is an amount equal to 1% of the amount of the loan. The member customarily pays points before or at loan closing so they are included as a prepaid finance charge in your itemization of the amount financed.

Loan fees. Some credit unions charge applicants a fee for processing a loan application. Whether you call this fee a “loan fee,” “application fee,” or anything else, it is part of the finance



charge if you charge the fee only to applicants to whom you actually extend credit. But if you charge the fee to all applicants regardless of whether credit is extended, it is not considered a component and can be excluded from the finance charge.

Assumption fees. An assumption fee is one that arises only when an assumption occurs (for example, when a new buyer assumes the debt of the original borrower). If you allow assumptions but charge the new bor-rower a fee, you must include the amount of that fee as a part of the finance charge in your disclosure to him or her. Do not include an assump-tion fee in a finance charge unless the fee is charged (for example, to the new borrower when the assumption takes place).

Finder’s fees. If you charge a fee to applicants who are referred by a third party, you must include the fee amount in the finance charge regard-less of whether you pay all or a portion of the fee to the third party.

• Appraisal fees, investigation fees, and credit report fees. Note: An appraisal fee and credit report fee are listed in Section 1026.4(c) as excludable for real property secured transactions.

• Premiums or other charges for any guarantee or insurance that protects your credit union against a borrower’s default or other credit loss.

• Charges that your credit union pays to another person for purchasing or accepting a loan, if a member is obli-gated to pay the charges either in cash, as an additional amount on the

obligation, or as a deduction from the loan proceeds.

• Premiums or other charges for credit life, health, accident, or loss-of-income insurance obtained in connection with a credit transaction. But you may sometimes exclude amounts paid for personal insurance or for debt cancella-tion contracts from the finance charge under Section 1026.4(d).

• Premiums or other charges for loss of or damage to property, or against liabil-ity that arises out of the ownership or use of property (for example, automo-bile liability insurance). But you may sometimes exclude amounts paid for property insurance from the finance charge under Section 1026.4(d).

Charges Excludable from Finance Charge. Regulation Z also provides the fol-lowing list of the types of items excluded from the finance charge:

• Application fees, if the fees are charged to all applicants (not just those to whom credit is actually extended).

• Charges for actual and unanticipated late payments, for exceeding a credit line or limit, for delinquency, for default, or for similar occurrences.

• Charges for the payment of items that overdraw an account, unless the pay-ment of such items and the imposi-tion of the charge were aspects of an arrangement previously agreed to in writing.

• Fees charged for participation in a credit plan whether the fees are charged on an annual basis or some



other periodic basis.

• Seller’s points.

• Interest forfeited as the result of an interest-rate reduction required by law on a time deposit used as security for the extension of credit. This provision has very limited applicability, now that early withdrawals on time deposits can be permitted without penalty after the first seven days.

• The following types of fees in a trans-action secured by real property if the fees are both bona fide and reasonable in amount and if the charge is imposed solely in connection with the initial decision to grant credit:

4 Fees for title examinations, abstracts of title, title insurance, property surveys, and similar pur-poses.

4 Fees for preparing loan-related doc-uments, such as deeds, and recon-veyance or settlement documents.

4 Notary and credit report fees (cred-it report fees are excludable for real property transactions, but must be included as part of the finance charge on other types of loans).

4 Property appraisal fees or fees for inspections to assess the value or condition of the property (for example, inspections for termites or other types of pest infestations), if the service is performed before the closing (fees for flood hazard determinations are excluded from the finance charge).

• Discounts offered as an inducement to pay for a purchase by cash, check, or other means.

• If itemized and disclosed, taxes and fees related to a security interest in property that are prescribed by law and actually paid (or to be paid) to public officials for determining the existence of the security interest, perfecting the security interest, releasing the security interest, and satisfying the security interest. This includes taxes that are levied on security instruments or docu-ments that evidence the indebtedness, if payment of the taxes is a require-ment for recording the instrument.

Insurance Premiums and Debt Cancellation Fees — Conditions for Exclusion. Some loan agreements con-tain provisions for a member’s payment of personal or property insurance premiums, or fees in connection with debt cancella-tion contracts. Section 1026.4(b) includes these types of charges in its list of items that must be included in the finance charge, but section 1026.4(d) provides an exception to this rule. It states that premi-ums a member pays for these types of pro-tection can be excluded if certain specific conditions are met. Separate rules apply for personal insurance, property insurance and debt cancellation contracts, as described below.

Personal Insurance Exclusion. Premiums paid by a member for personal insurance (for example, credit life, health, accident, and/or loss-of-income insur-ance) that is purchased through your credit union may be automatically excluded from the finance charge if the policy names the member or a third party as the beneficiary of the insurance and your credit union does not require the insurance as incident to or a condition of the credit. Where the insurance names your credit union as a beneficiary,



you can still exclude the premiums from your calculation of the finance charge if you meet all of the following conditions:

• The insurance must be optional. The insurance coverage must be optional– not required by your credit union as a condition of granting the credit. If you require personal insurance, you must disclose the premiums as part of the finance charge regardless of whether the insurance is purchased from you or from a third party. But if you require credit life insurance and the member assigns a pre-existing life insurance policy, the cost of the insurance can be excluded.

• You must disclose that the insurance is optional. Your disclosure must con-tain a specific statement that the type of insurance being purchased by the member is optional.

• You must disclose the insurance pre-mium. You must disclose the premium for the initial insurance term. For open-end transactions, the premium may be disclosed on a unit-cost basis (for example, 50 cents per $100). That disclosure can also be based on a period of less than one year if the member has agreed to pay a premium or fee that is assessed periodically (for example, monthly) but is not obligated to continue the coverage.

• You must base the premium quoted on current rates. You need not label the premium as an estimate even where premium rates may increase. If you give a member disclosures before con-summation and a premium rate chang-es in the interim, you are not required to redisclose on consummation.

• You must disclose the insurance term. You must disclose the period of time that is covered by the premium if it is less than the term of the loan.

• You must have the member sign a request for insurance. The member must sign or initial a written statement requesting the insurance coverage after receiving the disclosures speci-fied above. If the transaction involves more than one member, this provision is satisfied by the signature or initials of any one of them.

Any insurance coverage that you offer to a member is also subject to applica-ble state laws for the offering of personal insurance.

Question: Must a member sign the sale of insur-ance disclosure section of a note if they don’t purchase the insurance?

Answer: While it is not mandatory that the mem-ber sign saying he/she does not want insurance, having the signature could prevent the member or their estate from later claiming you never of-fered the insurance, that you should have, that the member would have bought it, and it’s all your fault that no insurance proceeds are forthcoming now that the member has died or become disabled. You should also consult with local counsel to deter-mine if your state may have signature or additional requirements as a matter of state law.

Property Insurance Exclusion. For purposes of this exclusion, property insur-ance provides insurance against the loss of or damage to property or against liabil-ity that arises out of the ownership or use of the property (for example, automobile liability insurance). This category includes single-interest insurance if the insurer waives all rights of subrogation against the member.



The rules for offering property insurance in a way that permits its exclusion from the finance charge are similar to those for personal insurance described above—with two significant differences. First, personal insurance must be optional, while prop-erty insurance may be excluded from the finance charge even if it is required. If so, the member must have the option of obtaining the required insurance else-where. Second, a member must initial or sign a request for personal insurance cov-erage, but no similar requirement applies to property insurance since it may be made mandatory.

These rules and the conditions for exclusion are given below. If you meet all of the following conditions, you can exclude premiums for property insurance from a finance charge:

• Give the member a choice. Your credit union may require property insurance as a condition of a loan, but a member must have the option of obtaining his or her own choice of insurance. This rule does not prohibit you from retaining the option to reject a member’s choice; you can reserve this right if there is reason-able cause.

• Disclose that the member has an option. Your disclosure must contain a specific statement indicating that the member has the option of obtaining the insurance elsewhere.

• Disclose initial premium. If a member obtains coverage from or through your credit union, you must disclose the pre-mium for the initial insurance term.

• Base the premium quoted on current rates. You need not label the premium as an estimate even where premium

rates may increase. If you give disclo-sures before consummation and the premium rates change in the interim, you are not required to redisclose on consummation.

• Disclose the insurance term. You must disclose the insurance term covered by the premium if it is less than the term of the loan.

As with personal insurance, any insurance coverage that you offer to a member is also subject to applicable state laws for the offering of property insurance.

Exclusion for Debt Cancellation Contracts. A debt cancellation contract is an agreement between the credit union and the member under which the credit union agrees to release the member from any fur-ther liability (or reduce the amount of liabili-ty) on a loan in case a particular type of event occurs. These types of contracts are similar to insurance policies, but in many cases they are not insurance and, therefore, are not covered under the personal or property insur-ance rules discussed above. The CFPB rec-ognizes the similarities between insurance policies and debt cancellation contracts, and incorporates a rule in Regulation Z for debt cancellation contracts that parallels the rules for insurance. In some states debt cancella-tion coverage is considered insurance, but the CFPB has ruled that the same disclosure rule, as described below, applies in all cases.

For the purpose of determining the scope of this rule (for example, what con-stitutes a debt cancellation contract for purposes of this rule), section 1026.4(d)(3)(ii) clarifies that the rule applies to fees paid for any coverage that provides for cancellation of all or a portion of the member’s liability as follows:



• For amounts exceeding the value of the collateral that secures the obliga-tion; or

• In the event of the loss of life, health or income or in case of an accident.

Debt cancellation fees charged by a credit union are considered part of the finance charge if they are mandatory (for example, the credit union requires the member to pay the fee). If a credit union offers a debt cancellation contract or agreement on a voluntary basis, the credit union may exclude the amount of the fees for the contract only under the following conditions:

• The credit union does not require the debt cancellation agreement or cover-age, and it discloses this to the mem-ber in writing.

• The amount of the fee or premium for the initial term is disclosed. The term of the coverage must also be disclosed

if it is less than the term of the loan. For open-end credit transactions, the fee or premium may be disclosed on a unit-cost basis. A unit-cost basis disclosure can also be used for closed-end transactions made by mail or telephone or where the total amount of indebtedness subject to coverage is limited.

• The member initials or signs a writ-ten request for the coverage after the above disclosures have been given. Any member in the transaction may sign or initial the request.

If the credit union charges for a debt cancellation contract but fails to comply with any one of these three conditions, the amount charged to the borrower for the contract must be included in the finance charge (and reflected in the resulting annual percentage rate).

The CFPB provides a “Handy” Chart that provides a useful quick reference to help you assess whether a particular fee or charge

Example: Flood Disaster Assessment and Monitoring Fees. The credit union must disclose the determina-tion fees pursuant to the requirements of Regulation Z. The Official Staff Commentary from the CFPB is quoted as follows:

Charges Assessed During the Loan Term. Real estate or residential mortgage transaction charges excluded under Section 1026.4(c)(7) are those charges imposed solely in connection with the initial decision to grant credit. This would include, for example, a fee to search for tax liens on the property or to determine if flood insurance is required. The exclusion does not apply to fees for services to be performed periodically during the loan term, regardless of when the fee is collected. For example, a fee for one or more determinations during the loan term of the current tax-lien status or flood-insurance requirements is a finance charge, regardless of whether the fee is imposed at closing , or when the ser-vice is performed. If a creditor is uncertain about what portion of a fee to be paid at consummation or loan closing is related to the initial decision to grant credit, the entire fee may be treated as a finance charge. 12 CFR §1026.4(c)(7).

Only the flood determination fee related to the initial grant of credit can be excluded from the finance charge. The remainder of the fee considered is a finance charge. If it is not possible to distinguish which part of the fee is for the initial determination and which part is for the life of the loan coverage, the entire fee should be classified as a finance charge.



needs to be disclosed as a finance charge:See page 350 of the CFPB Examination

Manual, available at http://files .consumerfinance.gov/f/201210_cfpb_ supervision-and-examination-manual-v2.pdf.

Record retention

Regulation Z requires credit unions to retain evidence of their compliance with its provisions for a period of two years after the date the disclosures are required to be given, or action is required to be taken. The advertising requirements are excepted from this record retention requirement.

Applicable state or federal (NCUA) regulatory agencies may require credit unions under their jurisdiction to retain records for a longer period if they deem it necessary. The credit union should consult with local counsel regarding any more extensive “state” requirements that may apply.

Open-End Credit Operations and Procedures

Properly determine Annual Percentage Rate (APR)

The rate charged on an account is the single most important item that Regulation Z addresses. The main pur-pose of the regulation is to maintain uniformity in how credit unions and other creditors describe credit costs to consumers. This is to enable consum-ers both to make an informed choice and to know the cost of credit. The APR, a concept that did not exist before the

enactment of the Truth In Lending Act, is the key disclosure item. Using this number, a consumer can more easily compare offerings of different creditors and choose the type of credit (and credi-tor) best suited to his or her needs.

• What is the APR? Generally, the APR is a measure of the cost of credit, expressed as a yearly rate. It is determined by multiplying (1) the periodic rate that can be used to compute the finance charge, times (2) the number of periods in the year. Each separate periodic rate that can be used to determine the finance charge must be multiplied by the num-ber of periods in the year to determine the corresponding APR for that peri-odic rate. Various alternative methods of determining the APR apply to peri-odic statements. The credit union should refer to Section 1026.14(c) of Regulation Z for guidance.

• APR for periodic statements. Sections 1026.14(c) and 1026.14(d) together provide a series of rules to be used in calculating the APR disclosed on periodic statements. Section 1026.14(c) provides different rules depending on whether you apply one or more periodic rates to determine a finance charge, whether you impose or include a minimum, fixed, or other charge unrelated to the periodic rate, and whether the finance charge includes a charge relating to a spe-cific transaction. Section 1026.14(d) offers two alternative methods for calculating an APR when using a daily periodic rate to compute all or a por-tion of the finance charge.

http://files.consumerfinance.gov/f/201210_cfpb_supervision-and-examination-manual-v2.pdf





• Accuracy requirement. An APR disclosed by a credit union or other creditor is considered accurate if the disclosed rate is not more than 1/8 of a percentage point above or below the APR as determined in accordance with section 1026.14 rules.

• Respond properly to oral requests for rate information. When orally responding to member inquiries con-cerning the cost of credit, the only rate that may be stated is the “Annual

Percentage Rate” or “APR.” However, there are two exceptions to this rule. First, the credit union may answer inquiries about open-end credit by stating the periodic rate, or rates, along with the annual percentage rate. Second, if the annual percentage rate cannot be determined in advance, the rate for a sample transaction must be given with other cost information for the member’s specific transaction.

SIMPLE APR CALCULATIONSWhen the finance charge is based solely on the application of one or more periodic

rates to a balance, a credit union can determine the APR by either the periodic rate method or the quotient method.

“Periodic rate method” permits determination of the historical annual percentage rate by multiplying (1) each periodic rate, times (2) the number of periods in the year. 12 CFR §1026.14(c)(1)(i); Comment §1026.14(c)-2.

“Quotient method” involves determining the historical annual percentage rate by:

• Dividing (1) the total finance charge for the billing cycle, by (2) the sum of the balances the periodic rates were applied to, and then

• Multiplying (3) the quotient (expressed as a percentage), times (4) the num-ber of billing cycles in the year.

The quotient method can be used when different periodic rates apply to different balances.

Example: An open-end credit plan involves a monthly periodic rate of 1.5% on bal-ances up to $500 and 1% on balances over $500. A member has a total balance of $800.

The finance charge is $7.50 on the first $500 (.015 × $500) and $3 on the remaining $300 (.01 × $300), totaling $10.50.

The historical annual percentage rate can be disclosed as “18% on $500 and 12% on $300” under the periodic rate method (1.5% × 12 = 18%, and 1% × 12 = 12%).

Alternatively, the historical annual percentage rate can be disclosed as “15.75% on $800” under the quotient method ($10.50 / $800 = .013125, 1.3125% × 12 = 15.75%). See comment §1026.14(c)-2.



Comply with special rules for credit cards

Section 1026.12 sets forth a number of substantive rules that apply specifi-cally to credit cards.

• No issuance on unsolicited basis. A credit union may not issue a credit card on an unsolicited basis. Cards may be issued only in response to an oral or written request or application for a card or as a renewal or substitu-tion for an existing card. This rule applies to cards issued for consumer or business purposes.

The commentary to Reg Z indi-cates that a card issuer may replace an accepted card with more than one renewal or substitute card in differ-ent sizes and formats on the same account where: (1) the replacement card only accesses the same account as the accepted card; (2) all cards issued under the account are governed by the same terms and conditions; and (3) the member’s total liability for unauthorized use with respect to the account does not increase.

• Member liability for unauthorized use. For any unauthorized use of a credit card, the member’s liability is limited to a maximum of $50. A member may not be held liable for any unauthorized use after notifying the credit union about the theft, loss, or any possible unau-thorized use of the card.

• Special rule for business credit cards. This same rule applies to busi-ness credit cards. However, for credit unions that issue ten or more credit cards to a business, the regulation does not prohibit you from enter-

ing into a contract under which the business entity agrees to assume an amount of liability that is greater than the $50 limitation provided in the regulation.

• Member/merchant disputes. In an unresolved dispute between a mem-ber and a merchant that has accepted a credit card payment for property or services, the member may assert against the credit union all claims and defenses arising out of the underlying transaction. The member may with-hold payment of up to the full amount of the transaction, plus any finance charges imposed on that amount.

This rule applies only where a mem-ber has made a good-faith attempt to resolve a dispute with a merchant, the amount involved is greater than $50, and the transaction occurs in the member’s state (based on the mem-ber’s current designated address) or within 100 miles of that address.

• Debt setoff against a deposit account. Generally, a credit union has a right to apply funds on deposit in a member’s account if the mem-ber’s loan obligations are delinquent. This is often referred to as the right of setoff. However, as a general rule, a credit union does not have a right to offset an amount of debt owing on a credit card account against a deposit account maintained with the credit union. This rule prohibiting setoff does not interfere with any rights your credit union has to levy on a member’s property through the judicial process. It also does not restrict you from enter-ing into an arrangement under which you automatically deduct periodic pay-

CARD ISSUER’S “LIABILITY” LIMITED

The court found that a merchant’s “no-refund policy,” which was clearly disclosed, rendered the cardholder liable for a disputed debt. See Izraelewitz v. Manufacturers Hanover Trust Co., 465 NY S2d 486 (NY Civ. Ct. 1983).

NOTE:

“Authorized Use” is an issue of state law, which will vary among the fifty states. Thus, the credit union should consult with legal counsel when assessing this issue.



ments on a credit card directly from a deposit account maintained at your credit union.

Exception Under 12 CFR §1026.12(d)(2). In order to qualify for an exception, a secu-rity interest must be affirmatively agreed to and disclosed in the card issuers initial dis-closures. The CFPB commentary provides that the following conditions must be met:

• The consumer must be aware that granting a security interest is a condi-tion for the credit card account (or for more favorable terms) and must specifically intend to grant a security interest in a deposit account. Indicia of the consumer’s awareness and intent could include, for example:

4 Separate signature or initials on the agreement, indicating that a secu-rity interest is being given.

4 Placement of the security agree-ment on a separate page, or other-wise separating the security inter-est provisions from other contract and disclosure provisions.

4 Reference to a specific amount of deposited funds or to a specific deposit account number.

• The security interest must be obtain-able and enforceable by creditors generally. If other creditors could not obtain a security interest in the con-sumer’s deposit accounts to the same extent as the card issuer, the security interest is prohibited by Regulation Z §1026.12(d)(2).

Comply with billing error resolution procedures

The billing error resolution provi-sions in Regulation Z were not part of

the original regulation. They were added after Congress enacted the Fair Credit Billing Act in 1974 and apply only to member claims. The act mandates spe-cific procedures when members claim a billing error. Although originally enacted principally for credit card claims, the provisions also apply to all other forms of open-end credit available.

• Billing error defined. For purposes of the error resolution procedures, Regulation Z defines billing error to include the following types of claims as reflected on a periodic statement:

4 A credit extension not made to the member or the person authorized by the member to use the card or account.

4 A credit extension not identified on the statement in accordance with the requirements set forth in Sections 1026.7(b) and 1026.8 of Regulation Z. (§1026.7(b) deals with 1) a multi-featured plans and 2) ATM charges by other institu-tions in shared or interchange systems.) (§1026.8 deals with the identification of transactions.)

4 A credit extension either not accepted or not delivered to the member or designee as agreed.

4 A credit union’s failure to properly credit a payment of other credit.

4 A computational or similar error that appears on the statement.

4 An extension of credit for which a member requests additional clarifi-cation or documentation.

4 A credit union’s failure to deliver a periodic statement to a member at his or her last known address. This

LIABILITY WHERE CREDITOR DOES NOT STRICTLY FOLLOW THE RULES:

Belmont v. Associates National Bank, 119 F. Supp. 2d 149 (E.D.NY. 2000)Overview: Plaintiff brought a pro se action against defendant, alleging that it failed to comply with the requirements of TILA in responding to his notice that he was improperly billed for charges made on his son’s credit card account. The court ruled in plaintiff’s favor because defendant failed to properly respond to plaintiff’s timely notice of billing error and reported adverse credit information while the billing dispute was unresolved. Plaintiff’s request for an award of costs was granted to the maximum amount allowed by statute.



procedure does not apply where a cardholder moves and you are provided the new address less than 20 days before the end of the bill-ing cycle for which a statement is required.

• Member’s commencement of a claim. A member triggers the error resolution procedures in Regulation Z when he or she notifies your credit union of a perceived error. This notification must be in writing. A verbal claim does not trigger the billing error rules. The claim must be received within 60 days after sending the first state-ment that reflects the claimed billing error. The member’s notice to the cred-it union for credit card billing errors must include (or enable your credit union to identify) all of the following:

4 Member’s name and account number;

4 Type, date, and amount of the error;

4 Member’s claim;

4 Reasons why the member believes there is an error.

Note: You may require your members not to write billing error claims on a statement, bill, or check sent with a bill. Be sure that you disclose this policy in your billing error notice as it appears in the initial disclosures and on the statement or in the annual mailing.

• Credit union’s response to receipt of claim. Once your credit union receives a billing error notice, it must take the following steps:

1. Send a written acknowledgment of receipt. Send the member a writ-ten notice acknowledging receipt of

the claim. This notice must be sent within 30 calendar days after receiving the claim. But this requirement does not apply if you reach a determination regarding the claim and take appropri-ate steps (for example, credit the mem-ber’s account) within the 30-day period.

2. Resolve the claim within the time limit. After you complete your inves-tigation and based on your determina-tion, you must comply with the appro-priate regulatory procedures within two billing cycles after receiving the claim (but not more than 90 days).

3. Avoid certain actions until the claim is resolved. After receipt of an error claim and until you determine whether an error has occurred, you cannot:

• try to collect any portion of a disput-ed amount.

• impose a finance charge on a dis-puted amount.

• make or threaten to make an adverse report to a credit reporting agency based on a member’s failure to pay any portion of a disputed amount.

• restrict or close an account solely because a member has exercised his or her right to dispute an amount charged on the account.

• When a billing error exists. After your credit union completes its investigation, the next steps depend on whether you conclude that a billing error did in fact occur. If you determine there was an error, you must, within the two-billing cycle limit noted above:

4 correct the error;

4 credit the member’s account for the disputed amount plus any



finance charges or other charges billed to the member; and

4 mail or deliver a correction notice to the member.

• When there is no billing error or a different error. If, at the end of an investigation, you determine there is no error (for example, the member was properly charged) or that a differ-ent error occurred, you must send an explanation giving the reasons why you believe the claim is incorrect, wholly or in part. If a member requests it, you must also include copies of any documentary evidence supporting your conclusion. If you determine a different error occurred (for example, that a member is entitled to a credit, but in a lesser amount than claimed), in addition to the items described in the previous paragraph, you must correct the error to the extent determined and credit the member’s account with any charg-es relative to that amount. Again, this process must be com-pleted within the two-billing-cycle limit described above.

• Billing after the investigation. If your credit union determines the member is responsible for a portion of the disput-ed amount, you must notify him or her as to when the amount must be paid, allowing the same payment time stated in the account contract. If there is a grace period, apply the grace period rules to the disputed amount. The same rules apply if you deter-mine that no error occurred and the member is responsible for the disputed amount. If the member fails to pay the billed

amount and does not reassert the claim within the time period allowed for payment, your credit union can report the account as delinquent.

• When a member reasserts the same claim. When a member reasserts the same claim, a credit union is not required to repeat the procedures described above. But if you have reported the account to a credit report-ing agency as delinquent, you must:

4 inform the agency that the amount is in dispute;

4 mail a notice to the member stat-ing the name and address of any reporting agencies to which you made a report;

4 promptly report any subsequent resolution of the dispute to all such agencies.

Credit payments on open-end accounts promptly

Regulation Z provides a general rule for crediting payments made on open-end credit accounts. It permits one exception to the rule and also requires adjustments whenever a credit union fails to promptly credit a payment.

• Credit as of day of receipt. Credit unions must credit an open-end credit account with the amount of a payment on the day the payment is received. You may credit a payment at a later date only if the delay does not result in a finance charge.

• Provide payment specifications on or with the periodic statement. If your periodic statement includes specifica-tions on how the member is to make



payments and the member sends a payment in a way that does not con-form to those specifications, you are in compliance with the regulation if you accept the payment and then credit it within five days of receipt.

• Adjust for failure to credit the pay-ment timely. If your credit union fails to give same-day credit on a payment (or five-day credit on a nonconforming payment) and the failure results in a finance charge or other charges, you must adjust the account so that the wrongly imposed charges are recred-ited during the next billing cycle.

• Handle credit balances as required. For any credit balance of more than $1 on an account (for example, by an overpayment made by the member), you must take the following actions:

4 Credit the amount of the credit bal-ance to the member’s account.

4 Refund the credit balance, or any part of the credit balance remain-ing, within seven days of receipt of a written request for refund by the member.

4 Make a good faith effort to refund any part of a credit balance remain-ing in the account for more than six months. No further action is required if you do not know the member’s current address and he or she can-not be traced through the last known address or telephone number.

Open-end disclosures and notices

The term “open-end credit” is con-sumer credit extended under a plan in

which 1) the parties expect that there will be repeated transactions, 2) the credit union has the right to impose a finance charge from time to time on the outstanding unpaid balance, and 3) the credit union generally makes the full amount of the credit line available to the member, to the extent that any out-standing balance is repaid.

Of the many types of credit offered, open-end credit includes credit cards, check credit plans, overdraft-on-check-ing plans, and home equity plans.

Most of the requirements throughout Subpart B of Regulation Z apply to all categories of open-end credit. Sections 1026.40 and 1026.60 deal exclusively with issues involving credit cards and home equity plans, including the appli-cable disclosure rules for these prod-ucts. This discussion focuses on the general disclosure rules.

Timing for electronic disclosures

In every case involving credit card applications or solicitations as well as other open-end loans, a consumer must be able to access the disclosures at the time the blank application or reply form is provided by electronic communica-tion. Credit unions may provide a link to their electronic disclosures on or with the application (or reply form) as long as members cannot bypass those disclo-sures before submitting the application or reply form. However, if a link is not used, the application or reply form must clearly and conspicuously refer to the fact that rate, fee, and other cost infor-mation either precedes or follows the application or reply form. Another option



would be to have the disclosures auto-matically appear on the screen with the application or reply form. Confirmation that the member has read the disclo-sures is not required.

General disclosure rules

Under Section 1026.5(a), all disclo-sures for open-end credit must be made:

• Clearly and conspicuously.

• In writing.

• In a form the member may keep.

Drafting Tip: A well-drafted contract will insure that required disclosures (TILA/Regulation Z) are separated from other contractual terms (where segregation is not an issue). Further, the credit union should draft such provisions with a disclaimer such as “except where prohibited by applicable law.” This may be particularly useful when the credit union seeks to collect a loan made in its “home” state or in a “foreign state” (for example, a New York credit union makes a loan to a resident of New York who now resides in Florida where legal action will need to be brought).

Exceptions

There are exceptions to the gen-eral requirements. Another footnote to Section 1026.5(a) states the require-ment that disclosures must be in a form members can keep does not apply to:

• The disclosures for credit card and charge card applications and solicita-tions.

• The alternative summary billing rights statement in Section 1026.9(a)(2).

• The credit card and charge card renew-al disclosures required under Section 1026.9(e).

• The disclosures regarding payment requirements as provided in Section 1026.10(b).

Section 1026.5(a) further provides that in all cases where a disclosure is required to reflect the amount or rate of a finance charge and APR (respectively), the terms and numbers must be more conspicuous than any other required disclosures. But another footnote lists exceptions to this rule— the “more prominent” requirement does not apply to:

• Credit and charge card solicitations.

• Periodic statements.

• Credit and charge card renewal disclo-sures.

• Advertisements.

Required information unknown at the time disclosures are given

All disclosures must reflect the terms of the legal obligation between the par-ties. Where any information necessary for accurate disclosure is unknown to your credit union at the time the dis-closures are made, you must make the required disclosure based on the best information available at the time, and state clearly that the disclosure is an estimate.

If events that occur subsequent to the time the disclosures are given cause a disclosure to become inaccurate, you are not liable for the inaccuracy.



More than one member applicant

If there is more than one member, your credit union satisfies the disclosure requirement by providing the disclosure to any of the individuals who are primar-ily liable on the account. But where a notice of the right of rescission is required, you must give the notice to each member who has a right to rescind. See the “Compliance with right of recission rules — open-end loans” discussion that follows.

Types of open-end credit disclosures

In connection with open-end credit, Regulation Z requires credit unions to provide the following types of disclosures:

• Initial disclosures before or at the time an open-end account or plan is estab-lished.

• Periodic statements at regular inter-vals.

• Notice of change whenever certain terms regarding an account are being changed.

• A statement of billing rights with each periodic statement or annually.

• Disclosure of additional credit devices and features.

• Advance notice on renewal of a credit card subject to an annual fee or similar charge.

• Notice of change of credit card insur-ance provider.

The events that trigger these dis-closure requirements, as well as their content and timing provisions, are dis-cussed in the following paragraphs.

Initial disclosures

Credit unions must provide an initial disclosure statement to all members who establish an open-end credit account. This disclosure must be given before the first transaction is made under the plan or account and must contain the follow-ing items, using terminology that is con-sistent with the content of the periodic statement.

• Finance charge. You must disclose the circumstances under which your credit union will impose a finance charge, including the amount of the charge, and explain how you determine this charge. This means you must disclose:

4 When finance charges begin to accrue and explain the grace period, if there is one.

4 Each periodic rate that may be used to compute the finance charge.

4 The range of balances each rate applies to and the corresponding APR.

4 Explanation of how you determine the balance on which the finance charge is computed.

4 An explanation of how you deter-mine the amount of the finance charge.

4 A description of how you determine any finance charge other than the periodic rate.

4 The type of transaction to which the rate applies, if different rates apply to different types of transactions.

4 An explanation of the method used to determine the balance to which the rate is applied.

4 For variable rate accounts, the fact



that the APR may increase, how the rate is determined including the margin, circumstances under which the rate may increase, the frequen-cy with which the rate may increase, any limitation on the amount the rate may change, the effects of an increase. A rate is considered accurate if it was in effect within 30 days before the disclosures are provided.

• Other charges. The disclosure must include the amounts of any other charges, or an explanation of how any other charges are determined.

The Commentary to Reg Z clarifies that any fee or charge for expedit-ing a loan payment (as an alterna-tive to mailing a payment that might not reach the card issuer by the due date) is neither a finance charge or “other” charge and, therefore, is not required to be disclosed under TILA and Regulation Z. However, consumers should be informed by the creditor of the amount of the charge at the time the service is requested. In addition, when the fee is charged to the credit account, creditors must include the cost on the periodic statement for that billing cycle.

Additionally, the Commentary indi-cates that a fee or charge imposed by a card issuer to expedite delivery of the credit card is neither a finance charge or “other” charge if the member has requested the expedited delivery and the card issuer does not charge for delivery by standard mail service.

• Voluntary Credit Insurance, Debt Cancellation, or Debt Suspension Premiums. If applicable, the disclo-

sure must state that the particular insurance or coverage is not required by the credit union and the premium or fee for the initial term of coverage must be disclosed. For debt suspen-sion coverage, the fact that the obliga-tion to pay loan principal and interest is only suspended, and that interest will continue to accrue during the peri-od of suspension.

• Security interests. If applicable, the disclosure must state that your credit union has or will acquire a security interest in the property purchased under the plan or in other property identified by item or type.

Note: This disclosure applies to cross-collateralization interests and the member’s pledge of shares. See the closed-end credit section for a dis-cussion of cross-collateralization.

• Statement of billing rights. The dis-closure must include a statement that outlines the member’s billing rights. This statement must be substantially similar to the statement set forth in Appendix G to the Regulation.

Tabular format required for certain disclosures

Creditors must provide certain disclo-sures required on or with their open-end loan agreement (except for HELOCs) in a tabular format similar to the table, typi-cally referred to as a Schumer Box, pro-vided on credit card applications or solici-tations with the headings, content, and format substantially similar to the model forms in Regulation Z, Appendix G.

The annual percentage rates (APRs) for purchases, cash advances, or bal-

CROSS- COLLATERALIZATION: DISCLOSURE UNDER REGULATION Z

The credit union needs to merely provide the member with a statement that a loan or advance will be secured by other property pledged to secure other obligations now or in the future to comply with Regulation Z. See, In re Kennemer (Rocket City Federal Credit Union), 143 B.R. 275 (N.D. Ala. 1992); see also, Matter of Brady, 171 B.R. 635 (Bkrtcy. N.D. Ind. 1994) (specifically following Kennemer); In re Phillips, 161 B.R. 824 (Bkrtcy. W.D. Mo. 1993) Different rules apply when trying to secure a credit card account with a deposit account.



ance transfers, any introductory rates and any rate that will apply after an introductory rate expires and certain fees must be disclosed in bold text.

Content of account opening tabular disclosures

The following is a summary of the dis-closures required in the table that must be included in the open-end loan agree-ment (except for HELOCs):

• The APR in bold type for purchases, cash advances, or balance transfers. The APR for purchases must be in at least 16-point type.

• If a rate disclosed above is a vari-able rate, the credit union must also disclose the fact that the rate may vary and how the rate is determined. The type of index must be identified, although the value of the index and the margin used to calculate the rate must not be disclosed in the table.

• If the initial rate is an introductory rate, the credit union must disclose the rate that would otherwise apply to the account after the introduc-tory rate expires. In a variable-rate account, a rate based upon the appli-cable index and margin or formula must be disclosed. The credit union may, but is not required to disclose in the table the introductory rate along with the rate that would otherwise apply to the account if the time peri-od during which the introductory rate will remain in effect is disclosed and the term “introductory” or “intro” is also used in close proximity to the introductory rate.

• Any “premium” or higher temporary rate. Any premium initial rate for pur-chases must be in at least 16-point type.

• Any penalty rate that may apply including a brief description of the event or events that may result in the increased rate and a brief description of how long the increased rate will remain in effect.

• If an introductory rate is disclosed in the table, credit unions must briefly disclose directly beneath the table the circumstances under which the intro-ductory rate may be revoked and the rate that will apply after the introduc-tory rate is revoked.

• Any annual or other periodic fee that may be imposed for the issuance or availability of an open-end plan, including any fee based upon account activity or inactivity, how frequently it will be imposed, and the annualized amount of the fee.

• Any non-periodic fee that relates to opening the plan including the fact that the fee is a one-time fee.

• Any fixed finance charge and a brief description of the charge. Any mini-mum interest charge if it exceeds $1.00 that could be imposed during a billing cycle and a brief description of the charge. The $1.00 amount will be periodically adjusted to reflect chang-es in the Consumer price Index.

• Any transaction charge imposed by the credit union for use of the open-end plan for purchases.

• For a grace period, the date by which



any credit extended 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 credit union 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. In disclosing a grace period in the table, the phrase “How to Avoid Paying Interest” shall be used as the heading for the row describing the grace peri-od. If a grace period is not offered on all features of the account, the phrase “Paying Interest” shall be used as the heading for the row.

• The name of the balance computation method that is used to determine the balance on which the finance charge is computed.

• Any cash advance fee.

• Any late payment fee.

• Any over-limit fee.

• Any balance transfer fee.

• Any returned-payment fee.

• Any required insurance, debt cancel-lation or debt suspension coverage and a cross reference to any additional information about the insurance or coverage.

• If a credit union requires fees for the issuance or availability of credit or requires a security deposit for the credit and the total amount of fees or security deposit is 15 percent or more of the credit limit for the plan, the

credit union must disclose the avail-able credit remaining after the fees or security deposit are debited to the account.

• For credit card accounts, a credit union must provide a reference to the Website established by the CFPB and a statement that members may obtain on the Web site information about shopping for and using credit cards.

• Billing error rights reference. A state-ment that information about mem-ber’s rights to dispute transactions is included in the account-opening disclosures.

Periodic statements

Section 1026.5(b)(2) requires credit unions to provide a periodic statement to members with open-end credit for each billing cycle during which a finance charge is imposed, or an account has a debit or credit balance of more than $1.

A “billing cycle” is the interval between the days or dates of regular periodic statements. These intervals must be equal, with a maximum interval of one calendar quarter. Intervals are considered equal if the number of days in a cycle does not vary by more than four days from the regular day or date of the periodic statement.

Credit unions are required to mail or deliver each periodic statement at least 21 days before the payment due date for credit card accounts and before the end of a grace period for any open-end loan, or before the date after the credit union can impose an additional finance charge or other charge (for example, for a member’s failure to make a required



payment). The 21-day rule also extends to “free ride” ending dates. If you mail a periodic statement later than permit-ted under this rule, you cannot collect any finance charge or other charge that would otherwise be permitted.

For all other open-end accounts (except credit card accounts and open-end loans subject to a grace period), the credit union must mail or deliver each periodic statement at least 14 days before the date on which the minimum payment must be received in order to avoid being treated as late for any pur-pose. For credit unions that offer no courtesy period, this would be the actual payment due date. For credit unions that offer a courtesy period, this would be the end of the courtesy period (as long as the account isn’t treated as late for any other reason before this date).

Credit unions must adopt reasonable procedures to insure:

• That periodic statements are mailed or delivered at least 14 days prior to the date the payment is due to avoid being treated as late, and

• That payments received on or prior to that date are not treated as late for any purpose.

Payment due dates for credit card accounts

Payment due dates for credit cards must generally be the same date each month. The same due date means the same numerical date, such as the 25th of each month and not the same relative date, such as the “third Tuesday of each month.” Creditors will have the option of designating the last day of the month as the due date, even though that would

not be the same numerical date each month.

Creditors may adjust due dates from time to time, such as in response to a consumer’s request or when a creditor acquires new accounts. However, the new due date must be the same numeri-cal date each month going forward.

Timing requirements for delivery of periodic statements

A credit union must adopt reason-able procedures for credit card accounts to ensure that periodic statements are mailed or delivered at least 21 days before the payment due date. In addition, a credit union must adopt reasonable procedures for all open-end loans includ-ing credit card accounts, general lines of credit, overdraft lines of credit, and open-end loans associated with multi-featured open-end lending programs to ensure that periodic statements are mailed or delivered at least 21 days before the end of a grace period. For example, if a credit union mails its periodic statements no later than three days after the closing date of a billing cycle, the payment due date and the end of the grace period must be no earlier than the 24th day after the closing date of the billing cycle.

The actual payment due date, not the end of any courtesy period, is the date that must be used for determining whether the 21-day time requirement has been met. A courtesy period is a period of time, that is either set forth in the account agreement or provided as an informal policy or practice, immediately following the payment due date dur-ing which no late fee will be imposed. For example, if a payment due date is the 25th day of the month but, a credit



union provides a courtesy period of ten days and will not assess a late fee until the 5th day of the following month (assume the first month has 30 days), the 25th day of the first month is the date used for determining compliance with the 21-day timing requirement.

• A credit union that fails to comply with this 21 day timing requirement may not treat a payment as late for any pur-pose or collect any finance or other charge imposed as a result of a late payment.

• Treating a payment as late for any pur-pose includes imposing a penalty rate, reporting the account as delinquent to a credit reporting agency, or imposing a late fee.

Periodic statements can be provided by electronic communication if the member consents. See a discussion of those requirements in the section on “Electronic communication.”

Content of periodic statement

Section 1026.7 sets forth the content requirements for periodic statements. The periodic statement must include the following to the extent applicable:

• Previous balance.

• Identification of transactions.

• Credits to the account.

• Periodic rates.

• Balance for computing finance charge.

• Finance charge. Using the term Interest Charge, must be grouped together under the heading “Interest Charged,” itemized and totaled by type of trans-action.

• Annual percentage rate along with the range of balances to which it is applicable. A promotional rate is only required to be disclosed in periods in which it actually applies.

• Changes imposed must be grouped together.

• Closing date of billing cycle and the account balance on that date. Must be disclosed in close proximity to the “Minimum Payment Due.”

• Total Interest, must be disclosed for the statement period and calendar year to date.

• Fees, must be grouped together under the heading “fees”, identified by fea-ture or type and itemized, and a total of charges must be provided for the statement period and calendar year to date.

• A change in terms notice or increased penalty rate summary may be included in the periodic statement. Credit unions that provide a change-in-terms notice or a rate increase notice on or with the periodic statement must disclose that information in a certain format. See Regulation Z Appendix G, Sample forms G-18(F) and G-18(G).

• The due date for a payment if a late payment fee or a penalty rate may be imposed. This particular requirement only applies to credit card accounts.

• The amount of the late payment fee and any increased penalty APR that may be imposed as a result of a late payment. Must be stated in close prox-imity to the due date.



• Minimum Payment Warning. Must be disclosed in close proximity to the Minimum Payment Due.

• The due date must be disclosed on the front of the first page.

• The due date, late payment fee and APR, ending balance, minimum pay-ment due, and Minimum Payment Warning shall be grouped together. See Regulation Z Appendix G, Sample forms G-18(D) and G-18(E).

• New balance.

• Grace period (free ride period).

• Address for billing error notice.

• Liability notice (credit card plans).

Due date disclosure

A card issuer who charges a late fee on a credit card account must clearly disclose on the periodic statement the payment due date, or the earliest date in which a late payment fee may be charged if it differs from the due date, along with the amount of the late pay-ment fee. The creditor must also dis-close if a penalty APR will be imposed and what that rate will be.

The due date disclosed must be the date indicated in the terms of the legal obligation and not a different date, such as situations in which another law prohibits a late fee from being imposed until a certain number of days after the due date.

Identifying transactions on periodic statements

Section 1026.8 sets forth the require-ments for identifying transactions on

periodic statements. Credit unions are required to identify transactions on the first periodic statement that reflects the transaction and provide the following information:

• For each credit transaction involving the sale of property or services, the amount and date of the transaction must be disclosed, and either

• A brief identification of the property or service (when the creditor and seller are the same), or

• The seller’s name, city and state or foreign country where the transaction took place.

• For each credit transaction not involv-ing the sale of property or services, a credit union must provide a brief identification of the transaction, the amount of the transaction, and at least one of the following dates: the date of the transaction, the date the transac-tion was debited from the member’s account, or the date appearing on the credit document.

Prompt crediting of payments

Generally, a credit union shall credit a payment to the member’s account on the date of receipt of the payment, except when a delay in crediting does not result in a finance charge or other charge such as a late payment fee.

A credit union may specify reason-able requirements for making payments. Reasonable requirements for making payments may include:

• Requiring that payments be accom-panied by the account number or pay-ment stub;



• Setting reasonable cut-off times for payments to be received by mail, by electronic means, by telephone, and in person. For example, it would be reasonable to set a cut-off time for payments by mail of 5 p.m. on the pay-ment due date at the location speci-fied for the receipt of payments;

• Specifying that only checks or money orders should be sent by mail;

• Specifying that payment is to be made in U.S. dollars; or

• Specifying one particular address for receiving payments, such as a post office box.

If a credit union specifies on or with the periodic statement requirements for a member to follow in making payments, but accepts a payment that does not conform to its requirements, the credit union must credit the payment within five days of receipt

If a credit union fails to credit a payment in time to avoid the imposi-tion of finance or other charges, the credit union must adjust the member’s account so that the charges imposed are credited to the member’s account during the next billing cycle.

If a due date for payments is a day on which the credit union does not receive or accept payments by mail, the credit union may not treat a payment received by mail the next business day as late for any purpose.

Notice of change

1. Credit Card Accounts (not home secured)A credit union must provide a notice

of change in terms at least 45 days prior

to increasing the minimum payment, prior to making a significant change to an account term, or the acquisition of a security interest. Significant changes include the following:

• A change to the APR for purchases, cash advances, or balance transfers and discounted initial rates (such as an introductory rate), premium initial rates, or penalty rates;

• Any annual or other periodic fee for the issuance or availability including an fee based upon account activity or inactivity;

• Any fixed finance charge and any mini-mum interest charge that exceeds $1 imposed during a billing cycle;

• Transaction charges for purchases;

• Grace period (In some cases a card issuer may amend the grace period language to accurately describe con-ditions on applicability of the grace period);

• Balance computation method used to determine the balance on which the finance charge is determined (a card issuer may revise the name of a bal-ance computation method to more accurately describe it);

• Any cash advance, late payment, over-limit, balance transfer, or returned-payment fee; and

• A fee or premium for any credit insur-ance, debt cancellation, or debt suspen-sion coverage required by the creditor.

For any other change not identified above, the credit union may either pro-vide a 45-day prior notice of change in



terms or provide notice of the charge before a member agrees to or becomes obligated to pay the charge. In this case, the notice must be provided at a time and in a manner that the member would be likely to notice the disclosure. In addition, the notice may be provided either orally or in writing.

Content of NoticeThe notice must contain the following

information:

• A description of the changes made to a significant term or an increase in the minimum payment;

• A statement that changes are being made to the account;

• The date that changes will become effective.

The below information is also needed if the change in terms is for anything other than an increase in the required minimum payment:

• If applicable, a statement that the con-sumer may find additional information about the summarized changes, and other changes to the account, in the notice;

• If the credit union is charging a rate on the account, other than a penalty rate, a statement that if a penalty rate currently applies to the consumer’s account, the new rate described in the notice will not apply to the consumer’s account until the consumer’s account balances are no longer subject to the penalty rate;

• If the change in terms being disclosed is an increase in an annual percent-age rate, the balance to which the

increased rate will be applied. If appli-cable, a statement identifying the balances to which the current rate will continue to apply as of the effective date of the change in terms; and

• For an increase in the APR, a state-ment of no more than four principal reasons for the rate increase, listed in their order of importance.

• A statement that the member has the right to reject the change or changes prior to the effective date, unless the member fails to make a required mini-mum payment within 60 days of the due date.

• Instructions for rejecting the change or changes, and a toll-free telephone number for the member to use in notifying the credit union of his or her rejection; and

• If applicable, a statement that if the member rejects that change or changes, the member’s ability to use the account for further transactions will be terminated or suspended.

A member’s right to reject does not extend to the following:

• Increases in the required minimum payment;

• A change in an APR applicable to a member’s account;

• A change in the balance computa-tion method applicable to a member’s account necessary to comply with the new prohibition on use of “two-cycle” balance computation methods; or

• Changes due to the credit union not receiving the member’s required mini-



mum periodic payment within 60 days after the due date for that payment.

• If the change in terms being disclosed is an increase in an annual percentage rate for a credit card account under an open-end (not home-secured) con-sumer credit plan, a statement of no more than four principal reasons for the rate increase, listed in their order of importance.

Notice not RequiredA credit union is not required to pro-

vide a notice in the following situations:

• When the change involves a charge for documentary evidence, a reduction of a finance or other charge, suspension of future credit privileges (except when an over-limit fee or penalty rate may be imposed for exceeding a reduced cred-it limit), termination of the account, or a change due to an agreement involv-ing a court proceeding:

• When the change is an increase in an APR upon the expiration of a specified time period, provided that:

• prior to the beginning of the period, the credit union disclosed in writing, the length of the period and the APR that would apply after the expiration of the period; and

• The APR that applies at the expiration of the period does not exceed the rate that was initially disclosed.

• When the change is an increase in a variable APR in accordance with the card agreement that provides for such changes based upon an index that is not under the control of the credit union and is available to the general

public; or

• When the change is an increase in an APR due to the completion of a work-out or temporary hardship arrangement by the member, provided that:

• The APR that applies after the increases does not exceed the APR that applied prior to the beginning of the workout plan or arrangement (for a variable rate, the rate following the increase must be a variable rate using the same index and margin that applied before the beginning of the workout or hardship arrangement; and

• The credit union has provided the member prior to the beginning of the workout or arrangement a written disclosure of the terms of the arrange-ment.

Advance Notice Exception and Floor RatesAny change defined as a significant

change in terms generally requires a 45-day advance notice. However, there are a number of exceptions where no notice of change in terms is required. The “Advance Notice Exception” states that no notice is required when the increase in a variable APR is in accor-dance with an account agreement that provides for changes due to an index that is not under the control of the creditor and is available to the general public. An index is under the control of a creditor when a credit card account or other open-end loan (except HELOCs) is subject to a “floor rate.” A variable-rate account that is subject to a “fixed minimum” or floor rate does not meet the conditions of the exception to the advance notice requirements. Therefore,



a variable-rate loan with a floor will require a 45-day advance notice before the rate may be increased as a result in an increase in the index. A variable-rate loan based upon a credit union’s internal index will also require a 45-day advance notice before the rate can be increased based upon an increase in the index because the index is under the control of the creditor. For the advance notice exception to apply, a credit union must eliminate floors on all open-end loans and use an external index.

Reduction of the Credit LimitIf a credit union decreases the credit

limit, advance notice must be provided before an over-limit fee or a penalty rate may be imposed because the reduced credit limit has been exceeded.

Change in terms for open-end credit in general

When a term that is required to be disclosed or the minimum payment is increased, a credit union must provide a written notice of the change at least 45 days prior to the effective date of the change to each member who may be affected. The 45-day timing require-ment does not apply if the member has agreed to a particular change, however the notice in such cases must still be provided before the effective date of the change. A credit union that treats an upgrade of a member’s account as a change in terms must provide the member 45 days’ advance notice before increasing the rate for new transactions or increasing the amount of any appli-cable fees to the account.

If a credit union increases any charge

not required to be disclosed in the account-opening table, or introduces a new charge, it may either provide a 45-day prior notice of change in terms or provide notice of the amount of the charge before a member agrees to or becomes obligated to pay the charge.

If a credit union changes a term required to be disclosed in the account-opening table, it must provide the fol-lowing information on the notice:

• A summary of the changes made to the terms.

• A statement that changes are being made to the account.

• A statement indicating that the member has the right to opt out of the changes, if applicable and a reference to additional information.

• The date the changes will become effective.

• A statement indicating the consumer has the right to opt out of these changes, if applicable, and a reference to additional information describing the opt-out right provided in the notice, if applicable;

• If applicable, a statement that the consumer may find additional information about the summarized changes, and other changes to the account, in the notice;

• If the credit union is charging a rate on the account, other than a penalty rate, a statement that if a penalty rate currently applies to the consumer’s account, the new rate described in the notice will not apply to the consumer’s account until the consumer’s account



balances are no longer subject to the penalty rate;

• If the change in terms being disclosed is an increase in an annual percent-age rate, the balance to which the increased rate will be applied. If appli-cable, a statement identifying the balances to which the current rate will continue to apply as of the effective date of the change in terms; and

• For an increase in the APR, a state-ment of no more than four principal reasons for the rate increase, listed in their order of importance.

Format requirements for change in terms notices

The “Summary of the changes” required by the above section must be in a tabular format with headings and for-mat substantially similar to Sample forms G-17 in Appendix G of Regulation Z.

When a change-in-terms notice is provided on the periodic statement, the “Summary of the changes” must be located on the front of any page of the statement.

When a change-in-terms notice is provided separately from the periodic statement, the “Summary of the changes” must be disclosed either on the front of the first page of the notice or segregated on a separate page of the notice from other information provided with the notice. The “Summary of the changes” may be on more than one page and may use both the front and reverse sides, so long as the table begins on the front of the first page of the notice and there is a reference on the first page indicating that the table continues on the

following page.

Change-in-terms notice not required

For open-end credit (other than HELOCs), a credit union is not required to provide a notice of change-in-terms when the change involves charges for documentary evidence, a reduction of any component of a finance charge 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.

Reduction of the credit limit

For open-end plans (other than HELOCs), if a credit union decreases the credit limit on an account, advance notice of the decrease must be provided before an overlimit fee or a penalty rate can be imposed solely as a result of the account balance exceeding the decreased credit limit.

Increase in rates due to delinquency or default or as a penalty

For open-end plans (other than HELOCs), a credit union must provide a written notice to each member who may be affected when:

• A rate is increased due to the member’s delinquency or default, or

• A rate is increased as a penalty for one or more events disclosed in the account agreement, such as making a late pay-ment or exceeding the credit limit.

Such notice must be provided at least 45 days prior to the effective date of the increase. The notice must be pro-vided only after the events that trigger



the increase have actually occurred. Additionally, the notice must be in the form of a table and if it is provided on the periodic statement, it must be locat-ed on the front of any page above any “Summary of the terms” notice.

If a rate is increasing due to delin-quency or default or as a penalty, a credit union must provide the following information on the notice:

• A statement that the delinquency or default rate or penalty rate has been triggered;

• The date on which the delinquency or default rate or penalty rate will apply;

• The circumstances under which the delinquency or default rate or penalty rate will cease to apply to the mem-ber’s account, or that the increased rate will remain in effect for a poten-tially indefinite time period;

• A statement indicating to which bal-ances the rate will apply; and

• If applicable, a description of any bal-ances to which the current rate will continue to apply as of the effective date of the rate increase, unless a member fails to make a minimum pay-ment within 30 days from the payment due date.

A credit union is not required to pro-vide a notice if the rate is increased because of a member’s failure to comply with the terms of a workout arrangement provided that the increased rate does not exceed the rate that applied prior to the beginning of the workout arrangement.

Additionally in the case where the credit limit is decreased, a credit union is not required to provide a notice, prior

to increasing the rate for exceeding the credit limit, provided that the credit union provides a written notice 45 days in advance of imposing the penalty rate that includes:

A statement that the credit limit on the account has or will be decreased.

• A statement indicating the date on which the penalty rate will apply, if the outstanding balance exceeds the credit limit as of that date.

• A statement that the penalty rate will not be imposed on the date specified, if the outstanding balance does not exceed the credit limit as of that date.

• The circumstances under which the penalty rate will cease to apply to the account, or that the penalty rate will remain in effect for a potentially indef-inite time period.

• A statement indicating to which balanc-es the penalty rate may be applied; and

• If applicable, a description of any bal-ances to which the current rate will con-tinue to apply as of the effective date of the rate increase, unless the member fails to make a minimum payment with-in 30 days from the due date.

For credit card accounts under an open-end (not home-secured) consumer credit plan, if the significant change required to be disclosed is an increase in an APR, fee or charge based on a mem-ber’s failure to make a minimum period-ic payment within 60 days from the due date for that payment, the notice must include the following information:

• A statement of the reason for the increase; and



• That the increase will cease to apply to transactions that occurred prior to or within 14 days of provision of the notice, if the credit union receives six (6) consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effec-tive date of the increase. This notice must be in tabular format (except for the summary of any increase in the required minimum periodic payment) with headings and format substantially similar to the sample form provided in the final rule. See Sample Form G-23.

Credit CARD Act Definition of credit card account

A credit card account is defined as any open-end credit account that is accessible by a credit card, except a home equity plan or an overdraft line of credit. A credit card also does not include an account number that access-es a credit account, unless the account number can access an open-end line of credit to purchase goods or services, such as on the Internet.

Limitations on increasing annual percentage rates (APRs), fees, and charges

The rule generally prohibits card issuers from increasing any APR, fee, or finance charge applicable to any outstanding balance on a credit card account. It also prohibits creditors from increasing a rate, fee, or finance charge during the first year after account open-ing and requires a promotional rate gen-

erally to remain in effect for at least 6 months after it takes effect.

Exceptions

• Temporary rates that expire after a specified period of time;

• Variable rates: Rates that vary with an index;

• Cases where the creditor has not received the required minimum peri-odic payment within 60 days after the due date; and

• When the consumer completes or fails to comply with the terms of a workout or temporary hardship arrangement.

• Advance Notice exception

• Servicemembers Civil Relief Act exception

Card issuers may lower an APR or a fee or charge required to be dis-closed under the rule, but may not later increase the rate, fee, or charge unless permitted by one of the rule’s exceptions

Increased cash advance or balance transfer fees may apply only to new cash advances or balance transfers, not to existing balances. Increased penalty fees such as late payment fees, over-the-limit fees, and returned-payment fees will apply to the account as a whole rather than any specific balance. Fees for the issuance or availability of credit, fixed finance charges and minimum interest charges, and fees for required insurance, debt cancellation, or debt suspension coverage may be increased, so long as the increased fee or charge is not applied to the outstanding balance.



Temporary rate exception

A card issuer may increase an APR upon the expiration of a specified period of 6 months or longer, provided that:

• Prior to the commencement of that period, the card issuer disclosed in writing to the consumer, the length of the period and the APR that would apply after expiration of the period; and

• Upon expiration of the specified period the card issuer must not apply an APR to transactions that occurred prior to the notice, within 14 days after the notice, or to transactions that occurred prior to the period.

Variable rate exception

A card issuer may increase an APR that varies according to an index that is not under the creditor’s control and is available to the general public when the increase in rate is due to an increase in the index. A publicly-available index need not be published in a newspaper, but it must be one the consumer can independently obtain (by telephone, for example) and use to verify the APR applied to the credit card account.

Card issuers may not increase a variable APR by changing the method used to determine that rate (such as by increasing the margin), even if that change would not result in an immedi-ate increase. However, card issuers can change the day of the month on which index values are measured to determine changes to the rate.

Prohibition on Rate Floors. The prohibi-tion on floor rates applies to all open-end loans (except HELOCs). A creditor exercises

control over the operation of the index in the following circumstances:

• The variable rate based on that index is subject to a fixed minimum rate or similar requirement that does not permit the variable rate to go below a certain percentage;

• The variable rate can be calculated based on any index value during a period of time; or

• The index is the card issuer’s own prime rate or cost of funds.

A non-variable rate may be converted to a variable rate only when permitted by one of the rule’s exceptions, such as at the end of a specified period of time (if this change was disclosed prior to the beginning of this period).

A card issuer may change the index and margin used to determine the APR if the original index becomes unavail-able, so long as historical fluctuations in the original and replacement indices were substantially similar, and so long as the replacement index and margin will produce a rate similar to the rate in effect at the time the original became unavailable. If the replacement index is newly established and therefore does not have any rate history, it may be used if it produces a rate substantially similar to the rate in effect when the original index became unavailable.

Advance notice exception

Generally, after a credit card account has been open for at least one year, the issuer may increase the “rate” for new transactions provided it has com-plied with the notice requirements for “changes in terms,” “supplemental



credit devices and additional features,” and “increases in rates due to delin-quency or default or as a penalty.” While an issuer may increase the rate for new transactions after the first year, it may not increase the rate for the existing balance, which the CFPB refers to as the “protected balance” unless one of the exceptions defined above applies. Card issuers are prohibited from increas-ing an APR or a fee or charge during the first year after the credit card account is opened. The prohibition on increases in rates, fees, and finance charges applies only to “outstanding balances” as defined in the rule. Additionally, a card issuer must not increase the APR, fee, or charge on a closed account or while the account may not be used for new trans-actions.

Card issuers may not increase a fee or charge if the consumer has rejected the increase. In addition, if an increased APR, fee, or charge is disclosed pursu-ant to the rule, the rate, fee, or charge may only be applied to transactions that occur more than 14 days after the notice is provided.

The substitution or replacement of an acquired credit card account does not constitute an “account opening.” However, when a substitution, replace-ment or consolidation occurs during the first year after account opening, the pro-hibition on increases will apply.

Delinquency exception

Card issuers are permitted to increase an APR, fee, or finance charge when the creditor has not received the required minimum periodic payment within 60 days after the payment due date. However, this exception is subject to the

following two conditions:

• The notice of the increase must include a written statement of the reason for the increase and a state-ment that the increase will terminate not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum pay-ments on time during that period; and

• The creditor must reduce the increased APR to the APR which applied before the increase, not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time during that period (beginning with the first payment due following the effective date of increase).

Card issuers must reduce the APR, fee, or charge with respect to transac-tions that occurred within 14 days after notice is provided. If the reduction occurs in the middle of a billing cycle, the card issuer may delay application of the reduced rate, fee or charge until the first day of the following billing cycle.

Workout and temporary hardship arrangement exception

Card issuers may increase an APR, fee, or finance charge due to the completion of a workout or temporary hardship arrangement by a consumer, or the failure of a consumer to comply with the terms of a workout or temporary hardship arrangement. However, this exception is subject to the following two conditions:

The creditor must have provided the consumer, prior to the commencement of such arrangement, with clear and con-spicuous disclosure of the terms of the



arrangement (including any increases due to such completion or failure); and

The APR, fee, or finance charge applicable to a category of transactions following any such increase may not exceed the rate, fee, or finance charge that applied to that category of trans-actions prior to commencement of the arrangement.

Servicemembers Civil Relief Act (SCRA) exception

The SCRA provides that an obligation or liability bearing interest at a rate in excess of 6% per year that is incurred by a servicemember, or jointly by the servicemember and the servicemem-ber’s spouse before the servicemember enters military service shall not bear interest at a rate in excess of 6%. With respect to credit card accounts, this restriction applies during the period of military service.

If an APR has been decreased pur-suant to the SCRA, card issuers may increase that APR once the SCRA no longer applies. However, card issuers are not permitted to apply an APR to any transactions that occurred prior to the decrease that exceeds the rate that applied to those transactions prior to the decrease. Consumers who leave military service should receive 45 days advance notice of an increase in the rate or APR. See Section 3 on the SCRA in this man-ual for more detail.

Treatment of protected balances

A “protected balance” (usually the outstanding balance on the account) is the amount owed for a category of trans-actions to which an increased APR or

an increased fee or charge may not be applied after the APR, fee, or charge for that category of transactions has been increased pursuant to the rule. For example, when a card issuer notifies a consumer of an increase in the APR that applies to new purchases, the protected balance is the purchase balance at the end of the 14th day after notice is pro-vided.

Card issuers may not require repay-ment of the protected balance using a method that is less beneficial to the con-sumer that one of the following methods:

• The method of repayment for the account before the effective date of the increase;

• An amortization period of not less than 5 years, beginning no earlier than the effective date of the increase; or

• A required minimum payment that includes a percentage of the balance that is equal to no more than twice the percentage required before the effec-tive date of the increase.

Card issuers may increase a fee or charge that applies to the account as a whole or to balances other than the protected balance. For example, card issuers can add a new annual or a monthly maintenance fee to an account or increase such a fee so long as the fee is not based solely on the protected bal-ance. However, if the consumer rejects an increase in a fee or charge pursuant to the rule, card issuers would be prohib-ited from applying the increased fee or charge to the account and from impos-ing any other fee or charge solely as a result of the rejection.



Continuing application of the rule

The protections against rate and fee increases apply to the balance on a credit card account after the account is closed or acquired by another creditor, or the balance is transferred to another credit account issued by the same credi-tor or its affiliate or subsidiary. If a bal-ance is transferred to a different credi-tor, that creditor may apply its own rate to the balance transferred.

Over-the-limit transactions

The rules define an “over-the-limit transaction” as an extension of credit necessary to complete a transaction—at the consumer’s request—that causes the credit card limit to be exceeded. The definition is not intended to cover fees or charges by the creditor that may cause the limit to be exceeded.

A card issuer may not assess a fee or charge on a consumer’s credit card account for an over-the-limit transaction until the card issuer:

• Provides the consumer with an oral, written or electronic notice, segregated from all other information, describing the consumer’s right to affirmatively consent, or opt in, to the card issuer’s payment of an over-the-limit transac-tion;

• Provides a reasonable opportunity for the consumer to affirmatively consent, or opt in, to the card issuer’s payment of over-the-limit transactions;

• Obtains the consumer’s affirmative consent, or opt-in, to the card issuer’s payment of such transactions;

• Provides the consumer with confirma-

tion of the consumer’s consent in writ-ing or electronically (if the consumer agrees), no later than the first periodic statement after consent it provided; and

• Provides the consumer notice in writ-ing of the right to revoke that consent following the assessment of an over-the-limit fee or charge.

Card issuers are not required to obtain the consumer’s separate consent for each extension of credit that causes the consumer to exceed his/her credit limit; nor does it require or obligate creditors to pay or authorize any over-the-limit transactions.

If an over-the-limit transaction is paid without the consumer providing affirma-tive consent, the card issuer may not charge a fee for paying the transaction.

Opt-in requirement

Card issuers may provide the opt-in notice orally, in writing, or electronically (without regard to the consumer con-sent provisions of ESIGN Act). However, the revocation notice must be provided to the consumer in writing, consistent with the statutory requirement that such notice appear on the periodic statement reflecting the assessment of an over-the-limit fee or charge on the consumer’s account.

The notice and opt-in requirements apply only to credit card accounts under an open-end (not home-secured) con-sumer credit plan, and therefore do not apply to credit cards that access a home equity line of credit or to debit cards linked to an overdraft line of credit.

The consumer’s consent must be obtained separately from other consents



or acknowledgments provided by the con-sumer. Consumers must initial, sign, or otherwise make a separate request for the over-the-limit service. Under Regulation Z’s record retention rules, creditors will be required to retain evidence of the con-sumer’s consent or opt-in for a period of at least two years.

Whatever method a creditor provides for obtaining consent, such method must be equally available to the consumer to revoke the prior consent. Because con-sumer consent or revocation requests are not consumer disclosures for purposes of the E-Sign Act, creditors are not required to comply with the consumer consent or other requirements for providing disclo-sures electronically.

Timing

All consumers, including existing account holders, must receive notice regarding the opt-in right if the creditor imposes a fee or charge for paying an over-the-limit transaction. As a result, the rule applies the over-the-limit consumer con-sent requirements to credit card accounts opened prior to February 22, 2010.

For credit card accounts opened prior to this effective date, card issuers could elect to provide an opt-in notice to all of its account holders on or with the first periodic statement sent after the effective date. Card issuers that choose to do so may not assess any over-the-limit fees or charges after the effective date of the rule and prior to providing the opt-in notice, and could not later assess any such fees or charges unless the consumer opts in.

Notice of the consumer’s right to revoke is required on the front of each periodic statement that reflects the assessment of an over-the-limit fee or

charge on a consumer’s account.

Content and format

To ensure that consumers can make an informed decision regarding whether and how to affirmatively consent to a credit card issuer’s payment of over-the-limit transactions, the following information must be disclosed:

• The dollar amount of the fee. For card issuers who may wish to vary the fee amount (for example, by basing it upon the number of times the consumer has gone over the limit), the issuer may indi-cate that the consumer may be assessed a fee “up to” the maximum fee;

• Any increased rate that may apply if consumers exceed their credit limit. If, under the terms of the account agree-ment, an over-the-limit transaction could result in the loss of a promotional rate, the imposition of a penalty rate, or both, this fact must be included in the opt-in notice; and

• An explanation of the consumer’s right to affirmatively consent to the creditor’s payment of over-the-limit transactions, including the methods that the con-sumer may use to exercise the right to opt in.

Joint accounts

Card issuers must treat affirmative consent provided by any joint consumer of a credit card account as affirmative consent for the account from all of the joint consumers. Revocation of consent must be treated the same way.



Continuing right to opt-in or revoke opt-in

A consumer may opt in or revoke consent at any time. A consumer’s deci-sion to revoke a prior consent does not require credit card issuers to waive or reverse any over-the-limit fee or charges assessed to a consumer’s account, for transactions that occurred prior to the consumer’s revocation. In addition, the final rule allows card issuers to assess over-the-limit fees in a subsequent cycle if a consumer’s account balance contin-ues to exceed the credit limit as a result of an over-the-limit transaction that was completed prior to a consumer’s revoca-tion of consent.

A consumer’s consent is effective until revoked by the consumer, or until the card issuer decides, for any reason, to cease paying over-the-limit transac-tions for the consumer.

Fees imposed per billing cycle

Card issuers may not impose more than one over-the-limit fee during a bill-ing cycle and only if the credit limit was exceeded during the billing cycle. In addition, unless an exception applies, card issuers may not impose an over-the-limit fee or charge for more than 3 billing cycles for the same over-the-limit transaction where the consumer has not reduced the account balance below the credit limit by the payment due date of the last 2 billing cycles.

This prohibition does not apply if another over-the-limit transaction occurs during either of the last two billing cycles.

Special rules for marketing open-end credit to college students

Definitions

“College student credit card” – a credit card issued under an open-end consum-er credit plan to any college student. The term encompasses college affinity cards.

“Affiliated organization” – an alumni organization or foundation affiliated with or related to an institution of higher edu-cation.

“College credit card agreement” – any business, marketing, or promotional agreement between a card issuer and an institution of higher education, or an affiliated organization, in connec-tion with which college student credit cards are issued to currently-enrolled students. The term encompasses an agreement even if the marketing is tar-geted at alumni, faculty, staff, and other non-student consumers, as long as cards may also be issued to students in con-nection with the agreement.

Public Disclosure of Agreements

The rules require institutions of higher education to publicly disclose any credit card marketing contracts or other agree-ments made with an issuer. The rules include examples on how to fulfill this requirement, such as by posting the doc-uments on the institution’s website, or by providing them for free upon request. In addition, institutions are prohibited from redacting any contracts or agreements they are required to publicly disclose.



Prohibited inducements

Students at an institution of higher education may not be offered any tan-gible items to induce them to apply for an open-end consumer credit plan if the offer is made at or near (within 1,000 feet of) the campus, or at an event spon-sored by or related to the institution. This restriction will apply to all open-end credit, not just credit cards. If a tan-gible item is offered to a college student whether or not they apply for or open an open-end consumer credit plan, the item is not an inducement. Furthermore, the restriction applies to offers mailed to students living on or near the campus.

An event is related to the institution if the marketing of the event uses the name, emblem, mascot, or logo of the institution, or other words, pictures, or symbols identified with the institution in a way that implies that it endorses or sponsors the event. Under the rules, creditors are required to implement reasonable procedures for determining whether someone is a student before giv-ing them the tangible item. For example, simply asking an individual whether he or she is a student would suffice, and the creditor may rely on the response.

Annual report to the board

Creditors that are a party to one or more college credit card agreements are required to submit annual reports to the CFPB regarding the agreements. For each year in which the creditor was a party to a college credit card agreement, the creditor must submit an annual report by the first business day on or after March 31 of the following calendar year.

Annual reports must include:

• A copy of each agreement in effect during the period covered by the report;

• The total dollar amount of payments pursuant to the agreement from the creditor to the institution (or affiliated organization) during the period, and the method or formula used to deter-mine the amount;

• The number of card accounts opened pursuant to the agreement during the period;

• The total number of card accounts that were open at the end of the period; and

• A copy of any memorandum of under-standing that relates to the agreement or that controls any obligations or dis-tribution of benefits.

Additional details regarding the submission process are provided in the Consumer and College Credit Card Agreement Submission Technical Specifications Document, which is pub-lished as Attachment I to the Federal Register notice and is available on the CFPB’s website.

Repayment disclosures and minimum payment warnings

Credit unions must provide the follow-ing minimum payment warning disclo-sures for credit in the form of a table and in the order provided below:

• The general warning statement must be as follows (in bold as shown): Minimum Payment Warning: If you



make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance.

• The minimum payment is to be calcu-lated based on the minimum payment formulas, the APRs, and the outstand-ing balance applicable to the account. For other terms, creditors may make assumptions.

• If the repayment period is less than two years, it must be disclosed by number of months. Otherwise, it must be disclosed in years, rounded to the nearest whole year.

• The minimum payment total cost estimates (the total of payments and interest when minimum payments are made) must be rounded to the nearest whole dollar, or nearest cent as long as all monetary disclosures are rounded consistently.

• The following statements must also be included on the periodic statement:

• The minimum payment estimate and the minimum payment total cost estimate are based on the outstand-ing balance shown on the periodic statement.

• The minimum payment estimate and the minimum payment total cost estimate are based on the assump-tion that only minimum payments are made and no other amounts are added to the balance.

The monthly payment and total costs to repay the balance in 36 months do not have to be disclosed if the minimum repayment estimate is three years or

less. This three-year threshold is cal-culated after rounding, which means a repayment estimate of up to 3 years and 5 months would meet this threshold. The monthly payment and total cost to repay the balance in 36 months also does not have to be disclosed if that monthly payment, rounded to the near-est whole dollar, or nearest cent as long as all monetary disclosures are rounded consistently, is less than the minimum monthly payment. Otherwise, the esti-mated monthly payment and the total cost estimate must be rounded to the nearest whole dollar, or nearest cent as long as all monetary disclosures are rounded consistently. There must also be an express statement on the periodic statement that the card issuer estimates the consumer will repay the outstanding balance in three years if the consumer pays the estimated monthly payment for three years.

The card issuer must disclose on the periodic statement the savings estimate for repaying the balance in 36 months, which will be the difference between the total cost estimate of repaying the bal-ance by making minimum payments and the total cost estimate by making the payments required to pay off the balance in 36 months.

If negative amortization or no amorti-zation occurs, then the following has to be disclosed on the periodic statement in lieu of the above information:

• The following warning statement (in bold as shown): Minimum Payment Warning: Even if you make no more charges using this card, if you make only the minimum payment each month we estimate you will never pay off the balance shown on this statement



because your payment will be less than the interest charged each month.

• The following statement: If you make more than the minimum payment each period, you will pay less in interest and pay off your balance sooner.

• The estimated monthly payment to repay the balance in 36 months, although the total cost estimate would not be disclosed.

• The fact that the consumer will repay the balance shown in three years if the consumer pays this estimated monthly payment for three years.

• The toll-free telephone number for obtaining more information about credit counseling services.

The following refers to the toll-free telephone number requirement:

• To the extent available from the United States Trustee or bankruptcy admin-istrator, card issuers must provide the name, street address, telephone number, and website address of at least three credit counseling services that have been approved by the United States Trustee or a bankruptcy admin-istrator. At the issuer’s option, these must either be in the same state as the billing address on the account or in the state specified by the consumer. The issuer also has the option of disclos-ing both the legal name and the name used by the organization, if they are different.

• Upon request of the approved orga-nization, a card issuer may provide a different address, phone number or website if, for example, this directs

the consumer to general counseling services, as opposed to pre-bankruptcy counseling services. The approved organization may also request that the issuer not provide its contact informa-tion, such as if the organization does not provide these general counseling services.

• Card issuers may, at their option, pro-vide information about approved orga-nizations that offer counseling services in languages other than English or may state that this information is avail-able from the website operated by the United States Trustee.

• If the card issuer affirmatively disclos-es that the credit counseling services have been approved by the United State Trustee or a bankruptcy adminis-trator, which is not required, then the issuer must also disclose the following:

• The United States Trustee or bank-ruptcy administrator has determined that the organization meets the requirements for nonprofit pre-bankruptcy budget and counseling services.

• The organization may provide other services that have not been reviewed by the United States Trustees or bankruptcy administrator.

• The United States Trustee or the bankruptcy administrator does not endorse or recommend any specific organization.

• Creditors may use automated sys-tems and may use toll-free numbers designed to handle other types of consumer service calls, as long as the option to receive this information



is prominently disclosed, such as listing this among the first menu of options. Creditors may also use third-party systems.

• Creditors may obtain information about credit counseling services from the United States Trustee’s website or from the relevant bankruptcy adminis-trator and may disclose this website to the consumer. Creditors may also rely on the information on this website and do not have to provide the required information if it is not available on this website. However, the creditor must refer to the website at least annually to verify and update this information.

• Creditors may not provide advertise-ments or marketing materials through the toll-free number, but may provide educational information.

The creditor has the option to not pro-vide the minimum payment disclosures in a billing cycle immediately after two cycles in which the consumer paid the entire balance, had a zero balance, or a credit balance. These disclosures also do not have to be provided for a cycle in which the minimum payment will pay the outstanding balance, which includes a charged-off account when payment of the entire balance is due immediately.

The final rules eliminate the exemp-tion in the Regulation Z proposed rules for accounts when a fixed repayment period is specified in the account agree-ment and the required minimum pay-ments will amortize the balance within this period.

Model forms and samples are pro-vided in Reg. Z that are to be used and include certain information that must be

in bold type. Separate forms are provid-ed when the minimum repayment esti-mate is more than three years, less than three years, and when there is negative or no amortization. Also, these minimum payment disclosures, the due date, late payment fee, penalty APR, ending bal-ance, and minimum payment due must be grouped together on the first page.

Payments

A credit union cannot treat a payment as late if is received before 5 P.M. on the due date in the amount, manner, and location as indicated by the creditor.

For payments made in-person at branches of financial institutions, the cut-off time may be no earlier than the close of business of that branch, even if it closes after 5 P.M., and these must credited as of the date the payment is made. “In-person” means a transaction conducted with an employee, such as a teller, and would not include other situ-ations, such as using a mail slot. A card issuer credit union may impose a cut-off time earlier than 5 P.M. for payments on credit card accounts if the close of busi-ness for the branch is earlier than 5 P.M.

Credit union’s cannot treat payments as late if the due date is on a day when payments are not received, such as holidays and weekends, and the pay-ment is received on the next business day. Regulation Z limits this to mailed payments, which means this flexibility will not apply to payments a consumer makes by other means, such as by tele-phone or electronically, if the creditor accepts payments in this manner. Also, these provisions apply to all open-end credit.



For credit card accounts, a credi-tor may not impose a separate fee to allow consumers to make a payment by any method, such as by mail, elec-tronically, or by telephone, unless the method involves an expedited service by a customer service representative of the creditor. The commentary clarifies that “separate” fee includes any fee imposed to allow a consumer to make multiple payments, such as automatic monthly payments, if they do not involve expe-dited service by a consumer representa-tive. This requirement will not affect fees imposed after the due date, such as a late fee, and also clarify that “expe-dited” means crediting the payment on the same day as received or the next business day if the payment is received after the creditor’s cut-off time. The final rules also clarify that the expedited service must be conducted by a live cus-tomer service representative in order for a fee to be charged, which could include transactions that require an automated system for a portion of the transaction.

Regulation Z prohibits a card issuer from imposing a late fee or finance charge for a late payment if the issuer makes a material change in the mail-ing address, office, or procedures for handling cardholder payments and the change causes a material delay in credit-ing a payment made during the 60-day period after the date the material change is made. These provisions will only apply to credit cards.

This rule applies only to addresses and offices, including branches, where payments are accepted. The final rules also clarify material change” to mean a delay that would result in a late payment fee or charge and also indicate credi-

tors may continue to impose finance charges, notwithstanding these provi-sions. The commentary provides a “safe harbor” for card issuers that accept payments at retail locations to address the operational difficulty of determin-ing which consumers are affected by a material change in a retail location.

Evaluation of consumer’s ability to pay

Regulation Z prohibits creditors from opening a new credit card account, or increasing the credit limit for an exist-ing account, unless the creditor con-siders the consumer’s ability to make the required payments , regardless of the consumer’s age. In non-community property states, a card issuer may not rely solely on “household income,” but would need to obtain additional informa-tion about an applicant’s independent income. However, a creditor may rely on information such as “income” or “sal-ary.” In community property states a creditor may rely on household income. For credit limit increases, these provi-sions will apply when the request is made by the consumer or when the card issuer unilaterally decides to increase the limit.

The rule interprets this to mean the ability to make the required minimum payments. Since the creditor will not know the exact amount of the minimum payments at the time it is analyzing the consumer’s ability to make the pay-ments, the final rules will allow creditors to use a reasonable method to estimate this amount. In these situations, the creditor should make this estimate based on the consumers using the full credit line and using the minimum pay-ment formula and interest rate that



apply to the account. In evaluating a consumer’s current or other obligations, the issuer need not assume that any credit line is fully utilized.

Creditors must have written, reason-able policies and procedures in con-sidering the ability to make these pay-ments. This would include consideration of at least one of the following: debt-to-income ratio; debt-to-assets ratio; or the income the consumer will have after paying debt obligations. Also, it would be unreasonable not to review any infor-mation about assets, income or current debt, or to issue a credit card to a con-sumer who has no income or assets.

Issuers may consider the ability of both joint applicants to pay collectively. Card issuers are required to update information on the consumer’s obliga-tion prior to considering whether to increase a credit line. Issuers may also consider credit reports, credit scores and other factors consistent with Regulation B, the Equal Credit Opportunity Act. The creditor may rely on this information or on information provided by the consum-er and there is no requirement that the creditor would have to otherwise verify the information. Also, the determination of income, assets, or other factors must be based on facts and circumstances known at the time the new account is opened or when the credit limit is increased.

Provisions applicable to underage consumers and college students

The Reg. Z final rules prohibit credi-tors from issuing a credit card to a con-sumer under the age of 21, unless:

• He or she submits a written application.

• He or she has obtained the signature of a cosigner, grantor or joint applicant who is at least 21 and has the means to repay the debt and agrees to joint liability; or

• Alternatively, the consumer under the age of 21 may provide information indicating he or she has the ability to make the required payments.

These provisions will only apply to credit cards even though certain lan-guage in the CARD Act appeared to extend this to other types of open-end accounts.

This will also only apply to the open-ing of a credit card account, as opposed to other situations in which credit cards are issued, such as when cards are replaced or reissued.

If an individual has assumed joint liability, the credit limit may not be increased unless he or she agrees in writing to assume joint liability for this increase. The individual assuming joint liability may include a cosigner, guar-antor, or joint applicant and this liabil-ity may continue after the consumer reaches 21, if this is consistent with the agreement between the parties.

The “ability to repay” will mean the ability to make the minimum payments, and this ability to make the minimum payment will also apply to the con-sumer under the age of 21 who chooses to demonstrate that he or she has the ability to make the required payments. Issuers need not obtain financial infor-mation directly from the consumer to evaluate the ability of the consumer, cosigner, guarantor or joint applicant to make the minimum payment.

The date for determining whether the



consumer is under the age of 21 will be the date the application is submitted or the date the consumer requests a credit limit increase. If the increase is provided in the absence of a request, this date will be the date the increase was consid-ered by the creditor.

These provisions will not apply to consumers under the age of 21 who are added as an authorized user and who would have no liability for the debt. Those assuming joint liability do not have to agree in writing to assume liabil-ity for a credit line increase if they are at least 21 and were the ones who request-ed the increase.

Allocation of payments

When a consumer makes a payment in excess of the required minimum periodic payment for a credit card account, the issuer must allocate the excess amount first to the balance with the highest APR and then any remain-ing portion to the other balances in descending order based on the applica-ble APR. Issuers may allocate an excess payment based on the APRs and bal-ances on either the date the preceding billing cycle ends, the date the payment is credited to the account, or any day in between. The issuer may adjust the day used to make this determination from time-to-time, but generally must be con-sistent from billing cycle to billing cycle.

When a consumer has asserted a claim or defense against the card issuer, the issuer is required to apply the consumer’s payment in a way that minimizes any reduction in the amount of that claim or defense. Similarly, the same requirements apply with respect to amounts subject to billing error

disputes. Reg. Z requires issuers to comply with

the allocation of payments provisions even if doing so results in the loss of any grace period on a consumer’s card balance. These provisions apply only to credit card accounts, and not to all open-end consumer credit plans.

Fee limitations

The rules prohibit creditors from imposing required fees (other than late payment fees, over-the-limit fees, and returned payment fees) before account opening and during the first year of the account if the total amount of such fees exceed 25% of the credit limit in effect when the account was opened. If this limit is exceeded, the creditor may comply if it reverses the charges, and associated interest, within a reasonable amount of time but no later than the end of the billing cycle that follows the cycle in which the charges were imposed. In addition, issuers that decrease the credit limit during the first year are required to remove any charges that exceed 25% of the reduced limit or credit the account for the amount of such excessive charg-es within a reasonable period not later than the end of the following cycle. The 25% limitation applies regardless of whether the fees are charged to the loan or deducted from any share account.

Limitation on imposing finance charges

The rules prohibit issuers from apply-ing the “double-cycle billing” compu-tation method to consumers’ card bal-ances. Specifically, issuers are prohib-



ited from imposing finance charges as a result of the loss of a grace period on a credit card account if those charges are based on balances for days that precede the most recent billing cycle.

Furthermore, issuers are prohibited from imposing finance charges as a result of the loss of a grace period on a credit card account if those charges are based on any portion of a balance subject to a grace period that was repaid during the grace period. Issuers are not required to use a particular method to comply with this requirement, but the rules include an example of an accept-able method.

The commentary to the rules clarifies that issuers may condition eligibility for a grace period on the payment of certain transactions or balances within the spec-ified period, rather than requiring that all transactions or balances be paid in full within that period. The rules do not limit the imposition of finance charges with respect to a transaction when the consumer is not eligible for a grace peri-od on that transaction at the end of the billing cycle in which it occurred.

The commentary also clarifies that issuers that only require consumers to pay the relevant balance in full for one billing cycle (as opposed to more than one) in order to be eligible for the grace period, are not subject to limitations of this section, unless the relevant balance for the prior billing cycle has been paid in full before the beginning of the cur-rent cycle.

The practice of waiving or rebat-ing finance charges on an individual-ized basis and the practice of waiving or rebating trailing or residual interest do not constitute provision of a grace

period for purposes of this section. The prohibitions on double-cycle billing and charges on balances repaid within the grace period do not apply to any adjust-ment to a finance charge as a result of the resolution of a dispute or the return of a payment for insufficient funds.

Timely settlement of estates

Card issuers must adopt reasonable written procedures to ensure that the administrator or executor of an estate can determine and pay any balance on the credit card account of the deceased in a timely manner. These provisions will only apply to credit cards under an open-end plan, and card issuers may use their current procedures, as long as they oth-erwise comply with these requirements.

Under these provisions, creditors may not impose fees or charges or increase the APR on these accounts upon receiv-ing a request for the amount of the bal-ance from an administrator or executor, even if there is another authorized user on the not mentioned account. However, such fees may be imposed if they apply to time periods before the request was made or if there is a joint accountholder.

The creditor may receive the request for the balance by writing or by tele-phone, and the creditor must then provide the information in a timely man-ner either in writing or by telephone. Thirty days from the date of the request will be considered “timely,” and these provisions do not preclude creditors from providing this information to other appropriate persons, in addition to administrators and executors. The issuer must waive or rebate interest for any payment-in-full received within 30 days



of disclosing a timely statement of the balance. Card issuers may establish rea-sonable procedures requiring verification of an administrator’s authority to act on behalf of an estate.

Internet posting of credit card agreements General requirements

Issuers of credit cards that do not meet the de minimus exception described below (10,000 or more open credit card accounts) are required to post the agreements for each credit card plan they currently offer to the public on their websites and also to submit the agreements to the CFPB for posting on its publicly-available website on a quar-terly basis. Card issuers are not required to post on their publicly available web-sites, or to submit to the CFPB, credit card agreements that are no longer offered to the public (in the case of cred-it unions — to their membership), even if credit card accounts are still open under such agreements.

This requirement does not apply to home-equity lines of credit accessible by credit cards or to overdraft lines of credit accessed by debit cards.

The final rules define an “open account” as a credit card account and either:

• The cardholder can obtain extensions of credit on the account; or

• There is an outstanding balance on the account that has not been charged off.

An account meets this definition even if the account is inactive, or when it is closed for example due to default by the

cardholder, but the cardholder is still making payments on the outstanding balance.

Quarterly submissions to the CFPB

Card issuers are required to send quarterly submissions to the CFPB no later than the first business day on or after January 31st, April 30th, July 31st, and October 31st of each year. Billing rights notices are not required to be included in the card agreements sub-mitted to the CFPB.

Each submission to the CFPB must contain the following information:

• Any credit card agreement that the card issuer offered to the public (in the case of a credit union — to its membership) as of the last business day of the preceding calendar quarter that the card issuer has not previously submitted to the CFPB;

• Any credit card agreement previously submitted that was amended by sig-nificant change/s in terms during the preceding calendar quarter; and

• Notification regarding any credit card agreement previously submitted that the issuer is withdrawing or no longer offering to the public.

Definition of agreement The term “agreement” or “credit card agreement” is defined as a written document/s evi-dencing the terms of the legal obliga-tion or the prospective legal obligation between a card issuer and a consumer for a credit card account. The definition also includes pricing information but does not include temporary or promo-tional rates and terms, and terms that



apply only to protected balances.

De Minimis exception

The rule include a de minimis excep-tion based on an issuer’s total number of open accounts. Specifically, an issuer is not required to submit any agreements if it has fewer than 10,000 open credit card accounts, as of the last business day of the previous calendar quarter. The rule also contain exceptions for private label credit card plans offered on behalf of a single merchant or a group of affiliated merchants and for plans that are offered in order to test a new credit card prod-uct, provided that in each case the plan involves no more than 10,000 credit card accounts. However, if an agreement that previously qualified for the de minimis exception based upon the total number of open accounts or qualified for the private label credit card exception or the product testing exception ceases to qualify, the card issuer must submit the agreement to the CFPB no later than the first quarterly submission deadline after the date when the agreement ceased to qualify.

Definition of “offer”

An agreement is deemed “offered” if the issuer is soliciting or accepting appli-cations for new accounts that would be subject to that agreement. In addition, an issuer is deemed to offer a credit card agreement to the public even if the issuer solicits, or accepts applications from, only a limited group of persons, such as a credit union’s field of membership.

Agreements posted on card issuer’s website

All card issuers, including those that fall

under the de minimis exception, must pro-vide each individual cardholder with access to his or her specific credit card agreement (even if it is no longer offered to the mem-bership by a credit union), by either:

• Posting and maintaining it on the issuer’s website; or

• Making a copy of it available upon request by the cardholder.

Issuers making agreements avail-able upon request must accept requests through both its website and by calling a readily available telephone number (providing prompt service during normal business hours) listed on the website. Credit union card issuers that do not have a website may disclose the readily avail-able telephone number on each periodic statement and must clearly identify the purpose of such a number. Issuers will be required to send or otherwise make the agreement available within 30 business days of the request. However, such issu-ers may provide the agreement electroni-cally or in paper form, regardless of the consumer’s specific request. Card issuers that provide cardholders with access to account information through a third-party website must insure that agreements sub-mitted to the CFPB are also posted on the third-party website.

The requirement to provide access to agreements applies to all credit card accounts, regardless of whether the agreements are required to be submitted to the CFPB. This includes agreements of issuers that qualify for the de minimis exception and plans that are no longer offered to the public.



Requirements from the Credit Card Act

The Federal Reserve Board (Fed) adopted amendments to Regulation Z to implement provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009. These changes represent the third and final stage of the Fed’s implementation of the CARD Act.

In general, these amendments generally prohibit certain fees, establish upper lim-its for penalty fees such as late payment fees over-limit fees and require credit unions to establish written procedures to review every six months any rate increases on credit card accounts to determine whether such accounts warrant a decrease in the APR.

Reasonable penalty fees

Section 1026.52(b) of Reg. Z provides that a card issuer may impose a penalty fee for violating the terms of a credit card account only if the amount of the fee represents a reasonable proportion of the total costs incurred by the card issuer as a result of that type of violation. A card issuer must reevaluate this determination at least once every twelve months. If the reevaluation indicates that a lower fee represents a reasonable proportion of the total costs incurred, then the card issuer must begin imposing the lower fee within 45 days after completing the reevalua-tion. On the other hand, if the reevalua-tion indicates that a higher fee represents a reasonable proportion of the total costs incurred, then the card issuer may begin imposing the higher fee only after provid-ing a 45-day advance notice of change in terms.

However, as an alternative to the cost analysis described above the rule provides a safe harbor by permitting a card issuer to impose a penalty fee that does not exceed the safe harbor. These amounts will be adjusted annually to reflect changes in the Consumer Price Index (CPI).

The right to reject does not apply to an increase in a fee as a result of a cost reevaluation or an adjustment to the safe harbors to reflect changes in the CPI. This can be found under 1026.52(b)(1)(ii) of Regulation Z.

Notwithstanding these safe harbors, card issuers are prohibited from imposing a fee that exceeds the dollar amount asso-ciated with the violation.

Reevaluation of rate increases

For any rate increase imposed on or after January 1, 2009, that was based upon the credit risk of the member, market conditions, or other factors; card issuers are required to review the account no less frequently than once each six months, and if appropriate, reduce the annual percentage rate (APR). If an account is subject to a rate reduction, the rule requires that the rate be reduced within 45 days after completion of the evaluation. In addition, card issuers must have reasonable written policies and procedures in place concerning the review process. The requirement to review rate increases applies to increases that require a 45-day advance notice, but does not apply to increases in a variable-rate account based on a change in an index.

Any reduction in the APR must be applied to the outstanding balances for which the original APR increase was



applied. The rate reduction must not be applied only to new transactions.

Generally, the card issuer must review either:

• The factors on which the increase in the APR was originally based; or

• The factors the card issuer currently considers when determining APRs applicable to new credit card accounts.

The obligation to review accounts every six months terminates once the card issu-er reduces the rate to the same or lower rate (or to a variable rate based on the same index and margin) that existed prior to the increase in the APR. Otherwise, the requirement to reevaluate an account every six months will continue for an indefinite period of time.

A variable rate to a non-variable rate is not considered an increase if the rate prior to the change is equal to or greater than the rate in effect immediately after the change.

In addition, a change from a non-vari-able to a variable rate is considered a rate increase if the variable rate exceeds the non-variable rate that would have applied had the change not occurred.

For example: an account is opened at a non-variable APR of 12%, and one year later is changed to a variable APR of 12%—this change is not considered a rate increase and would not require reevaluation of the account.

Four months later (or ten years later), the variable APR is increased to 13%—the change is now considered a rate increase for purposes of 1026.59, so the card issuer must begin reviewing the account every six months.

A change from a variable to a non-variable rate is an increase if the non-

variable rate exceeds the variable rate that would have applied if the change had not occurred.

For example: an account is opened at 15% variable APR, and one year later, upon 45-days advance notice, is changed to a non-variable rate of 15% APR—the change is not considered an increase under 1026.59.

Three months later (or five years later), the variable rate decreases to 13% APR, so the non-variable rate of 15% now exceeds the variable rate and is consid-ered a rate increase under 1026.59, and the card issuer must begin reviewing the account every six months.

Notice of reasons for rate increases

The rule requires card issuers to state no more than four principal reasons, listed in order of importance, for rate increases on the notice of change in terms provided 45 days in advance of a rate change. The notice must specifi-cally disclose any violation of the account terms which resulted in the increase, such as a late payment or a returned pay-ment, if such a violation is one of the four principal reasons for the rate increase. The notice will inform members of any specific behavior that gave rise to the rate increase and will also inform them if the increase resulted from a decline in their creditworthiness or a change in market conditions.

Prohibited fees

Card issuers may not charge “inactiv-ity” fees, such as fees based on an idle account or the member’s failure to use the account to make new purchases.

In addition, card issuers may not



impose a fee for violating the terms of a credit card account when there is no dol-lar amount associated with the violation. For example, there is no dollar amount associated with the following violations:

• Transactions the card issuer declines;

• Account inactivity;

• Closing or termination of an account.

Furthermore, card issuers may not charge multiple penalty fees based on a single event or transaction such as a late payment or other violation of the account terms. For example, card issuers may not charge a late payment fee and a returned payment fee based on a single payment. A card issuer would be in compliance if it charged no more than one fee for vio-lating the account terms during a billing cycle. If two fees were possible, the card issuer could decide which fee to charge, but could not charge both.

Additional billing rights statements

In addition to providing a statement of billing rights in the initial disclosure, credit unions must remind members of this right by providing additional notices. Regulation Z requires credit unions to send a billing rights statement (the iden-tical statement the credit union must provide in its initial disclosures) at least once each calendar year. The interval between mailings cannot be less than six nor more than 18 months. A credit union satisfies this requirement if it sends the notice to all members entitled to receive a periodic statement for any one billing period, even if this means that members who have no outstanding balance and have had no activity on their account dur-

ing the past billing cycle will not receive the billing rights notice.

Regulation Z Section 1026.9(a)(2) offers an alternative to the annual mailing requirement. Credit unions can include a shortened form of billing rights notice, one that is substantially similar to the short notice provided in Appendix G to Regulation Z, either on or with each peri-odic statement mailed or delivered to the member. Credit unions that do so are relieved of the annual notice obligation.

Disclosure of additional credit devices and features

Credit unions sometimes add a credit feature to an open-end account or send a credit device to members relating to their accounts after initial disclosures have been provided. Certain notice provisions apply in these cases.

• If a feature is added or device is sent within 30 days after a disclosure is given and the finance charge terms remain the same, no additional disclo-sure is required.

• If a feature is added or device is sent more than 30 days after a disclosure is given and the finance charge terms remain the same, you must disclose, before the member uses the device or feature, that it is for use in obtaining credit under the terms previously dis-closed.

• If a feature is added or device sent and the finance charge terms differ from the disclosures given, then the initial disclosures that apply to the new fea-ture or device must be given before the feature or device is used.



Disclosures for checks that can be used to access a credit card account

If checks that can be used to access a credit card account are provided more than 30 days after account-opening dis-closures are mailed or delivered, or are provided within 30 days of the account-opening disclosures and the finance charge terms for the checks differ from the finance charge terms previously dis-closed, a credit union must disclose on the front page of the notice containing the checks, the following terms in the form of a table with the headings, content and form that is similar to Sample form G-19 found in Appendix G to Regulation Z:

• If a promotional rate applies to the checks –

• The promotional rate and time period during which the promotional rate will remain in effect,

• The type of rate that will apply after the promotional rate expires and the APR that will apply afterwards. For example: whether the purchase or cash advance rate applies. For a variable-rate account, an APR based upon the applicable index or formula, must be disclosed. A card issuer must also dis-close that the rate may vary and how the rate is determined and the type of index used. It must not disclose the values of either the index or margin.

• The date, if any, by which the member must use the checks in order to quali-fy for the promotional rate.

• The disclosures required must be accurate as of the time they are mailed or delivered. A variable APR is accu-rate if it was in effect within 60 days of

the date it was mailed or delivered.

• If no promotional rate applies to the checks –

• The type of rate that will apply to the checks and the APR.

• For a variable-rate account, an APR based upon the index or formula, must be disclosed.

• Any transaction fees applicable to the checks.

• Whether or not a grace period is appli-cable, within which any credit extended by use of the checks may be repaid without incurring a finance charge.

Advance notice on renewal of a credit card subject to an annual fee

If you offer credit card accounts that charge an annual fee, another periodic fee, or a fee based on account activity or inactivity, then you must provide notice regarding renewal of the card. At your credit union’s option, the notice may be printed on the front or back of a periodic statement. If the notice is on the back, you must make reference to the disclo-sures on the front of the statement.

A credit union has two choices on how to provide this notice:

1. You can send the notice of renewal one billing cycle or 30 days, whichever is less, before you mail the periodic statement containing the renewal or before a similar fee will be charged to the account.

2. You may delay sending this notice until the time you send the statement that reflects the annual charge.

See Section 1026.60(b) of Regulation



Z for applicable disclosure requirements for the option your credit union chooses.

Notices when the credit union changes the credit card insurance provider

Where a credit union intends to change the company that provides credit card insurance to its cardholders, it must pro-vide two different notices, one before making the change and another after making the change.

You must mail the first notice at least 30 days before the change is made. This notice must include, as applicable, any increase in the rate that will occur, any substantial decrease in coverage that will occur and a statement that the cardhold-er may discontinue the insurance.

The second notice, which must be sent within 30 days after the change is made, must include the new provider’s name and address, a copy of the new policy (or a group certificate) describing the basic terms of coverage, including the rate to be charged, and (again) a statement that the cardholder may discontinue the insurance.

These two notices may be combined into one notice, if sent within the time frame required for the first notice (30 days before change is made). Whether sent separately or together, these notices may be provided directly on or sent with a periodic statement.

Marketing and advertising rules for open-end credit

Regulation Z provides specific rules that apply to all advertisements for open-end credit, as well as additional rules for credit card solicitations and applications. The general rules govern the actual availability of terms offered in an

advertisement, trigger terms, and multi-page advertisements.

All disclosures required to be made in advertisements must be set forth clearly and conspicuously. To meet this require-ment, the disclosures must be legible and reasonably understandable.

Actual availability of terms

If an advertisement for any type of open-end credit states specific credit terms, the terms must actually be arranged or offered by the credit union.

Trigger terms

There are certain credit terms that, if mentioned or described in an adver-tisement by themselves, might mislead members as to the “deal” you are offering in comparison to similar credit offered by other credit unions. These terms are known as “trigger terms” because their inclusion in an advertisement triggers the requirement for additional disclosures.

Specifically, if an advertisement for an open-end line of credit contains any cred-it term required to be disclosed under Section 1026.6 in an initial disclosure statement, you must include additional information in the advertisement.

What is a trigger term?

In most cases, a term that is vague is not a trigger term. For example, the phrase “defer your first monthly payment until February” is not considered a trigger term because it does not state or suggest a specific period of repayment. Specific terms, however, are more likely to be trigger terms. The APR is considered a trigger term. That is, if you state an APR, you must provide other disclosures in the



advertisement. (But note that the inclu-sion of the APR is not a trigger term in advertisements for closed-end credit.)

Any term required to be disclosed under Reg. Z Section 1026.6(b)(3) including all finance charges or other charges imposed as part of the open-end plan that are expressed either affirmatively or negatively in an advertisement for open-end credit (not home-secured) will trigger the addi-tional required disclosures.

The following credit terms are consid-ered trigger terms for open-end credit under Regulation Z:

• A description of the circumstances under which a finance charge will be imposed, or how it is to be determined; mention of the APR, periodic rate, or any grace period. The following state-ments, for example, are triggers: There’s just a small monthly charge on your out-standing balance; or: Pay only 1% per month on the amount of credit you use.

• The amounts of any other charges that might be imposed or an explanation of how they would be determined. For example, There’s only a 50-cent charge for each check you write.

• The fact that the credit union will acquire a security interest in the proper-ty being purchased or in other property identified by item or type.

• A statement outlining the member’s billing rights and the credit union’s responsibilities.

Additional required disclosures

If an advertisement for open-end credit contains one or more trigger terms, then the advertisement also must disclose the following information:

• Any minimum, fixed, transaction, activ-ity, or similar charge your credit union could impose.

• Any periodic rate your credit union may apply, expressed as an annual percent-age rate, and, if applicable, that the rate is variable.

• Any membership or participation fee your credit union could impose.

• If an advertisement for credit to finance the purchase of goods or services specified in the advertisement states a periodic payment amount, the adver-tisement shall also state the total of payments and the time period to repay the loan, assuming that the member pays only the payment amount adver-tised. The total of payments and the time period to repay the loan must be as prominent as the statement of the peri-odic payment amount.

NOTE on “Open-end” Lending. It is strongly recommended that the credit union be more descriptive of the use of “terms” with open-end lending in light of the significant case law that has evolved with regard to this issue. You do not want to allow your open-end loans to be con-fused with closed-end loan products.

For example, when you use a rate table we recommend:

Approximate Term* 24 months

* The approximate term is provided to disclose the term we use to calculate payments for the credit union’s open-end loan products.

Misleading terms

An advertisement for open-end credit



may not refer to an APR as “fixed,” or use a similar term, unless the advertisement also states a time period that the rate will be fixed and the rate will not increase during that period. If no such time period is provided, the rate will not increase at any time while the plan is open.

Promotional rates

Any advertisement for open-end credit (except for HELOCs), including promo-tional materials provided with applications and solicitations, that states a promotional rate must also state when the promotional rate will end and the APR that will apply after the end of the promotional period. These requirements do not apply to an envelope or other enclosure in which an application or solicitation is mailed, or to a banner advertisement, or pop-up adver-tisement linked to an application or solici-tation provided electronically.

If any APR in an advertisement is an introductory rate, the term “introductory” or “intro” must be stated in immediate proximity to each listing of the introduc-tory rate in written or electronic advertise-ments.

Credit card applications and solicitations

Section 1026.60 of Regulation Z provides special disclosure provisions in connection with applications and solici-tations for credit card accounts that must be provided on or with the solici-tation or application. For the purposes of this section and its requirements, the term “solicitation” means an offer by a credit union to open a credit card account for a member without requiring an application.

Content of the Disclosures. Following is a summary of the items credit unions must disclose on or with solicitations or applica-tions for credit cards in a tabular format similar to the table, typically referred to as a Schumer Box with the headings, content, and format substantially similar to any of the G-17 model forms in Regulation Z, Appendix G.

The annual percentage rates (APRs) for purchases, cash advances, or balance transfers, any introductory rates and any rate that will apply after an introductory rate expires and certain fees must be dis-closed in bold text:

• The APR in bold type for purchases, cash advances, or balance transfers. The APR for purchases must be in at least 16-point type.

• If a rate disclosed above is a variable rate, the credit union must also disclose the fact that the rate may vary and how the rate is determined. The type of index must be identified, although the value of the index and the margin used to calculate the rate must not be dis-closed in the table.

• If the initial rate is an introductory rate, the credit union must disclose the rate that would otherwise apply to the account after the introductory rate expires. In a variable-rate account, a rate based upon the applicable index and margin or formula must be dis-closed. The credit union may, but is not required to disclose in the table the introductory rate along with the rate that would otherwise apply to the account if the time period during which the introductory rate will remain in effect is disclosed and the term “intro-



SAMPLE — EARLY DISCLOSURE (SCHUMER BOX) For “Solicitations for an Application for a Credit Card Plan.”

ABC FEDERAL CREDIT UNION VISA/VISA© GOLD AGREEMENT AND DISCLOSURE STATEMENT

This table provides important information regarding your credit card account with ABC Federal Credit Union.



ductory” or “intro” is also used in close proximity to the introductory rate.

• Any “premium” or higher temporary rate. Any premium initial rate for purchases must be in at least 16-point type.

• Any penalty rate that may apply includ-ing a brief description of the event or events that may result in the increased rate and a brief description of how long the increased rate will remain in effect.

• If an introductory rate is disclosed in the table, credit unions must briefly disclose directly beneath the table the circumstances under which the intro-ductory rate may be revoked and the rate that will apply after the introduc-tory rate is revoked.

• Any annual or other periodic fee that may be imposed for the issuance or availability of an open-end plan, includ-ing any fee based upon account activity or inactivity, how frequently it will be imposed, and the annualized amount of the fee.

• Any non-periodic fee that relates to opening the plan including the fact that the fee is a one-time fee.

• Any fixed finance charge and a brief description of the charge. Any mini-mum interest charge if it exceeds $1.00 that could be imposed during a billing cycle and a brief description of the charge. The $1.00 amount will be periodically adjusted to reflect changes in the Consumer price Index.

• Any transaction charge imposed by the credit union for use of the open-end plan for purchases.

• For a grace period, the date by which any credit extended may be repaid with-out incurring a finance charge. If no grace period is provided, that fact must be disclosed. If the length of the grace period varies, the credit union may dis-close the range of days, the minimum number of days, or the average number of days in the grace period, if the dis-closure is identified as a range, mini-mum, or average. In disclosing a grace period in the table, the phrase “How to Avoid Paying Interest” shall be used as the heading for the row describing the grace period. If a grace period is not offered on all features of the account, the phrase “Paying Interest” shall be used as the heading for the row.

• The name of the balance computation method that is used to determine the balance on which the finance charge is computed.

• Any cash advance fee.

• Any late payment fee.

• Any over-limit fee.

• Any balance transfer fee.

• Any returned-payment fee.

• Any required insurance, debt cancella-tion or debt suspension coverage and a cross reference to any additional infor-mation about the insurance or coverage.

• If a credit union requires fees for the issuance or availability of credit or requires a security deposit for the credit and the total amount of fees or secu-rity deposit is 15 percent or more of the credit limit for the plan, the credit union must disclose the available credit



remaining after the fees or security deposit are debited to the account.

• A reference to the website established by the CFPB and a statement that mem-bers may obtain on the website informa-tion about shopping for and using credit cards.

Method of Application or Solicitation for Credit Card Accounts. How the early disclosures must be provided varies depend-ing on the method of application or solicita-tion employed by the credit union. The three methods and required manner of disclosure are:

1. Direct mail and electronic applica-tions or solicitations. The card issuer must disclose all of the applicable terms listed previously on or with any application or solicitation that is mailed to members. These disclosures must be accurate as of the time of mailing except for the APR, which must be one that was in effect within 60 days before the date of mailing. Disclosures provided in electronic form must be accurate as of the time they are sent. Direct mail requirements apply only to mailings sent directly to individual mem-bers. They do not apply to applications or solicitations in mailings of catalogs, mag-azines, or other generally available publi-cations. Such public mailings are subject to the requirements for “Applications or solicitations made available to the general public” discussed following.

2. Telephone applications or solicita-tions. The requirements of this section apply to any credit union-initiated tele-phone contact during which you take application information or offer to open a credit card account without an application

(a “preapproved” telephone solicitation). Generally, in these circumstances the credit union must disclose orally the same terms that must be in tabular form for direct mailings. An alternative is permitted if you do not impose a periodic or one-time fee for the issuance or availability of a card, or do not impose such a fee until the member accepts the card by using it. In this case, the credit union is not required to give oral disclosures. However, in such cases, the credit union must send written disclosure of all of the applicable terms, in tabular form where required, within 30 days after the customer requests the card, but no later than the delivery of the card. You must also explain in the disclosures that the member is not obligated to accept the card or to pay any disclosed fee unless they choose to accept the card by using it.

3. Applications or solicitations made available to the general public. The requirements of this section apply to any applications or solicitations that are made available to the general public, including “take ones” and those contained in cata-logs, magazines, and other generally avail-able publications. Applications available only at the member’s request are not considered to be generally available. You may satisfy the requirements of this section in any of three ways:

(i) Specific information The credit union could provide all of the “direct mail” disclosures in the required format in a prominent location on or with all generally available applications and solicita-tions. You must indicate:



• That disclosures are accurate as of the date printed.

• The date of printing (month and year).

• That terms are subject to change after that date.

• That members should contact the credit union for any changes.

Credit unions using this alterna-tive must provide either a mailing address or a toll-free telephone number for nonlocal calls through which members can obtain infor-mation about changes in the dis-closures.

(ii) Current initial disclosures The credit union could provide, on or with an application or solicita-tion, the disclosures required when opening an open-end account (except the billing rights state-ment). Again, you must provide either a mailing address or a toll-free number.

(iii) General information, no specifics The credit union could provide a statement on or with the applica-tion or solicitation that there are costs associated with the use of the credit card, and the member should contact the credit union for specific information. In this case, both a mailing address and a toll-free number must be provided. A credit union may not use this option if any of the “direct mail” disclosures are included on or with the application or solicitation. Regardless of the option used, the credit union must provide all of

the required disclosures promptly upon receiving a request from a customer for the information.

The credit union could respond to the member either orally or in writing. If responding in writing, you may do so by using the general content and format for either the “specific information” or the “current initial disclosures” options discussed above. Information provided in writing need not be in tabular form.

4. Applications available by electronic communication. In every case, the disclosures must be accessible at the time a blank application or reply form is provided through electronic communica-tion. Credit unions may provide a link to the electronic disclosures on or with the application (or reply form) as long as members cannot bypass those disclo-sures before submitting the application or reply form. If a link is not provided, the application or reply form must clearly and conspicuously refer to the fact that rate, fee, and other cost information either precedes or follows the applica-tion or reply form. Another option would be to have the disclosures automatically appear on the screen when the applica-tion or reply form appears. Confirmation that the member has read the disclosures is not required. When variable rate disclosures are provided by electronic communica-tion, the APR is considered accurate if the rate was in effect within 30 days before sending the disclosures to the member’s e-mail address. Disclosures that are available at another location, such as the credit union website, must use the APR in effect within the last 30 days.



Closed-End Credit Operations and Procedures

Determine the Annual Percentage Rate (APR)

Regulation Z requires the APR on closed-end loans to be calculated in accordance with one of two methods:

1. The actuarial method.

2. The United States Rule method.

Explanations, equations, and instruc-tions for using the actuarial method are provided in Appendix J to the Regulation. The Regulation does not provide a further explanation of the alternative method.

You can also use the CFPB’s Regulation Z Annual Percentage Rate Tables. Any APR determined from those tables in accordance with the accom-panying instructions is automatically deemed to be in compliance.

You may use any other computational tool to determine an APR if the rate deter-mined equals the rate that would result using the methods provided in Appendix J, within the degree of accuracy permitted.

The Regulation allows a tolerance for errors. An APR is considered accurate if it is within 1/8 of 1 percent above or below the APR as determined by either of the two permitted methods. A higher toler-ance, 1/4 of 1 percent, is permitted for irregular transactions. An irregular trans-action is one that includes either multiple advances, irregular payment periods, or irregular payment amounts. An irregu-lar first period, or first or last payment amount, is not an irregular transaction for this purpose.

Interest – Can the Credit Union Charge from Closing Date or Disbursement Date?

Flannick v. First Union Home Equity Bank, 134 F. Supp. 2d 389 (D. Pa. 2001)

Overview: On a home equity loan, defendant charged plaintiffs inter-est that accrued between the time the funds were sent by defendant to the escrow agent and the time the funds were disbursed to plaintiffs. In plaintiff’s class action, the court denied defendant’s summary judgment motion. The Depository Institution deregulation and Monetary Control Act of 1980, 12 U.S.C. §1725-f7 et seq., did not govern the loan, because North Carolina opted out of that statue; the loan was made in North Carolina since defendant was a national bank located in North Carolina with no branch offices outside of that state. Under the National Bank Act, loans made by defendant were governed by North Carolina law. Under North Carolina law, defendant was not entitled to charge interest on the loan until the funds were disbursed to plaintiffs.

Margin of error in calculating the APR

The annual percentage rate for a regu-lar transaction is considered accurate if it varies in either direction by not more than 1/8 of 1 percentage point from the actual annual percentage rate. For example, the exact annual percentage rate in a regular transaction is 10⅛%. Disclosure of any annual percentage rate between 10% and 10¼%, or its decimal equivalent, is considered accurate [See comment 1026.22(a)(2)-1].

DISCLOSURE OF AN APR THAT IS TOO HIGH VIOLATES THE ACT

The disclosure of a 14% APR when the actual APR was 13.49% exceeded the tolerances permitted by the Act. See, In re Cox, 114 B.R. 165 (Bkrtcy) C.D. Ill. 1990)



Provide disclosures and the notice of right to rescind

Each member entitled to rescind a transaction must receive notice of the right to rescind. The person who is entitled to rescind is the member whose principal residence is or will be subject to the secu-rity interest. Where a property is owned by more than one person, each person owning the property must receive a notice. If the borrower is not the owner of the residence, and a nonborrower (for example, a guaran-tor) pledges his or her principal residence as collateral security for the loan offered, then notice must be given to the nonbor-rower; the borrower has no right to rescind in this case, and a notice is not required to be given to that person.

Section 1026.23(b) requires you to give two copies of the notice of right of rescission to each member entitled to rescind the transaction (for example, each owner of the property). The notice must be on a separate document that identifies the specific transaction and discloses, clearly and conspicuously, the following four items:

1. Your credit union’s retention or acquisition of a security interest in the consumer’s principal dwelling.

2. A description of the member’s right to rescind the transaction.

3. A description of how the member may

exercise the right of rescission, with a form provided for that purpose that designates your credit union’s address for delivering or mailing the notice.

4. The date the rescission period expires.

You must use the appropriate model form provided by the FRB in Appendix H to Regulation Z (or a substantially similar form) for this purpose. The FRB provides two separate model forms of notice of the right of rescission in Appendix H. Form H-8 is a general form, while Form H-9 is designed specifically for refinancings.

Handle credit balances as required

Where a credit balance of more than $1 is created on a loan account (for example, by an overpayment made by the member), your credit union must credit the amount to the member’s account. On a member’s written request for a refund, you must refund the credit balance or any part remaining within seven days.

For such balances that remain in an account for more than six months, a cred-it union is required to make a good-faith effort to refund the money to the account holder. No further action is required if you do not know his or her current loca-tion and are unable to trace it through the last known address or telephone number.

Specific Guidance on When/How to Provide Disclosures to Your Member:

The disclosure requirement is satisfied if the creditor gives a copy of the document containing the unexecuted credit contract and disclosures to the consumer to read and sign; and the consumer receives a copy to keep at the time the consumer becomes obli-gated. It is not sufficient for the creditor merely to show the consumer the document con-taining the disclosures before the consumer signs and becomes obligated. The consumer must be free to take possession of and review the document in its entirety before signing.



Closed-end disclosures and notices

Most closed-end credit loans involve a one-time advance of funds, with a sched-ule for the member to repay the credit union. Traditionally closed-end credit is extended at a fixed rate, with a fixed pay-ment schedule.

General disclosure rules and requirements

Section 1026.17(a) requires all disclo-sures to be made:

• Clearly and conspicuously.

• In writing.

• In a form that the consumer may keep.

• Grouped together.

• Segregated from everything else.

The disclosures may not contain any information that is not directly related to the required disclosures. Further, the itemization of the amount financed is specifically required to be separated from the other required disclosures. The dis-closures may include an acknowledgment of receipt, the date of the transaction, and the member’s name, address, and account number.

Disclosures must show the “amount financed” and “annual percentage rate”with their corresponding amount and rate more conspicuous than any other item except the name of your credit union.

When information necessary for an accurate disclosure is unknown at the time you make the disclosures, provide an estimate based on the best informa-tion available to you at the time and state clearly that the disclosure is an estimate.

In making calculations and disclo-sures, you may disregard the effects of the following:

• That payments must be collected in whole cents.

• That dates of scheduled payments may be changed because the scheduled pay-ment date is not a business day.

• That months have a different number of days.

• The occurrence of a leap year.

• Any irregularity in the first period, and any payment schedule irregularity that results from an irregular first period. The permitted irregularity of the first period depends on the term of the loan – Section 1026.17(c)(4) details the permitted deviations based on terms of less than one year, one to ten years, and longer terms.

In making calculations for disclosures, you must use an assumed maturity of one year for loans that have no fixed term and are repayable on demand. However, if such a loan provides for an alternative maturity date, base the disclosures on that date.

In making a loan that will involve a series of advances, consider the loan as one transaction to make calculations for disclosures.

Where events occur subsequent to the giving of disclosures that cause a disclo-sure to become inaccurate, you are not liable for the inaccuracy. Certain changes do trigger a notice requirement, how-ever, as discussed later in this section. But where disclosures are given before consummation and a subsequent event makes the disclosed APR inaccurate by



more than ⅛ of 1% (or ¼ of 1% in an irregular transaction), you must disclose all the changed terms no later than con-summation or settlement.

Language of Disclosures. Disclosures can be made in a language other than English, provided the English version is available upon request. This requirement for provid-ing English disclosures on request does not apply to advertisements for open-end or closed-end loans subject to Regulation Z sections 1026.16 and 1026.24 dealing with advertisements. See the RegTraC Regulation Z sections “Marketing and advertising rules for open-end credit” and “Marketing and advertising rules for closed-end credit.”

Timing Provisions. Closed-end credit dis-closures must generally be provided before consummation of a loan. Consummation as defined in section 1026.2(a)(13) means when the member becomes contractually liable with respect to the loan transaction. When a member legally becomes contrac-tually liable — whether consummation occurs when a contractual document such as a promissory note is signed or when the proceeds of the loan are provided to the bor-rower — is an issue of state law.

Frequently, the disclosures are placed on the same document with the promissory note. In this case, creditors are not required to give the borrower two separate copies of the document before consummation of the loan. The disclosure requirement is satisfied if the borrower is given ample time to review the unexecut-ed credit contract and disclosures before signing and then receives a copy of the signed document to keep.

Circumstances Giving Rise to Disclosure Requirements. Regulation Z requires

credit unions to provide disclosures for closed-end credit transactions as follows:

• For a new loan transaction, a disclosure statement before or at consummation.

• For a refinancing, a new disclosure statement.

• For a loan being assumed by a new buyer, a new disclosure, but with fewer details than the original one.

• For adjustable-rate loans, disclosures regarding adjustments to the interest rate.

The events that trigger these disclo-sures, the content requirements, and the timing provisions for each are discussed in the following paragraphs.

Disclosure Statements for New Loans. Before or at consummation of every closed-end loan transaction, a credit union must provide a disclosure state-ment to the member that includes the items described below. Some of the pro-visions are complex.

Identity of the creditor. Every disclosure must bear the identity of your credit union.

The amount financed. You must dis-close the “amount financed,” using this term, and give a brief description of the term. There are three components to this requirement: (1) you must calculate the amount financed, (2) you must disclose the amount financed as a dollar amount, and (3) you must provide a brief descrip-tion of the amount financed. Calculating the amount financed is itself a three-step process:

• First, determine the principal loan amount. In the case of a purchase, this is the cash price minus any down pay-ment.



• Second, add to that figure any other amounts financed by your credit union that are not part of the finance charge.

• Third, subtract any prepaid finance charge.

While this formula may seem simple, creditors often either forget to subtract any prepaid finance charge, or they sup-ply the wrong figure. Any component of a finance charge that is paid in cash or by check must be subtracted from the amount of the loan proceeds to determine the amount financed.

For any portion of a finance charge your credit union deducts from loan proceeds, you have two options: (1) You can include the amount of the prepaid finance charge in the amount of the loan proceeds and then deduct that same amount as a prepaid finance charge. Or, (2) You can exclude the amount of the prepaid finance charge from the amount of the loan proceeds. The promissory note will then show an amount that is different from that given in the disclosure state-ment. In this case, you should not list the amount as a prepaid finance charge, and should not deduct the amount from the amount of the loan proceeds to determine the amount financed.

Itemization of the Amount Financed. This itemization must be separate from the other disclosures required under Regulation Z. This means you cannot incorporate this itemization within the body of the disclosure even though it relates to other terms required to be dis-closed under Regulation Z.

In lieu of this, the regulation allows credit unions to provide the member with a statement that he or she has the right

to receive an itemization of the amount financed. Credit unions that choose this alternative must place the notice among the Regulation Z disclosures and provide a place on the statement for members to indicate whether they want an item-ization. If no itemization is desired, the member must indicate this on the form. In all other cases, you must provide the itemization.

Caution: An itemization is required for all closed-end loans. If you allow an elec-tion, insure that it is the member that makes this decision. The credit union should never use a preprinted form that has been completed by the credit union to indicate that no itemization is requested.

While an itemization of the amount financed is to be provided separately, this does not mean that it cannot be on the same piece of paper. As long as the required disclosures are grouped together and are clear and conspicuous, you can place the itemization of the amount financed either preceding or following the disclosures or on a separate paper. You may also include other information on the same form as the Regulation Z dis-closures as long as it is separate from the Regulation Z grouping.

Four categories of information must be included in the itemization of amount financed:

1. Proceeds distributed directly to the member.

2. Amount credited to the member’s account.

3. Any amounts paid to other persons on behalf of the member.

4. Prepaid finance charge.

This list does not coincide with the list of items considered in calculating the



amount financed. It is a minimum stan-dard; a credit union can provide addition-al information in the itemization if it so chooses. For example, you can add cat-egories that are not among the required ones, such as the down payment and the cash price in a credit sale, and you can break down any category into separate components.

Any of the four required categories that are not applicable to the transaction can be deleted or left blank. Each category is described below:

1. Proceeds distributed to the member. This amount represents the dollar amount actually distributed to the member, whether in cash, by check, or by credit to an asset account of the member. If the member is making a purchase with the proceeds of the loan (for example, an automobile loan), a check issued jointly to the member and the automobile dealer is listed in this category. If you require the maintenance of a deposit account with a required minimum balance using a portion of the loan proceeds, the amount credited to the deposit account is to be included in this category.

2. Amounts credited to the member’s account. This reference to account means a loan account, not a deposit account. It includes amounts paid for a purchased item on a credit sale and amounts paid to the credit union to reduce or satisfy other loans owed to the credit union.

3. Amounts paid to others. This category includes any amounts your credit union has actually paid to others for registration fees and similar items, security interest fees, insurance premiums, amounts paid to credit bureaus, and so forth. You can

also list items the member has paid for that are not deducted from the amount of the loan, but this is not required. If a member makes several payments for the same type of item (for example, premiums for more than one type of insurance), you can combine them and list them under a single name such as “insurance” or “insurance premiums.” In describing the third parties, you must generally refer to a payee by name. The only exception is for the following categories of third parties, for which generic terms are sufficient:

• Public officials.

• Government agencies.

• Credit reporting agencies.

• Appraisers.

• Insurance companies.

4. Prepaid finance charges. The amount of prepaid finance charges must be dis-closed as a total amount. You may also break this figure down into its compo-nents, but you must show the total figure.

Finance charge. You must use the term “finance charge” and include a brief description, such as “the dollar amount the credit will cost you.” The term “finance charge” and its corresponding dollar amount must be disclosed more conspicuously than all other terms in the disclosure statement except the annual percentage rate and the credit union’s identity. Section 1026.4 of Regulation Z defines the term “finance charge” and includes a detailed explanation of its components (see the definitions section).

Accuracy of finance charge disclosed. In non-home-secured transactions, there is no distinction made between a finance charge that is understated or overstated

DISCLOSURE OF AN APR THAT IS TOO HIGH VIOLATES THE ACT

A creditor’s disclosure of a 14% APR when the actual APR was 13.49% exceeded the tolerances permitted by the Act. See, In re Cox, 114 B.R. 165 (Bkrtcy) C.D. Ill. 1990).



and the amount of tolerance for error depends on the amount involved in the transaction. If the amount of the trans-action is $1,000 or less there is a toler-ance of $5. For transactions in excess of $1,000 there is a tolerance of $10.

Annual Percentage Rate. You must use the term “annual percentage rate” and include a brief description such as “the cost of your credit as a yearly rate.” The term annual percentage rate and the cor-responding numerical rate must, with the finance charge, be disclosed more conspicuously than all other terms in the disclosure statement except your credit union’s identity.

Variable-rate information. For transac-tions not secured by a principal dwelling and for short term transactions (one year of less) secured by a principal dwelling, the disclosure statement must:

• Describe the circumstances under which the APR may increase.

• Describe the limitations, if any, on the amount of a rate increase.

• Describe the effect of a rate increase.

• Provide an example that shows the pay-ment terms that would result from an increase.

For loans with terms greater than one year and secured by a member’s principal dwelling, the disclosure must:

• State that the transaction contains a variable-rate feature.

• State that variable-rate disclosures were provided earlier.

Payment schedule for loans that are not home secured. In disclosing a payment schedule, you must include the number, amounts, and timing of payments that are scheduled for a member to repay an obligation owed to your credit union. For loans repayable on demand with no alter-nate maturity date, you meet this require-ment by disclosing the due dates or pay-ment periods of any interest payments scheduled for the first year.

Some loans require a series of pay-ments that vary because a finance charge is applied to the unpaid balance to deter-mine each payment. For such loans, you must show the largest and smallest payments in the series of payments the member will make, with a reference to the variations in the other payments in the series — for example, that the high-est payment will be payable in the first monthly payment, and each subsequent payment will be lower, with the last pay-ment in the amount shown.

Interest rate and payment summary table

Current Regulation Z Section 1026.18(g) requires the disclosure on all closed-end loans of the number, amounts and timing of payments scheduled to repay the loan. Paragraph (g) is required for all closed-end loans (except loans secured by real property or a dwelling).

Total of payments. To show this amount, the disclosure must use the term “total of payments,” and you must give a descrip-tive explanation of the term, such as “the amount you will have paid when you have made all scheduled payments.” A footnote to Section 1026.18(h) states that if the trans-action involves a single payment, your credit union is not required to include the total of payments item in its disclosure statement.



However, where a loan agreement calls for one single payment of principal plus periodic payments of interest, this single payment exception does not apply and you must dis-close the total of payments in the disclosure.

Demand feature. If a loan is repayable on demand, disclose that fact. In addition, if the information in your disclosure statement for the loan is based on an assumed matu-rity of one year, include a statement to this effect.

*Total sales price. This disclosure applies only to lenders who sell goods and provide the financing for the sale of those goods. For example, the sale and financing of a repos-sessed car for a member. See example in figure 1.2.

Prepayment. For a loan with a finance charge that is computed from time to time by applying a rate to the unpaid principal balance, include a statement that indicates whether your credit union may impose a penalty if the member prepays the obligation in full. In all other cases, include a state-ment that indicates whether the member is entitled to a rebate of any finance charge if the obligation is paid in full.

Question: What are the rules concerning when we must make the two “prepayment” disclosures under Regulation Z for closed-end credit? One says, “If I pay off this loan early, I [may, will not] have to pay a penalty.” The other says, “If I pay off this loan early, I [may, will not] be entitled to a refund of part of the finance charge.”

Sample Payment Schedule Disclosures

Right

Number of Payments Amount When Payments are Due

239 $1,084.79 Monthly Beginning July 1, 1999

1 $1,024.70 April 1, 2019

Wrong

Number of Payments Amount When Payments are Due

239 $1,084.79 July 1, 1999

1 $1,024.70 April 1, 2019

Regulation Z provides that the schedule of payments must either provide “all due dates” or the “timing” for such payments, such as “monthly or biweekly.” The Commentary approves use of the following in making this disclosure:

“Monthly Beginning July 1, 1999.”

12 CFR §1026.18(g) and Staff Commentary §1026.18(g)-4.



Answer: The first disclosure — whether or not the consumer will have to pay a penalty for paying off the loan early — must be made when the finance charge is computed on a simple interest basis, or, in the words of Regulation Z, “when an obligation includes a finance charge computed from time to time by application of a rate to the unpaid principal balance….”

The second disclosure—whether the consumer is entitled to a prepayment refund—must be made when “an obligation includes a finance charge other than the finance charge [described in the previous paragraph].” The typical situation is when the fi-nance charge is precomputed, that is, when the con-sumer promises to pay a dollar amount that includes the entire finance charge for the term of the loan. (A simple interest loan is different in that the consumer promises to pay a dollar amount that includes only the principal balance of the loan, plus an unstated

amount of whatever interest accrues over time at the stated interest rate.)

Late payment. The disclosure must show the dollar amount or percentage of any charge your credit union might impose before maturity due to a late payment. Do not include in this disclosure the amount of any charges that your credit union can impose where the parties agree to an exten-sion of the loan or to a deferral of one or more payments.

Security interest. If your credit union has or will acquire a security interest in property as the result of a loan transaction, you must state this fact in your disclosure. A descrip-tion of the collateral is not required, just a

Figure 1.2 Credit Sale Example

Total Sale Price Disclosure Example SPECIAL REGULATION Z DISCLOSURES

Annual Percentage RateThe cost of my credit as a yearly rate, which, if variable, is subject to change:

__________ %

Finance ChargeThe dollar amount the credit will cost me:

$ ___________

Amount FinancedThe amount of credit provided to me or on my behalf:

$ ___________

Total of PaymentsThe amount I will have paid after I have made all payments as scheduled:

$ ___________

*Total Sales PriceThe total cost of my purchase on credit including my down payment of

$ ________ __:$ ___________

YOUR PAYMENT SCHEDULE WILL BE:

Number of Amount of Payments Payments When Payments Are Due

PORTIONS INTENTIONALLY DELETED.



sentence that identifies the property. Your credit union must identify its security inter-est even if the property that secures the loan belongs to another person. For example, where someone other than the borrower pledges his or her own property to secure the loan and is required to sign the security agreement.

In purchase money transactions, where the property in which the credit union will have a security interest is also the subject of the loan transaction, a general state-ment such as “the property purchased in this transaction” satisfies the require-ment. You may also describe the prop-erty in general terms, such as “a motor vehicle.”

In nonpurchase money transactions where the loan proceeds are used for another purpose (for example, where the property serving as security is already owned by the borrower), you still are not required to describe the property in any detail but you should identify the property by type (for example, motor vehicles or securities), or by item. You also comply by identifying the specific property. But you cannot use a general phrase such as “property securing this transaction” for a nonpurchase money transaction.

For a loan secured both by the property being purchased and by other property, combine the two disclosure requirements described above. That is, disclose the property being purchased with a general identification and then describe the other property either by type or item. A phrase like “the property being purchased in connection with this loan and other prop-erty” is not sufficient because the second part of the phrase does not describe the other property by item or type. A suf-ficient statement would be: The property

being purchased and a 1999 Mazda Miata V1#123.

Purchase and nonpurchase interests can both be described in a disclosure by type. For example, if your credit union makes a loan for the purchase of a resi-dence and retains a security interest in the fixtures that are on the property, you can describe the security interest as:

• The residential property being purchased with the proceeds of this loan and any fix-tures on the property being purchased.

This can also be stated as: The residential property located at 123 Main Street, and any fixtures on that prop-erty. It would be improper to disclose and describe the property as “any real property and fixtures owned by the bor-rower,” because the term “fixtures” in that sentence is too broad to meet the requirement that you identify the prop-erty by item or type.

Extension of a security interest — “cross-collateralization.” Credit unions sometimes extend a security interest in property they already have an interest in. For example, if a credit union makes a loan secured by a motor vehicle and later makes a loan secured by another motor vehicle being purchased, the credit union may want to extend its security interest for the new purchase to the motor vehicle previously purchased. If the first loan has a clause that extends that security interest to any motor vehicles the member later purchases, the credit union must describe the security interest using a sentence such as: Collateral securing other loans with us may also secure this loan.

For a credit union to extend a security interest in this way, there must be the first loan agreement that extends the



security interest to collateral for other loans. The credit union must also disclose that fact in the disclosure statement for the first loan, even if at the time there is no other property that provides collateral in this manner. When a second secured loan is made, the credit union will violate this rule after the fact unless it included such a sentence in the disclosure for the original loan.

A credit union is not required to describe a security interest by using the specific term “security interest.” You can use words such as “pledge,” or “lien” in place of the phrase “security interest” in appropriate situations.

Insurance. A credit union may exclude from the finance charge any amounts a member pays as premiums for personal or property insurance or for a debt cancellation con-tract. This only applies if the credit union complies with certain rules which can vary depending on which type of insurance is being purchased. These rules, which include disclosure of the charges, are provided in the Section 1026.4(d) definition and description of the term “finance charge” (see the defini-tions section).

Certain security interest charges. As with the insurance premiums noted above, a credit union can exclude from the finance charge the amounts a member pays for cer-tain fees and charges prescribed by law, as well as certain fees paid for nonfiling insur-ance. Section 1026.4(e) provides the rules for these exclusions in its definition and description of the term “finance charge” (see the definitions section).

Contract reference. The disclosure must include a statement that the member should refer to the appropriate contract document

for information about the following:

• Nonpayment.

• Default.

• Right to accelerate maturity of the obligation.

• Prepayment rebates and penalties.

In lieu of referring to “appropriate con-tract documents,” the phrase that appears in the regulation, you may refer to the spe-cific document that contains this informa-tion (for example, the promissory note, and so forth). If some provisions appear in one document and other provisions in another, you may name the specific documents or provide a different catchall phrase. This disclosure does not require your credit union to explain any of the provisions, but merely reference the fact that such provi-sions exist.

Required deposit. If a member must main-tain a deposit account to get a loan, you must include a statement in your disclosure that the APR does not reflect the effect of the required deposit.

In a footnote to this requirement, the CFPB states that no statement is required in the following circumstances:

• A member’s funds will be placed in an escrow account for the payment of taxes, insurance, or for repairs.

• A member’s funds will be placed in an account that earns not less than 5% per year.

• Payments will be made under a Morris plan.

Requirements for private education loans

Creditors that extend private educa-tion loans must provide disclosures about



loan terms and features on or with the loan application and must also disclose information about federal student loan programs that may offer less costly alter-natives. Additional disclosures must be provided when the loan is approved and when the loan is consummated.

The disclosure requirements apply to loans made expressly for postsecondary educational expenses but do not apply where educational expenses are funded by open-end credit such as credit card advances, or any real-estate-secured loans. In addition, the amendments do not apply to education loans made, insured, or guaranteed by the federal government, which are subject to disclo-sure rules issued by the Department of Education.

Creditors must give the consumer 30 days after a private education loan appli-cation is approved to decide whether to accept the loan offered.

During that time, the creditor may not change the rates or terms of the loan offered, except for rate changes based on changes in the index used for rate adjust-ments on the loan.

The consumer has a right to cancel the loan for up to three business days after consummation. Creditors are prohibited from disbursing funds until the three-day cancellation period has run.

Disclosure Requirements. The rule requires the following disclosures for private education loans:

• Disclosures with applications (or solicitations that require no applica-tion). Creditors must provide general information about loan rates, fees, and terms, including an example of the total cost of a loan based on the

maximum interest rate the creditor can charge. These disclosures must inform a prospective borrower of, among other things, the potential availability of Federal student loans and the interest rates for those loans, and that addi-tional information about Federal loans may be obtained from the school or the Department of Education Web site.

• Disclosures when the loan is approved. When the creditor approves the consumer’s application for a private education loan, the creditor must give the consumer a set of transaction-spe-cific disclosures, including information about the rate, fees and other terms of the loan. The creditor must disclose, for example, estimates of the total repay-ment amount based on both the current interest rate and the maximum interest rate that may be charged. The creditor must also disclose the monthly payment at the maximum rate of interest.

• Disclosures at consummation. At con-summation, the creditor must provide updated cost disclosures substantially similar to those provided at approval. The consumer’s three-day right to cancel the transaction must also be disclosed.

Finally, once a consumer applies for a private education loan, the consumer must complete a ‘‘self-certification form’’ with information about the cost of atten-dance at the school that the student will attend or is attending. The form includes information about the availability of Federal student loans, the student’s cost of attendance at that school, the amount of any financial aid, and the amount the consumer can borrow to cover any gap. The creditor must obtain the signed and completed form before consummating the



private education loan. The Department of Education has primary responsibility for developing the self-certification form in consultation with the Board.

Private Education Loan means a loan that is extended to a consumer expressly, in whole or in part, for postsecondary educational expenses. A creditor need not provide the application or solicitation dis-closures for a loan that the consumer may use for multiple purposes even though a portion of the loan will be used for post-secondary educational expenses.

Postsecondary educational expenses means any of the expenses that are listed as part of the cost of attendance, as defined under section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), of a student at a covered educa-tional institution. These expenses include tuition and fees, books, supplies, miscel-laneous personal expenses, room and board, and an allowance for any loan fee, origination fee, or insurance premium charged to a student or parent for a loan incurred to cover the cost of the student’s attendance.

Marketing and advertising rules for closed-end credit

Section 1026.24 of Regulation Z provides specific rules that apply to all advertisements for closed-end credit. These rules discuss the actual availabil-ity of terms offered in an advertisement, require use of the term “annual percent-age rate” whenever a rate is disclosed in an advertisement, require additional disclosures in an advertisement that con-tains “trigger terms,” and provide special rules for multipage advertisements.

All disclosures required to be made in

advertisements must be set forth clearly and conspicuously. To meet this require-ment, the disclosures must be legible and reasonably understandable. The regula-tion otherwise does not designate a size type or the placement for any of the dis-closures required.

Actual availability of terms

If an advertisement for any type of closed-end credit states specific credit terms, your credit union must actually arrange or offer those terms.

Rate of finance charge

If any advertisement states a rate of finance charge, the rate must be stated using the specific term “annual percent-age rate.” The commentary to this sec-tion states that use of the abbreviation “APR” is permissible, with no conditions attached.

If the APR can be increased after con-summation of an advertised loan, the advertisement must also state that fact, but the Regulation does not require you to include details regarding rate increases.

No other rate may be stated in an advertisement for consumer loans not secured by a dwelling except either a simple annual rate or a periodic rate that is applied to an unpaid balance.

In advertisements made through elec-tronic communication, the consumer must be able to view either the simple annual rate or the periodic rate simultane-ously with the APR. It is not acceptable to view the APR only by use of a link to infor-mation appearing at another location.

Trigger terms

There are certain credit terms that if



mentioned or described in an advertise-ment by themselves, might mislead con-sumers as to the “deal” your credit union is offering compared to similar credit offered by other credit unions. These terms are known as “trigger terms” due to the fact that their inclusion in an adver-tisement triggers the requirement that you make additional disclosures in the advertisement.

Specifically, if an advertisement for a closed-end loan contains any one of the following terms, you must include addi-tional disclosures:

• The amount or percentage of any down payment. This only applies to advertise-ments for a credit sale. A credit sale would take place when the credit union is selling the property and also financ-ing the property. For example:

“Finance the purchase of a new car with only 10% down.”“90% financing available.”

• The number of payments or the period of repayment. For example:

“Up to 30 years to repay.”“Terms from 10 to 30 years.”

• The amount of any payment. For example:

“$500 a month will get you a new car.”“Payments as low as $475 a month.”

• The amount of any finance charge. For example:

“Finance charges as low as $5,000 a year.”“As little as $1,000 in points.”

An advertisement for closed-end credit that contains one or more of the above trigger terms also must disclose the fol-lowing:

• The amount or percentage of the down payment.

• The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment.

• The “annual percentage rate,” using that term.

• For an APR that may be increased after consummation, a statement to that effect.

In most cases, a term that is vague is not a trigger term. For example, the phrase “take years to repay” is not a trig-ger term since it does not state or suggest a specific period of repayment. Specific terms are more likely to be trigger terms. “APR” is not a trigger term in advertise-ments for closed-end credit. That is, you may state the APR without triggering the requirement that other disclosures be included in the advertisement.

Electronic Communication

In late 2007, the Fed issued final rules withdrawing the 2001 interim final rule that had established standards for the electronic delivery of consumer disclo-sures required under Regulation Z (Truth in Lending). The interim rule addressed the timing and delivery of electronic dis-closures, consistent with the requirements of the Electronic Signatures in Global and National Commerce Act (ESIGN). The Fed has now withdrawn these provisions and simplified the regulations with regard to electronic communication.

The rules:

• Eliminate certain portions of the 2001



interim final rules that restate or cross-reference provisions of ESIGN (e.g., the consumer consent provisions). The regu-lations now simply state that the required consumer disclosures may be provided in electronic form, subject to ESIGN.

• Withdraw provisions of the 2001 inter-im final rules that “may impose undue burdens on electronic banking and commerce and may be unnecessary for consumer protection.” For example, the rules no longer mandate any particular means of electronic delivery of disclo-sures, such as sending disclosures via e-mail. The Fed changed these require-ments because of concerns about data security, identity theft, and “phishing” (using fraudulent e-mail requests to obtain consumers’ confidential per-sonal or financial information) that have become more pronounced since 2001. The Fed also eliminated the provisions regarding retention of electronic disclo-sures posted on a website for at least 90 days, since industry practice is to retain the information for much longer than the required retention period; and

• Adopt certain provisions that provide guidance on the use of electronic dis-closures.

Requirements

In accordance with the Electronic Signatures in Global and National Commerce Act (ESIGN) and Regulation Z, any disclosures required by regulation or statute to be in writing can be provided by “electronic communication.”

Definition

“Electronic communication” is defined

as a message transmitted electronically between a creditor and a consumer in a format that allows visual text to be dis-played on equipment such as a personal computer monitor.

Relationship to ESIGN

The Electronic Signatures in Global and National Commerce Act (ESIGN) authorizes the use of electronic dis-closures. It does not affect any of the requirements imposed by Regulation Z other than the requirement that disclo-sures be in paper form. All electronic disclosures are subject to the content, format, timing, and retainability rules as well as the clear and conspicuous stan-dard imposed by Regulation Z.

Clear and conspicuous standardTo satisfy this standard, electronic

disclosures must use visual text in a clear and conspicuous format. The following ESIGN requirements must also be met:

• The credit union must disclose the requirements for accessing and retain-ing disclosures.

• The consumer must demonstrate the ability to access the information elec-tronically and affirmatively consent to receiving disclosures electronically.

• The credit union must provide the dis-closures in accordance with the speci-fied requirements.

Timing and effective delivery online

When credit unions provide closed-end transactions online, members must be required to access the disclosures



required by section 1026.18 — identity of creditor, amount financed, itemization of amount financed, finance charge, and annual percentage rate — before becom-ing obligated. Providing a link to the disclosures satisfies the timing rule if the member cannot bypass the disclosures before becoming obligated. Alternatively, the disclosures must appear automatical-ly on the screen, even if multiple screens are required to view the entire disclosure. Confirmation that the disclosure has been read is not required.

Disclosures that do not have to be segregated and can be combined with the text of another document may appear automatically or be provided by a link that cannot be bypassed.

Timing and delivery of periodic disclosures

Disclosures provided by e-mail are considered timely if they are sent within the required time limits. However, dis-closures that are posted on the credit union’s website (for example, periodic statements or change-in-terms notices) are considered timely when:

1. the disclosures are available (at the website), and

2. a notice has been sent to the member alerting the member that the disclosures, statements, or notices have been posted.

Example: If a credit union posts a change-in-terms notice on their website, members must be alerted of its avail-ability at least 15 days in advance of the planned change.

Retainability of disclosures

Credit unions must provide or deliver electronic disclosures in a format that can be retained either by printing or elec-tronic storage. This format must be con-sistent with the hardware and software requirements for accessing and retaining electronic disclosures given to members as required by ESIGN.

Disclosures provided on credit union equipment

There are times when electronic disclo-sures are provided on equipment owned by the credit union — an automated loan machine at a public kiosk or a computer terminal located in the credit union’s lobby. Under these circumstances, the credit union is responsible for making sure the equipment satisfies the require-ment to provide timely disclosures in a clear and conspicuous format and in a form the member can keep.

Example: ABC credit union provides computer terminals in the lobby that mem-bers and potential members can use to access loan applications through the web site. ABC must do one of the following:

1. provide a printer that automatically prints the required on-screen disclosures,

2. provide the disclosures at another location such as on the credit union’s website.

When consent is requiredUnder ESIGN, credit unions are

required to obtain a member’s affirmative consent before providing transaction-related disclosures electronically. The following disclosures do not require the consumer’s prior consent:



• Section 1026.60 — disclosures for credit card applications and solicitations.

• Section 1026.40 — Requirements for home equity plans.

• Section 1026.16 — advertising disclo-sures for open-end credit.

• Section 1026.17(g)(1)-(5) — disclosures

required when the credit union receives a request for credit by mail or telephone.

• Section 1026.19 (b) — disclosures required for certain variable-rate transactions.

• Section 1026.24 — advertising disclosures for closed-end credit.

NOTE: The credit union is still obligated to provide these disclosure commensurate with its obligation under Regulation Z:

Truth In Lending’s Early Disclosure Requirements:

Credit Card Applications and SolicitationsSection 1026.60 of the Interim Regulation provides that the consumer must be able

to access the required disclosures AT THE TIME THE BLANK APPLICATION OR REPLY FORM IS MADE AVAILABLE TO THE CONSUMER. The Interim Rules provide the fol-lowing options:

(1) The credit union can provide a clear and conspicuous link to the required disclo-sures. However, if a link is used, the credit union must utilize a system that will not allow the consumer to bypass the disclosures before submitting the application (similar to the requirements of the ESIGN Act disclosure requirements).

(2) The credit union may use a system that causes the disclosures to automatically appear on the screen when the application or reply form appears (e.g., a “pop-up box”).

(3) If a link or pop-up box is not used, then the disclosures must appear on the applica-tion or reply form. As applicable, the form must contain a clear and conspicuous reference to the fact that the rate, fee, and other cost information wither precedes or follows the application or reply form.

NOTE: The credit union is not obligated to confirm that the consumer has read the disclo-sures. However, a well-crafted application or other applicable form will contain language stating that the consumer has in fact read and reviewed such information.

Accuracy of the APR with Regard to Credit Card Applications and SolicitationsUnlike paper applications and solicitations, electronic methods must meet the

following accuracy requirements:

(1) If e-mailed to the consumer, the APR must be accurate within 30 days from the date sent.

(2) If made available on the credit union’s Web site or otherwise electronically, the APR must be accurate within 30 days of the date that the rate appears.

Address or location to receive electronic communication

Credit unions may provide electronic disclosures by:

• sending them to a member’s electronic address — an e-mail address that is not limited to receiving communications solely from the credit union, or



• making the disclosures available at another location such as the credit union’s website and sending a notice to the member’s e-mail address or postal address regarding the online availability of those disclosures.

Credit unions do not need to comply with the rules for disclosures posted on an Internet website when those dis-closures are required by the following sections: 1026.40, 1026.40(d) and 1026.40(e), 1026.16, 1026.17(g)(1) through (5), 1026.19(b) and 1026.24. See the discussion in the “When consent is required” section above.

Redelivery

When an electronic disclosure is returned as undeliverable, credit unions are required to take “reasonable steps” to attempt redelivery using information on file. Sending the disclosure or notice to a different e-mail address or mail-ing address the credit union has on file for the member satisfies this redeliv-ery requirement. However, sending the disclosure or notice to the same e-mail address a second time is not sufficient if a different address is available.

Electronic Signatures

An electronic signature as defined under ESIGN satisfies any requirement under Regulation Z for a member’s signa-ture or initials.

This does not infer a need for signa-tures unless otherwise stated herein. This reference is merely to note what the use of signatures (generally as to contractual provisions) is sufficient. However, the credit union should always consult with local counsel as to whether state laws may impose further requirements.



Truth In Lending and Regulation Z

Quiz/Study Guide

1. If you discover an unintentional error in complying with Reg Z requirements, what corrective action must you take?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

2. Reg Z defines “finance charge” as the cost of consumer credit in a dollar amount. The regulation provides a list of the types of charges that must be considered as components of the finance charge. Name four of those charges.

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

3. Reg Z provides specific accuracy requirements for APRs in both open- and closed-end credit. What are those requirements?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

4. The special rules for credit cards allow the member to withhold payment of up to the full amount of the transaction plus any finance charge imposed on that amount when there is an unresolved dispute between the member and a merchant. What three conditions must be met before this rule can apply?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________



5. When a member notifies the credit union, in writing, of a billing error on an open-end credit plan, what are the three steps the credit union must take per Reg Z?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

6. Regulation Z requires credit unions to promptly credit payments made on open-end credit accounts. What are two of the four rules governing this?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

7. If a member reasserts a billing error claim after the initial investigation has been completed, what is the credit union’s duty?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

8. There are three general disclosure requirements for open-end credit disclosures. One is that the disclosures be made in a clear and conspicuous manner. What are the other two?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

9. Reg Z requires credit unions to provide periodic statements to members with open-end credit for each billing cycle that a finance charge is imposed or there is a debit or credit balance of $1.00. These statements must be provided at least quarterly. Name four of the required items for this statement.

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________



10. When you change an account term or condition that is required to be disclosed under Reg Z or increase a minimum payment requirement and that change is not one of the exceptions provided in the regulation, what is the notification requirement for the change?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

11. Credit unions are required to provide members an initial billing rights statement when they establish their account as well as an annual billing rights disclosure. What is the alternative to this annual mailing provided in Reg Z?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

12. Does disclosing the APR in an advertisement act as a trigger term for both open- and closed-end credit?

p Yes p No

13. In order to be considered “prominently located,” where must Schumer box disclosures appear?

_____________________________________________________________________

_____________________________________________________________________

14. Where must the APR for cash advances and balance transfers appear?

_____________________________________________________________________

_____________________________________________________________________

15. A special interest rate disclosure rule applies to variable-rate loans. What is that rule?

_____________________________________________________________________

_____________________________________________________________________



16. What does the term “cross-collateralization” mean?

_____________________________________________________________________

_____________________________________________________________________

17. Certain terms, if mentioned or described in an advertisement by themselves, might mislead members as to the “deal” your credit union is offering. These are known as “trigger terms.” If an advertisement for closed-end credit contains one of these trigger terms, what are two of the four additional disclosures required for that advertisement?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

18. When providing disclosures electronically, credit unions are required to use visual text in a clear and conspicuous format. List the three other requirements for electronic disclosures.

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

19. What are the retainability requirements for electronic disclosures?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________



Truth In Lending and Regulation Z

Answer Key

1. You must: 1) notify the affected members and 2) make appropriate adjustments within 60 days after discovering the error and before any legal action has begun or any member gives written notice of the error. (Page 1-7)

2. Those charges include: 1) interest, time/price differentials, and amounts payable under an add-on or discount system of additional charges; 2) service fees, transaction fees, activity charges, and carrying charges; 3) points, loan fees, assumption fees, finder’s fees, and similar charges; 4) appraisal fees, investigation fees, and credit report fees; 5) premiums or other charges for any guarantee or insurance that protects your credit union against a members default or other credit loss; 6) charges that your credit union pays to another person for purchasing or accepting a loan, if the member is obligated to pay the charges either in cash, as an additional amount on the obligation, or as a deduction from the loan proceeds; 7) premiums or other charges for credit life, health, accident, or loss of income insurance obtained in connection with a credit transaction; 8) premiums or other charges for loss of or damage to property, or against liability that arises out of the ownership or use of property. (Page 1-11 to 1-12)

3. For both open- and closed-end credit the APR must be within 1/8 of a percentage point above or below the determined APR. However, for irregular transactions on closed-end credit, the percentage can be 1/4 of a percentage point above or below. (Pages 1-17 and 1-73)

4. This rule applies when: 1) the member has made a good-faith attempt to resolve the dispute; 2) the amount involved is greater than $50; and 3) the transaction occurs in the member’s state or within 100 miles of the member’s current address. (Page 1-19)

5. The credit union must: 1) send the member a written acknowledgment of receipt of the claim with 30 days; 2) resolve the claim within the allowable time frame; and 3) avoid certain actions (such as trying to collect the amount, imposing a finance charge on the amount, report it to a credit-reporting agency, or restrict or close the account). (Page 1-22)

6. Prompt crediting of payment rules: 1) credit as of day of receipt; 2) provide payment specifications on or with the periodic statement; 3) adjust for failure to credit the payment timely; and 4) handle credit balances as required. (Page 1-23 to 1-24)



7. The credit union is not obligated to reinvestigate the claim. However, if the account has been reported to a credit reporting agency, the credit union must: 1) inform the agency the amount is in dispute; 2) provide the member with the name and address of the agencies notified; and 3) promptly report any resolutions to those agencies. (Page 1-23)

8. They must be: 1) in writing and 2) in a form the member may keep. (Page 1-24)

9. Required information for periodic statements (as applicable): (1) previous balance; (2) identification of transactions; (3) credits to the account; (4) periodic rates; (5) balance for computing finance charge; (6) finance charge; (7) annual percentage rate; (8) other charges; (9) closing date; (10) new balance; (11) grace period; (12) address for billing error notice; and (13) liability notice for credit card plans. (Page 1-29 to 1-30)

10. You must mail or deliver written notice of the change at least 45 days before its effective date. (Page 1-34)

11. Credit unions can include a shortened form of the billing rights notice on or with each periodic statement mailed or delivered to the member. The regulation provides a sample statement as Appendix G. (Page 1-56)

12. No, disclosing the APR in an advertisement is only considered a trigger term for open-end loans. (Page 1-58 to 1-59)

13. The disclosures must be provided on or with the solicitation or application. (Page 1-60)

14. In the Schumer box or table. (Page 1-60)

15. The credit union must disclose the maximum interest rate that can be charged during the term of the loan. (Page 1-76)

16. Sometimes credit unions will use property they already have a security interest in as collateral for another loan. In order to extend this security interest, the first loan must contain an agreement to do this even if it does not apply to that loan at that time. (Page 1-74)

17. The advertisement must also include: 1) the amount or percentage of the down payment; 2) the terms of repayment; 3) the “annual percentage rate” using that term; and 4) if applicable, a statement that the APR will increase during the life of the loan. (Page 1-78)



18. The credit union must disclose the requirements for accessing and retaining disclosures, the consumer must demonstrate the ability to access the information and affirmatively consent to receive it electronically, and disclosures must meet the disclosure requirements of the regulations. (Page 1-79)

19. Must be in a format the member can retain either by printing or storing electronically. (Page 1-80)

Documents

SECTION 1 – TRUTH IN LENDING ACT AND REGULATION Ztraining.cuna.org/self_study/regtrac/member_regtrac/download/M3... · ... TRUTH IN LENDING ACT AND ... • The Fair Credit Reporting