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6500 - Consumer Protection
§ 226.9 Subsequent disclosure requirements.
(a) Furnishing statement of billing rights.
(1) Annual statement. The creditor shall mail or deliver
the billing rights statement required by
§ 226.6(d) at least once per
calendar year, at intervals of not less than 6 months nor more than 18
months, either to all consumers or to each consumer entitled to receive
a periodic statement under
§ 226.5(b)(2) for any one
billing cycle.
(2) Alternative summary statement. As an alternative
to paragraph (a)(1) of this section, the creditor may mail or deliver,
on or with each periodic statement, a statement substantially similar
to that in Appendix G.
(b) Disclosures for supplemental credit devices and
additional features. (1) If a creditor, within 30 days after
mailing or delivering the initial disclosures under § 226.6(a), adds
a credit feature to the consumer's account or mails or delivers to the
consumer a credit device for which the finance charge terms are the
same as those previously disclosed, no additional disclosures are
necessary. After 30 days, if the creditor adds a credit feature or
furnishes a credit device (other than as a renewal, resupply, or the
original issuance of a credit card) on the same finance charge terms,
the creditor shall disclose, before the consumer uses the feature or
device for the first time, that it is for use in obtaining credit under
the terms previously disclosed.
(2) Whenever a credit feature is added or a credit device is
mailed or delivered, and the finance charge terms for the feature or
device differ from disclosures previously given, the disclosures
required by § 226.6(a) that are applicable to the added feature or
device shall be given before the consumer uses the feature or device
for the first time.
(c) Change in terms. (1) Written notice
required. Whenever any term required to be disclosed under
§ 226.6 is changed or the required minimum periodic payment is
increased, the creditor shall mail or deliver written notice of the
change to each consumer who may
{{6-30-06 p.6652.06-A}}be affected. The notice shall be mailed
or delivered at least 15 days prior to the effective date of the
change. The 15-day timing requirement does not apply if the change has
been agreed to by the consumer, or if a periodic rate or other finance
charge is increased because of the consumer's delinquency or default;
the notice shall be given, however, before the effective date of the
change.
(2) Notice not required. No notice under this section
is required when the change involves late payment charges, charges for
documentary evidence, or over-the-limit charges; a reduction of any
component of a finance or other charge; suspension of future credit
privileges or termination of an account or plan; or when the change
results from an agreement involving a court proceeding, or from the
consumer's default or delinquency (other than an increase in the
periodic rate or other finance charge).
(3) Notice for home equity plans. If a creditor
prohibits additional extensions of credit or reduces the credit limit
applicable to a home equity plan pursuant to
§ 226.5b(f)(3)(i) or
§ 226.5b(f)(3)(vi), the creditor shall mail or deliver written notice
of the action to each consumer who will be affected. The notice must be
provided not later than three business days after the action is taken
and shall contain specific reasons for the action. If the creditor
requires the consumer to request reinstatement of credit privileges,
the notice also shall state that fact.
{{8-17-92 p.6652.07}}
(d) Finance charge imposed at time of
transaction. (1) Any person, other than the card issuer, who
imposes a finance charge at the time of honoring a consumer's credit
card, shall disclose the amount of that finance charge prior to its
imposition.
(2) The card issuer, if other than the person honoring the
consumer's credit card, shall have no responsibility for the disclosure
required by paragraph (d)(1) of this section, and shall not consider
any such charge for purposes of
§§ 226.5a,
226.6 and
226.7.
(e) Disclosures upon renewal of credit or charge
card. (1) Notice prior to renewal. Except as
provided in paragraph (e)(2) of this section, a card issuer that
imposes any annual or other periodic fee to renew a credit or charge
card account subject to § 226.5a, including any fee based on account
activity or inactivity, shall mail or deliver written notice of the
renewal to the cardholder. The notice shall be provided at least 30
days or one billing cycle, whichever is less, before the mailing or the
delivery of the periodic statement on which the renewal fee is
initially charged to the account. The notice shall contain the
following information:
(i) The disclosures contained in § 226.5a(b)(1) through (7)
that would apply if the account were
renewed; 20a
and
(ii) How and when the cardholder may terminate credit
availability under the account to avoid paying the renewal fee.
(2) Delayed notice. The disclosures required by
paragraph (e)(1) of this section may be provided later than the time in
paragraph (e)(1) of this section, but no later than the mailing or the
delivery of the periodic statement on which the renewal fee is
initially charged to the account, if the card issuer also discloses at
that time that:
(i) The cardholder has 30 days from the time the periodic
statement is mailed or delivered to avoid paying the fee or to have the
fee recredited if the cardholder terminates credit availability under
the account; and
(ii) The cardholder may use the card during the interim period
without having to pay the fee.
(3) Notification on periodic statements. The
disclosures required by this paragraph may be made on or with a
periodic statement. If any of the disclosures are provided on the back
of a periodic statement, the card issuer shall include a reference to
those disclosures on the front of the statement.
(f) Change in credit card account insurance provided--(1)
Notice prior to change. If a credit card issuer plans to change
the provider of insurance for repayment of all or part of the
outstanding balance of an open-end credit card account subject to
§ 226.5a, the card issuer shall mail or deliver the cardholder
written notice of the change not less than 30 days before the change in
providers occurs. The notice shall also include the following items, to
the extent applicable:
(i) Any increase in the rate that will result from the change;
(ii) Any substantial decrease in coverage that will result from
the change; and
(iii) A statement that the cardholder may discontinue the
insurance.
(2) Notice when change in provider occurs. If a
change described in paragraph (f)(1) of this section occurs, the card
issuer shall provide the cardholder with a written notice no later than
30 days after the change, including the following items, to the extent
applicable:
(i) The name and address of the new insurance provider;
(ii) A copy of the new policy or group certificate containing the
basic terms of the insurance, including the rate to be charged; and
(iii) A statement that the cardholder may discontinue the
insurance.
(3) Substantial decrease in coverage. For purposes
of this paragraph, a substantial decrease in coverage is a decrease in
a significant term of coverage that might reasonably be expected to
affect the cardholder's decision to continue the insurance. Significant
terms of coverage include, for example, the following:
(i) Type of coverage provided;
(ii) Age at which coverage terminates or becomes more
restrictive;
{{8-17-92 p.6652.08}}
(iii) Maximum insurable loan balance, maximum periodic benefit
payment, maximum number of payments, or other term affecting the dollar
amount of coverage or benefits provided;
(iv) Eligibility requirements and number and identity of persons
covered;
(v) Definition of a key term of coverage such as disability;
(vi) Exclusions from or limitations on coverage; and
(vii) Waiting periods and whether coverage is retroactive.
(4) Combined notification. The notices required by
paragraph (f)(1) and (2) of this section may be combined provided the
timing requirement of paragraph (f)(1) of this section is met. The
notices may be provided on or with a periodic statement.
[Codified to 12 C.F.R. § 226.9]
[Section 226.9 amended at 46 Fed. Reg. 29246, June 1, 1981; 54 Fed.
Reg. 13867, April 6, 1989, effective April 3, 1989, but compliance is
optional until August 31, 1989; 54 Fed. Reg. 24688, June 9, 1989,
effective June 7, 1989, but compliance is optional until November 7,
1989; 55 Fed. Reg. 38312, September 18, 1990, effective September 18,
1990, but compliance is optional until October 1,
1991]
§ 226.10 Prompt crediting of payments.
(a) General rule. A creditor shall credit a payment to
the consumer's account as of the date of receipt, except when a delay
in crediting does not result in a finance or other charge or except as
provided in paragraph (b) of this section.
(b) Specific requirements for payments. If a creditor
specifies, on or with the periodic statement, requirements for the
consumer to follow in making payments, but accepts a payment that does
not conform to the requirements, the creditor shall credit the payment
within 5 days of receipt.
(c) Adjustment of account. If a creditor fails to
credit a payment, as required by paragraphs (a) and (b) of this
section, in time to avoid the imposition of finance or other charges,
the creditor shall adjust the consumer's account so that the charges
imposed are credited to the consumer's account during the next billing
cycle.
[Codified to 12 C.F.R.
§ 226.10]
§ 226.11 Treatment of credit balances.
When a credit balance in excess of $1 is created on a credit account
(through transmittal of funds to a creditor in excess of the total
balance due on an account, through rebates of unearned finance charges
or insurance premiums, or through amounts otherwise owed to or held for
the benefit of a consumer), the creditor shall:
(a) Credit the amount of the credit balance to the consumer's
account;
(b) Refund any part of the remaining credit balance within 7
business days from receipt of a written request from the consumer; and
(c) Make a good faith effort to refund to the consumer by cash,
check, or money order, or credit to a deposit account of the consumer,
any part of the credit balance remaining in the account for more than 6
months. No further action is required if the consumer's current
location is not known to the creditor and cannot be traced through the
consumer's last known address or telephone number.
[Codified to 12 C.F.R.
§ 226.11]
§ 226.12 Special credit card provisions.
(a) Issuance of credit cards. Regardless of the purpose
for which a credit card is to be used, including business, commercial,
or agricultural use, no credit card shall be issued to any person
except:
(1) In response to an oral or written request or application for
the card; or
{{8-17-92 p.6652.09}}
(2) As a renewal of, or substitute for, an accepted credit
card. 21
(b) Liability of cardholder for unauthorized
use. (1) Limitation on amount. The liability of a
cardholder for unauthorized use 22
of a credit card shall not exceed the lesser of $50 or the amount of
money, property, labor, or services obtained by the unauthorized use
before notification to the card issuer under paragraph (b)(3) of this
section.
(2) Conditions of liability. A cardholder shall be
liable for unauthorized use of a credit card only if:
(i) The credit card is an accepted credit card;
(ii) The card issuer has provided adequate
notice 23
of the cardholder's maximum potential liability and of means by which
the card issuer may be notified of loss or theft of the card. The
notice shall state that the cardholder's liability shall not exceed $50
(or any lesser amount) and that the cardholder may give oral or written
notification, and shall describe a means of notification (for example;
a telephone number, an address, or both); and
(iii) The card issuer has provided a means to identify the
cardholder on the account or the authorized user of the card.
(3) Notification to card issuer. Notification to a
card issuer is given when steps have been taken as may be reasonably
required in the ordinary course of business to provide the card issuer
with the pertinent information about the loss, theft, or possible
unauthorized use of a credit card, regardless of whether any particular
officer, employee, or agent of the card issuer does, in fact, receive
the information. Notification may be given, at the option of the person
giving it, in person, by telephone, or in writing. Notification in
writing is considered given at the time of receipt or, whether or not
received, at the expiration of the time ordinarily required for
transmission, whichever is earlier.
(4) Effect of other applicable law or agreement. If
state law or an agreement between a cardholder and the card issuer
imposes lesser liability than that provided in this paragraph, the
lesser liability shall govern.
(5) Business use of credit cards. If 10 or more
credit cards are issued by one card issuer for use by the employees of
an organization, this section does not prohibit the card issuer and the
organization from agreeing to liability for unauthorized use without
regard to this section. However, liability for unauthorized use may be
imposed on an employee
{{4-28-00 p.6653}}of the organization, by either the card
issuer or the organization, only in accordance with this section.
(c) Right of cardholder to assert claims or defenses
against card issuer. 24
(1) General rule. When a person who honors a
credit card fails to resolve satisfactorily a dispute as to property or
services purchased with the credit card in a consumer credit
transaction, the cardholder may assert against the card issuer all
claims (other than tort claims) and defenses arising out of the
transaction and relating to the failure to resolve the dispute. The
cardholder may withhold payment up to the amount of credit outstanding
for the property or services that gave rise to the dispute and any
finance or other charges imposed on that
amount. 25
(2) Adverse credit reports prohibited. If, in
accordance with paragraph (c)(1) of this section, the cardholder
withholds payment of the amount of credit outstanding for the disputed
transaction, the card issuer shall not report that amount as delinquent
until the dispute is settled or judgment is rendered.
(3) Limitations. The rights stated in paragraphs
(c)(1) and (2) of this section apply only if:
(i) The cardholder has made a good faith attempt to resolve the
dispute with the person honoring the credit card; and
(ii) The amount of credit extended to obtain the property or
services that result in the assertion of the claim or defense by the
cardholder exceeds $50, and the disputed transaction occurred in the
same state as the cardholder's current designated address or, if not
within the same state, within 100 miles from that
address. 26
(d) Offsets by card issuer prohibited. (1) A card
issuer may not take any action, either before or after termination of
credit card privileges, to offset a cardholder's indebtedness arising
from a consumer credit transaction under the relevant credit card plan
against funds of the cardholder held on deposit with the card issuer.
(2) This paragraph does not alter or affect the right of a card
issuer acting under state or federal law to do any of the following
with regard to funds of a cardholder held on deposit with the card
issuer if the same procedure is constitutionally available to creditors
generally: obtain or enforce a consensual security interest in the
funds; attach or otherwise levy upon the funds; or obtain or enforce a
court order relating to the funds.
(3) This paragraph does not prohibit a plan, if authorized in
writing by the cardholder, under which the card issuer may periodically
deduct all or part of the cardholder's credit card debt from a deposit
account held with the card issuer (subject to the limitations in
§ 226.13(d)(1)).
(e) Prompt notification of returns and crediting of
refunds. (1) When a creditor other than the card issuer
accepts the return of property or forgives a debt for services that
is to be reflected as a credit to the consumer's credit card account,
that creditor shall, within 7 business days from accepting the return
or forgiving the debt, transmit a credit statement to the card issuer
through the card issuer's normal channels for credit statements.
(2) The card issuer shall, within 3 business days from receipt of
a credit statement, credit the consumer's account with the amount of
the refund.
{{4-28-00 p.6654}}
(3) If a creditor other than a card issuer routinely gives cash
refunds to consumers paying in cash, the creditor shall also give
credit or cash refunds to consumers using credit cards, unless it
discloses at the time the transaction is consummated that credit or
cash refunds for returns are not given. This section does not require
refunds for returns nor does it prohibit refunds in kind.
(f) Discounts; tie-in arrangements. No card issuer may,
by contract or otherwise:
(1) Prohibit any person who honors a credit card from offering a
discount to a consumer to induce the consumer to pay by cash, check, or
similar means rather than by use of a credit card or its underlying
account for the purchase of property or services; or
(2) Require any person who honors the card issuer's credit card
to open or maintain any account or obtain any other service not
essential to the operation of the credit card plan from the card issuer
or any other person, as a condition of participation in a credit card
plan. If maintenance of an account for clearing purposes is determined
to be essential to the operation of the credit card plan, it may be
required only if no service charges or minimum balance requirements are
imposed.
(g) Relation to Electronic Fund Transfer Act and Regulation
E. For guidance on whether Regulation Z (12 CFR part 226) or
Regulation E (12 CFR part 205) applies in instances involving both
credit and electronic fund transfer aspects, refer to Regulation E,
12 CFR 205.12(a) regarding
issuance and liability for unauthorized use. On matters other than
issuance and liability, this section applies to the credit aspects of
combined credit/ electronic fund transfer transactions, as
applicable.
[Codified to 12 C.F.R. § 226.12]
[Section 226.12 amended at 65 Fed. Reg. 17131, March 31, 2000,
effective March 24, 2000, but compliance optional until October 1,
2000]
§ 226.13 Billing error
resolution. 27
(a) Definition of billing error. For purposes of this
section, the term "billing error" means:
(1) A reflection on or with a periodic statement of an extension
of credit that is not made to the consumer or to a person who has
actual, implied, or apparent authority to use the consumer's credit
card or open-end credit plan.
(2) A reflection on or with a periodic statement of an extension
of credit that is not identified in accordance with the requirement of
§§ 226.7(b) and
226.8.
(3) A reflection on or with a periodic statement of an extension
of credit for property or services not accepted by the consumer or the
consumer's designee, or not delivered to the consumer or the consumer's
designee as agreed.
(4) A reflection on a periodic statement of the creditor's
failure to credit properly a payment or other credit issued to the
consumer's account.
(5) A reflection on a periodic statement of a computational or
similar error of an accounting nature that is made by the creditor.
(6) A reflection on a periodic statement of an extension of
credit for which the consumer requests additional clarification,
including documentary evidence.
(7) The creditor's failure to mail or deliver a periodic
statement to the consumer's last known address if that address was
received by the creditor, in writing, at least 20 days before the end
of the billing cycle for which the statement was required.
(b) Billing error
notice. 28
A billing error notice is a written
notice 29
from a consumer
{{4-29-83 p.6655}}that:
(1) Is received by a creditor at the address disclosed under
§ 226.7(k) no later than 60
days after the creditor transmitted the first periodic statement that
reflects the alleged billing error;
(2) Enables the creditor to identify the consumer's name and
account number; and
(3) To the extent possible, indicates the consumer's belief and
the reasons for the belief that a billing error exists, and the type,
date, and amount of the error.
(c) Time for resolution; general procedures. (1) The
creditor shall mail or deliver written acknowledgment to the consumer
within 30 days of receiving a billing error notice, unless the creditor
has complied with the appropriate resolution procedures of paragraphs
(e) and (f) of this section, as applicable, within the 30-day period;
and
(2) The creditor shall comply with the appropriate resolution
procedures of paragraphs (e) and (f) of this section, as applicable,
within two complete billing cycles (but in no event later than 90 days)
after receiving a billing error notice.
(d) Rules pending resolution. Until a billing error is
resolved under paragraphs (e) or (f) of this section, the following
rules apply:
(1) Consumer's right to withhold disputed amount;
collection action prohibited. The consumer need not pay (and the
creditor may not try to collect) any portion of any required payment
that the consumer believes is related to the disputed amount (including
related finance or other charges). 30
If the cardholder maintains a deposit account with the card issuer and
has agreed to pay the credit card indebtedness by periodic deductions
from the cardholder's deposit account, the card issuer shall not deduct
any part of the disputed amount or related finance or other charges if
a billing error notice is received any time up to three business days
before the scheduled payment date.
(2) Adverse credit reports prohibited. The creditor
or its agent shall not (directly or indirectly) make or threaten to
make an adverse report to any person about the consumer's credit
standing, or report that an amount or account is delinquent, because
the consumer failed to pay the disputed amount or related finance or
other charges.
(e) Procedures if billing error occurred as
asserted. If a creditor determines that a billing error occurred
as asserted, it shall within the time limits in paragraph (c)(2) of
this section:
(1) Correct the billing error and credit the consumer's account
with any disputed amount and related finance or other charges, as
applicable; and
(2) Mail or deliver a correction notice to the consumer.
(f) Procedures if different billing error or no billing error
occurred. If, after conducting a reasonable
investigation, 31
a creditor determines that no billing error occurred or that a
different billing error occurred from that asserted, the creditor shall
within the time limits in paragraph (c)(2) of this section:
(1) Mail or deliver to the consumer an explanation that
sets forth the reasons for the creditor's belief that the billing error
alleged by the consumer is incorrect in whole or in part;
{{4-29-83 p.6656}}
(2) Furnish copies of documentary evidence of the consumer's
indebtedness, if the consumer so requests; and
(3) If a different billing error occurred, correct the billing
error and credit the consumer's account with any disputed amount and
related finance or other charges, as applicable.
(g) Creditor's rights and duties after resolution. If a
creditor, after complying with all of the requirements of this section,
determines that a consumer owes all or part of the disputed amount and
related finance or other charges, the creditor:
(1) Shall promptly notify the consumer in writing of the time
when payment is due and the portion of the disputed amount and related
finance or other charges that the consumer still owes;
(2) Shall allow any time period disclosed under
§§ 226.6(a)(1) and
226.7(j), during which the
consumer can pay the amount due under paragraph (g)(1) of this section
without incurring additional finance or other charges;
(3) May report an account or amount as delinquent because the
amount due under paragraph (g)(1) of this section remains unpaid after
the creditor has allowed any time period disclosed under
§§ 226.6(a)(1) and 266.7(j) or 10 days (whichever is longer) during
which the consumer can pay the amount; but
(4) May not report that an amount or account is delinquent
because the amount due under paragraph (g)(1) of the section remains
unpaid, if the creditor receives (within the time allowed for payment
in paragraph (g)(3) of this section) further written notice from the
consumer that any portion of the billing error is still in dispute,
unless the creditor also:
(i) Promptly reports that the amount or account is in dispute;
(ii) Mails or delivers to the consumer (at the same time the
report is made) a written notice of the name and address of each person
to whom the creditor makes a report; and
(iii) Promptly reports any subsequent resolution of the reported
delinquency to all persons to whom the creditor has made a report.
(h) Reassertion of billing error. A creditor that has
fully complied with the requirements of this section has no further
responsibilities under this section (other than as provided in
paragraph (g)(4) of this section) if a consumer reasserts substantially
the same billing error.
(i) Relation to Electronic Fund Transfer Act and Regulation
E. If an extension of credit is incident to an electronic fund
transfer, under an agreement between a consumer and a financial
institution to extend credit when the consumer's account is overdrawn
or to maintain a specified minimum balance in the consumer's account,
the creditor shall comply with the requirements of Regulation E,
12 CFR 205.11 governing error
resolution rather than those of paragraphs (a), (b), (c), (e), (f), and
(h) of this section.
[Codified to 12 C.F.R.
§ 226.13]
§ 226.14 Determination of annual percentage rate.
(a) General rule. The annual percentage rate is a
measure of the cost of credit, expressed as a yearly rate. An annual
percentage rate shall be considered accurate if it is not more than 1;8
of 1 percentage point above or below the annual percentage rate
determined in accordance with this
section. 31a
{{12-31-07 p.6657}}
(b) Annual percentage rate for sections
226.5a and
226.5b disclosures, for
initial disclosures and for advertising purposes. Where one or
more periodic rates may be used to compute the finance charge, the
annual percentage rate(s) to be disclosed for purposes of §§ 226.5a,
226.5b, 226.6, and
226.16 shall be computed by
multiplying each periodic rate by the number of periods in a year.
(c) Annual percentage rate for periodic statements. The
annual percentage rate(s) to be disclosed for purposes of
§ 226.7(d) shall be computed
by multiplying each periodic rate by the number of periods in a year
and, for purposes of § 226.7(g), shall be determined as follows:
(1) If the finance charge is determined solely by applying one or
more periodic rates, at the creditor's option, either:
(i) By multiplying each periodic rate by the number of periods in
a year; or
(ii) By dividing the total finance charge for the billing cycle
by the sum of the balances to which the periodic rates were applied and
multiplying the quotient (expressed as a percentage) by the number of
billing cycles in a year.
(2) If the finance charge imposed during the billing cycle is or
includes a minimum, fixed, or other charge not due to the application
of a periodic rate, other than a charge with respect to any specific
transaction during the billing cycle, by dividing the total finance
charge for the billing cycle by the amount of the balance(s) to which
it is applicable 32
and multiplying the quotient (expressed as a percentage) by the number
of billing cycles in a year. 33
(3) If the finance charge imposed during the billing cycle is or
includes a charge relating to a specific transaction during the billing
cycle (even if the total finance charge also includes any other
minimum, fixed, or other charge not due to the application of a
periodic rate), by dividing the total finance charge imposed during the
billing cycle by the total of all balances and other amounts on which a
finance charge was imposed during the billing cycle without
duplication, and multiplying the quotient (expressed as a percentage)
by the number of billing cycles in a
year, 34
except that the annual percentage rate shall not be less than the
largest rate determined by multiplying each periodic rate imposed
during the billing cycle by the number of periods in a
year. 35
(4) If the finance charge imposed during the billing cycle is or
includes a minimum, fixed, or other charge not due to the application
of a periodic rate and the total finance charge imposed during the
billing cycle does not exceed 50 cents for a monthly or longer billing
cycle, or the pro rata part of 50 cents for a billing cycle shorter
than monthly, at the creditor's option, by multiplying each applicable
periodic rate by the number of periods in a year, notwithstanding the
provisions of paragraphs (c)(2) and (3) of this section.
(d) Calculations where daily periodic rate applied. If
the provisions of paragraphs (c)(1)(ii) or (2) of this section apply
and all or a portion of the finance charge is determined by the
application of one or more daily periodic rates, the annual percentage
rate may be determined either:
(1) By dividing the total finance charge by the average of the
daily balances and multiplying the quotient by the number of billing
cycles in a year; or
(2) By dividing the total finance charge by the sum of the daily
balances and multiplying the quotient by 365.
[Codified to 12 C.F.R. § 226.14]
[Section 226.14 amended at 47 Fed. Reg. 756, January 7,
1982, effective December 31, 1981; 48 Fed. Reg. 14886, April 6, 1983,
effective October 1, 1982; 54 Fed. Reg. 13867,
{{12-31-07 p.6658}}April 6, 1989, effective April 3, 1989,
but compliance is optional until August 31, 1989; 54 Fed. Reg. 24688,
June 9, 1989, effective June 7, 1989, but compliance is optional until
November 7, 1989]
§ 226.15 Right of rescission.
(a) Consumer's right to rescind. (1)(i) Except as
provided in paragraph (a)(1)(ii) of this section, in a credit plan in
which a security interest is or will be retained or acquired in a
consumer's principal dwelling, each consumer whose ownership interest
is or will be subject to the security interest shall have the right to
rescind: each credit extension made under the plan; the plan when the
plan is opened; a security interest when added or increased to secure
an existing plan; and the increase when a credit limit on the plan is
increased.
(ii) As provided in
§ 125(e) of the act, the
consumer does not have the right to rescind each credit extension made
under the plan if such extension is made in accordance with a
previously established credit limit for the plan.
(2) To exercise the right to rescind, the consumer shall notify
the creditor of the rescission by mail, telegram, or other means of
written communication. Notice is considered given when mailed, or when
filed for telegraphic transmission, or, if sent by other means, when
delivered to the creditor's designated place of business.
(3) The consumer may exercise the right to rescind until midnight
of the third business day following the occurrence described in
paragraph (a)(1) of this section that gave rise to the right of
rescission, delivery of the notice required by paragraph (b) of this
section, or delivery of all material
disclosures, 36
whichever occurs last. If the required notice and material disclosures
are not delivered, the right to rescind shall expire three years after
the occurrence giving rise to the right of rescission, or upon transfer
of all of the consumer's interest in the property, or upon sale of the
property, whichever occurs first. In the case of certain administrative
proceedings, the rescission period shall be extended in accordance with
§ 125(f) of the act.
(4) When more than one consumer has the right to rescind, the
exercise of the right by one consumer shall be effective as to all
consumers.
(b) Notice of right to rescind. In any transaction or
occurrence subject to rescission, a creditor shall deliver two copies
of the notice of the right to rescind to each consumer entitled to
rescind (one copy to each if the notice is delivered in electronic form
in accordance with the consumer consent and other applicable provisions
of the E-Sign Act). The notice shall identify the transaction or
occurrence and clearly and conspicuously disclose the following:
(1) The retention or acquisition of a security interest in the
consumer's principal dwelling.
(2) The consumer's right to rescind, as described in paragraph
(a)(1) of this section.
(3) How to exercise the right to rescind, with a form for that
purpose, designating the address of the creditor's place of business.
(4) The effects of rescission, as described in paragraph (d) of
this section.
(5) The date the rescission period expires.
(c) Delay of creditor's performance. Unless a consumer
waives the right to rescind under paragraph (e) of this section, no
money shall be disbursed other than in escrow, no services shall be
performed, and no materials delivered until after the rescission period
has expired and the creditor is reasonably satisfied that the consumer
has not rescinded. A creditor does not violate this section if a third
party with no knowledge of the event activating the rescission right
does not delay in providing materials or services, as long as the debt
incurred for those materials or services is not secured by the property
subject to rescission.
{{8-29-08 p.6659}}
(d) Effects of rescission. (1) When a consumer
rescinds a transaction, the security interest giving rise to the right
of rescission becomes void, and the consumer shall not be liable for
any amount, including any finance charge.
(2) Within 20 calendar days after receipt of a notice of
rescission, the creditor shall return any money or property that has
been given to anyone in connection with the transaction and shall take
any action necessary to reflect the termination of the security
interest.
(3) If the creditor has delivered any money or property, the
consumer may retain possession until the creditor has met its
obligation under paragraph (d)(2) of this section. When the creditor
has complied with that paragraph, the consumer shall tender the money
or property to the creditor or, where the latter would be impracticable
or inequitable, tender its reasonable value. At the consumer's option,
tender of property may be made at the location of the property or at
the consumer's residence. Tender of money must be made at the
creditor's designated place of business. If the creditor does not take
possession of the money or property within 20 calendar days after the
consumer's tender, the consumer may keep it without further obligation.
(4) The procedures outlined in paragraphs (d)(2) and (3) of this
section may be modified by court order.
(e) Consumer's waiver of right to rescind. (1) The
consumer may modify or waive the right to rescind if the consumer
determines that the extension of credit is needed to meet a bona fide
personal financial emergency. To modify or waive the right, the
consumer shall give the creditor a dated written statement that
describes the emergency, specifically modifies or waives the right to
rescind, and bears the signature of all the consumers entitled to
rescind. Printed forms for this purpose are prohibited, except as
provided in paragraph (e)(2) of this section.
(2) The need of the consumer to obtain funds immediately shall be
regarded as a bona fide personal financial emergency provided that the
dwelling securing the extension of credit is located in an area
declared during June through September 1993, pursuant to 42 U.S.C.
5170, to be a major disaster area because of severe storms and flooding
in the Midwest. 36a
In this instance, creditors may use printed forms for the consumer to
waive the right to rescind. This exemption to paragraph (e)(1) of this
section shall expire one year from the date an area was declared a
major disaster.
(3) The consumer's need to obtain funds immediately shall be
regarded as a bona fide personal financial emergency provided that the
dwelling securing the extension of credit is located in an area
declared during June through September 1994 to be a major disaster
area, pursuant to 42 U.S.C. 5170, because of severe storms and flooding
in the South. 36b
In this instance, creditors may use printed forms for the consumer to
waive the right to rescind. This exemption to paragraph (e)(1) of this
section shall expire one year from the date an area was declared a
major disaster.
(4) The consumer's need to obtain funds immediately shall be
regarded as a bona fide personal financial emergency provided that the
dwelling securing the extension of credit is located in an area
declared during October 1994 to be a major disaster area, pursuant to
42 U.S.C. 5170, because of severe storms and flooding in
Texas. 36c
In this instance, creditors may use printed forms for the consumer to
waive the right to rescind. This exemption to paragraph (e)(1) of this
section shall expire one year from the date an area was declared a
major disaster.
(f) Exempt transactions. The right to rescind does not
apply to the following:
(1) A residential mortgage transaction.
(2) A credit plan in which a state agency is a
creditor.
{{8-29-08 p.6660}}
[Codified to C.F.R. § 226.15]
[Section 226.15 amended at 54 Fed. Reg. 24688, June 9, 1989,
effective June 7, 1989, but compliance is optional until November 7,
1989; 58 Fed. Reg. 40583, July 29, 1993; 59 Fed. Reg. 40204, August 5,
1994, effective July 29, 1994; 59 Fed. Reg. 63715, December 9, 1994,
effective December 8, 1994; 66 Fed. Reg. 17338, March 30, 2001,
effective March 30, 2001; 72 Fed. Reg. 63474, November 9, 2007,
effective December 10, 2007, the mandatory compliance date is October
1, 2008]
§ 226.16 Advertising.
(a) Actually available terms. If an advertisement for
credit states specific credit terms, it shall state only those terms
that actually are or will be arranged or offered by the creditor.
(b) Advertisement of terms that require additional
disclosures. If any of the terms required to be disclosed under
§ 226.6 is set forth in an
advertisement, the advertisement shall also clearly and conspicuously
set forth the following: 36d
(1) Any minimum, fixed, transaction, activity or similar charge
that could be imposed.
(2) Any periodic rate that may be applied expressed as an annual
percentage rate as determined under § 226.14(b). If the plan provides
for a variable periodic rate, that fact shall be disclosed.
(3) Any membership or participation fee that could be imposed.
(c) Catalogs or other multiple-page advertisements;
electronic advertisements. (1) If a catalog or other
multiple-page advertisement, or an electronic advertisement (such as an
advertisement appearing on an Internet Web site), gives information in
a table or schedule in sufficient detail to permit determination of the
disclosures required by paragraph (b) of this section, it shall be
considered a single advertisement if:
(i) The table or schedule is clearly and conspicuously set forth;
and
(ii) Any statement of terms set forth in § 226.6 appearing
anywhere else in the catalog or advertisement clearly refers to the
page or location where the table or schedule begins.
(2) A catalog or other multiple-page advertisement or an
electronic advertisement (such as an advertisement appearing on an
Internet Web site) complies with this paragraph if the table or
schedule of terms includes all appropriate disclosures for a
representative scale of amounts up to the level of the more commonly
sold higher-priced property or services offered.
(d) Additional requirements for home equity
plans--(1) Advertisement of terms that require additional
disclosures. If any of the terms required to be disclosed under
§ 226.6(a) or (b) or the payment terms of the plan are set forth,
affirmatively or negatively, in an advertisement for a home equity plan
subject to the requirements of
§ 226.5b, the advertisement
also shall clearly and conspicuously set forth the following:
(i) Any loan fee that is a percentage of the credit limit under
the plan and an estimate of any other fees imposed for opening the
plan, stated as a single dollar amount or a reasonable range.
(ii) Any periodic rate used to compute the finance charge,
expressed as an annual percentage rate as determined under section
§ 226.14(b).
(iii) The maximum annual percentage rate that may be imposed in a
variable-rate plan.
(2) Discounted and premium rates. If an advertisement
states an initial annual percentage rate that is not based on the index
and margin used to make later rate adjustments in a variable-rate plan,
the advertisement also shall state with equal prominence and in close
proximity to the initial rate:
(i) The period of time such initial rate will be in effect; and
(ii) A reasonably current annual percentage rate that would have
been in effect using the index and margin.
(3) Balloon payment. If an advertisement contains a
statement of any minimum periodic payment and a balloon payment may
result if only the minimum periodic payments
{{8-29-08 p.6661}}are made, even if such a payment is
uncertain or unlikely, the advertisement also shall state with equal
prominence and in close proximity to the minimum periodic payment
statement that a balloon payment may result, if
applicable. 36e
A balloon payment results if paying the minimum periodic payments does
not fully amortize the outstanding balance by a specified date or time,
and the consumer is required to repay the entire outstanding balance at
such time. If a balloon payment will occur when the consumer makes only
the minimum payments required under the plan, an advertisement for such
a program which contains any statement of any minimum periodic payment
shall also state with equal prominence and in close proximity to the
minimum periodic payment statement:
(i) That a balloon payment will result, and
(ii) The amount and timing of the balloon payment that will
result if the consumer makes only the minimum payments for the maximum
period of time that the consumer is permitted to make such payments.
(4) Tax implications. An advertisement that states
that any interest expense incurred under the home-equity plan is or may
be tax deductible may not be misleading in this regard. If an
advertisement distributed in paper form or through the Internet (rather
than by radio or television) is for a home-equity plan secured by the
consumer's principal dwelling, and the advertisement states that the
advertised extension of credit may exceed the fair market value of the
dwelling, the advertisement shall clearly and conspicuously state that:
(i) The interest on the portion of the credit extension that is
greater than the fair market value of the dwelling is not tax
deductible for Federal income tax purposes; and
(ii) The consumer should consult a tax adviser for further
information regarding the deductibility of interest and charges.
(5) Misleading terms. An advertisement may not refer
to a home equity plan as "free money" or contain a similarly
misleading term.
(6) Promotional rates and
payments--(i) Definitions. The following definitions
apply for purposes of paragraph (d)(6) of this section:
(A) Promotional rate. The term "promotional
rate" means, in a variable-rate plan, any annual percentage rate
that is not based on the index and margin that will be used to make
rate adjustments under the plan, if that rate is less than a reasonably
current annual percentage rate that would be in effect under the index
and margin that will be used to make rate adjustments under the plan.
(B) Promotional payment. The term "promotional
payment" means--
(1) For a variable-rate plan, any minimum payment
applicable for a promotional period that:
(i) Is not derived by applying the index and margin
to the outstanding balance when such index and margin will be used to
determine other minimum payments under the plan; and
(ii) Is less than other minimum payments under the
plan derived by applying a reasonably current index and margin that
will be used to determine the amount of such payments, given an assumed
balance.
(2) For a plan other than a variable-rate plan, any
minimum payment applicable for a promotional period if that payment is
less than other payments required under the plan given an assumed
balance.
(C) Promotional period. A "promotional period"
means a period of time, less than the full term of the loan, that the
promotional rate or promotional payment may be applicable.
(ii) Stating the promotional period and post-promotional
rate or payments. If any annual percentage rate that may be
applied to a plan is a promotional rate, or if any payment applicable
to a plan is a promotional payment, the following must be disclosed in
any advertisement, other than television or radio advertisements, in a
clear and conspicuous manner with equal prominence and in close
proximity to each listing of the promotional rate or payment:
(A) The period of time during which the promotional rate or
promotional payment will apply:
(B) In the case of a promotional rate, any annual percentage rate
that will apply under the plan. If such rate is variable, the annual
percentage rate must be disclosed in accordance with the accuracy
standards in §§ 226.5b, or 226.16(b)(1)(ii) as applicable;
and
{{8-29-08 p.6662}}
(C) In the case of a promotional payment, the amounts and time
periods of any payments that will apply under the plan. In
variable-rate transactions, payments that will be determined based on
application of an index and margin shall be disclosed based on a
reasonably current index and margin.
(iii) Envelope excluded. The requirements in
paragraph (d)(6)(ii) of this section do not apply to an envelope in
which an application or solicitation is mailed, or to a banner
advertisement or pop-up advertisement linked to an application or
solicitation provided electronically.
(e) Alternative disclosures--television or radio
advertisements. An advertisement for a home-equity plan subject
to the requirements of § 226.5b made through television or radio
stating any of the terms requiring additional disclosures under
paragraph (b) or (d)(1) of this section may alternatively comply with
paragraph (b) or (d)(1) of this section by stating the information
required by paragraph (b)(2) of this section or paragraph (d)(1)(ii) of
this section, as applicable, and listing a toll-free telephone number,
or any telephone number that allows a consumer to reverse the phone
charges when calling for information, along with a reference that such
number may be used by consumers to obtain additional cost information.
[Codified to 12 C.F.R. § 226.16]
[Section 226.16 amended at 54 Fed. Reg. 13867, April 6, 1989,
effective April 3, 1989, but compliance is optional until August 31,
1989; 54 Fed. Reg. 24688, June 9, 1989, effective June 7, 1989, but
compliance is optional until November 7, 1989; 59 Fed. Reg. 40204,
August 5, 1994, effective July 29, 1994; 59 Fed. Reg. 63715, December
9, 1994, effective December 8, 1994; 66 Fed. Reg. 17338, March 30,
2001, effective March 30, 2001; 72 Fed. Reg. 63474, November 9, 2007,
effective December 10, 2007, the mandatory compliance date is October
1, 2008; 73 Fed. Reg. 44599, July 30, 2008, effective October 1,
2009]
20aThese disclosures need not be provided in tabular format or
in a prominent location. Go Back to Text
21 For purposes of this section, "accepted credit card"
means any credit card that a cardholder has requested or applied for
and received, or has signed, used, or authorized another person to use
to obtain credit. Any credit card issued as a renewal or substitute in
accordance with this paragraph becomes an accepted credit card when
received by the cardholder. Go Back to Text
22 "Unauthorized use" means the use of a credit card by a
person, other than the cardholder, who does not have actual, implied,
or apparent authority for such use, and from which the cardholder
receives no benefit. Go Back to Text
23 "Adequate notice" means a printed notice to a
cardholder that sets forth clearly the pertinent facts so that the
cardholder may reasonably be expected to have noticed it and understood
its meaning. The notice may be given by any means reasonably assuring
receipt by the cardholder. Go Back to Text
24 This paragraph does not apply to the use of a check
guarantee card or a debit card in connection with an overdraft credit
plan, or to a check guarantee card used in connection with cash advance
checks. Go Back to Text
25 The amount of the claim or defense that the cardholder may
assert shall not exceed the amount of credit outstanding for the
disputed transaction at the time the cardholder first notifies the card
issuer or the person honoring the credit card of the existence of the
claim or defense. To determine the amount of credit outstanding for
purposes of this section, payments annd other credits shall be applied
to: (1) late charges in the order of entry to the account; then to (2)
finance charges in the order of entry to the account; and then to (3)
any other debits in the order of entry to the account. If more than one
item is included in a single extension of credit, credits are to be
distributed pro rata according to prices and applicable taxes. Go Back to Text
26 The limitations stated in paragraph (c)(3)(ii) of this
section shall not apply when the person honoring the credit card: (1)
is the same person as the card issuer; (2) is controlled by the card
issuer directly or indirectly; (3) is under the direct or indirect
control of a third person that also directly or indirectly controls the
card issuer; (4) controls the card issuer directly or indirectly; (5)
is a franchised dealer in the card issuer's products or services; or
(6) has obtained the order for the disputed transaction through a mail
solicitation made or participated in by the card issuer. Go Back to Text
27 A creditor shall not accelerate any part of the consumer's
indebtedness or restrict or close a consumer's account solely because
the consumer has exercised in good faith rights provided by this
section. A creditor may be subject to the forfeiture penalty under
§ 161(e) of the act for failure to comply with any of the
requirements of this section. Go Back to Text
28 The creditor need not comply with the requirements of
paragraphs (c) through (g) of this section if the consumer concludes
that no billing error occurred and voluntarily withdraws the billing
error notice. Go Back to Text
29 The creditor may require that the written notice not be made
on the payment medium or other
material accompanying the periodic
statement if the creditor so stipulates in the billing rights statement
required by §§ 226.6(d) and
226.9(a). Go Back to Text
30 A creditor is not prohibited from taking action to collect
any undisputed portion of the item or bill; from deducting any disputed
amount and related finance or other charges from the consumer's credit
limit on the account; or from reflecting a disputed amount and related
finance or other charges on a periodic statement, provided that the
creditor indicates on or with the periodic statement that payment of
any disputed amount and related finance or other charges is not
required pending the creditor's compliance with this section. Go Back to Text
31 If a consumer submits a billing error notice alleging either
the nondelivery of property or services under paragraph (a)(3) of this
section or that information appearing on a periodic statement is
incorrect because a person honoring the consumer's credit card has made
an incorrect report to the card issuer, the creditor shall not deny the
assertion unless it conducts a reasonable investigation and determines
that the property or services were actually delivered, mailed, or sent
as agreed or that the information was correct. Go Back to Text
31aAn error in disclosure of the annual percentage rate or
finance charge shall not, in itself, be considered a violation of this
regulation if: (1) the error resulted from a corresponding error in a
calculation tool used in good faith by the creditor; and (2) upon
discovery of the error, the creditor promptly discontinues use of that
calculation tool for disclosure purposes, and notifies the Board in
writing of the error in the calculation tool. Go Back to Text
32 If there is no balance to which the finance charge is
applicable, an annual percentage rate cannot be determined under this
section. Go Back to Text
33 Where the finance charge imposed during the billing cycle is
or includes a loan fee, points, or similar charge that relates to the
opening of the account, the amount of such charge shall not be included
in the calculation of the annual percentage rate. Go Back to Text
34See appendix F regarding determination of the denominator fo
the fraction under this paragraph. Go Back to Text
35See footnote 33. Go Back to Text
36 The term "material disclosures" means the information
that must be provided to satisfy the requirements in
§ 226.6 with regard to the
method of determining the finance charge and the balance upon which a
finance charge will be imposed, the annual percentage rate, the amount
or method of determining the amount of any membership or participation
fee that may be imposed as part of the plan, and the payment
information described in
§ 226.5b(d)(5)(i) and (ii)
that is required under § 226.6(e)(2). Go Back to Text
36a A list of the affected areas will be maintained by the
Board. Go Back to Text
36b A list of the affected areas will be maintained and
published by the Board. Such areas now include parts of Alabama,
Florida, and Georgia. Go Back to Text
36c A list of the affected areas will be maintained and
published by the Board. Such areas now include the following counties
in Texas: Angelina, Austin, Bastrop, Brazos, Brazoria, Burleson,
Chambers, Fayette, Fort Bend, Galveston, Grimes, Hardin, Harris,
Houston, Jackson, Jasper, Jefferson, Lee, Liberty, Madison, Matagorda,
Montgomery, Nacagdoches, Orange, Polk, San Augustine, San Jacinto,
Shelby, Trinity, Victoria, Washington, Waller, Walker, and Wharton. Go Back to Text
36d The disclosures given in accordance with
§ 226.5a do not constitute
advertising terms for purposes of the requirements of this section. Go Back to Text
36e See footnote 10b. Go Back to Text
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